Adani row: How do we ensure protection of Indian investors, asks SC

Concerned over protecting the interests of Indian investors, the Supreme Court Friday (February 10) favoured creating a robust mechanism to regulate the stock market and sought views of the Centre and market regulator SEBI on PILs alleging exploitation of innocent investors and “artificial crashing” of the Adani Group’s stock value.

A bench headed by Chief Justice DY Chandrachud allayed the apprehension and told Solicitor General Tushar Mehta to convey to the officials of the Securities and Exchange Board of India (SEBI) that it was not “planning any witch hunt”.

The bench, also comprising justices PS Narasimha and JB Pardiwala, sought inputs from the finance ministry and others on various issues, including on making the regulatory mechanism robust to protect the interests of investors in the market where capital flow is seamless in modern times.

Also watch: Adani empire’s ‘first whistleblower’ speaks on its growth, Hindenburg report, share slide

‘Open dialogue’

“This is just an open dialogue. They have brought an issue before the court. What is of concern is how do we ensure the protection of Indian investors? What happened here was short-selling. Probably SEBI is also doing its investigation. Please tell your officers also this is no witch hunt that we are planning to do…,” it said.

“How do we ensure that going in future, we have robust mechanisms? Because today, capital is moving in and out of India seamlessly. How do we ensure in future that Indian investors are protected? Everybody is in the market now,” it added.

During the brief hearing, the court observed that the PILs say that the loss is of over ₹10 lakh crore.

Also read: Adani Group stocks plunge after MSCI cuts free float

“How do we ensure that they are protected? How do we ensure that this does not happen in future? What role do we envisage for SEBI? For example, in a different context, you have circuit breakers,” it said.

The bench suggested forming a committee of domain experts and others, besides putting in place “robust practices to protect investors”.

The Solicitor General, appearing for SEBI, said the market regulator and other statutory bodies were doing the needful.

The court said it was “just thinking aloud” and not making any observation on the merits of the case as the “stock markets usually run on sentiments”.

Also read: Subramaniam Swamy calls for nationalisation and auction of Adani Group assets by Modi

“We have indicated to the Solicitor General the concerns with regard to ensuring that the regulatory mechanisms within the country are duly strengthened so as to ensure that Indian investors are protected against certain volatility, the kind of which was witnessed in the recent two weeks,” it said in the order.

It would require due assessment of existing regulatory framework and the need for strengthening regulatory framework in the interest of the investors and the stable operations of the securities market, the bench said.

“We have also suggested to the Solicitor General if they (Centre, SEBI and others) are willing to accede to the suggestion for a committee. If the Union of India is inclined to accept the suggestion, necessary submissions can be urged on the constitution of the committee,” it said.

Also read: Adani row: RBI chief says Indian banking too strong to be hit by ‘case like this’

The law officer assured that SEBI was closely monitoring the situation.

“We clarify that the above are not intended to be any reflection on the discharge of its statutory functions by the SEBI or any statutory authority,” the bench said.

It then listed the two PILs, seeking various reliefs including a probe into the Hindenburg report, for hearing on February 13.

One of the PILs, filed by lawyer Vishal Tiwari, sought a direction to the Centre to constitute a committee monitored by a retired apex court judge to inquire and investigate into the Hindenburg Research report which has made a slew of allegations against the business conglomerate led by industrialist Gautam Adani.

Another PIL, filed by advocate ML Sharma, seeks prosecution of short-seller Nathan Anderson of the US-based Hindenburg Research and his associates in India and the US for allegedly exploiting innocent investors and the “artificial crashing” of the Adani Groups stock value in the market.

Sharma has sought directions for declaring short selling an offence of fraud against the investors, to be prosecutable under section 420 (cheating) of the Indian Penal Code (IPC), read with provisions of the SEBI Act.

Adani Group stocks have taken a beating on the bourses after the Hindenburg Research made a litany of allegations, including fraudulent transactions and share-price manipulation, against the business conglomerate.

The Adani Group has dismissed the charges as lies, saying it complies with all laws and disclosure requirements.

SEBI probing Adani Group’s links with investors: Report

Meanwhile, SEBI is reportedly investigating Adani Group’s links to some of the investors in the conglomerate’s aborted $2.5 billion share sale.

SEBI is looking into any potential violation of Indian securities laws or conflict of interest in the share sale process, Reuters quoted two sources who have direct knowledge of the matter. It is reportedly looking into relationships between Adani and two Mauritius-based firms — Great International Tusker Fund and Ayushmat Ltd — which participated as anchor investors.

Under India’s capital and disclosure requirement rules, any entity related to a company’s founder or the founder group is ineligible to apply under the anchor investor category.

Losing spree

The Adani Group has lost more than $100 billion in market value since the Hindenburg report came out on January 24, accusing the group of stock manipulation and improper use of offshore tax havens. Adani has denied the charges.

Last week, Adani Enterprises pulled its secondary share offering because of the sharp selloff.

SEBI is also reportedly looking at Elara Capital and Monarch Networth Capital, two of the 10 investment banks that managed the share offering. Their roles are being examined to rule out “any conflict” in the share offering process, a Reuters report quoted one source.

Conflict of interest

Hindenburg has alleged that one Adani private entity had a small ownership stake in Monarch and that Elara has invested 99 per cent of its market value in three Adani stocks. In response, Adani said Monarch was selected for “credentials and ability to tap into the retail market”. On Elara, Adani said “innuendoes” that the firm was related to the conglomerate founders were incorrect.

Meanwhile, the Union corporate affairs ministry has reportedly briefed officials in Modi’s office and been in touch with SEBI. The ministry launched a review of Adani’s financial statements on February 2.

Adani Group had said that Hindenburg’s allegations of stock manipulation had “no basis” and stemmed from ignorance of Indian law. It said it has always made the necessary regulatory disclosures. India’s Finance Secretary TV Somanathan had described the Adani issue as a “storm in a teacup” from a macroeconomic perspective.