The Supreme Court of India upheld SEBI’s investigation into Hindenburg’s allegations against the Adani Group, affirming its integrity and scope. The court, led by Chief Justice D.Y. Chandrachud, rejected a plea to exclude SEBI from the probe into alleged share price manipulation and financial irregularities.
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NEW DELHI: The Supreme Court of India affirmed the integrity and comprehensiveness of the Securities and Exchange Board of India’s (SEBI) investigation into allegations made by Hindenburg Research against the Adani Group. The judgment, delivered on January 3, 2024, by a three-judge Bench led by Chief Justice of India D.Y. Chandrachud, rejected a plea to exclude SEBI from the ongoing probe into claims of share price manipulation and other financial irregularities.
Supreme Court Ruling and Its Implications
In its ruling, the Supreme Court emphasized the importance of solid evidence when considering the transfer of an investigation to an independent agency or a court-appointed Special Investigation Team (SIT).
The court noted-
“Strong evidence of bias or inadequacy could lead to transferring the probe to an independent agency or court-appointed SIT.”
However, in this case, the court found no such evidence against SEBI.
The court was clear in its support of SEBI, stating that the regulator’s conduct “inspired confidence” in its investigation. The judgment noted that SEBI had carried out a “comprehensive investigation” into the allegations against the Adani Group. At the time of the ruling, SEBI had completed 22 out of the 24 investigations, with the remaining two awaiting inputs from “external agencies/entities” before a decision could be made on the next steps.
This ruling brought a sense of closure to the months-long criticism that SEBI had faced regarding its handling of the probe into the Adani Group. However, the situation took a new turn with Hindenburg Research’s fresh allegations against SEBI’s Chairperson, Madhabi Buch.
Fresh Allegations by Hindenburg and Political Reactions
Hindenburg Research, a well-known shortseller, has accused SEBI Chairperson Madhabi Buch of having undisclosed stakes in obscure offshore entities allegedly involved in what the firm has described as “the Adani money siphoning scandal.” These new allegations have sparked a political storm, with opposition leaders taking to social media to voice their concerns.
Rahul Gandhi, Leader of the Opposition in the Lok Sabha, has been particularly vocal, tweeting that-
“The allegations against SEBI’s Chairperson have severely compromised its integrity.”
This statement reflects the growing concern among opposition parties regarding the fairness of SEBI’s ongoing investigation.
In its January 3 judgment, the Supreme Court acknowledged its authority under Article 32 and Article 142 of the Constitution to transfer an investigation from the “authorised agency” to the Central Bureau of Investigation (CBI) or to constitute an SIT. However, the court emphasized that this power should only be exercised in exceptional circumstances.
The judgment stated that-
A transfer would be considered only if there is “strong evidence that the investigation is prima facie tainted or biased and its continuation would result in a ‘failure of justice’.”
The court further explained-
“Unless the investigating authority shows clear, willful, and deliberate inaction, the court will generally not replace the agency entrusted with the investigative power.”
This statement reinforces the judiciary’s reluctance to interfere in the investigative process without substantial cause.
One of the key reasons for transferring an investigation, as highlighted by the Supreme Court, would be if there were accusations against “top officials of the investigating agency thereby allowing them to influence the investigation.” In such cases, the court noted that transferring the probe to another agency might be necessary to “instill confidence in the investigation.”
Interestingly, the Supreme Court also turned its attention to Hindenburg Research, questioning the impact of its actions on Indian investors. Chief Justice Chandrachud, who authored the judgment, remarked-
“The loss suffered by Indian investors due to the volatility from short positions taken by Hindenburg Research and its associates should be investigated.”
This observation by the Chief Justice suggests that the court is not only concerned about the allegations against the Adani Group but also about the broader implications of Hindenburg’s market activities on investor confidence and market stability in India.
SEBI’s Continuing Investigation
Despite the new allegations, SEBI has maintained its stance on the investigation. The regulator has asserted that it has thoroughly investigated the claims made by Hindenburg against the Adani Group. As of the latest update, SEBI stated that it has completed 25 out of the 26 investigations, with the final probe nearing completion.
