No regulatory failure by SEBI in Adani-Hindenburg row, reliance on unverified press reports cannot stand: Supreme Court
No regulatory failure by SEBI in Adani-Hindenburg row, reliance on unverified press reports cannot stand: Supreme Court

Hence, it turned down the plea for a probe into the controversy by the Central Bureau of Investigation (CBI).

The Supreme Court on Wednesday refused to issue any directions or interfere with the jurisdiction of the Securities and Exchange Board of India (SEBI) in a batch of petitions seeking probe by some alternative agency into allegations of fraud against Adani Group of companies in the Hindenburg Research report.

A bench of Chief Justice of India (CJI) DY Chandrachud with Justices JB Pardiwala and Manoj Misra said that the scope of power of the Supreme Court to enter into the regulatory domain of SEBI in framing delegated legislation is limited and scope of judicial review is only to see whether any fundamental right has been violated.

"No valid ground invoked (in this case) for us to direct SEBI to revoke its regulations and the current regulations are tightened by amendments in question," the Court said.

The Court said that in the present case, there was no regulatory failure by SEBI and the market regulator cannot be expected to carry on its functions based on press reports though such report can act as inputs for SEBI.

"The reliance on newspaper articles or reports by third-party organizations to question a comprehensive investigation by a specialized regulator does not inspire confidence … The veracity of the inputs and their sources must be demonstrated to be unimpeachable. 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," the Court made it clear.

Hence, it turned down plea for probe by the Central Bureau of Investigation (CBI) or some other agency.

"This Court has the power under Articles 32 and 142 to transfer the probe to CBI etc but such powers can only be used sparingly and this court will not ordinarily supplant this role and the petitioners must put forth strong evidence to show that the investigative agency (SEBI) acted in a biased manner," the bench ruled.

There is no ground here to transfer the probe in this case and such a plea can only be raised if there was a wilful or deliberate violation of rules, the Court added.

The Hindenburg report alleged fraud on the part of the conglomerate by inflating share prices. The report had led to a fall in the share value of various Adani companies, reportedly to the tune of $100 billion.

The petitions before the apex court included one that alleged that changes to the Securities and Exchange Board of India Act (SEBI Act) had provided a 'shield and an excuse' for the Adani Group's regulatory contraventions and market manipulations to remain undetected.

Subsequently, the Supreme Court had formed a committee headed by retired apex court judge, Justice AM Sapre to examine the controversy.

The Supreme Court had also asked SEBI to independently investigate the matter a submit a report.

The expert committee had in its report in May 2023 found no prima facie lapse on part of the markets regulator in the matter.

The petitioner had meanwhile also alleged conflict of interest on the part of SEBI on the ground that Cyril Shroff, the founder and managing partner of law firm Cyril Amarchand Mangaldas, was part of the SEBI's Committee on Corporate Governance while Shroff's daughter is married to Gautam Adani's son.

The petitioners had also objected to the inclusion of advocate Somasekhar Sundaresan (now a High Court judge) in the expert committee. They had contended that Sundaresan had appeared for the Adani Group as a lawyer in a matter before the SEBI.

However, the Court in its judgment today rejected the contentions of conflict of interest and ruled that SEBI and Government of India are competent to probe the issue.

The Court also upheld SEBI's contention as regard the Foreign Portfolio Investor Regulations.

"SEBI says FPI regulations did not prohibit opaque structure and could in fact locate the beneficial owners. mandatory upfront disclosures meant that opaque structure was omitted in 2019. We find merit in SEBI's arguments and do not find reason to interfere in delegatory legislative powers. The current regulations are not tainted with illegality," the Court ruled.

The Court also noted that the petitioners had not challenged the vires of regulations but only contended that there was regulatory failure.

"Thus, it is a prayer which is unknown to this court and this is an after thought based on value judgment and is thus rejected," it said.

It, therefore, allowed SEBI to carry on with the probe and directed that the same be completed within three months.

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