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Synopsis

Supreme Court on Wednesday (January 3, 2024) directed the Securities and Exchange Board of India (SEBI) to investigate if any loss has been suffered by Indian investors due to the conduct of Hindenburg Research.

"SEBI and the investigative agencies of the Union Government shall probe into whether the loss suffered by Indian investors due to the conduct of Hindenburg Research and any other entities in taking short positions involved any infraction of the law and if so, suitable action shall be taken", ordered a bench comprising CJI DY Chandrachud, Justice JB Pardiwala and Justice Manoj Misra.

This direction has been issued in a batch of petitions filed last year seeking an investigation against Adani Group over allegations made by US-based Hindenburg Research and others.

CJI Chandrachud led bench has further held that power of the Supreme Court to enter the regulatory domain of SEBI in framing delegated legislation is limited.

"The facts of this case do not warrant a transfer of investigation from SEBI. In an appropriate case, this Court does have the power to transfer an investigation being carried out by the authorized agency to an SIT or CBI. Such a power is exercised in extraordinary circumstances when the competent authority portrays a glaring, willful and deliberate inaction in carrying out the investigation. The threshold for the transfer of investigation has not been demonstrated to exist;...", Court has added.

Top Court has further rejected the petitioner's reliance on the OCCPR report to suggest that SEBI was lackadaisical in conducting the investigation.

"A report by a third-party organization without any attempt to verify the authenticity of its allegations cannot be regarded as conclusive proof. Further, the petitioner’s reliance on the letter by the DRI is misconceived as the issue has already been settled by concurrent findings of DRI’s Additional Director General, the CESTAT and this Court;..", it has said.

The Supreme Court has also refused to transfer the probe against Adani Group over allegations made by Hindenburg Research to an independent agency. It has observed that no willful or deliberate violations were done by SEBI and the court could not ordinarily supplant powers to investigate.

"Supreme Court's power to enter into regulatory domain of SEBI is limited. On assurances given by SG Tushar Mehta, we grant THREE more months to SEBI to complete the pending probes.", it has further held.

It is to be noted that, last year, the Expert Committee appointed by the Supreme Court to review the regulatory mechanism in the light of Adani-Hindenburg issue had said that prima facie, it is not possible to conclude that there has been a regulatory failure around the allegation of price manipulation.

Case Title: Vishal Tiwari vs. Union of India & Ors.