The Supreme Court on Thursday asked the Securities and Exchange Board of India (Sebi) to investigate whether the Adani group had violated a key rule on public shareholding to manipulate the prices of its shares. The court also set up a six-member “expert committee” to look into related aspects.
Significantly, a bench headed by Chief Justice of India D.Y. Chandrachud noted that Sebi, in its note submitted to the apex court, had not “expressly” referred to any investigations being conducted on this specific matter although the regulator said it was probing certain other charges.
However, the apex court did not concede the plea of some of the PIL petitioners for a probe by an agency like the CBI or a court-monitored special investigation team.
Adani group chairman Gautam Adani tweeted: “The Adani Group welcomes the order of the Hon’ble Supreme Court. It will bring finality in a time bound manner. Truth will prevail.”
Sebi is supposed to be an independent regulator but its chairperson is decided by the Centre.
There have been several independent chairpersons but allegations have also occasionally arisen that the finance ministry, when various parties were in power, had sought to remote-control the watchdog.
The six-member “expert committee” set up by the court will be headed by former apex court judge Justice A.M. Sapre.
The panel will examine whether there has been any “regulatory failure in dealing with the alleged contravention of laws pertaining to the securities market in relation to the Adani group or other companies”.
The other members of the committee are O.P. Bhat, former chairman, State Bank of India; Justice J.P. Devdhar, former judge, Bombay High Court; K.V. Kamath, veteran banker; Nandan Nilekani, co-founder of Infosys; and Somashekhar Sundaresan, a corporate lawyer.
Sundaresan’s name was recently iterated by the Supreme Court collegium for elevation as a judge of Bombay High Court after the Centre raised objections to his promotion over some of his social media posts.
The key allegation, made in a PIL in the wake of the Hindenburg Research report, was that in violation of Rule 19A of the Securities Contracts (Regulation) Rules, the Adanis were surreptitiously controlling more than 75 per cent of the shares in their listed companies and manipulating the prices of its shares in the market.
Rule 19A says “every listed company (other than a public sector company) shall maintain public shareholding of at least 25 per cent”.
The Supreme Court bench, which included Justices P.S. Narasimha and J.B. Pardiwala, asked Sebi to conduct investigations into the following aspects and submit a status report to the court within two months.
■ Whether there has been a violation of Rule 19A of the Securities Contracts (Regulation) Rules, 1957
■ Whether there has been a failure to disclose to Sebi transactions with related parties and other relevant information which concerns related parties
■ Whether there was any manipulation of stock prices in contravention of existing laws
■ The above directions shall not be construed to limit the contours of the ongoing investigation.
The court asked Sebi to apprise the expert committee of the action that it has taken.
“The constitution of the expert committee does not divest Sebi of its powers or responsibilities in continuing with its investigation into the recent volatility in the securities market,” the court added. The bench passed the directives on a batch of four separate PILs seeking different directives from the apex court following the disclosures made in the Hindenburg Research report.
On the expert committee, the apex court said: “In order to protect Indian investors against the volatility of the kind which has been witnessed in the recent past, we are of the view that it is appropriate to constitute an expert committee for the assessment of the extant regulatory framework and for making recommendations to strengthen it.”
The committee has been asked to furnish its report to the court in a sealed cover within two months. Besides examining whether there was any regulatory failure vis-a-vis the Adani group, the remit of the committee will be to:
■ Provide an overall assessment of the situation, including the relevant causal factors which have led to the volatility in the securities market in the recent past
■ Suggest measures to strengthen investor awareness
■ Suggest measures to strengthen the statutory and/ or regulatory framework and secure compliance with the existing framework for the protection of investors.
The court requested the Sebi chief to ensure that all required information is provided to the committee and directed all agencies of the Union government, including that connected with financial regulation, fiscal agencies and law enforcement agencies, to cooperate with the panel.
