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SC forms five-member expert committee to look into Hindenburg report on Adani Group, to be overseen by retired SC judge

The Supreme Court on Thursday formed a five-member expert committee headed by former apex court judge, Justice Abhay Manohar Sapre, to investigate the causal factors and existence, if any, of regulatory failure which led to investors losing crores due to the volatility in the securities market following Hindenburg Research’s report accusing the Adani Group of manipulation of share prices and account fraud.

The committee includes former chairman of the State Bank of India O.P. Bhatt, retired Bombay High Court judge Justice J.P. Devadhar, former chief of the New Development Bank of BRIC countries K.V. Kamath, co-founder of Infosys Nandan Nilekani and securities expert and lawyer Somasekhar Sundaresan.

The Supreme Court Collegium’s recommendation of Sundaresan as a Bombay High Court judge has been pending with the government for months now. The government had objected to his name, calling him a “highly opinionated person”, but the Collegium had backed his right to free speech and reiterated its recommendation only recently.

“In order to protect Indian investors from the volatility of the kind witnesses in the recent past, we are of the view that it is appropriate to constitute an expert committee for assessment of the extant regulatory framework and for making recommendations to strengthen it,” a three-judge Bench led by Chief Justice of India D.Y. Chandrachud observed in its order.

The remit of the committee are four and all-encompassing. They include, to provide an overall assessment of the situation, including the relevant causal factors which led to the volatility in the securities market in the recent past; to suggest measures to strengthen Indian investor awareness; investigate whether there has been a regulatory failure in dealing with the alleged contravention of laws protecting the securities market in relation to the Adani Group of companies; suggest measures to strengthen the statutory and regulatory framework and secure compliance with the existing framework for the protection of investors.

The expert committee was requested to submit its report to the Supreme Court in a sealed cover expeditiously within two months.

Market regulator Securities and Exchange Board of India (SEBI), agencies connected with financial regulations, fiscal agencies, law enforcement agencies should cooperate with the expert committee.

SEBI has to provide all “material and requisite information” to the committee. The expenses of the committee would be borne by the Union government. The court recorded in its order that the SEBI is already investigating into the allegations in the Hindenburg report against the Adani Group as well enquiring into “market activity immediately preceding and post the publication of the Hindenburg report to identify violations”.

The SEBI probe, the court noted, included violations of the market regulator’s regulations, including and not limited to various laws like SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003; SEBI (Prohibition of Insider Trading) Regulations, 2015; SEBI (Foreign Portfolio Investors) Regulations, 2019, Offshore Derivative Instruments (ODI) norms, short selling norms, if any.

However, the court highlighted certain blanks in the SEBI’s probe, details of which the court said was too early to out. For example, the court said SEBI has not “expressly referred” to any investigation into the alleged violation of the Securities Contract (Regulation) Rules of 1957 against the Adani Group.

Rule 19A of the 1957 Rules provides for the maintenance of the minimum public shareholding by companies and its attainment within a specified period. Listed companies, other than public sector units, should maintain public shareholding of at least 25%. “Similarly there may be various other allegations that SEBI must include in its investigation,” the court said.