Hindenburg report on Adani: Loss of investors several lakh crores, says Supreme Court; asks SEBI for framework to protect Indian investors

The Supreme Court on Friday said that Indian investors has suffered loss running into several lakh crores due to the fall in share prices of Adani Group companies after the publication of Hindenburg research report [Manohar Lal Sharma v. Union of India and anr]..A Bench of Chief Justice of India DY Chandrachud and Justices PS Narasimha and JB Pardiwala asked the Securities and Exchange Board of India (SEBI) to suggest measures can be taken to protect Indian investors in the future."It is said total loss by Indian investors is several lakh crores....How do we ensure they are protected.. it is said 10 lakh crores. How do we ensure that this does not happen in future. What role should be envisaged for SEBI in future," the CJI remarked.The bench then proceeded to order SEBI to file a response by next Monday detailing how a more robust mechanism can be put in place."The response can contain existing regulatory framework, the relevant causal factors, the need for putting into place robust mechanism to protect investors. If the union is ready to accept the suggestion, the necessary recommendation of the committee may be made. A brief note on legal and factual matrix may be filed by the Solicitor General (SG) by next Monday," the Court ordered.SG Tushar Mehta, appearing for SEBI, said that the trigger point of the issue happened beyond the jurisdiction of India."Today there is seamless capital flow.. how do you ensure that investors are protected. Everybody is an investor now, small or big," the CJI replied.The SG then said,"It would be premature for me to answer the cause but the trigger point was the report which was outside the territorial jurisdiction of the country.".The bench suggested having an expert committee and also conferring wider powers on SEBI."You can show us what is the existing structure and how to strengthen the existing regime and can we contemplate having an expert committee which can have experts. Experts can be from securities area, wise guidance of a former judge, international financial law expert etc. We can give a wider role to SEBI also and SEBI can threadbare analyse powers which exist and how it can be improved since capital flow will become more seamless," the bench said.India of today is not how it used to be in the 1990s and stock market is also a place for not rich alone but is also for the wide area of middle class, the bench added.It then ordered the SEBI to file its response."We have indicated to SG our concern with regard to ensuring that regulatory mechanism within the country is duly strengthened so that Indian investors are protected against sudden volatility which has been witnessed in recent 2 weeks," the Court said in its order.The Court also made it clear that its observations will not be considered as a reflection on the discharge of statutory function by SEBI or any other statutory authority..The Bench was hearing two public interest litigation (PIL) petitions in this regard. One was filed by Advocate Manohar Lal Sharma seeking directions to the Securities and Exchange Board of India (SEBI) and the Union Home Ministry to conduct an inquiry and register a First Information Report (FIR) against founder of Hindenburg Research, Nathan Anderson, and his associates in India for its recent report on Adani Group.The second was filed by Advocate Vishal Tiwari, who sought an inquiry into the Hindenburg report by a committee headed by a retired judge of the top court..In his plea, Sharma alleged that Anderson and his associates in India hatched a criminal conspiracy by short-selling Adani stocks in hundreds of billion dollars before 'concocting' their research report to crash the stock market.The plea further claimed that Anderson is an expert in short-selling.Therefore, directions were sought to register an FIR against Anderson and his associates under Sections 420 (cheating) and 120-B (criminal conspiracy) of the Indian Penal Code (IPC) for 'exploiting innocent investors via short selling under the garb of artificial crashing via short selling'.He also sought recovery of Anderson's alleged turnover with penalty to compensate investors in the interest of justice.A declaration that short-selling is an offence of fraud against investors to be prosecuted under Section 420 of IPC read with Section 15HA (penalty for fraudulent and unfair trade practices) of SEBI Act, is also prayed for.Along with the plea, Sharma has filed a miscellaneous application seeking a gag order to halt media reports concerning listed companies including the Adani group of companies, unless such reports are first filed with and verified by the SEBI..Tiwari, in his petition, underlined the fate of people when shares lose value in the securities market."Lots of people who had the whole life time saving in such stocks gets a maximum setback due to fall in such shares with huge amount of money getting into drain. Various instances of suicides and other life taking incidences come up because of such huge loss of money where lifesaving of individuals are invested in," the PIL stated.The plea highlighted the rout in Adani shares over the past week, and stated that it also impacted stocks of state-owned and private lenders with an exposure to the group, fuelling the fall in the Nifty and Sensex to three-month lows.Tiwari, therefore, sought setting up of a special committee to oversee a sanctioning policy for loans of more than ₹500 crore.He also prayed that an inquiry into the Hindenburg Research report on the Adani Group by a committee headed by a retired judge of the top court..[Read order]