Hindenburg report on Adani: Some probe is better than no probe

The Supreme Court has done well to set up a committee to investigate the issues related to the Hindenburg Research report on the Adani Group and the impact it has had on the Adani stocks and the entire stock market. It is not always that the Supreme Court steps in to probe stock market actions but the case of the Adani Group is different given their rapidly-acquired size, the impact on the interests of shareholders, and the perceived proximity of the Adani family to the political establishment. The many questions that have arisen in the wake of the report alleging stock manipulation and fraud through offshore entities need clear answers from Adani, the regulatory system, probe agencies, and the government. The setting up of the committee must be seen in light of the fact that these answers are not forthcoming even five weeks after the release of the Hindenburg report and the loss of shareholder value of more than $140 billion in the Adani Group shares in just over a month.

The court has given a four-fold remit to the committee: One, to make an overall assessment of the situation, including the causes that led to “market volatility”; two, to find out if there was regulatory failure in dealing with the alleged violations by Adani companies; three, to suggest measures to strengthen the statutory and regulatory framework; and four, to suggest measures to increase investor awareness. The court told the Securities and Exchange Board of India (SEBI) and other agencies to cooperate with the committee. It is to be headed by Justice A M Sapre (retd) and five others, including industry stalwarts Nandan Nilekani and K V Kamath. It has been told to submit its report to the court in a sealed cover.

SEBI told the court that it is already probing the alleged violations of laws and rules by Adani and its activities immediately before and after the Hindenburg report. That must include the saga of the now-withdrawn Adani FPO. But it is clear that the court was not satisfied with SEBI’s enquiry. The fact that the court had to give it three specific pointers to cover in its probe does not show the regulator in the best light. The point is that SEBI is investigating a situation which may have been at least partly caused by its own failures. This needed to be examined independently. So, the committee will examine both the issues relevant to the situation and the possible role SEBI had in it. But it is wrong for the report to be submitted in a sealed cover. It should be a public document. It is surprising that the court, which has frowned on the sealed envelope practice in the past, has gone in for it in this case.