Adani-Hindenburg investigation: Supreme Court panel advises Sebi against a wild goose chase

• The Supreme Court-appointed panel advises Sebi to accept its own laws and comply with them.
• Given that different members of the regulator adjudicate differently on the same matter, the committee has called for better judicial discipline by the markets regulator.
• Panel urges Sebi to separate the quasi-judicial arm of the regulator from the executive arm for better checks and balances.

The divergence between the six-member Supreme Court appointed committee led by Justice AM Sapre and Sebi is very apparent in its May 8 report. Given that Sebi is keen on further investigating 13 foreign portfolio investors, even though prima facie they have disclosed details that are in compliance with existing own laws. The committee has listed several recommendations for Sebi’s functioning so that its precious resources would not be drained.

The committee headed by Justice Sapre has said that “the regulator must be well structured and its own governance must be well thought through”. From the report, it is abundantly clear that in its wisdom Sebi has amended rules on beneficial ownership of Foreign Portfolio Investors (FPIs) in 2018 and Related Party Transactions, but now wants to expand the regulatory remit beyond the scope of these two laws.

For the last few weeks, Sebi has been asking for more time to investigate the allegations made against the Adani Group companies by Hindenburg Research, a New York-based investment research firm. The six-member committee appointed by the Supreme Court has offered the securities market regulator several suggestions to strengthen the regulatory process. Some of the key measures recommended by the SC Committee headed by Justice AM Sapre include:

1. Given that Sebi wants to go back on its own existing rules on FPIs by investigating further to see the ultimate beneficiaries beyond what they are required to disclose, the committee has said that the regulator must be well structured and its own governance should be more well thought through. For greater transparency in lawmaking, the panel has suggested “greater acceptance and compliance with regulations”.
   
2. The panel has also found that there has been a sharp increase in proceedings initiated by Sebi in recent years. The committee believes there is a need to develop a proper enforcement policy that would optimise the utilisation of precious resources. The panel has suggested that more attention be paid to settlement of cases as well.
   
3. The committee also observed that judgments from Sebi show that different officials adjudicate the same matter differently. The committee has called for better judicial discipline by the markets regulator.
   
4. Sebi has also been advised to adopt a firm timeline while initiating investigations and completing them. “A complete absence of timelines in the law is a stark feature that needs correction.” The regulator objective of Sebi may be better served by timely and sharp action in a few large and complex cases as compared to frittering away energy and resources in thousands of tiny cases.
   
5. The Supreme Court appointed committee headed by Justice Sapre has also called for separation of powers between the quasi-judicial arm of the regulator and the executive arm. The report says: “The quasi-judicial arm of the regulator has to be necessarily ring-fenced from the executive arm so that it is truly a check and balance. If performance of the quasi-judicial officers is appraised by the executive arm the very foundation of separation of powers would stand nullified.”
   
6. On the regulator’s surveillance and administrative actions, the committee has suggested that human intervention be totally eradicated from decisions pertaining to inclusion of stock-specific derivatives. The report says: “The element of human intervention must be brought down to the bare minimum and to the core strategic elements.