In a groundbreaking move today, the Supreme Court refrained from instigating a Special Investigation Team (SIT) probe into the accusations of stock price manipulation against the Adani Group presented in the Hindenburg Research Report. However, the court directed the Securities and Exchange Board of India (SEBI) and the Union government’s investigative agencies to examine whether the losses endured by Indian investors due to Hindenburg Research and other entities engaging in short selling constituted a breach of the law.
The judicial panel, led by Chief Justice DY Chandrachud, alongside Justices JB Pardiwala and Manoj Misra, stipulated that if any legal violations were discovered, appropriate actions would be taken.
“The SEBI and the investigative agencies of the Union government shall scrutinize whether the losses suffered by Indian investors, stemming from the actions of Hindenburg Research and other entities engaging in short selling, involved any infringement of the law. If so, suitable action shall be taken,” declared the Bench.
In the court’s judgment, short selling was elucidated as “the sale of securities that the seller does not own but borrows from another entity, with the anticipation of repurchasing them at a later date at a lower price, thereby seeking to profit from an expected decline in the securities’ value.”
The Bench acknowledged that Hindenburg Research openly admitted to adopting a short position in the Adani group using US-traded bonds and non-Indian traded derivative instruments.
Considering SEBI’s argument asserting that short selling is a legitimate and essential aspect, recognized as a valid investment activity by securities market regulators in most countries, and the International Organisation of Securities Commission’s recommendation for the regulation, but not prohibition, of short selling, the Bench documented the Solicitor General of India’s statement that measures to regulate short selling would be contemplated by the Union government and SEBI.
“The losses incurred by Indian investors due to the volatility induced by the short positions taken by Hindenburg Research and any collaborating entities should be thoroughly investigated,” emphasized the court.
Significantly, on the matter of transferring investigations from SEBI to SIT or the CBI, the Bench expressed its view:
“In an appropriate case, this court does have the power to transfer an investigation being carried out by an authorized agency to an SIT or to the CBI. Such power is exercised in extraordinary circumstances when the competent authority exhibits glaring, willful, and deliberate inaction in conducting the investigation. The threshold for the transfer of investigation has not been demonstrated to exist.”
It was concluded that the circumstances of the present case did not warrant the transfer of investigations from SEBI.
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