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The Supreme Court’s decision not to order an investigation by a Special Investigation Team (SIT) or the Central Bureau of Investigation (CBI) into the charges of stock manipulation and accounting fraud against the Adani Group will have the effect of leaving some of the questions raised in the matter unanswered. The charges were made an year ago by the US short seller Hindenburg Research. The court expressed faith in stock market regulator SEBI, saying that there was “no apparent regulatory failure” and that it is “conducting a comprehensive investigation”. It pointed out that SEBI had completed its investigation on 22 issues, and directed it to complete its inquiry into two pending cases within three months. It also asked the government to investigate if short sellers of shares had violated any law causing losses to investors.
Questions remain because most of the important charges made against the Adani Group on issues relating to market manipulation, ownership of FPIs (Foreign Portfolio Investors) and foreign entities, and flows of money and related party transactions have not yet been investigated effectively by SEBI. SEBI has said that “as many of the entities linked to these foreign investors are located in tax haven jurisdictions, establishing the economic interest of shareholders of the 12 FPIs remains a challenge”. SEBI had received complaints about the Adani Group even from government agencies before the Hindenburg report raised some issues. The court said it could not direct SEBI to make changes in the rules regarding FPIs and disclosure requirements because these were already stringent. It also said the material relied upon by the petitioners seeking further investigation could at best be inputs. It said it could not go by reports of the Organised Crime and Corruption Reporting Project that had pointed out the shortcomings in the SEBI investigations as these could not be considered conclusive evidence. That leaves us with the question whether further investigation would have been appropriate for that very reason. Investigative journalists do not have police powers to find and present conclusive evidence; an SIT would.
It is clear from the judgement that the court did not want to enter the domain of SEBI. This is probably because SEBI has autonomous powers in its domain, being a regulatory authority. The court said the judiciary could make a review of the regulatory framework only to check if there was arbitrariness or violation of fundamental rights and that it could transfer an investigation from SEBI only in rare and exceptional circumstances. It thought no such circumstance existed in this case. SEBI should complete its investigations within the time stipulated by the court and, importantly, it should place all the findings of its investigations in the public domain. It is important because the matter is of public interest, has a political dimension, and has consequences in the stock market. The people have the right to know on what basis SEBI reached its conclusions. The questions raised by the short seller may be fully answered only then.