The Supreme Court on Thursday ordered an investigation into the Adani vs Hindenburg incident and established an expert committee to be led by retired judge AM Sapre. It also requested that SEBI provide a status report on its ongoing investigation into the matter within two months.
OP Bhat, JP Devdhar, KV Kamath, Nandan Nilakeni, and Adv Somasekhar Sundaresan are also on the panel. The SC panel will investigate whether there was a regulatory failure and examine the causal factors that led to the incident. In addition, the panel will recommend measures to strengthen the statutory and regulatory framework and ensure compliance within the existing framework for investor protection.
A bench comprising Chief Justice of India Dhananjaya Y Chandrachud, justices PS Narasimha and JB Pardiwala, issued an order on a batch of four petitions seeking the court’s intervention and an investigation into various aspects of the issue.
The composition and authority of a committee, expected to look into the recent incident that saw a sharp decline in the price of Adani Group’s stock after US company Hindenburg Research released a report alleging fraud and stock manipulation by the Gautam Adani-led group, was reserved by the CJI-led bench on February 17. The Adani Group has denied the allegations.
On that day, the bench rejected the Centre’s “sealed cover” nominees for a probe committee, stating that the court will appoint its panel instead. The bench emphasized that the process must inspire transparency and confidence without giving the impression that the committee is a “government-appointed” panel.
The Centre’s note, submitted in court by solicitor general Tushar Mehta, suggested that the proposed panel be tasked with the primary task of determining the veracity of allegations made against the Adani Group of companies in the Hindenburg report.
The investigation, according to the note, should also focus on Hindenburg’s admitted position of acquiring a “short position” in the Adani group, as well as gather details of all transactions undertaken by it and its linked companies, in addition to exploring ways to strengthen India’s statutory and regulatory framework. In a sealed cover envelope, the note also submitted a few names for the proposed panel.
The Hindenburg report, which was released on January 24, claimed “blatant accounting fraud” and “stock manipulation” by the Gautam Adani-led group. Even though the conglomerate dismissed the report as “unresearched” and “maliciously mischievous,” it triggered a massive sell-off in Adani Group stocks, with the flagship firm losing more than $120 billion in days and forcing the cancellation of a 20,000 crore secondary share sale that had previously passed muster.
As previously reported, a drop in the market value of a share by lakhs of crores does not always imply that investors have lost that much money. The losses are a function of the price at which the investors purchased the shares (and even then, this is notional until they sell the shares) and also correspond to the size of their holding. The Adani Group’s listed companies’ low free-float (proportion in the hands of public investors) indicates that this was most likely low.
