CAREFULLY calibrating its response by calling for safeguards and underlining that there was no “witch-hunt,” the Supreme Court Friday asked the Centre and market regulator Securities and Exchange Board of India (SEBI) to suggest measures to strengthen the regulatory mechanism and protect Indian investors from market volatility like the one witnessed in the wake of Hindenburg report on the Adani Group.
Since the report was made public, the market cap of nine Adani Group companies has fallen by 50.5 per cent: from Rs 19.18 lakh crore on January 24 – the report came the next day — to Rs 9.49 lakh crore Friday.
The Hindenburg report alleged that the Adani Group was involved in fraudulent transactions and share-price manipulation. The Adani Group has dismissed the charges.
A three-judge bench, headed by Chief Justice of India D Y Chandrachud, pointed out that the stock market has seen the rising presence of the middle-class and there was a need, therefore, to scale up security measures in tune with India’s changing status on the world stage.
However, it made clear that it was not “planning any witch-hunt” and would tread with “very great caution” as its observations would affect the stock market which “goes largely by sentiments”.
“We have indicated to the Solicitor General concerns with regard to ensuring that the regulatory mechanisms within the country are duly strengthened so as to ensure that Indian investors are protected against certain volatility, the kind of which was witnessed in the recent two weeks. That, in turn, would require due assessment of the existing regulatory framework and the need for strengthening regulatory framework in the interest of the securities market”, the bench said.
The bench was hearing two petitions: one seeking a probe into the contents of the Hindenburg Report and the other urging the court to declare short-selling a fraud and order a probe against research firm’s founder Nathan Anderson for “artificial crashing” of the Adani Group’s stock value in the market.
Taking up the pleas, the bench, also comprising Justices P S Narasimha and J B Pardiwala, said it was not planning any witch-hunt.
Making it clear that the court was only “thinking aloud,” the bench said: “This is just an open dialogue. They have brought an issue before the court. What is of concern is how do we ensure the protection of Indian investors? What happened here was short-selling. Probably, SEBI is also doing its investigation. Please tell your officers also this is no witch-hunt that we are planning to do.”
The bench said that few are concerned when short-selling happens on a small scale but on a larger scale, it leads to severe losses for some while those doing it get the benefit of the difference.
Referring to the contention that Indian investors lost several lakhs of crores in the recent fluctuations, the court said the question is how to ensure that going ahead, there is a mechanism in place.
“Because today, capital is moving in and out of India seamlessly. How do we ensure that Indian investors are protected? Everybody is in the market now…How do we ensure that they are protected? How do we ensure that this does not happen in (the) future? What role do we envisage for SEBI? For example, in a different context, you have circuit breakers”, observed the CJI.
Solicitor General Tushar Mehta said he could not give an immediate answer but the trigger point was the (Hindenburg) report, which was beyond “our territorial jurisdiction,” he said.
The court then suggested whether a committee of experts could be put in place to suggest possible improvements but added a caveat.
“One of the suggestions is to have some committee…We do not want to cast any doubt on the SEBI or the regulatory agencies. But the suggestion is to have a broader thought process so that some inputs can be obtained. And then the Government can take a call as to whether some modification is required of the statute, whether a modification for the regulatory framework is needed”, the CJI said adding that beyond a certain stage “we won’t enter into the policy domain, but there should be a mechanism that it doesn’t happen in the future.”
The court said there could be an expert committee, drawn from experts from the securities market, the international banking sector, and a former judge to guide. “Ultimately, inputs will have to come from domain experts. We are also not sure. We are just thinking aloud. We can give a very vital role to SEBI also. We also need to think of strengthening SEBI so that it has better provisions to deal with in future. It is a new world. India is not what it was in 1990s”, the CJI added.
The court asked the SG to let it know if the government would be willing to accede to the suggestion for a committee and went on to clarify that whatever it said was “not intended to be any reflection on the discharge of its statutory functions by the SEBI or any statutory authority”.
The bench asked the SG to revert with a note on February 13, the next date of hearing.
