Adani case: 'Proposed panel should look into truthfulness of Hindenburg's allegations,' Centre tells SC

Centre told Supreme Court on Friday that "truthfulness" of allegations made by a US short seller against the Adani Group should be looked into by a panel proposed to examine investor protection. US short seller Hindenburg Research alleged improper use of tax havens and stock manipulation by the ports-to-energy conglomerate in a Jan. 24 report, which the Adani Group denied. The Supreme Court is yet to issue an order on setting up the panel and its ambit.

Government said the proposed panel should submit report within eight weeks after court order, according to a government document seen by Reuters.

The proposed panel should be authorised to use diplomatic relations to conduct investigations outside India, said government. 

Centre said the panel should investigate all undisclosed short positions, source of funds and profits made by short sellers around the scathing Hindenburg report against Adani Group.

"The panel should ascertain legality of Hindenburg short position on Adani Group's debt and equity instruments," said Solicitor General Tushar Mehta. Adani Group stocks have taken a beating on the bourses after the Hindenburg Research made a litany of allegations, including fraudulent transactions and share-price manipulation, against the business conglomerate. The Adani Group has dismissed the charges as lies, saying it complies with all laws and disclosure requirements.

The Supreme Court Friday refused to accept in a sealed cover the Centre's suggestion on a proposed panel of experts for strengthening regulatory measures for stock markets in the wake of the recent Adani Group shares crash triggered by Hindenburg Research's fraud allegations. 

Observing that it wanted “full transparency for protection of investors”, the top court also ruled out the possibility of any sitting judge overseeing the functioning of the proposed panel.

“We are closing it for orders,” said the bench headed by Chief Justice D Y Chandrachud after hearing brief submissions by Mehta and PIL petitioners including lawyers Prashant Bhushan and M L Sharma.

At the outset, the law officer said he had given a note on the names and “remit” (scope) of the committee in a sealed cover. “‘This has been given with two intentions in mind. A. a holistic view is taken and the truth comes out; B. No unintended message goes out having an impact on the security market, which is an emotion driven market,” Mehta said.

“We would rather not accept the sealed cover suggestions. We want to ensure transparency. In case we take your suggestions from sealed cover, it automatically means the other party won't know,” said the bench, which also comprised Justices P S Narasimha and J B Pardiwala . “We want full transparency for the protection of investors. We will form a committee. There will be a sense of confidence in the court,” the bench said. ''Sitting (SC) judges can hear the matter and they cannot be the part of the committee,'' the CJI said, adding he has been facing difficulties in setting up benches everyday. On February 10, the top court had said the interest of Indian investors need to be protected against market volatility in the backdrop of the Adani Group stocks rout and asked the Centre to consider setting up a panel of domain experts headed by a former judge to look at strengthening the regulatory mechanism.

The crucial hearing on the PILs on Friday assumed significance in the wake of the recent developments like the Centre agreeing to the apex court’s proposal to set up a committee, likely to be headed by a former Supreme Court judge, to go into the regulatory regimes.

Stressing that statutory bodies like market regulator Securities and Exchange Board of India (SEBI) are “fully equipped” and are on job, the central government had expressed apprehension that any “unintentional” message to the investors that regulatory bodies in India needed monitoring by a panel may have some adverse impact on the flow of money into the country.

The Centre had told the bench that it wanted to provide details such as names and the scope of the panel’s mandate in a “sealed cover”.

Stock market regulator SEBI, in its note filed in the top court, had indicated it is not in favour of banning short-selling or sale of borrowed shares, and said it is investigating allegations made by a tiny short-seller against the Adani Group as well as its share price movements.