Citation: WP(C) No. 162 of 2023
In the given case, Hindenburg Research established by Nathan Anderson in 2017 is a scientific monetary research firm which examines equity, credit and derivatives. It has a history of tracking down corporate facades, crimes and putting down wagers against the organizations. The Hindenburg Report submitted on January 24, 2023 it stated that during their 2 year investigation they discovered evidence of INR 17.8 trillion (U.S. $218 billion) Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.The Hindenburg research has blamed the Adani Group of companies for stock market manipulation , bookkeeping frauds , and utilizing improper tax havens and shell organizations to oversee reserves , altogether affecting the financial market and it neglected to uncover exchanges with related parties and other significant data in repudiation of the guidelines outlined by SEBI. The accompanying picture shows the impact of the Hindenburg report on the financial market price of the shares of the Adani group, thus shows how the report has ridden the stock prices to the ground and depicts the huge losses caused to the entire group.
(Image source: Indian Express)
ISSUES RAISED
1. The petitioner through Writ Petition under Article 32 of the Constitution of India raised worries about the extreme fall on the financial market, its effect on investors an FIR against Mr. Nathan Anderson (pioneer behind Hindenburg Research and his partners) for short selling, short selling means offer for sale of security instrument that the vender has recently borrowed, however it is against the law to deal such security which does not have been preceding the sale borrowed or agreed to borrow The Securities and Exchange Board of India (Sebi) characterizes short selling as the offer of a security or offer that the merchant doesn’t own. In short selling, a financial backer sells borrowed shares in the market in the expectation of repurchasing them at a less expensive cost short selling is the very inverse of regular securities exchange ventures
2. research the Adani Group of organizations under the oversight of a sitting judge of this Court; furthermore (ii) examine the job of LIC and SBI in these exchanges.
3. Infringement of rules 19A of the Securities Contracts (Regulation) Rules 1957
An Expert committee was ordered to be set up for various reasons they are: the mandate on the committee is twofold to resolve the issues with regards to the adani group and to study the current framework of investor protection and suggest or recommend any changes to strengthen the existing framework. The directions provided to this committee shall not be construed to limit the contours of the ongoing investigation. SEBI shall expeditiously conclude the investigation within two months and file a status report.
The Expert committee comprise of Mr. O P Bhatt; Equity J P Devadhar (resigned); KV Kamath, Mr. Mr. Nandan Nilekani; what’s more, Mr. Somashekhar Sundaresan. furthermore, is headed by justice Abhay Manohar Sapre, a retired judge of the Supreme Court of IndiaThe court requested to set up a Expert Committee which would work with SEBI work assigned to the board included to finish a general examination of the circumstance including the variables which prompted this volatility of the securities market; to recommend measures to (I) reinforce the statutory and/or regulatory system; also (ii) secure consistence with the current structure for the assurance of investors; research whether there has been administrative failure in managing the supposed contradiction of regulations relating to the securities market in relation to the Adani Group or other companies
CONTENTION
SEBI has presented a note which expresses that : it has adopted a disclosure based regulatory system for both issuance and trading of securities which ends the charges of pricing control ; it expressed the vital points of investor protection as (I) mandatory disclosures by listed companies to work with free and far revelation of price and guarantee that all investors have equivalent admittance to material data (ii) market frameworks ought to guarantee consistent trading and settlement (iii) enforce action in case of fraud, misrepresentation or infringement of any guidelines recently authorized.
the current batch of petitions worries with the loss of investor wealth in the securities market as a result of the precarious decrease in the share price of the Adani group of organizations. The decrease in the share price was encouraged by a report distributed by Hindenburg research on 24/1/2023 which alleges that the group controlled its share price and neglected to unveil significant data and negated guidelines outlined by SEBI and different arrangements of protections regulations
The Supreme Court would not move the Adani-Hindenburg case from SEBI to SIT, excusing irreconcilable circumstance charges against the Expert Committee. SEBI was directed to finish forthcoming examinations within three months
The court dismissed the dependence on outsider reports, accentuating the requirement for conclusive proof. It ceased from subbing its insight on SEBI’s administrative strategies, coordinating convenient completion of forthcoming examinations.
In its report, Hindenburg Research admits to taking a short position in the Adani group through US-traded bonds and non-Indian traded derivative instruments.
RATIONALE
The reason behind this case analysis is to provide a clear view of the matters in issue as stated and the conclusion/judgement declared by the Supreme court after writ petition had been filed due to the loss suffered by the investors of the Adani Group post publishing of the Hindenburg report and to also do a clear manifestation of the changes to be made to the SEBI rules and regulations prevailing in the land.
DEFECTS IN THE LAW
The SEBI has a few discrepancy in the rules and regulations formulated by them. These defects and error in the letter of the law can be resolved by the use of the judiciary of India. A few of them are as follows:
regulating the activities of market intermediaries, inability to detect and prevent insider trading, inability to take timely action against companies that violate regulations, no regulations are framed with regards to overpricing of Initial Public Offer(IPO), and various others.
6. INFERENCE
Gautam Adani, Chairman of the Adani Group, tweeted following the ruling, “The Hon’ble Supreme Court’s judgment shows that: Truth has prevailed. Satyameva Jayate [which means: Truth alone triumphs]. I am grateful to the individuals who stood by us. Our humble contribution to India’s growth story will continue. Jai Hind (Hail India).” In the mean time, advocate and member from Parliament of Indian national Congress, the biggest resistance, Manish Tewari commented,
I have not read the SC order exhaustively however they have ordered the SEBI to finish their examination in two months. The reality stays that the claims made in the Hindenburg report came into the public space a year prior and if the SEBI had been watchful or they would have been quick, the examination would have been finished quite a while ago.
The Committee’s report dated 6 May 2023 suggests that SEBI should perform its complex functions in a structured form, optimize its resources, lay down policies for effective enforcement of its law, follow judicial discipline, have a robust settlement policy, adhere to strict timelines for investigations, surveillance and market administration measures, and follow the doctrine of separation within SEBI. These reforms include creating a Financial Redress Agency, easing and centralizing the process for recovering unclaimed private property, creating a framework for a multi-agency committee to investigate complex enforcement matters, and following the doctrine of separation within SEBI.
JUDGEMENT OF THE CASE:
This judgement concluded that the power of the Court to enter the regulatory domain of SEBI in framing delegated legislation is limited, and that no valid grounds have been raised for this Court to direct SEBI to revoke its amendments to the FPI Regulations and the LODR Regulations. SEBI has completed twenty-two out of the twenty-four investigations into the allegations levelled against the Adani group, and the Court has not interfered with the outcome of the investigations. The Union Government and SEBI shall consider the suggestions of the Expert Committee in its report, and SEBI and the investigative agencies of the Union Government shall probe into whether the loss suffered by Indian investors due to the conduct of Hindenburg Research and any other entities in taking short positions involved any infraction of the law. directed SEBI to complete the two pending investigations expeditiously preferably within three months; Before concluding, Public interest jurisprudence was expanded under Article 32 of the Constitution by this Court to secure access to justice and provide citizens with the opportunity to highlight legitimate causes before the Court. however there was lack of appropriate research done and limited material data .
SEBI has presented that short selling is an attractive and fundamental element to give liquidity and to assist with evaluating rectification in over-valued stocks and consequently, short selling is perceived as a genuine venture movement by protections market controllers in many nations yet short selling is directed by a circular notified by SEBI on 20 December 2007
Citations:
- report available on www.hindenburgresearch.com
- Supreme court official judgement
Mahek Ravikumar Jhamnani
S.S. Maniyar College of Law