Summary
The Supreme Court declined to transfer SEBI’s Adani-group investigations or direct revocation of the challenged regulatory amendments, finding no demonstrated basis for those interventions. It required the remaining investigations to be completed expeditiously, preferably within three months, directed constructive consideration of investor-protection recommendations, and ordered inquiry into any unlawful short-selling conduct.
Issues
- When courts may interfere with an expert securities regulator’s policies or transfer its investigation to another agency.
- Whether the challenged FPI and disclosure-regulation amendments or SEBI’s conduct established regulatory failure.
- Whether third-party reports, the DRI letter or alleged committee conflicts justified intervention.
- What further investigative and investor-protection directions were required.
Provisions considered
- Articles 32 and 142, Constitution of IndiaThe Court recognised its exceptional power to transfer investigations, but declined to exercise it without cogent evidence of inadequacy, bias or likely failure of justice. It disposed of the public-interest petitions with investigative and regulatory directions rather than substituting itself for SEBI. (¶¶ 11, 15, 17, 31, 32, 33, 34, 67, 68, 70)
- Sections 11 and 30, Securities and Exchange Board of India Act, 1992SEBI’s statutory investor-protection and regulation-making functions informed the limited judicial-review standard. The Court reviewed legality rather than policy wisdom and found no basis to compel reversal of the regulatory amendments. (¶¶ 12, 13, 14, 15, 16, 17, 28, 29)
Held
- Courts do not sit in appeal over the suitability or wisdom of policies framed by an expert regulator. Judicial review addresses fundamental-rights violations, constitutional or statutory incompatibility and manifest arbitrariness. A perceived better policy alternative is insufficient to supplant SEBI’s regulatory judgment. (¶¶ 15, 16, 17, 28, 29, 67)
- The challenge did not establish a lawful ground to require revocation of the FPI or LODR amendments. SEBI explained their evolution and consultative basis, including the shift from disclosure on demand to mandatory beneficial-owner disclosure. The Court found no demonstrated procedural illegality or apparent regulatory failure on the material presented. (¶¶ 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 38, 67)
- Transfer to the CBI or an SIT is an extraordinary remedy requiring cogent justification, such as serious investigative inadequacy or bias giving rise to likely failure of justice. SEBI’s detailed status report, completion of twenty-two of twenty-four investigations and the circumstances of the short reporting delay did not establish that threshold. The Court did not interfere with the outcome of the investigations, which SEBI must take to their lawful conclusion. (¶¶ 30, 32, 33, 35, 36, 37, 38, 44, 67)
- Unverified third-party reports and newspaper accounts may supply investigative inputs but did not constitute conclusive proof that SEBI’s investigation was inadequate. Reliance on the DRI letter likewise failed in light of the subsequent adjudicatory findings described in the judgment. This did not amount to the Court deciding every underlying allegation against the Adani group. (¶¶ 39, 40, 41, 42, 43, 67)
- The alleged conflicts of interest of Expert Committee members were unsubstantiated. In particular, one unconnected professional appearance sixteen years earlier did not establish bias or its likelihood; the other allegations lacked a demonstrated link and independently verified support. (¶¶ 45, 46, 47, 48, 49, 50)
- SEBI was directed to complete its two pending investigations expeditiously, preferably within three months. SEBI and Union investigative agencies must also examine whether losses associated with Hindenburg and others taking short positions involved an infraction of law and take appropriate action if one was established. This direction was an inquiry, not a finding of unlawful short selling. (¶¶ 30, 58, 67)
- The Union Government and SEBI must constructively consider the Expert Committee’s non-exhaustive recommendations concerning investor awareness, market surveillance, enforcement and regulatory improvements, and take necessary further measures within their respective fields. The judgment did not itself enact every institutional model proposed by the Committee. (¶¶ 55, 61, 62, 63, 64, 65, 66, 67, 69)
Result
Petitions and pending applications disposed of. Prayers to transfer SEBI’s investigation and revoke the regulatory amendments were rejected. SEBI was directed to complete the two pending investigations preferably within three months; further investor-protection consideration and inquiry into any unlawful short-selling conduct were directed.