Adani-Hindenburg row: SC asks SEBI about status of probe

The Supreme Court on Tuesday asked the Securities and Exchange Board of India (SEBI) about the status of its ongoing investigation into the allegations of stock price manipulation by the Adani group and said the probe has to be concluded expeditiously by the extended time it has granted till August 14.

Solicitor General Tushar Mehta, appearing for the SEBI, told a bench headed by Chief Justice D Y Chandrachud that the apex court had given time till August 14 for the investigation and the work is going on with possible "legitimate speed".

Mehta told the bench, also comprising Justices P S Narasimha and Manoj Misra, that the SEBI had on Monday filed their "constructive response" on the suggestions made by the top court-appointed expert committee in its report filed in the court.

"We received the report of the expert committee. So far as the references made on SEBI are concerned, there are some guidance or some suggestions given. We have filed our response yesterday. It is a very constructive response...Since it was filed a little late, it is not before your lordships," he said.

The bench asked, "What is the status of the investigation by SEBI?"

Mehta said the time for completing the probe was extended by the apex court and the work is going on.

"Your investigation has to be concluded because we had extended time till August 14," the bench said during the hearing.

On May 17, the apex court had granted SEBI time till August 14 to complete its probe into the allegations of stock price manipulation by the Adani group, and asked the market regulator to place on record an updated status report of the probe.

During the hearing on Tuesday, Mehta said since the expert committee had made certain recommendations in its report, the SEBI has given its response related to its functioning.

"That has nothing to do with the allegations. We would like your lordships to have a look at it," the solicitor general said.

Advocate Prashant Bhushan, appearing for one of the petitioners, told the bench they have filed a very detailed response to the expert committee's report a few days ago in which they have pointed out that conclusions of the expert committee are at "total variance" with the facts the panel found.

"And the facts found in the expert committee report clearly show that there is not merely gross regulatory failure on the part of SEBI but there is no chance of SEBI proceeding anywhere with this investigation," Bhushan said.

The court noted Mehta has informed the bench that SEBI has filed a response to the report which was submitted by the expert committee in relation to functioning of SEBI.

"Before the court can proceed further, it would be appropriate that the response is circulated together with the paper which has not been done since it was filed yesterday," the bench observed, adding the same be circulated and placed on record.

An advocate, representing another petitioner, said the apex court's earlier order was specific that all agencies have to cooperate with the expert committee.

He claimed the committee report says that agencies are not cooperating.

"You get it from your own imagination?" the bench observed, adding, "Our order was that all agencies will cooperate with the committee. We don't think the committee has a grievance that agencies have not cooperated."

Bhushan argued the committee has said that SEBI's investigation can't go anywhere because of the situation that they have created by amending the rules.

"They have amended the rules to remove the definition of opaque structures, they have amended the rules for related part transactions, they have amended the rules for beneficial owners etc. In order to prevent this kind of fraud from being exposed," he claimed.

Mehta said the SEBI's response also contains the details about it.

"Mr Solicitor General, apropos this submission, you may also go into the background which led to the amendment of the rules," the bench said.
The bench said Bhushan is arguing that SEBI could be prevented from going into the layers of transactions because of the amendments which have been made, for instance to the definition of beneficial owners.

The bench adjourned the hearing on the clutch of pleas on the Adani-Hindenburg row and asked SEBI to circulate its response in which the capital markets regulator has tendered its views on the recommendations made by the expert committee.

"The Solicitor General informs the court that SEBI has filed a response on issues pertaining to its functioning, together with an IA (interlocutory application), to the the report which was submitted by the expert committee. The response by SEBI be circulated to the court and all counsel," the bench said, adding "list the petitions on August 29, 2023."

The SEBI had, in its application filed in the apex court on Monday, said its 2019 rule changes do not make it tougher to identify beneficiaries of offshore funds, and action will be taken if any violation is found or established.

The markets regulator said it has continuously tightened rules concerning beneficial ownership and related-party transactions - key aspects in the allegations of Adani Group manipulating its stock price.

A Supreme Court-appointed expert committee had in an interim report in May stated that it saw "no evident pattern of manipulation" in billionaire Gautam Adani's companies and there was no regulatory failure.

It, however, cited several amendments the SEBI made between 2014-2019 that constrained the regulator's ability to investigate, and its probe into alleged violation in money flows from offshore entities has "drawn a blank".

On May 17, the apex court had directed that copies of the report submitted before it by the top court-appointed Justice (retd) A M Sapre expert committee be made available to the parties to enable them to assist it in further deliberations in the matter.

Adani Group stocks had been bludgeoned on the bourses after Hindenburg Research made a litany of allegations, including those about fraudulent transactions and share-price manipulation, against the business conglomerate.

The Adani Group dismissed the charges as lies, saying it complies with all laws and disclosure requirements.