Hindenburg-Adani case | Supreme Court says no to sealed cover suggestions

“We are not taking names from anybody. We will do our own thinking,” said the CJI, reasoning that the committee’s credibility would be hit if the court accepted suggestions on its composition

A view of Supreme Court of Inida, in New Delhi. File | Photo Credit: Sushil Kumar Verma

The Supreme Court on Friday chose transparency over the government’s sealed cover containing “suggestions” for a committee proposed to examine Hindenburg Research’s damning report on the Adani Group, saying that public confidence would take a hit if an impression was created that the Centre was steering the process with the court’s nod.

“We [would] rather not accept the sealed-cover suggestions from you [government]. If we accept your suggestions in a sealed cover, the other side [petitioners] will not be able to see them. We want to maintain full transparency,” Chief Justice of India D.Y. Chandrachud said, addressing Solicitor General Tushar Mehta, appearing for the government.

The court said that accepting the government’s suggestions in a hush-hush manner would prove detrimental to the credibility of the committee and its future work in the eyes of the nation. Hindenburg Research has accused the Adani Group of “brazen stock manipulation and accounting fraud schemes over the course of decades”.

SC will appoint panel

“There may be an impression created that this is a government-appointed committee which the Supreme Court has accepted even if we have not accepted your suggestions. We want to maintain the fullest transparency in the interest of protecting investors… We will appoint a committee of our own which might be altogether better as it provides a sense of confidence in the process... Otherwise, even if we do not accept two names [proposed by the government for the committee], they [petitioners] will not have any way of knowing,” Chief Justice Chandrachud, heading a three-judge Bench, said categorically.

Mr. Mehta said he had “no difficulty” with the court’s reasoning. He said that the government’s suggestions were “absolutely objective”, adding that it wanted the “truth to come out”.

The Bench also stopped advocates Prashant Bhushan and Neha Rathi, for a petitioner, from reading aloud in court the names of former judges who could head the committee.

“If we put out names [suggested by both the government and the petitioners], it is not good for them… We are not taking names from anybody. We will do our own thinking,” Chief Justice Chandrachud observed, reserving the court’s order.

No sitting SC judges

The court indicated that it would direct statutory agencies to cooperate with the proposed committee. “They are bound to comply with our order,” the Chief Justice said.

The court dismissed the idea of having one of its sitting judges on the committee.

It said that the committee would examine the ability of the extant regulatory framework in the securities market to protect investors from sudden share value crashes. Until then, the court said, “we cannot start with the presumption of a regulatory failure”.

What is short selling?

Chief Justice of India D.Y. Chandrachud on February 17 happened to quiz a petitioner on what exactly he knew about short selling. A SEBI note in the court gives a brief explanation on the phenomenon that has come under the spotlight with the Adani- Hindenburg case:

Short selling

Investors borrow shares and sell them, expecting to buy them back later at a lower price before returning them to the lenders and making profits on the difference between the higher sale price initially and the lower purchase price subsequently

Two views

For some, short selling provides liquidity and helps price corrections in over-valued stocks. Some say it is vulnerable to manipulation

Global view

In all major jurisdictions, instead of prohibiting short sales, regulators permit it within a regulated framework

Market impact

Mr. Mehta said that care should be taken to avoid any “unintended impact” on the securities market. “As Your Lordships’ are aware, it is an emotion-driven market,” Mr. Mehta submitted.

“But you yourself said the market impact is less than zero… But we are not on that. What we are saying here is that irrespective of the statistical impact, we cannot deny the fact that investors have lost in lakhs,” Chief Justice Chandrachud responded.

Mr. Mehta then emphasised that the proposed committee should complete its work without any delay. He said that the court could appoint any former judge to supervise the committee.

“We entirely leave it to Your Lordships’ discretion... Our only concern is that it may not be advisable to delay the entire exercise for a long period,” the Solicitor General said.

‘Examine Hindenburg’

In a three-page note, Mr. Mehta suggested a seven-member committee, including the Home Secretary and Enforcement Directorate Director. The panel should be headed by a former Supreme Court judge, it said.

The note recommended that it would be “desirable” to have the committee submit its report in the Supreme Court within eight weeks in a sealed cover.

On its mandate, Mr. Mehta’s note said that the committee should ascertain “the truthfulness or otherwise of the allegations made against the Adani group of companies in the Hindenburg report”.

The report should examine “Hindenburg’s claim of taking a ‘short position in Adani group of companies through U.S. traded bonds and non-Indian traded derivatives instruments’ prior to the publication of its report with all underlying transactions made either by Hindenburg itself, its associated companies and entities whether within or outside India in violation of any regulatory/penal/preventive or other statutory provisions”.

The note further said that the committee ought to enquire into “undisclosed short positions, source of funds, and profits made by short sellers in India or abroad in near proximity of the Hindenburg report”.