Supreme Court’s on Adani Group, Is SEBI misleading probe?

The Supreme Court of India has reserved its order in the case involving the Adani Group and Hindenburg Research. The case has been under scrutiny due to allegations of stock manipulation and fraud by the power-to-port conglomerate.

The Supreme Court, led by Chief Justice of India DY Chandrachud, stated that it cannot doubt the Securities and Exchange Board of India (SEBI)'s probe into the case based solely on media reports. SEBI, the market regulator, has assured the Supreme Court that it will not request any more extensions to complete its probe.

The top court stated that we cannot take the OCCPR report into account to question the SEBI investigation. "We reject the reliance on the OCCPR report and cannot consider a third party organisation report as proof without any verification," it stated. The CJI stated that there is no ground to transfer the probe in this case from the SEBI.

The Supreme Court has requested the government and SEBI to consider implementing the actions recommended by the court-appointed panel. The SC stated that the facts of the case do not warrant a transfer of investigation to SIT or another agency. The CJI clarified that the expert committee had misconceived the term "opaque" which SEBI had used to describe the FPI.

SEBI says, "FPI regulations did not prohibit opaque structure and could in fact locate the beneficial owners. Mandatory upfront disclosures meant that opaque structure was omitted in 2019."

The regulator is conducting this investigation to find if there has been a violation of Section 19A of the Securities Contract (Regulation) Act, which stipulates a minimum 25% public shareholding in listed companies.

SEBI provided a status report to the Supreme Court on the course of its investigation covering 13 overseas entities (12 FPIs and one foreign entity), saying, “Many of the entities linked to these foreign investors are in tax haven jurisdictions, making it challenging to establish the economic interest shareholders of the 12 FPIs... we are still making efforts to gather details from five foreign jurisdictions".

However, some petitioners have raised concerns about discrepancies in the probe, citing reports published by the Financial Times and Guardian. These reports suggest that certain funds were run by Gautam Adani’s brother, Vinod Adani.

Despite these concerns, the Supreme Court has observed that the Hindenburg Research report should not be treated as a statement of truth. The court has also stated that SEBI cannot be asked to take a story in a newspaper, even if in the Financial Times, as gospel truth.

"Reliance on newspaper reports and third party organisations to question the statutory regulator does not inspire confidence. They can be treated as inputs but not conclusive evidence to doubt SEBI probe" CJI Chandrachud said.

The Supreme Court’s observations have raised questions about the transparency and effectiveness of SEBI’s probe. As the court reserves its judgment, all eyes are on the outcome of this case, which could have significant implications for the Adani Group and the broader Indian stock market.

Shares of Adani group companies bucked the overall weak market and soared upto 11 percent after the Supreme Court disposed petitions filed on Adani-Hindenburg issue.

The flagship Adani Ports and SEZ and Adani Enterprises shares rose 2 percent and 5 percent, respectively, clinching the spot of top gainers on the Nifty 50. Other Adani group stocks, such as Adani Wilmar, Adani Green Energy, Adani Power, Adani Total Gas, and Adani Energy Solutions also saw an increase of 3-11 percent.

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