Hindenburg Case: Supreme Court Questions SEBI On Action Taken Against Short-Sellers

The Supreme Court today asked capital markets regulator SEBI what steps had been taken to tighten regulations on short-sellers and protect small investors, following the chaotic stock price movement after US-based short-seller Hindenburg Research published a report in January this year.

"One of the reasons we intervened was the volatility of the market and losses incurred by the investors. Has SEBI looked into it?" the Supreme Court asked SEBI or the Securities and Exchange Board of India.

At the start of the hearing, SEBI told the Supreme Court that it would not seek an extension to complete its probe into the Hindenburg allegations against the Adani Group.

"Have you found any wrongdoing on the part of short-selling?" the Supreme Court questioned.

Solicitor General of India Tushar Mehta said the government was taking action "wherever we have found short selling".

"We have suggestions from the expert committee on the ways to strengthen the regulatory framework. Regarding the suggestions of the expert committee on strengthening the regulatory framework we don't have any objections," he said.

The Supreme Court also raised tough questions on a demand by senior lawyer Prashant Bhushan for action against SEBI for not completing its report within the court's deadline and for a probe into allegations by George Soros-funded Organised Crime and Corruption Reporting Project (OCCRP) against the Adani Group. SEBI also dismissed the report as unreliable, coming from a "foreign non-profit (NGO)".

The OCCRP had alleged insider trading in the Adani Group via two foreign investors. The Adani Group has called them "recycled allegations" and another concerted bid by Soros-funded interests supported by a section of the foreign media to revive the "meritless Hindenburg report".

Mr Mehta said when details were sought from OCCRP, they directed the queries to an NGO linked to Prashant Bhushan. "They said that they can't give details to us... instead, they directed us to an NGO linked to Prashant Bhushan. This is a conflict of interest," said the government lawyer.

Mr Bhushan cited reports in the foreign media and repeatedly asked why SEBI was not investigating the allegations.

"We are not discrediting what's reported on Financial Times, Guardian etc but does it have evidentiary value for SEBI?" Chief Justice DY Chandrachud asked.

"SEBI is bound by the laws of evidentiary value. SEBI is answerable to the appellate authorities. SEBI can't say we relied on newspaper stories...How do we rely on newspaper stories? How do we say these are credible?"

The Supreme Court had in March directed SEBI to investigate within two months any violations before and after the Hindenburg report on the Adani Group. On April 29, three days before the deadline, the regulator asked for six more months, citing the matter involved cross-border jurisdictions, which would take time to process.

The Chief Justice then gave three months - instead of six - to SEBI to submit a status report of its investigation.

The Supreme Court had also asked a group of domain experts to look into India's regulatory mechanism to protect investors. In its report to the Supreme Court in May, the committee had said there was no price manipulation on the part of the Adani Group and that the conglomerate had taken necessary steps to comfort retail investors. 

The mitigating measures taken by the group had helped in building confidence in the stock and the stocks are stable now, the panel had said. Foreign portfolio investors (FPIs) in Adani Group stocks are compliant with SEBI's regulations, the committee had said.

(Disclaimer: New Delhi Television is a subsidiary of AMG Media Networks Limited, an Adani Group Company.)