Adani-Hindenburg row: SC flags loss of ‘lakhs of crores’, questions efficacy of SEBI’s framework

The Supreme Court on Friday fixed the hearing on Monday asking the Centre and SEBI to come back with a report on the regulatory regime and the steps taken in the wake of the Hindenburg-Adani controversy.

The court was hearing two public interest litigations (PILs) seeking a court-monitored probe into short-seller Hindenburg Research’s “conspiracy” against the Adani Group. The PILs – filed by advocates ML Sharma and Vishal Tiwari – claim United States-based Hindenburg short-sold Adani stocks and caused a “monumental loss to investors”.

The court asked the government and SEBI to inform by Monday on the causal factors behind the market fallout following the Hindenburg Research report and seeks suggestions on how the regulatory framework be strengthened to avoid such an event in future.

The bench told Solicitor General Tushar Mehta to prepare the note after taking suggestions from the government and SEBI on the way forward and even proposed having an expert committee to recommend appropriate modifications in the legal and regulatory laws governing security markets.

The court treaded with caution saying, “Whatever we say may affect market sentiments and investor confidence.”

The bench said a robust mechanism needs to be put in place to protect investors as there is seamless capital movement and the middle class is increasingly investing in the stock market.

“The point that really bothers us is how do we protect the interest of the Indian investors,” the bench said, adding that petitioners indicate the loss to the investors is in lakhs of crores.

“Can we contemplate an expert committee that can give inputs for modifying the statutory regulations so that it doesn’t happen again?” The apex court asked the SEBI.

“Will want to know about the existing regulatory mechanism and the steps being taken. The regulatory mechanism needs to be duly strengthened. There is a need to strengthen a robust regulatory framework in the interest of the investors and stable development of the security market,” the court told Mehta.

“If the Union government agrees, a committee may be constituted,” the court said.

The petition – which sought a judicial probe by a committee headed by a retired Supreme Court judge – also said the Hindenburg report “has shaken not only country’s stock exchange but also put a question mark on business methods adopted by the businessmen in our country”.

Referring to unregulated disbursal of loans by public sector banks as a “matter of serious concern”, the petition demanded a ‘special committee (to) oversee sanction policy for loans over ₹500 crores given to big corporate’ entities.

The Congress and other opposition parties, including the Trinamool, the Dravida Munnetra Kazhagam and the Shiv Sena (ex-Maharashtra chief minister Uddhav Thackeray’s faction), have forced multiple adjournments of Parliament’s Budget session, demanding allegations against Adani be probed.

Opposition leaders have also flagged the “large exposure” of public financial bodies like the Life Insurance Corporation and the State Bank of India, which have invested in Adani stocks.