Adani-Hindenburg case: SC bats for institutional credibility over media, third-party claims

On November 24, hearing the petitions calling for a court-monitored CBI or SIT probe into US-based short seller Hindenburg Research’s allegations against Adani group, a three-judge Supreme Court bench led by CJI DY Chandrachud had stated that it wasn’t convinced of any grounds for doubting the ongoing SEBI probe into the issue. The three-judge bench had also made two key observations. 

First, that the Hindenburg report should not be held as “ipso facto true state of affairs”. 

The bench, which also comprised justices JB Pardiwala and Manoj Misra, observed: “We don’t have to treat what is set out in the Hindenburg report as ipso facto (automatically) true state of affairs. That is why we directed the SEBI to investigate. Because for us to accept something which is in the report of an entity, which is not before us and whose veracity we have no means of testing, would really be unfair.” 

The second remark was a caution against giving unexamined credence to media reports alleging Adani group of stock price manipulation and accounting fraud.  

“I don’t think you can ask a statutory regulator to take as gospel truth something which is filed in a newspaper, whether in The Guardian or The Financial Times”, remarked the CJI-headed bench while reserving its order.

Early this week, the reflection of these two remarks could be seen in the line of reasoning the Supreme Court took in its 46-page verdict dismissing the demands for transferring the probe from SEBI to other investigative agencies, like the CBI, or constituting an SIT for the purpose. 

While rejecting the pleas, the court approved market regulator SEBI’s 22 investigations into the accusations against Adani group, and directed that the remaining two probes be completed within three months. 

In setting aside the doubts raised by petitioners over SEBI’s probe, the court was of the clear view that casting such aspersions was not rooted in evidence, and the facts of the case “do not warrant a transfer of investigation from SEBI”. Additionally, by saying that SEBI’s probe into the matter “inspires confidence” and is prima facie comprehensive, the bench batted for the market regulator’s investigative integrity. 

The court order had two important elements whose relevance extends to some recurrent themes of political contention often surfacing in litigation.

Primarily, the pleas for having one’s pick of probe agencies, with wilful preference for one entity while arbitrarily discrediting the other, has been a practice seen over the decades. 

In this case, the court has seen no valid ground for reinforcing such institutional scepticism. In the process, the bench has batted for the institutional mandate and expertise of the SEBI in conducting the probe, unless otherwise proved. The progress of the probe till now, in the bench’s view, hasn’t given any reason to turn sceptical gaze towards the robustness of investigation. 

It is in this context that the court chose to remind the petitioners about the agency’s institutional status and conduct. 

The court placed SEBI at the centre of the relevant institutional mechanism to probe allegations of stock market manipulation, or of other such malpractices or fraud. It said: “SEBI’s wide powers, coupled with its expertise and robust information-gathering mechanism, lend a high level of credibility to its decisions as a regulatory, adjudicatory and prosecuting agency.” 

It is also clear that the judgement also steered clear of assertions made on the basis of conjectures. Thus, the bench didn’t allow attributing speculative intentions to the policy decisions of the SEBI as an institution, like SEBI’s amendments in the Foreign Portfolio Investors Regulations and Listing Obligations and Disclosure Requirements. 

Refusing to see it as any alleged design, the court was critical of such a suggestion. “In effect, this court is being asked to replace the powers given to the SEBI by the Parliament as a delegate of the legislature with the petitioners’ better judgement’,’ said the bench.

Another important element is the court’s critical scrutiny of the source of information which petitioners used in their arguments – OCCRP findings and media reports. 

In its judgement, the court suggested that authenticity of such information cannot be taken for granted, and there was lack of efforts on the part of petitioners to verify the veracity of claims made in such reports. 

“The reliance on newspaper articles or reports by third-party organisations to question a comprehensive investigation by a specialised regulator doesn’t inspire confidence. Such reports by independent groups or investigative pieces by newspapers may act as inputs before the SEBI or the Expert Committee. However, they can’t be relied on as conclusive proof of the inadequacy of the investigation by the SEBI. Nor, as the petitioners state, can such inputs be regarded as ‘ credible evidence,” said the top court.

This seems an important reminder in times when a wide array of reports published in the news media and other entities are used as political tools to meet partisan ends. There has to be due diligence in verifying ‘facts’ presented by them because one cannot be sure of their method, competence and finally, their intentions. 

The exercise of judicial scrutiny implies a certain degree of rigour in which such reports cannot be arbiters of, and far less the sole source of, establishing facts. 

Within a political context, the subtext of establishing crony capitalism – ties between the favoured corporations and the ruling dispensation – has been part of the oppositional narrative in India, particularly in the last two decades. So, in the midst of contentious claims and reports, the judicial process has to be alert to fact-verifying processes when institutions like SEBI are sought to be discredited on the basis of a third-party findings or reports in a section of news media.

In giving the judicial nod of approval to the SEBI probe, the Supreme Court has reasserted the primacy of institutional mandate and expertise of the country's stock market regulator over third-party entities, media chatter and an array of insinuations. In doing so, the court was clear in stating that the petitioners were devoid of a key element in asking for transfer of probe – credible facts. 

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