Clipped from: https://www.financialexpress.com/opinion/judicial-overreach/2998033/
SC’s directions in the Adani case undermine the position of the markets regulator
Much of what the apex court has asked Sebi to do is something the market regulator has been doing or should do in the normal course anyway.
The Supreme Court has decided to form an expert committee to review regulatory mechanisms and protect investor interests in the light of the report by US-based short-seller Hindenburg Research against the Adani Group. The court has also directed the Securities and Exchange Board of India (Sebi) to investigate the allegations in the report and file a status report within two months. Most of the members of the expert panel are well-chosen as they are highly credible names with an impeccable track record. The problem is elsewhere: one fails to understand the logic of judicial intervention in the matter. Many would interpret the SC’s action as a vote of no-confidence in the country’s market regulator. The argument that the constitution of the expert committee does not reflect on Sebi’s functioning doesn’t sound convincing enough.
Much of what the apex court has asked Sebi to do is something the market regulator has been doing or should do in the normal course anyway. For example, the court has said Sebi must probe whether there has been a failure to disclose related party transactions by the Adani group. The other directives include investigation into whether there has been a violation of Section 19 of Sebi rules (Sebi’s power to issue directions), or whether there was any manipulation of stock prices. The point, however, is Sebi has already said it has initiated an enquiry into the allegations made by Hindenburg, as well as the market activity immediately preceding and post the publication of the report on January 24, to identify possible violations of its regulations. The comment was made in a report sought by the SC in response to the public interest litigation asking for an inquiry into the sell-off in Adani stocks.
Sebi has also said it is examining if there has been any violation of short-selling norms, offshore derivative instrument norms, foreign portfolio investors regulations, insider trading, and fraudulent and unfair trade practices related to the securities market. The regulator also told the court that the events related to the group have not had any significant impact at a market-wide level or at a systemic level that warranted a system-level review of the regulatory framework in operation. There is considerable merit in Sebi’s submission that Indian markets had seen “far higher turbulent times in the past” and that even during such times, it had not resorted to banning short-selling, despite demands for doing so. It’s obvious that Sebi’s response has not satisfied the judges. This is not to suggest that Sebi hasn’t faltered—the approach of the regulator has been slow in many cases. The core issue is how share prices of the group rose to such extraordinary levels without any investigation or regulatory intervention. Adani Total Gas stock, for example, went up 3,900% in just two and a half years till December last year, at a time when the global and Indian markets turned bearish. If that’s the reason for SC’s decision, it should have spelt it out clearly. Investors have a right to know whether the SC thinks Sebi has not been doing its job properly. After all, if the SC has the mandate of keeping the interests of ordinary investors as paramount, nothing should have been done to undermine the position of the regulator which is supposed to be the protector of investors’ interests.