Supreme Court Appoints Sapre Committee to Investigate Allegations of Violations, Disclosure Issues, and Stock Price Manipulation in the Adani-Hindenburg Controversy

The Adani–Hindenburg controversy has been a subject of concern and investigation, and recently, the Supreme Court-appointed Sapre Committee submitted its report on the issue. The committee’s primary objective is to assess the situation and recommend measures to promote investor awareness, strengthen the statutory framework, and ensure compliance with existing regulations. The committee has been investigating three specific areas of concern related to the controversy.
Firstly, the committee is examining whether Rule 19A of the Securities Contracts (Regulation) Rules, 1957 has been violated. This rule mandates a minimum public shareholding of 25% for companies. The committee is assessing whether the Adani Group and other companies involved have complied with this requirement.

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Secondly, the committee is investigating whether the Securities and Exchange Board of India (SEBI) has been provided with all the relevant information regarding transactions with related parties, as required by law. It aims to determine if there have been any violations in this aspect.

Thirdly, the committee is examining whether existing laws have been violated through the manipulation of stock prices. This is a crucial aspect considering the allegations made by the Hindenburg company in its report against the Adani Group. The committee is assessing the evidence and conducting an in-depth investigation into the matter.

Regarding the compliance with Rule 19A, the committee’s findings depend on whether the 13 overseas entities, including 12 foreign portfolio investors, have complied with the disclosure of their beneficial owners, as required by law. The disclosure of beneficial ownership is crucial in determining compliance with the minimum public shareholding requirement.

SEBI has stated that, currently, there is no evidence to suggest that the individuals listed as “beneficial owners” are not genuine. This determination is essential for identifying the “ultimate beneficial owners” and enforcing the relevant regulations. However, the committee believes that more investigation is needed to confirm SEBI’s findings and ascertain compliance with Rule 19A.

The Hindenburg Report, which accused the Adani Group of extensive stock price manipulation and unethical behavior, has raised suspicions. SEBI has requested additional time to conduct a thorough investigation in light of this report. The committee acknowledges the need for further examination and the importance of a robust enforcement policy aligned with legislative policies to prevent wastage of regulatory resources on retrospective actions.

SEBI has an active surveillance framework in place and has analyzed potential market abuse alerts for Adani stocks. Based on their analysis, SEBI has found no evidence of artificial trading. While some entities may have profited from short positions after the publication of the Hindenburg Report, the committee, considering SEBI’s explanations and empirical data, cannot conclude that there has been regulatory failure in terms of price manipulation allegations.

The Adani Group responded to the accusations made in the Hindenburg Report with a detailed 413-page response. In response to the seriousness of the allegations and the need for a thorough investigation, the Supreme Court established the Sapre Committee on March 2, 2023. The committee consists of notable individuals such as Mr. OP Bhat, former Chairman of SBI, retired Justice JP Devadhar, Mr. KV Kamath, Mr. Nandan Nilakeni, and Mr. Somasekharan Sundaresan. Justice AM Sapre, a former Supreme Court justice, is leading the committee.

The Supreme Court instructed the committee to present its report in a sealed cover within two months. However, SEBI requested a six-month extension from the Supreme Court to complete its investigation into the charges. SEBI highlighted the complexity of the transactions involved and the time required for a thorough evaluation. The court, after hearing the application for an extension, granted SEBI a maximum of three months to conclude the investigation.

SEBI has been proactive in its investigation and has reached out to eleven foreign regulators through the Multilateral Memorandum of Understanding (MMOU) between SEBI and the International Organisation of Securities Commissions (IOSCO). This collaboration is aimed at addressing the investigation into Minimum Public Shareholding (MPS) norms. The Supreme Court has given SEBI until August 14, 2023, to complete its investigation into the allegations of stock price manipulation made against the Adani Group by the US-based short-selling firm.

The Supreme Court-appointed Sapre Committee has submitted its report on the Adani-Hindenburg controversy, focusing on violations of Rule 19A, disclosure of relevant information to SEBI, and allegations of stock price manipulation. The committee emphasizes the importance of a robust regulatory framework, investor awareness, and compliance with existing regulations. SEBI’s investigation is ongoing, and additional time has been granted to complete the thorough examination of the allegations. The ultimate goal is to ensure fair and transparent markets, promote investor confidence, and maintain the integrity of the securities market in India.