Vishal Tiwari vs Union Of India

IN THE SUPREME COURT OF INDIA ORIGINAL CIVIL/CRIMINAL JURISDICTION

Writ Petition (C) No. 162 of 2023

Vishal Tiwari …Petitioner

Versus

Union of India & Ors. …Respondents

With

Writ Petition (Crl) No. 39 of 2023

With

Writ Petition (C) No. 201 of 2023

And With

Writ Petition (Crl) No. 57 of 2023

Signature Not Verified Digitally signed by Sanjay Kumar Date: 2023.03.02 12:24:36 IST Reason: 1 ORDER

1. Notice.

2. The present batch of petitions concerns the loss of investor wealth in the

securities market over the last few weeks because of a steep decline in the share

price of the Adani Group of companies. The decline in the share price was

precipitated by a report published by Hindenburg Research on 24 January 2023.

This report inter alia alleges that the Adani Group of companies has manipulated

its share prices; failed to disclose transactions with related parties and other

relevant information concerning related parties in contravention of the

regulations framed by SEBI; and violated other provisions of securities laws. The

report also states that Hindenburg Research has taken a short position in the

Adani Group companies through US traded bonds and non-Indian traded

derivative instruments. It is in this background that the present batch of petitions

came to be filed.

3. A brief overview of the petitions follows:

a. WP(C) No. 162 of 2023 states that public money amounting to thousands

of crores is at risk because public institutions like the State Bank of India1

and the Life Insurance Corporation of India2 are exposed to the Adani

Group. It inter alia seeks the issuance of directions to the Union of India

and the Union Ministry of Home Affairs to constitute a committee headed

1 “SBI” 2 “LIC”

2 by a retired judge of the Supreme Court to investigate the contents of the

report published by Hindenburg Research;

b. WP(Crl) No. 39 of 2023 is for the issuance of directions to the Union Ministry

of Home Affairs to register an FIR against Mr. Nathan Anderson (founder of

Hindenburg Research) and his associates for short selling, and for

directions to recover the profits yielded by the short selling to compensate

investors;

c. WP(C) No. 201 of 2023 inter alia states that “the Adani Group has been in

flagrant violation of ... Rule 19A of the Securities Contracts (Regulation)

Rules by surreptitiously controlling more than 75% of the shares of public

listed Adani group companies, thereby manipulating the price of its shares

in the market.” It inter alia seeks a court monitored investigation by a

Special Investigation Team or by the Central Bureau of Investigation into

the allegations of fraud and the role played by top officials of leading

public sector banks and other lender institutions; and

d. WP(Crl) 57 of 2023 is for directions to any investigative authority to: (i)

investigate the Adani Group companies under the supervision of a sitting

judge of this Court; and (ii) investigate the role of LIC and SBI in these

transactions.

4. In its order dated 10 February 2023, this Court noted that there was a need

to review existing regulatory mechanisms in the financial sector to ensure that

they are strengthened with a view to protect Indian investors from volatilities in

the market. Accordingly, it was suggested to the Solicitor General that he may

3 seek instructions from the Union of India on the constitution and remit of an

expert committee.

5. We have heard Mr. Prashant Bhushan, learned senior counsel appearing

for the petitioners and Mr. Tushar Mehta, learned Solicitor General appearing for

the Union of India. Both of them have also placed on record brief notes

indicating their suggestions for the remit of the expert committee to be

constituted. Further, SEBI has placed on record a brief note on the factual and

legal aspects describing the existing statutory regime, regulatory mechanisms

and frameworks in place for the protection of investors. It has also laid out the

regulatory framework governing short selling. Mr Vishal Tiwari and Mr Manohar Lal

Sharma have appeared in person.

6. SEBI has submitted in its note that:

a. It has adopted a disclosure based regulatory regime for both issuance of

and trading in securities. This is in line with the discontinuation of pricing

control for capital issues in favour of the principle of free discovery by the

markets based on demand and supply from informed investors; and

b. It is “strongly and adequately empowered to put in place regulatory

frameworks for effecting stable operations and development of the

securities markets including protection of investors.” It has also detailed the

extant framework governing investor protection in the context of the

subject matter at hand. It has stated that the key pillars of investor

protection are:

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“11.1 Mandatory disclosures by listed companies to facilitate free and fair price discovery and to ensure that all investors have equal access to material information for them to be able to take informed investment decisions;

11.2 Market systems to ensure seamless trading and settlement including volatility management;

11.3 Enforcement action in the event of misconduct in the market including fraud or violations of SEBI regulations.”

7. In Prakash Gupta v. SEBI,3 a two Judge Bench of this Court, of which one

of us (D.Y. Chandrachud, J) was a part discussed the specialized regulatory role

of SEBI and noted that:

“99. The provisions of the SEBI Act, as analyzed earlier in this judgment, would indicate the importance of the role which has been ascribed to it as a regulatory, adjudicatory and prosecuting agency. SEBI has vital functions to discharge in the context of maintaining an orderly and stable securities’ market so as to protect the interests of investors.”

8. On the subject matter of these petitions, SEBI has stated that:

“21.1 SEBI is already enquiring into both, the allegations made in the Hindenburg report as well as the market activity immediately preceding and post the publication of the report, to identify violations of SEBI Regulations including but not limited to SEBI (Prohibition of Fraudulent and Unfair Trade Practices I relating to Securities Market) Regulations 2003, SEBI (Prohibition of Insider Trading) Regulations 2015, SEBI (Foreign Portfolio Investors) Regulations 2019, Offshore Derivative Instruments (ODI) norms, short selling norms, if any. As the matter is in early

3 2021 SCC OnLine SC 485

5 stages of examination, it may not be appropriate to list details about the ongoing proceedings at this stage.”

9. In view of the above statement, it appears that SEBI is seized of the

investigation into the allegations made against the Adani Group companies.

SEBI has not expressly referred to an investigation into the alleged violation of the

Securities Contracts (Regulation) Rules 1957 which provide for the maintenance

of minimum public shareholding in a public limited company. Similarly, there may

be various other allegations that SEBI must include in its investigation.

10. As a part of its ongoing investigation, SEBI shall also investigate the

following aspects of the issues raised in the present batch of petitions:

a. Whether there has been a violation of Rule 19A of the Securities Contracts

(Regulation) Rules 1957;

b. Whether there has been a failure to disclose transactions with related

parties and other relevant information which concerns related parties to

SEBI, in accordance with law; and

c. Whether there was any manipulation of stock prices in contravention of

existing laws.

11. The above directions shall not be construed to limit the contours of the

ongoing investigation. SEBI shall expeditiously conclude the investigation within

two months and file a status report.

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12. Further, SEBI shall apprise the expert committee (constituted in paragraph

14 of this order) of the action that it has taken in furtherance of the directions of

this Court as well as the steps that it has taken in furtherance of its ongoing

investigation. The constitution of the expert committee does not divest SEBI of its

powers or responsibilities in continuing with its investigation into the recent

volatility in the securities market.

13. In Prakash Gupta (supra), we took note of the developing nature of the

regulations pertaining to the securities market. This Court noted that:

“101. Therefore, the SEBI Act and the rules, regulations and circulars made or issued under the legislation, are constantly evolving with a concerted aim to enforce order in the securities market and promote its healthy growth while protecting investor wealth.”

14. In order to protect Indian investors against volatility of the kind which has

been witnessed in the recent past, we are of the view that it is appropriate to

constitute an Expert Committee for the assessment of the extant regulatory

framework and for making recommendations to strengthen it. We hereby

constitute a committee consisting of the following members:

a. Mr. O P Bhatt;

b. Justice J P Devadhar (retired)

c. Mr. KV Kamath;

d. Mr. Nandan Nilekani; and

e. Mr. Somashekhar Sundaresan.

7 The Expert Committee shall be headed by Justice Abhay Manohar Sapre, a

former judge of the Supreme Court of India.

15. The remit of the Committee shall be as follows:

a. To provide an overall assessment of the situation including the relevant

causal factors which have led to the volatility in the securities market in

the recent past;

b. To suggest measures to strengthen investor awareness;

c. To investigate whether there has been regulatory failure in dealing with

the alleged contravention of laws pertaining to the securities market in

relation to the Adani Group or other companies; and

d. To suggest measures to (i) strengthen the statutory and/or regulatory

framework; and (ii) secure compliance with the existing framework for the

protection of investors.

16. The Chairperson of the Securities and Exchange Board of India is requested

to ensure that all requisite information is provided to the Committee. All

agencies of the Union Government including agencies connected with

financial regulation, fiscal agencies and law enforcement agencies shall

co-operate with the Committee. The Committee is at liberty to seek

recourse to external experts in its work.

17. The honorarium payable to the members of the Committee shall be fixed

by the Chairperson and shall be borne by the Union Government. The

8 Secretary, Ministry of Finance shall nominate a senior officer who will act as

a nodal officer to provide logistical assistance to the Committee. All the

expenses incurred in connection with the work of the Committee shall be

defrayed by the Union Government.

18. The Committee is requested to furnish its report in sealed cover to this

Court within two months.

…….…………………………...............................CJI. [Dr Dhananjaya Y Chandrachud]

……….…………………………...............................J. [Pamidighantam Sri Narasimha]

……….…………………………...............................J. [J.B. Pardiwala]

New Delhi;

March 2, 2023

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