The Supreme Court on November 24 said statutory market regulator, the Securities and Exchange Board of India (SEBI), cannot be expected to accept as “gospel truth” foreign media reports about Organised Crime and Corruption Reporting Project (OCCRP)’s findings of alleged stock manipulation and accounting fraud against the Adani Group.
“You cannot expect a statutory regulator to take as gospel truth something that has been reported in a financial newspaper. We are not discrediting the reports, but we cannot certainly say that they are evidence for the SEBI,” Chief Justice of India D.Y. Chandrachud addressed advocate Prashant Bhushan, appearing for petitioner Anamika Jaiswal.
In August, Financial Times and The Guardian had reported on the OCCRP investigation.
Mr. Bhushan asked in court “if journalists can get hold of all these details, how is it that SEBI, with its vast powers of investigation, is not able to”.
“A statutory body like SEBI is bound by evidentiary requirements… Somebody who publishes is not bound by the evidentiary standards of statutory bodies,” Chief Justice Chandrachud, heading a three-judge Bench, reasoned.
Solicitor General Tushar Mehta submitted that SEBI had not refused to take cognisance of the OCCRP report. “In fact, we wrote to them for the documents,” he said. However, he said, the “global NGO” had refused to share the material. Mr. Mehta claimed the documents were actually given by somebody in India and to get published abroad.
‘Conflict of interest’
The court reserved judgment on a plea by Mr. Bhushan to form a separate Special Investigation Team (SIT) to investigate the Adani-Hindenburg allegations, saying that the earlier committee headed by former Supreme Court judge, Justice A.M. Sapre, was hit by “conflict of interest”.
Mr. Bhushan said one of the committee members, O.P. Bhatt, a former chairman of the State Bank of India, was working as the Chairman of Greenko, a leading renewable energy company. Since March 2022, Greenko and Adani Group were working in a close partnership to provide energy to Adani Groups’ facilities in India, he submitted.
The senior lawyer also trained his guns on advocate Somasekhar Sundaresan, another committee member who was recently appointed an Additional Judge of the Bombay High Court. Mr. Bhushan said Mr. Sundaresan had appeared for the Adani Group in 2006 and had been on “several SEBI committees”.
“Let us be fair here, Mr. Bhushan. He was only a counsel, not a retainer or a salaried employee or an in-house counsel for Adani. You have a 2006 order showing he was Adani counsel to challenge his being a Justice Sapre committee member 17 years later? Besides, he was not on a SEBI committee. He was on the Financial Sector Law reform Committee set up by the previous government,” Chief Justice Chandrachud said.
The Justice Sapre Committee was constituted by the Supreme Court on March 2 to investigate the causal factors and existence, if any, of regulatory failure which led to investors losing crores due to volatility in the securities market following Hindenburg Research’s report accusing the Adani Group of manipulation of share prices and account fraud.
Alert from DRI
The court also heard Mr. Bhushan’s claim that SEBI had “concealed” an alert received from the Directorate of Revenue Intelligence (DRI) about “Adani having siphoned off money and invested them in Adani listed companies through entities based in Dubai and Mauritius”.
Mr. Mehta however countered that DRI had closed the probe in 2017 and the issue had travelled up to the CESTAT and the Supreme Court.
“Mr. Bhushan, be careful. It is easy to make allegations. We are not giving them any character certificate, but please be conscious of fairness… You are relying on a DRI communication to SEBI which had already been investigated and closed by the DRI. The matter was heard by the CESTAT. The Supreme Court had gone into it,” the Chief Justice observed.
According to Mr. Bhushan, the DRI letter to the then SEBI chairperson, U.K. Sinha, on January 31, 2014, alerting that “there may be stock market manipulation being committed by the Adani Group of companies using the money siphoned off through overvaluation in the import of power equipment by Adani Group”. The DRI was at the time investigating a case of overvaluation of import of equipment and machinery by various entities of Adani Group from a UAE-based subsidiary.
“Your entire allegation that there was siphoning of funds that was used for manipulation is based on overvaluation. If there is no overvaluation, there is no consequence,” the Chief Justice addressed Mr. Bhushan.
The court reserved its judgment on Mr. Bhushan’s pleas.
Meanwhile, SEBI said it had completed investigation into 22 cases related to the Adani-Hindenburg allegations. The remaining two cases required information from abroad.
“But what is SEBI intending to do to protect investors from the kind of volatility we saw in the stock market?” Chief Justice Chandrachud asked Mr. Mehta.
The Solicitor General said the regulator was closely following the suggestions of the Justice Sapre committee.