Summary
Writ petitions under Article 32 following the steep fall in Adani Group share prices after the Hindenburg Research report of January 2023 sought a court-monitored investigation, prosecution of the short seller, and protection of public institutions exposed to the group. Noting SEBI's statement that it was already enquiring, the Supreme Court directed SEBI to include in its investigation whether Rule 19A of the Securities Contracts (Regulation) Rules, 1957 on minimum public shareholding was violated, whether related-party transactions went undisclosed, and whether stock prices were manipulated, and to report within two months. To protect investors from such volatility the Court constituted an expert committee headed by Justice A.M. Sapre to assess the regulatory framework, examine possible regulatory failure and suggest strengthening measures.
Issues
- What directions are warranted on petitions under Article 32 seeking investigation into allegations against a listed corporate group and protection of investors after sharp market volatility, when the securities regulator is already enquiring into the matter.
Provisions considered
- Rule 19A, Securities Contracts (Regulation) Rules, 1957SEBI's note did not expressly mention the minimum public shareholding requirement; the Court directed SEBI to investigate whether Rule 19A was violated, along with non-disclosure of related-party transactions and manipulation of stock prices, without limiting the scope of its ongoing investigation. (¶¶ 9, 10, 11)
- Article 32, Constitution of IndiaIn exercise of its jurisdiction the Court constituted an expert committee to assess the causes of recent volatility, investor awareness, possible regulatory failure and measures to strengthen the statutory and regulatory framework, to report in sealed cover within two months. (¶¶ 4, 14, 15, 18)
Held
- SEBI, as recognised in Prakash Gupta, is the specialised regulatory, adjudicatory and prosecuting agency charged with maintaining an orderly securities market, follows a disclosure-based regime, and is seised of the investigation; it must conclude expeditiously within two months, file a status report, and apprise the expert committee of its action, the committee's constitution not divesting SEBI of its powers. (¶¶ 6, 7, 8, 9, 11, 12)
- An expert committee comprising O.P. Bhatt, Justice J.P. Devadhar (retired), K.V. Kamath, Nandan Nilekani and Somashekhar Sundaresan, headed by Justice Abhay Manohar Sapre, is constituted; the SEBI Chairperson is to provide all information, Union agencies including financial regulators and law enforcement are to cooperate, the committee may consult external experts, and the Union Government is to fix honorarium through the Chairperson, nominate a nodal officer and bear all expenses. (¶¶ 14, 15, 16, 17)
Result
Notice issued and directions given: SEBI to investigate the specified aspects and file a status report within two months; expert committee headed by Justice A.M. Sapre constituted with the stated remit, to furnish its report in sealed cover within two months.