The Supreme Court on Friday asked the Securities and Exchange Board of India (SEBI) and the government to produce the existing regulatory framework in place to protect Indian investors, who are mostly middle class and reported to have lost several lakhs of crores in the past two weeks after the U.S.-based short-seller firm Hindenburg Research published a report, which led to sudden market volatility following a meltdown in the Adani Group shares.
Assuring the SEBI that it does not intend to go on a “witch-hunt” and is more interested in an ‘open dialogue”, a three-judge Bench led by Chief Justice of India D.Y. Chandrachud flagged the court’s concern for Indian investors and highlighted the need to protect them from such sudden market volatility in the future.
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“How do we ensure protection of Indian investors? Usually, this may happen on a small scale, but reports in newspapers say the total loss suffered by Indian investors may go in the range of several lakh crore in terms of investor value,” Chief Justice Chandrachud addressed Solicitor General Tushar Mehta, appearing for the SEBI.
Chief Justice Chandrachud said the stock market was no longer a place for just “high value investors” to dabble in.
“It is also a place now where a whole wide spectrum of the middle class are investing due to changes in the financial and tax regimes… Everybody is in the market now. There is a need for circuit-breakers here like how you have in other areas,” the CJI told Mr. Mehta.
The Solicitor General said the market took a plunge on “something” that happened outside, beyond the jurisdiction of the SEBI.
“That report [Hindenburg] was the trigger point,” Mr. Mehta submitted.
“Stock market goes entirely by sentiment… What we want to look into is whether we have a robust mechanism in place to protect Indian investors… Capital is moving seamlessly, funds are flowing in and out of India… How do we ensure that what happened does not happen again in the future?” Chief Justice Chandrachud said.
The court, on Mr. Mehta’s submission, recorded that the SEBI was “closely monitoring the situation and continues to do so”. The Supreme Court clarified in its order that its observations should not be construed as a reflection on the SEBI or other statutory authorities.
‘Threadbare analysis’
The court asked the SEBI to submit a note by Monday detailing the legal and factual aspects of the existing regulatory framework for the securities market. The market regulator could also give a “threadbare analysis” of its powers and even suggest whether it needed to grow more teeth to deal with the “new world” of seamless capital movement.
If the Centre wanted, the court said it could even consider constituting an expert committee of domain experts in banking and securities along with a former judge to act as a “wise guiding force”.
The court made it clear that it did not want to encroach into the policy domain. It would tread carefully, keeping a wary eye against causing any upsets in the stock market.
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The court listed the case for February 13.
The Bench was hearing separate petitions filed by advocates Vishal Tiwari and M.L. Sharma for an investigation into Hindenburg Research’s report.
Mr. Sharma has accused the short-seller firm of deliberately releasing the report against the Adani Group just before its ₹20,000 crore follow-on public offer. He had also queried why the SEBI did not suspend trading in the short-selling stock to save investors.
“They secured billions of profits by butchering citizens of India. However, the SEBI did not suspend trading in the stock, specially belonging to the Adani Group of companies and allowed short-sellers to exploit innocent investors,” Mr. Sharma had alleged.
