By K Raveendran
The Supreme Court verdict in the keenly-awaited petitions against the adequacy of the SEBI probe into the charges against the Adani group is neither convincing nor conclusive. A bench headed by Chief Justice D Y Chandrachud has given the market regulator another three months to complete its investigations. The court has also in essence put the ball in the court of the government, which is largely perceived to be an interested party in the infamous cover-up. If SEBI cannot complete the probe in so many months it has apparently been engaged in the task, there is no way it can do it in three months. So, the extension of time fails to cut ice.
There has been persistent criticism that the Supreme Court often prefers to look away when important issues with sensitivity towards the government come up for consideration. The Adani case judgment is no exception. The court’s stand on findings of third-party entities and media units that these do not inspire confidence leaves out a lot to be desired. It says such evidence can at best be treated as inputs, but has refused to follow the same approach in arriving at its own conclusions.
The most dissatisfying conclusion by the court by far is the one that asks the Centre to look into whether there has been any infraction of law by the Hindenburg report on short selling and if so take action according to the law of the land. Rather than going into the merit of the message, the court has preferred to go with the approach of shooting the messenger. Given the Modi government’s disposition towards the Adani group, the outcome of any such exercise is not difficult to predict.
The apex court’s stand on the reliability of media reports and third-party disclosures gives the authorities a stonewall against such findings. The stand fails to appreciate the fact that information brought out by such exposes does not cease to be of material value simply because these have appeared in public domain. There is an inherent danger in the court’s rejection. The observation that the market regulator cannot be expected to carry on its functions based on press reports is likely to be used as a blanket disapproval for all future media questioning, though the court has not objected to such reports being used as inputs.
The court’s conclusion that there has been no regulatory failure on the part of the market regulator does not inspire confidence, particularly to the critics of SEBI, which has been accused of a role in the cover-up at the behest of the ruling establishment. Right from the beginning, SEBI has been dragging its feet over the investigations in what many believe as an attempt to shield the group in the guise of protecting the interests of retail investors.
As an excuse for the delay, the regulator had informed the court that many of the entities linked to these foreign investors are located in tax haven jurisdictions, making it a challenge to establish such economic interest shareholders. The scope of the investigation on related-party transactions was to ascertain allegations relating to possible material misrepresentation in financial statements, misstatements, attempts to circumvent regulations and fraudulent transactions, it had said.
A Supreme Court-appointed panel had earlier pointed out that certain changes in rules brought about by SEBI in 2019 on reporting by offshore funds has made it difficult for anyone to identify the beneficiaries of offshore funds. SEBI argues that the changes were part of the effort to ‘tighten’ regulations, but the net result is that it has made tracking more difficult. The panel had, in fact, pointed out that in view of the changes, the investigation was a ‘journey without a destination’.
SEBI has all along been refusing to be tied down to any time frame for completing its probe, saying such deadlines may interfere with the quality of investigations. This had even prompted the court-appointed panel to recommend that a deadline for the completion of investigations be embedded into the law so that it would be binding on the regulator, which is widely perceived to be providing cover to the Adanis.
To justify the demand for more time, SEBI expanded the probe to include possible stock price manipulation and trading in Adani Group stocks in the periods before and after the Hindenburg report, as well as a possible violation of Overseas Direct Investment (ODI), Foreign Portfolio Investment (FPI), short selling, and insider trading norms. Sebi said that the detailed investigation process would also include depositions from various key managerial personnel, statutory auditors, and other relevant persons.
Now the Supreme Court has granted another three months to wind up the probe noting that 22 out of the 24 matters under consideration have been completed. Given the market regulator’s track record, it is most unlikely that SEBI will be content with the granted extension. (IPA Service)
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