In a landmark decision on January 3, 2024, the Supreme Court firmly rejected the plea for a Special Investigation Team (SIT) or Central Bureau of Investigation (CBI) inquiry into the allegations stemming from the Hindenburg Research report on stock price manipulations involving the Adani conglomerate.
The three-judge bench, headed by Chief Justice DY Chandrachud, alongside Justices JB Pardiwala and Manoj Misra, unequivocally affirmed its confidence in the ongoing investigation conducted by the Securities and Exchange Board of India (SEBI). Dismissing any doubts raised against the regulatory body, the Court also endorsed the validity of SEBI’s amendments to Foreign Portfolio Investment (FPI) and Listing Obligations and Disclosure Requirements (LODR) regulations.
Chief Justice Chandrachud emphasized the bolstering effect of the amendments, stating, “The FPI Regulations and LODR Regulations have been tightened by the amendments in question.”
Highlighting SEBI’s progress, the Court acknowledged the completion of investigations in 22 out of 24 cases. In response to the Solicitor General’s assurance, the Court directed SEBI to conclude the remaining investigations within three months.
Dismissive of reliance on unverified reports, the Court asserted that third-party sources cannot serve as conclusive proof against SEBI’s investigations. Chief Justice Chandrachud declared, “Such reports by independent groups or investigative people by newspapers may act as inputs before the SEBI or the Expert Committee. However, they cannot be relied upon as conclusive proof of the inadequacy of the investigation by SEBI.”
Furthermore, the Court rejected arguments related to conflict of interest concerning the Expert Committee members. While urging the government and SEBI to consider the committee’s recommendations for regulatory enhancement, the Court directed both entities to investigate potential legal infractions leading to losses for Indian investors.
“The SEBI, and the investigative agencies of the Union government, shall probe into whether the loss suffered by Indian investors due to the conduct of the Hindenburg research and any other entities in taking a short position involved any infraction of law, and if so, suitable action shall be taken,” the Court mandated.
Concluding its verdict, the Court issued a cautionary note against filing Public Interest Litigations without adequate research and reliance on unverified reports. The decision comes after a series of PILs were filed on January 24, 2023, following the Hindenburg Research report accusing the Adani Group of market manipulations. The Supreme Court had constituted an expert committee on March 2, 2023, to investigate the matter, and SEBI was directed to probe the allegations against the Adani group. The Court had initially extended the deadline for SEBI’s probe to August 14, 2023, with subsequent extensions granted as needed.
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