Govt open to panel review of investor protection regime

The apex court is hearing public interest litigation (PIL) related to the Hindenburg Research report on the Adani Group.

The Supreme Court last week sought the government’s views on whether the regulatory regime needs a review, suggesting an expert panel headed by a former judge on the matter.

The apex court has asked the government to submit a note by Wednesday on the remit of the committee. The case will be heard on Friday again.

“I have instructions that Sebi and other agencies are fully equipped, not only regime wise, but otherwise also to take care of the situation,” solicitor general Tushar Mehta told a bench led by chief justice DY Chandrachud. “However, responding to the suggestion from the court, the government has no objection to constituting a committee.”

Adani Group stocks have lost ₹10.02 lakh crore in market capitalisation since January 24, when the Hindenburg Research report was released.

In a separate note to the court, Sebi said a robust framework and market systems ensure seamless trading and settlement.

Suggestions on Members
These cover volatility management and restrictions on short selling, including by foreign institutions, as well as the enforcement of market misconduct.

In its submission, the government said the apex court should choose the expert panel from the names it would suggest in a sealed envelope. Mehta said the formation of the committee should not spark concern and the remit should be defined clearly.

“The remit of the committee would be very relevant because any unintentional message to international investors or domestic investors that the regulatory authorities need monitoring by the committee may have some adverse impact on the flow of money,” Mehta said. “We can provide names in a sealed cover because it may not be appropriate to discuss in an open court hearing. They are people of some calibre.”

The court asked the solicitor general to give a note on the committee’s remit by Wednesday so that “the judges can reflect on it” before hearing the case on Friday.

The capital market regulator said it’s examining the issue.

“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,” it told the court.

The regulator noted that the subject of the petition relates to events that were localised to a single group of companies and that there was no significant impact at a market-wide level or at a system-wide level that might warrant a system-level review of the regulatory frameworks in operation.

Court’s concerns
The PILs were filed by advocates ML Sharma and Vishal Tiwari earlier this month. Sharma sought a direction to the government and Sebi to probe and prosecute Hindenburg founder Nathan Anderson and his associates for “exploiting and duping” investors. Tiwari wanted the court to set up a committee under a retired apex court judge to investigate the content of the report.

The Hindenburg Research report accused the conglomerate of engaging in “brazen stock manipulation” and an “accounting fraud scheme”. The Adani Group has rejected the report and denied any wrongdoing.

On February 10, the top court expressed concern over the loss of investor wealth and asked whether there was a need to revamp the regulatory regime. The court underlined that it was seeking an “open dialogue” and that investor protection was the primary concern.

“We have suggested to the solicitor general that he may seek instructions on whether the government of India would facilitate the constitution of an expert committee for an overall assessment of the situation and, if so, to place its suggestions on the constitution and remit of the committee on the next date,” the court had said.