Opinion Express View on SC ruling on SEBI’s investigation in Adani matter: An elusive closure

In the Adani-Hindenburg saga, the Supreme Court, on Wednesday, declined to hand over the probe into the allegations to the CBI or a Special Investigation Team. The Court expressed faith in SEBI, noting that the regulator’s conduct “inspires confidence” that it is “conducting a comprehensive investigation”. It said that based on the information available before it, “no apparent regulatory failure” can be attributed to SEBI. The verdict, in fact, asked the Centre to investigate if short sellers of shares in the Adani Group companies had violated any law causing investors losses due to the volatility caused by their short positions. It also said the material relied upon by petitioners can at best be inputs, not credible evidence. With the SEBI having completed its investigation in all but two matters in connection with the allegations raised, the Court directed it to complete the pending inquiries “preferably” within three months. This raises questions.

This is because not one of the allegations, such as deals of related party transactions, market manipulation, ownership of FPIs and foreign entities, has been addressed completely in the last one year. Despite the progress made by the market regulator in its investigations, some of the arguably more contentious issues surrounding the episode remain unanswered. It appears there are doubts about globally accepted market practices such as short selling; indeed the Court takes into account the Solicitor General’s statement that measures to regulate short selling will be considered by the government and SEBI. As reported in this paper, two aspects of the probe that are currently ongoing deal with the actual ownership of the foreign portfolio investors who have significant stakes in the Adani Group companies, and the unusual trades around the period the Hindenburg report was released. In its status report, SEBI is reported to have said that “as many of the entities linked to these foreign investors are located in tax haven jurisdictions, establishing the economic interest shareholders of the 12 FPIs remains a challenge”. However, the expert committee set up by the Supreme Court had noted that while the regulator may well suspect “wrongdoing”, it has “drawn a blank” because its “legislative policy” stance has moved in the opposite direction of its “investigation and enforcement”.

Advertisement

While it would have served little purpose were the Supreme Court to order a large-scale probe into the Hindenburg allegations, it might have been prudent to allocate more resources, draw in more expertise, and give the ammunition that SEBI really requires to expedite the probe in a time-bound manner. The volatility in the market, or more specifically in the stocks of the Adani Group of companies after the Hindenburg report, comes from the concerns in the market about SEBI’s ongoing investigation not coming to fruition. Market regulator SEBI must take its investigations to their logical conclusion.