Multiple public interest petitions were filed before the Supreme Court of India in the final days of January 2023, seeking a court-monitored investigation into the allegations made by Hindenburg Research against the Adani Group. The petitions, filed by advocates including Vishal Tiwari and M.L. Sharma, invoked Article 32 of the Constitution and sought directions to SEBI to conduct a comprehensive investigation into alleged stock manipulation, accounting irregularities, and related-party transactions.
Background
Following the publication of the Hindenburg Research report on 24 January 2023 and the Adani Group's 413-page rebuttal on 29 January 2023, Adani Group shares continued to plummet, with the conglomerate losing over USD 100 billion in combined market capitalisation. The crisis intensified when Adani Enterprises Limited withdrew its fully subscribed Rs. 20,000 crore Follow-on Public Offer (FPO) on 1 February 2023, citing market conditions and investor protection concerns. Retail investors, institutional investors, and the Life Insurance Corporation of India (LIC) — which held significant positions in Adani Group companies — faced substantial losses. The petitioners argued that SEBI had failed in its regulatory duty to protect investor interests and that a court-monitored probe was necessary to restore market confidence.
Key Provisions
The petitions raised the following issues for the Supreme Court's consideration:
Court-monitored investigation: Multiple petitioners sought the constitution of a Special Investigation Team (SIT) or an expert committee under Supreme Court supervision to investigate the Hindenburg allegations, arguing that SEBI's proximity to market participants could compromise an independent investigation.
SEBI's regulatory failure: Petitioners contended that SEBI had prior knowledge of potential irregularities in Adani Group companies but failed to act, raising questions about the adequacy of existing regulatory surveillance mechanisms.
Investor protection: The petitions sought directions for protecting the interests of retail investors who had suffered significant losses, including LIC policyholders whose funds were exposed to Adani Group securities.
Short-selling regulation: Some petitions sought a declaration that short selling by foreign entities, as conducted by Hindenburg Research, should be investigated for potential violations of Indian securities law.
Systemic risk assessment: The petitions highlighted the concentration risk posed by the rapid erosion of Adani Group market capitalisation and its potential impact on the broader financial system, including banking sector exposure.
Implications for Practitioners
The Supreme Court's decision to take up these petitions signals heightened judicial scrutiny of securities market regulation in India. Securities law practitioners should anticipate that the eventual disposition of these matters will shape the contours of SEBI's enforcement obligations and the scope of judicial intervention in market regulation.
For practitioners advising institutional investors, the episode highlights the need for rigorous due diligence on corporate governance structures and related-party transactions, particularly in conglomerate groups with complex offshore holdings.
Corporate governance advisors should note that the level of public and judicial attention directed at the Adani Group's corporate structure may prompt SEBI to tighten disclosure requirements for listed entities, particularly regarding beneficial ownership and offshore entity disclosures.
The matter also raises important questions about the regulatory framework for short-selling in India and the obligations of research firms that publish reports while holding short positions. The Supreme Court's eventual adjudication will provide clarity on the legal boundaries of activist short selling under Indian law.