Hindenburg case: Supreme Court refuses SIT investigation, gives these guidelines

New Delhi: In a major relief to the Adani Group, the Supreme Court on Wednesday refused to allow a Special Investigation Team to investigate allegations of share price manipulation by the group. The court also directed SEBI to investigate the two pending cases within three months. A bench of Chief Justice DY Chandrachud, Justice JB Pardiwala and Justice Manoj Mishra said that the court should refrain from interfering in the regulatory policies of the Securities and Exchange Board of India (SEBI). The bench also said that there is no need to hand over the responsibility of investigation to anyone else. The top court also said that SEBI has completed its investigation in 22 out of 24 cases related to allegations against Adani Group.

Highlights of the Supreme Court’s decision

1. There is no need for Supreme Court investigation in this matter. SEBI is capable of completing this investigation. The court’s authority to enter into SEBI’s jurisdiction is limited. The court should refrain from applying its wisdom on the regulatory policies of SEBI. The scope of judicial review while examining the policy made by the particular regulator is to examine whether it violates the fundamental rights, any provision of the Constitution.
2. Third party report cannot be considered as conclusive evidence: This Court has not interfered with the outcome of SEBI’s investigation. SEBI should take its investigation to its logical conclusion as per law. The facts of this case do not warrant transfer of investigation from SEBI. This court has the power to transfer the investigation being conducted by any agency to SIT or CBI.
3. SC rejects OCCRP report; Cannot be the basis for investigation: The existence of limits to the transfer of investigation has not been demonstrated. The claim made by the petitioner on the OCCRP report that SEBI was negligent in conducting the investigation has been rejected. A report from a third party organization cannot be considered conclusive evidence without an effort to verify the authenticity of its allegations.
4. The DRI issue has already been settled and reliance on the letter is misplaced: Further the petitioner’s reliance on the DRI letter is misplaced as the issue has already been settled by the Director General of DRI, CESTAT and this Court.
5. 5. Allegations of conflict baseless: Allegations of conflict of interest against the members of the Expert Committee are baseless and are rejected. The Central Government and SEBI will constructively consider the suggestions of the expert committee. These may be treated as a non-exhaustive list of recommendations and the Government of India and SEBI will study the EC report and take further action as necessary to strengthen the regulatory framework, protect investors and ensure normal functioning of the securities market. Will take action.
6. Hindenburg caused harm to Indian investors: SEBI and the investigating agencies of the Central Government will investigate whether the loss suffered by Indian investors due to the operations of Hindenburg Research and other entities involved violations of law and whether, therefore, appropriate will be processed.
7. No disability due to amendment in FPI regulations: SEBI claims there is no disability in the investigation of Adani Group due to amendment in FPI regulations. On merits, SEBI has argued that the FPI Regs 2014 do not actually prohibit opaque structures. They were allowed to fulfill certain conditions, including the condition that they provide details of their beneficial ownership whenever asked to do so.
8. The argument made by SEBI that no intervention is required has merit: the 2018 amendment required mandatory disclosures by all FPIs with some exceptions. This marked a shift towards tightening of regulations and mandatory disclosure of beneficial ownership details.

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