Adani-Hindenburg Case: The Purpose Of Supreme Court-Appointed Committee
The apex court's order raises a key question: Why set up a committee if SEBI's investigation is ongoing?
The Supreme Court on Thursday appointed a six-member committee to look into investors' losses as a consequence of Hindenburg Research's allegations against Adani Group. The committee has been asked to submit its report in a sealed cover within two months.
Simultaneously, SEBI has been asked to investigate the market rout. The mandate of the expert committee and the regulator's, as articulated by the apex court, has several overlaps.
The top court's directions raises two key questions:
One, what is the purpose of the expert committee when SEBI, too, has been asked to investigate any potential violation of securities laws or manipulation of stock prices, among other aspects? More importantly, will the setting up of this committee be viewed as undermining the authority of the market regulator?
Two, why the sealed cover?
BQ Prime spoke with senior advocates Aman Lekhi and Sidharth Luthra.
The Committee's Purpose
The independent committee is headed by former Supreme Court judge Justice Abhay Manohar Sapre. It has banking veterans in OP Bhatt and KV Kamath, a technocrat in Nandan Nilekani, a securities law expert in Somasekhar Sundaresan, and a judicial lens in former Bombay High Court judge Justice JP Devadhar.
It is supposed to examine:
If there's been a regulatory failure, violation of securities laws in relation to trading in stocks of the Adani Group
Causal factors that have led to volatility in the securities market
Measures to strengthen investor awareness, strengthen regulatory framework
Securing compliance with existing regulations for the protection of investors
The constitution of the expert committee, the apex court said, does not divest SEBI of its powers or responsibilities in continuing with its investigation into the recent volatility in the securities market.
Lekhi said, in a way, it is an indictment of the regulator. Despite the existence of a statutory mechanism, which is supposed to be self operative and initiate correctives on its own, if the Supreme Court appoints a committee to inquire, it clearly suggests that at least there is a prima facie cause to believe an oversight on the part of the regulator.
It's a way to scrutinise what is there and for the court to reassure itself that the requisite checks were in place and there was no lapse on the part of those entrusted with the responsibility.Aman Lekhi, Senior Advocate
The purpose of setting up an independent committee was so that there remains no doubt and a situation doesn't arise tomorrow where allegations and counter allegations are made against the regulator for not having done its job thoroughly, Luthra said.
The whole purpose, as it seems from the reading of the order, is that there should be judicial oversight in the sense that the Supreme Court-appointed committee will oversee what is happening.Siddharth Luthra, Senior Advocate
The Sealed Cover Ask
The apex court has asked the committee to furnish its suggestions in a sealed cover within two months.
Luthra sees merit in the initial submission in a sealed cover, but adds that the report should eventually be disclosed.
It is important and sensitive on the part of the court to put the suggestions in a sealed cover because if it comes out in the open domain, then there may be consequences, not just for the parties whose role is under investigation, but more for the investor because the market may start yo-yoing depending on which way the report delivers its findings, he explains.
But once the report is placed before the court, it should be opened and the findings should be made public because after all we're concerned with public interest.Siddharth Luthra, Senior Advocate
Lekhi is of the view that the direction re-ignites the whole controversy about "sealed covers", which was presumed to be settled by the court when it earlier declined the government's suggestions to do so in this case. "It is difficult to ascertain the real reason behind the sealed cover suggestion."
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