IMPORTANT POINT
Alleged violation of provisions of securities laws by Adani Group of companies – In order to protect Indian investors against volatility of kind which has been witnessed in recent past, it is appropriate to constitute an Expert Committee for assessment of extant regulatory framework and for making recommendations to strengthen it.

ORDER :

1. Notice.

2. The present batch of petitions concerns the loss of investor wealth in the securities market over the last few weeks because of a steep decline in the share price of the Adani Group of companies. The decline in the share price was precipitated by a report published by Hindenburg Research on 24 January 2023. This report inter alia alleges that the Adani Group of companies has manipulated its share prices; failed to disclose transactions with related parties and other relevant information concerning related parties in contravention of the regulations framed by SEBI; and violated other provisions of securities laws. The report also states that Hindenburg Research has taken a short position in the Adani Group companies through US traded bonds and non-Indian traded derivative instruments. It is in this background that the present batch of petitions came to be filed.

3. A brief overview of the petitions follows:

a. WP(C) No. 162 of 2023 states that public money amounting to thousands of crores is at risk because public institutions like the State Bank of India¹[“SBI”] and the Life Insurance Corporation of India²[“LIC”] are exposed to the Adani Group. It inter alia seeks the issuance of directions to the Union of India and the Union Ministry of Home Affairs to constitute a committee headed by a retired judge of the Supreme Court to investigate the contents of the report published by Hindenburg Research;

b. WP(Crl) No. 39 of 2023 is for the issuance of directions to the Union Ministry of Home Affairs to register an FIR against Mr. Nathan Anderson (founder of Hindenburg Research) and his associates for short selling, and for directions to recover the profits yielded by the short selling to compensate investors;

c. WP(C) No. 201 of 2023 inter alia states that “the Adani Group has been in flagrant violation of ... Rule 19A of the Securities Contracts (Regulation) Rules by surreptitiously controlling more than 75% of the shares of public listed Adani group companies, thereby manipulating the price of its shares in the market.” It inter alia seeks a court monitored investigation by a Special Investigation Team or by the Central Bureau of Investigation into the allegations of fraud and the role played by top officials of leading public sector banks and other lender institutions; and

d. WP(Crl) 57 of 2023 is for directions to any investigative authority to: (i) investigate the Adani Group companies under the supervision of a sitting judge of this Court; and (ii) investigate the role of LIC and SBI in these transactions.

4. In its order dated 10 February 2023, this Court noted that there was a need to review existing regulatory mechanisms in the financial sector to ensure that they are strengthened with a view to protect Indian investors from volatilities in the market. Accordingly, it was suggested to the Solicitor General that he may seek instructions from the Union of India on the constitution and remit of an expert committee.

5. We have heard Mr. Prashant Bhushan, learned senior counsel appearing for the petitioners and Mr. Tushar Mehta, learned Solicitor General appearing for the Union of India. Both of them have also placed on record brief notes indicating their suggestions for the remit of the expert committee to be constituted. Further, SEBI has placed on record a brief note on the factual and legal aspects describing the existing statutory regime, regulatory mechanisms and frameworks in place for the protection of investors. It has also laid out the regulatory framework governing short selling. Mr Vishal Tiwari and Mr Manohar Lal Sharma have appeared in person.

6. SEBI has submitted in its note that:

a. It has adopted a disclosure based regulatory regime for both issuance of and trading in securities. This is in line with the discontinuation of pricing control for capital issues in favour of the principle of free discovery by the markets based on demand and supply from informed investors; and

b. It is “strongly and adequate