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It must complete investigation into Adani matter

It is now for the Securities and Exchange Board of India (Sebi) to provide a closure in the year-long Adani-Hindenburg matter. A Supreme Court Bench that included Chief Justice of India D Y Chandrachud on Wednesday noted in a judgement there was no ground to transfer the probe from Sebi. The Bench further argued the powers to transfer an investigation should be exercised in extraordinary circumstances and could not be done in the absence of compelling justification. The apex court also noted the Union government and the regulator shall look into whether Hindenburg or any other entity violated laws and take suitable action. It gave Sebi three months to complete the investigation.

The Supreme Court’s pronouncements marked an important milestone in the year-long Adani-Hindenburg saga. In January 2023, Hindenburg Research, a US-based short seller, published a report, making a series of allegations against Adani Group. It alleged, among other things, that the conglomerate was “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.” Adani Group has denied all allegations. Hindenburg also disclosed it had taken short positions in US-traded bonds and non-Indian-traded derivative instruments of Adani Group. Interestingly, the report came just a day before the mega follow-on public offer worth Rs 20,000 crore of Adani Enterprises opened for subscription. The public issue was later withdrawn. Meanwhile, the stocks of the group were hammered in the market. As the matter reached the Supreme Court, Sebi said it was investigating the issue and also monitoring market activity for days preceding the publication of the report.

The apex court did well to allow Sebi to continue investigation into the matter for a variety of reasons. It is undoubtedly the most competent authority to investigate such matters. Besides, it is incumbent on the market regulator to ensure that its regulations are complied with, along with making sure that market functioning is smooth and investor interests are protected all the time. Involving any other agency would have affected public confidence in the regulator with wider consequences. In this context, however, the constitution of a committee by the court to look into related issues was unwarranted. Notably, in a status report to the court in August, Sebi said it had completed investigations in 22 out of 24 issues. However, the remaining investigations are crucial for the closure of the matter because they are related to areas like minimum public shareholding norms and manipulation of stock prices. Sebi argued since many of the entities were located in tax havens, establishing the economic interests of shareholders was a challenge.

Therefore, it is worth noting that till the investigation is completed and a comprehensive report is made public, the matter will not end. Sebi should expedite the investigation and submit the report in the given timeframe. In fact, it is in the regulator’s interests to close the matter at the earliest because it will inspire confidence and show that Sebi is in a position to deal with risks to market functioning. However, if it is unable to get the required information about foreign entities in the given timeframe, it may well have to review the regulations. Such gaps can open up opportunities for unscrupulous elements to manipulate stock prices at will, which can put both investors’ interests and market stability at risk. Hence, Sebi’s investigation is important not only for a specific group but for the market as a whole.