Introduction:

In a recent ruling, the Supreme Court of India, presided over by Chief Justice DY Chandrachud along with Justices JB Pardiwala and Manoj Misra, declined to order an SIT probe into allegations of stock price manipulation against the Adani Group based on the Hindenburg Research Report. Instead, the court directed the Securities and Exchange Board of India (SEBI) and the Union government’s investigative agencies to investigate whether Indian investors incurred losses due to Hindenburg Research’s conduct and other entities engaging in short positions, involving any violation of law.

Arguments:

The case, Vishal Tiwari v. Union of India, revolved around allegations of stock price manipulation by Hindenburg Research, which admitted to taking a short position in the Adani group through US-traded bonds and non-Indian traded derivative instruments. The petitioners sought an SIT probe, emphasizing the gravity of the situation and the need to transfer the investigation from SEBI to a specialized team due to the alleged inaction by the competent authority. Conversely, SEBI and the Union government stressed the legitimacy of short selling as an investment activity, highlighting its recognition by securities market regulators worldwide and emphasizing the need for regulation rather than prohibition.

Court’s Judgement:

The Supreme Court refrained from ordering an SIT probe, citing the absence of glaring, wilful, and deliberate inaction in SEBI’s investigation. Instead, it directed SEBI and government agencies to probe whether Indian investors’ losses resulted from Hindenburg Research’s conduct and any other entities taking short positions, and to take suitable action if legal violations were found. Notably, the court acknowledged SEBI’s stance on the legitimacy of short selling but highlighted the necessity to examine any adverse impact on Indian investors. Ultimately, the bench opted against transferring the investigation from SEBI, affirming the absence of extraordinary circumstances warranting such action.