SC sides with SEBI in Adani probe, junks calls for SIT/CBI investigation

n a major relief to the embattled Adani Group, the Supreme Court on Wednesday ruled that additional investigations by a special investigation team (SIT) or CBI are unnecessary. Instead, the court granted the capital market regulator SEBI three more months to wrap up its ongoing probe into allegations of accounting fraud and stock manipulation leveled against the conglomerate by US short seller Hindenburg Research.

The court also dismissed pleas to discredit the Securities and Exchange Board of India’s (SEBI) investigation based on reports by third-party organizations and newspaper articles. The petitioners, seeking further probes, relied heavily on a report by the Organized Crime and Corruption Reporting Project (OCCRP).

A three-judge bench, comprising Chief Justice D Y Chandrachud and Justices J B Pardiwala and Manoj Misra, acknowledged SEBI’s “comprehensive investigation” and expressed “confidence” in its conduct. This comes after the court originally instructed SEBI on May 17 to complete its investigation into 24 cases against Adani by August 14. In November, SEBI reported completing investigations into 22 of those cases, leaving two pending.

The Supreme Court now requires SEBI to finalise these remaining investigations expeditiously, ideally within three months. It rejected pleas from various parties seeking investigations by SIT or CBI, stating that the present case doesn’t warrant such intervention despite the court’s authority to transfer probes.

“Such a power is exercised in extraordinary circumstances when the competent authority portrays a glaring, wilful and deliberate inaction in carrying out the investigation. The threshold for the transfer of investigation has not been demonstrated to exist,” the verdict penned by the CJI said.

It said in this case, the apex court has already exercised its extraordinary powers by setting up an expert committee to assess the situation in the market, suggest regulatory measures and investigate whether there has been a regulatory failure.

Predictably, Gautam Adani, who saw his personal wealth plummet by nearly $60 billion following the Hindenburg report, welcomed the verdict. He declared “truth” has prevailed and expressed gratitude to supporters. The group’s stocks also jumped by 4.4 per cent after the judgment, though their market cap remains below the previous record of Rs 19.23 lakh crore, reached before the Hindenburg Research report was published on January 24, 2023.

Meanwhile, the Opposition Congress party, leading the attack on Adani, said the Supreme Court has been “extraordinarily generous” to SEBI and asserted that the party’s fight against crony capitalism will continue.

The 46-page verdict details the court’s reasoning. It dismisses reliance on news articles or third-party reports (like those from OCCRP) to question SEBI’s thorough investigation.

“The petitioners cannot assert that an unsubstantiated report in the newspapers should have credence over an investigation by a statutory regulator whose investigation has not been cast into doubt on the basis of cogent material or evidence,” it said.

Additionally, the court found no merit in allegations of conflict of interest against members of the court-appointed expert committee.

Furthermore, the Supreme Court directed SEBI and investigative agencies to probe potential infractions by Hindenburg Research and other entities involved in short selling that may have caused losses to Indian investors.

It said the court must refrain from substituting its own wisdom for the regulatory policies of SEBI and clarified that judicial review focuses on ensuring regulations don’t violate fundamental rights, the Constitution, or statutory provisions.

The final verdict also encourages constructive consideration of the expert committee’s suggestions by SEBI and the government, aiming to strengthen regulations, protect investors, and maintain market stability. While acknowledging the role of public interest litigation in highlighting legitimate concerns, the court cautioned against petitions built on inadequate research and unverified information.

The judgment was delivered on PILs filed by lawyers Vishal Tiwari, M L Sharma, Congress leader Jaya Thakur, and Anamika Jaiswal.

The Adani Group stocks suffered a bloodbath on the bourses after Hindenburg Research made a litany of allegations, including those about fraudulent transactions and share-price manipulation, against the business conglomerate.