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Synopsis

The Securities and Exchange Board of India (SEBI) has filed an application before the Supreme Court, seeking an extension of 6 months to complete its investigation into the Adani-Hindenburg issue.

On March 2nd, Court had directed SEBI to complete the investigation into the issue within a period of two months and file a status report before it.

The Top Court had also constituted an expert committee headed by former Supreme Court judge Justice AM Sapre and consisting of OP Bhat (former Chairman of SBI), retired Justice JP Devadhar, KV Kamath, Nandan Nilakeni, and Somasekharan Sundaresan as the members, to review the regulatory mechanism.

These directions were issued by a bench of Chief Justice of India DY Chandrachud, Justices PS Narasimha and JB Pardiwala while hearing a batch of petitions seeking an investigation against US-based Hindenburg Research's allegations against the Adani Group.

In its application, SEBI has informed the Supreme Court that pursuant to its order, SEBI has attended two meetings called by the Expert Committee on April 2 and 26, 2023 respectively, during which detailed presentations were made by SEBI before the Committee.

"Applicant/SEBI has submitted a detailed status report and the prima facie findings to the Committee in compliance with the order passed by this Hon’ble Court", the application adds.

SEBI has further informed Top Court that examinations/investigations for which further time would be required would fall into three broad categories:

(i) Those where prima facie violations have been found and a period of 6 months would be required to arrive at conclusive finding.
(ii) Those where prima facie violations have not been found, a period of 6 months would be required to revalidate the analysis and arrive at conclusive finding.
(iii) In cases where, further examination/investigation is required and most of the data that is required for this purpose is expected to be reasonably accessible, a conclusive finding is expected to be arrived at in 6 months.

Referring to investigation by Securities Exchange Commission, USA, the application adds,

"...as observed from the Annual Report of the Enforcement Division of Securities Exchange Commission, USA (SEC, USA) for the year 2020, generally the SEC, USA, takes about 34 months for completing the investigation. It has been observed that Reports are frequently published by activist Short Sellers like Hindenburg, in respect of companies listed in the USA and based on a sample of such 56 cases that were examined by SEBI, it was observed that in 13 cases, the SEC, USA has taken action against the listed companies. The time taken by SEC, USA 10 which resulted into action against the said listed companies ranged from 9 months to 5 years with an average of 2 years."

On February 17, the top court had reserved its order in a batch of pleas seeking a probe in connection with the Hindenburg Research report on the Adani Group. Court said that it is inclined to maintain 'full transparency' in the matter.

It may be noted that recently, Solicitor General Tushar Mehta had submitted his apprehension before the Supreme Court appointing an expert committee to look into the Hindenburg Report.

"Existing agencies are fully equipped. However, responding to your lordships suggestions, we have no objection in constituting a committee. The only thing is, we don't want to send a message that a government agency needs to be overseen by a committee...", the SG had submitted before a CJI Chandrachud-led bench.

Earlier, the Supreme Court had directed the Securities and Exchange Board of India (SEBI) to submit an overall report on the situation.

On January 24, a US-based investment research firm named Hindenburg Research published a report titled 'Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History', making allegations against the conglomerate, saying that the group has been involved 'in a brazen stock manipulation and accounting fraud scheme over the course of decades.' 

The report led to a stock rout, erasing over $ 100 billion from Adani's empire and pushing him down on the global rich list. Also, the report came two days before a $2.5 billion follow-up public offering was issued by Adani Enterprises.

Case Title: Vishal Tiwari vs. Union of India & Other Connected Matters