On 3rd December (Wednesday), the Supreme Court issued a stern warning to lawyers filing Public Interest Litigations (PILs) based on unsubstantiated reports. The apex court while announcing its judgement on pleas seeking SIT probe against the Adani group, reminded that the PIL was invented for legitimate causes of ordinary citizens. The apex court made these comments while rejecting pleas to hand over the investigation of Hindenburg report allegations against the Adani group to SIT, saying that SEBI is doing the job well.
The three-judge bench of Chief Justice of India DY Chandrachud, Justices JB Pardiwala and Manoj Misra noted that PILs based on unsubstantiated reports or ones that rely on unverified materials become counterproductive in the justice delivery system. The court said that reports of independent groups or investigative persons may act as inputs before the Securities and Exchange Board of India (SEBI) or the Expert Committee, but such reports cannot be relied upon as conclusive proof to challenge the adequacy of SEBI’s investigation.
The Court had earlier stressed that financial authorities don’t have to accept the Hindenburg report as ipso facto factually correct noting that third-party reports without any verification cannot be relied on as proof. The court warned, “PIL as a tool was invented so that legitimate causes are brought to this court by ordinary citizens.. however plea with unsubstantiated reports should not be pursued and thus members of the bar must be conscious of this”.
Stressing that petitions can’t be filed based only on reports, the bench said, “The veracity of the inputs and their sources must be demonstrated to be unimpeachable. The petitioners cannot assert that an unsubstantiated report in the newspaper should have precedence over an investigation by a statutory regulator whose investigation has not been cast into doubt on the basis of cogent material or evidence”.
Notably, on Wednesday, the Supreme Court pronounced its order on pleas that sought to transfer the probe against the Adani group from SEBI to SIT. The court pointed out that there was no evidence that SEBI was negligent in taking action and no reason to suggest any conflict of interest on SEBI’s part. Consequently, it refused to order an SIT probe on the allegations made by short-seller Hindenburg.
In a major relief to the Adani Group, the Supreme Court also ruled that it could not interfere with the regulatory framework or use the Hindenburg report or anything similar as justification for launching a new investigation. The SEBI will proceed with its investigation in accordance with the law, the order added.
Reacting to the court order, Gautam Adani, the group Chairman took to X (formerly Twitter) stating that truth has prevailed.
Further, the Supreme Court order stated that the Organised Crime and Corruption Reporting Project (OCCRP) report could not be used to cast doubt on the SEBI probe. It stated that reliance on the OCCRP report is rejected and that reliance on a third-party organisation report without any verification cannot be relied on as proof.
The order explained, “Reliance on newspaper reports and third-party organisations to question the statutory regulator does not inspire confidence. They can be treated as inputs but not conclusive evidence to doubt the SEBI probe.”
“Allegations of conflict of interest of expert committee members are unsubstantiated and rejected,” a bench led by Chief Justice of India DY Chandrachud said.
The case development
It all started in January last year when Hindenburg Research, a short-selling firm, accused the Adani Group of fraud and stock price manipulation. The report was published on 24th January 2023.
Following the publication of the report, the Adani Group trashed the Hindenburg Research report as a ‘malicious combination of selective misinformation and stale, baseless and discredited allegations’. However, the Hindenburg report eroded Rs 46,000 crores in Adani group’s market capitalisation.
Later, in March 2023, the Supreme Court formed a six-member committee to “investigate if there was a regulatory failure in dealing with the alleged violation of securities market laws about the Adani Group or other companies.”
It also requested the SEBI to investigate whether there was a violation of the minimum public shareholding standards in public limited companies, a failure to report transactions with linked parties, and stock price manipulation.
Notably, the court noted, “SEBI has concluded investigations in 20 of 22 cases. The investigation into the remaining two cases will be completed within three months.”
In May, the 6-member expert panel had failed to find any wrongdoing on SEBI’s part regarding Adani Group. The committee concluded that the Adani Group has disclosed the information of all the beneficial owners of the business. The report also lists all the details of these beneficial owners as obtained from the SEBI.
In July, the charges were denied by Gautam Adani who stressed that no regulatory failure was found by the expert committee which was constituted by the Supreme Court.
Meanwhile, during the hearing, the SC bench had rejected advocate Prashant Bhushan’s attempts to take Hindenburg’s claims as gospel truth at face value. “We don’t have to accept the Hindenburg report as ipso facto factually correct. That is why we asked SEBI to investigate…” CJI had said.
“Mr. Bhushan, I do not think you can ask a financial regulator to take something printed in the newspaper. This does not discredit SEBI. Should SEBI now follow journalists?”, the CJI had asked Bhushan during the hearing.
After the conclusion of arguments, on 24th November 2023, the panel of three judges consisting of Chief Justice of India D Y Chandrachud, Justices J B Pardiwala, and Manoj Misra had reserved its verdict on the petitions, objecting to claims of conflict of interest leveled against members of the committee it had constituted. The court has now rejected the petitioner’s demand to conduct the SIT probe citing that there is no evidence that SEBI was negligent in taking action and no reason to suggest any conflict of interest on SEBI’s part.
