Sebi: Supreme Court: Hindenburg not gospel truth, rely on our agencies

NEW DELHI: The Supreme Court on Friday appeared unpersuaded by lawyer Prashant Bhushan, appearing for a third-year law student, who attempted to punch holes in Sebi‘s probe into 24 cases of irregularities relating to alleged stock market manipulations by the Adani Group and argued that the regulator had failed to take note of “credible information” provided in the Hindenburg report.
Bhushan said Hindenburg had received information about alleged stock market manipulations by the Adani Group from Mauritius authorities. The bench said, “Therefore, we have to ask our investigating agencies to probe those allegations. You may call it (Hindenburg report) credible, but we cannot make any assumption about it being credible or lacking in credibility.”
The counsel persisted, reiterating that the Sebi investigation was suspect and demanding a fresh SIT probe into the allegations in Hindenburg report. “Where is the material before us to doubt what Sebi has done? Should we, before even the Sebi decides a matter, say the regulator has not done its job?” asked the bench.”We have to be conscious that Sebi is a statutory body, exclusively entrusted with the jurisdiction to investigate stock market violations. Today, is it proper for the highest court to say without any material that we will constitute an SIT on our own. It has to be done with a great deal of calibration,” it said.
Before it reserved its judgment in the case, the court was informed by solicitor general Tushar Mehta on behalf of Sebi that of the 24 cases identified for probe (relating to alleged stock market manipulations), investigations have been completed in 22 cases and show cause notices issued to the parties concerned after start of quasi-judicial proceedings initiated by the regulator.
The CJI said, “One of the principal reasons for our intervention was the extreme volatility of the stock market which caused loss to investors’ wealth. What is Sebi intending to do to protect investors against such volatility caused by short selling? Has Sebi examined whether there is a need for tightening the regulations? What is Sebi intending to do in terms of protecting investors?”

Mehta said Sebi has in principle accepted the suggestions by the SC-appointed expert committee headed by retired SC Judge A M Sapre for tweaking the regulatory framework to strengthen it and is working on this issue. The SG agreed with the bench and said the exercise to strengthen the regulatory mechanism for the bourses may require coordination with the finance ministry.
Bhushan cited certain newspaper reports to buttress his allegations of stock market wrongdoings by the Adani Group to request the court to strike down certain Sebi regulations that allegedly helped the business group indulge in malpractices. The bench said, “Somebody who publishes something in the public realm is not bound by the evidentiary standards which bind a statutory body. They (Sebi) are amenable to the jurisdiction of the Securities and Appellate Tribunal. They can’t just pick up a newspaper report and issue show cause notices to others. That notice to show cause would be quashed by judicial bodies.”

Bhushan then demanded that the Sebi investigation report be made public for others to determine its credibility. The regulator objected, saying it would not be proper as quasi-judicial adjudications have commenced and show cause notices issued to the parties concerned.
The bench agreed with the SG and said, “They (Sebi) are exercising their quasi-judicial powers and (have) issued show cause notices. Should the report be made public at this juncture? Where is the material before us to doubt what Sebi has done?”
Bhushan cited reports published in the ‘Financial Times’, ‘Guardian’ and an organisation ‘OCCRP’ to back his allegations in the petition. The bench asked, “We don’t think we can ask a statutory regulator to take as gospel truth something which is published in a newspaper, be it Financial Times or Guardian. We have no reason to discredit them. But we cannot certainly say that these (newspaper reports) are evidence to discredit Sebi.”
When Bhushan pressed on by saying that if SIT could get reports from journalists for its investigation, Sebi could also do the same, the bench said, “Should Sebi be following up journalists and asking a journalist, who is not subject to their jurisdiction, for material relating to the case?”