SC Asks For Update On SEBI's Investigation Into Allegations On Adani Group's Stock Price Manipulation

The Supreme Court has inquired about the progress of the Securities and Exchange Board of India's (SEBI) investigation into allegations of stock price manipulation by the Adani group.

Further, the court has granted an extension until August 14 for the investigation to be concluded promptly.

Representing SEBI, Solicitor General Tushar Mehta informed the bench, led by Chief Justice D Y Chandrachud, that the investigation is underway and progressing at a reasonable pace within the time frame granted by the apex court.

Mehta further informed the bench, consisting of Justices P S Narasimha and Manoj Misra along with the CJI, that the SEBI has submitted a "constructive response" to the suggestions put forward by the expert committee appointed by the Supreme Court. This response was filed on Monday.

He stated, "We have received the expert committee's report and have provided our response to the references and suggestions made regarding the SEBI. It is a very constructive response. Although it was filed slightly late, it is now before your lordships."

The Supreme Court had previously granted SEBI an extension until August 14 to complete their investigation into allegations of stock price manipulation by the Adani group. The court also requested an updated status report from the market regulator.

During the hearing, Mehta mentioned that SEBI had responded to the recommendations made by the expert committee regarding its functioning. However, he clarified that this response was unrelated to the allegations and requested the court to review it.

During the court hearing, Advocate Prashant Bhushan, representing one of the petitioners, informed the bench that they had recently filed a detailed response to the expert committee's report. In their response, they highlighted that the conclusions drawn by the committee were completely different from the facts that were discovered during the investigation.

Bhushan argued that the expert committee report clearly demonstrated not only a significant failure in regulatory oversight by SEBI but also indicated that SEBI's investigation had no chance of progressing any further.

The court acknowledged that the counsel for SEBI, Tushar Mehta, had informed them that SEBI had submitted a response to the expert committee's report. The court suggested that before proceeding any further, it would be appropriate to circulate SEBI's response along with the relevant documents, as this had not been done since the response was filed the previous day.

Another advocate, representing a different petitioner, pointed out that the previous order of the apex court had explicitly stated that all agencies were required to cooperate with the expert committee. However, the advocate claimed that the committee's report indicated a lack of cooperation from the agencies involved.

The bench responded to the advocate's claim, questioning whether it was based on their own imagination. The court clarified that their order had clearly mandated that all agencies should cooperate with the committee. They further stated that they did not believe the committee had any grievances regarding the lack of cooperation from the agencies.

However, Bhushan argued that the committee had stated that SEBI's investigation would not progress due to the situation created by the amendment of rules.

According to him, various amendments have been made to the rules, including the removal of the definition of opaque structures, changes to related party transactions, and modifications to rules regarding beneficial owners. These amendments aim to prevent the exposure of fraud, he claimed.

Mehta stated that the SEBI's response contains detailed information on the matter. The bench suggested that the Solicitor General should also consider the background that led to the amendment of the rules.

The bench noted that Bhushan's argument revolved around the possibility of SEBI being hindered from investigating transaction layers due to the amendments made, particularly in relation to the definition of beneficial owners.

The hearing on the Adani-Hindenburg row was thereafter adjourned by the bench. SEBI was instructed to circulate its response, which includes the capital markets regulator's views on the recommendations made by the expert committee.

The matter will now be taken up for immediate hearing after the conclusion of other listed pleas before a constitution bench, scheduled to commence on Wednesday.

In its application filed on Monday, the SEBI had clarified that its 2019 rule changes do not make it more difficult to identify beneficiaries of offshore funds. The regulator emphasized that it will take action if any violations are found or established.

Over the years, the SEBI has consistently tightened rules regarding beneficial ownership and related-party transactions, which are key factors in the allegations of stock price manipulation by the Adani Group.

According to an interim report by a Supreme Court-appointed expert committee, there is no evident pattern of manipulation in Gautam Adani's companies, and there has been no regulatory failure. However, the report did highlight several amendments made by the SEBI between 2014-2019 that limited the regulator's investigative capabilities.

Further, the committee's probe into alleged violations in money flows from offshore entities yielded no conclusive findings.

Following the direction of the apex court on May 17, copies of the report submitted by the expert committee appointed by Justice (retd) A M Sapre were made available to the involved parties. This was to enable them to assist the court in further deliberations on the matter.

After Hindenburg Research made various allegations, including fraudulent transactions and share-price manipulation, against the Adani Group, the conglomerate's stocks suffered significant losses in the stock market.

The Adani Group has vehemently denied these charges, asserting that it complies with all laws and disclosure requirements.