Adani-Hindenburg: SC to pronounce order on PILs seeking probe into fraud charges, Adani stocks crash

The Supreme Court (SC) will today pronounce its order on a batch of PILs seeking a probe into fraud allegations against the Adani Group by US-based short-seller Hindenburg Research. The short-seller's scathing report caused a massive selloff in Adani stocks, wiping off billions of dollars of retail investors.

The top court is likely to deliver its verdict today over the setting up of a panel of domain experts for strengthening existing regulatory measures for stock markets.

During the hearing, the apex court had expressed concerns about protecting the Indian investors and sought views from market regulator Sebi and the Centre. The court also suggested that a panel of experts could be formed to look into the framework to protect the investors. The Centre agreed to it and submitted the names of experts in a sealed cover.

The SC, however, refused to accept the Centre's suggestion in the sealed cover and said it wanted full transparency for the protection of investors. The top court also ruled out the possibility of any sitting judge overseeing the functioning of the proposed panel.

So far, four PILs have been filed in the top court on the Adani-Hindenburg issue by lawyers M L Sharma, Vishal Tiwari, Congress leader Jaya Thakur and social activist Mukesh Kumar. In his PIL, Tiwari has sought a direction to the Centre to form a committee monitored by a retired top court judge to inquire into Hindenburg's report which has accused Adani Group of indulging in stock manipulation and fraud using shell firms.

Congress leader Thakur has sought a probe under the supervision of a sitting apex court judge against the Adani Group of companies. The fourth PIL seeks a probe by multiple central government agencies - under the supervision of a panel or a former apex court judge - into the charges by Hindenburg. Sharma, in his plea, has sought prosecution of Hindenburg founder Nathan Anderson and his associates in India and the US for allegedly exploiting innocent investors and the "artificial crashing" of the Adani stocks.

A short-seller makes a profit when shares decline. The charge against Hidenburg is that it took a short position on Adani stocks and then published a negative report. And when shares declined, it made a huge profit. Even Sebi mentioned this during the hearing in the SC. During the hearing, the market regulator told the top court that Hindenburg was a short seller which does research on companies that it believes have governance and/or financial issues.

Its strategy, the market regulator said, "is to take a short position in the bonds/shares of such companies at the prevailing prices, (i.e., sell the bonds/shares without actually holding them) and then publish their reports". The more the market believes its reports and the more that "stop loss limits" get triggered, the more the prices of the bonds/shares fall and the more money it makes.

Sebi is already investigating the crash in Adani stocks and the specific allegations made by Hindenburg against the Gautam Adani-led conglomerate. But so far, it has not yet found any irregularities, Bloomberg reported on Wednesday.

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