Opinion SC decision to set up expert committee in Adani matter casts doubt on SEBI’s investigation

On January 24, Hindenburg Research published a report leveling several allegations against the Adani Group, ranging from stock manipulation to accounting fraud and the improper use of shell companies. Despite the Group’s vehement denials, share prices of the Adani Group companies have plummeted since the publication of the report. Following the market mayhem, and after several PILs were filed, the Supreme Court, on Thursday, ordered the setting up of an expert committee to look into the matter. The remit of the committee is threefold: One, to assess the factors that have led to market volatility; two, to examine if there has been regulatory failure in this case, and three, to suggest measures to strengthen the regulatory apparatus and ensure compliance with the existing framework to protect investors. The committee has been asked to furnish its report in sealed cover within two months. While the formation of an expert committee, comprising of domain experts, may assuage the concerns of some, it also raises troubling questions.

Notwithstanding the question of whether fluctuations in stock prices require judicial intervention, if the Court has in the past said that it does not want to cast any doubt on SEBI, the market regulator, why, then, did it go ahead and constitute an expert committee? Doesn’t its very formation cast aspersions on SEBI’s investigation and invite doubts about its ability? Considering that this committee will largely derive its information from the regulator — the SEBI chairman has been requested by the court to ensure all information is provided to the committee — will this panel’s views be considered more authoritative than SEBI’s? Equally troubling is the opacity in the manner in which the members of the panel have been selected, not to mention the fate of committee reports that have been previously submitted in this manner, and the lack of transparency the process entails.

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The Securities and Exchange Board of India has been bestowed with a wide range of powers. In its affidavit filed before the Supreme Court, SEBI has stated that it will conduct a detailed examination into Adani stocks. The examination is also expected to extend to market activity immediately before and after the publication of the report. While in the past there have been instances of the regulator’s investigations being long drawn out, considering that the Court has asked SEBI to conclude its investigation into the matter within two months, it would have been more prudent to wait for its regulator’s report.

This editorial first appeared in the print edition on March 3, 2023, under the title, ‘Rushing In’