India Finance
Questions arise after Supreme Court order in Adani-Hindenburg case
Mar 10, 2023
The response of India's Supreme Court to the Adani-Hindenburg fracas has raised questions and criticism.

The Supreme Court of India’s order in the Adani-Hindenburg case does nothing to ensure an independent and fair investigation into allegations of corporate fraud by the Adani Group. The Expert Committee appointed by the court to study regulatory frameworks has a member close to Prime Minister Narendra Modi and members with links to businesses accused of alleged wrongdoings in the past. The court’s order may well dampen criticism of Prime Minister Narendra Modi’s government for its close association with Gautam Adani.

The Adani-Hindenburg matter reached India’s Supreme Court on 5 February 2023 via a cascade of petitions from numerous parties. The petitions sought a wide range of reliefs including an independent probe into the Adani Group, to declare short selling an offence in India, and even to gag the media from reporting on the issue. In response, the court has established an ‘expert committee’ to look into the allegations and made recommendations.

Group founder Gautam Adani cancelling February's $2.5 billion share issue.

Unfortunately, the ‘Expert Committee’ appointed by India’s Supreme Court to review the securities market regulatory framework in response to the Adani-Hindenburg matter includes two members with previous links to cases alleging wrongdoing. Another member is a key ally of Gautam Adani’s close confidant, the Hindu-nationalist Prime Minister Narendra Modi, raising concerns about the objectivity of these committee members in dealing with the politically-sensitive case.

On 24 January 2023, the US-based short-seller Hindenburg Research, accused the Adani Group of ‘pulling the largest con in corporate history’. The Group, which had seen its fortunes sky-rocket under Hindu-nationalist Prime Minister Narendra Modi, was accused of ‘stock manipulation and accounting fraud’.

The now famous front page of the report into Adani companies by Hindenburg Research, published 24 January 2023.

The report triggered a steep fall of nearly 60% in the group’s market capitalisation during the month after the report’s publication. The story has gathered much attention in India; opposition political parties including the Congress have latched onto the issue, both inside and outside the parliament.

The Congress party has repeatedly attacked Modi and his government over its links to the Adani Group of companies and highlighted how ‘PM Modi’s closest friend’s’ wealth has increased by a factor of 13 in 2.5 years.

Unwilling to answer pointed questions on Adani, Modi responded that ‘no matter how much mud you (the opposition) sling, the lotus will keep blooming’, referring to his party's lotus flower symbol and electoral wins.

On 2 March 2023, India’s Supreme Court, in response to the petitions before it, decided to create a committee of experts, headed by a former judge of the country’s apex court, to analyse and recommend ways to strengthen the regulatory framework in India’s securities market. Amongst other things, the committee was asked to ‘investigate whether there was a regulatory framework in dealing with alleged violations of law related to the securities market by the Adani Group or other companies’.

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Further noting that India’s stock-market regulator, the Securities and Exchange Board of India (SEBI), is ‘seized of the matter’, the top court ordered it to continue with its investigation into Hindenburg’s claims and complete it within two months. Though not granting the expert committee oversight powers over SEBI, the court has asked SEBI to ‘apprise the expert committee of the action that it has taken in furtherance of the directions of this Court as well as the steps that it has taken in furtherance of its ongoing investigation’.

However, by doing these, the court has left much to answer.

Committee members — who are they?

The Expert Committee consists of a former Supreme Court Justice, A M Sapre, as its chairman and five other members – former Chairman of India’s largest nationalised bank State Bank of India (SBI) O P Bhatt, former Bombay High Court judge and presiding officer of the Securities Appellate Tribunal J P Devadhar, former chief of the New Development Bank of BRICS countries K V Kamath, co-founder of Infosys Limited Nandan Nilekani, and corporate lawyer Somasekharan Sundaresan.

Justice A M Sapre, chairman of the expert committee appointed by the Supreme Court to examine the Adani/Hindenburg matter.

Some of these names raise pertinent questions.

K V Kamath, who was the chairman of ICICI Bank from 1996 to 2009, figured in a First Information Report (FIR), a written document prepared by the police when they receive information about the commission of a possible offence, in the ICICI Bank Fraud case. The case relates to Chanda Kocchar who served as the Managing Director and CEO of ICICI Bank from 2009 to 2018. The Central Bureau of Investigation (CBI) alleges that she and her family received various kickbacks over her tenure in lieu of loans provided to the Videocon group, many of which would eventually turn into non-performing assets (NPAs). In 2020, a bank employees’ association alleged that some of the loans were sanctioned during the time when Kamath was the non-executive chairman of the bank and a member of the committee that approved the loans.

O P Bhatt, the former Chairman of SBI bank, was examined by the CBI in March 2018 in a case of alleged wrongdoing in disbursing loans to the former liquor baron and fugitive economic offender, Vijay Mallya. Mallya is accused of defrauding banks, including SBI, of US $1.2 billion. Bhatt served as the SBI chairman between 2006 and 2011 when the majority of these loans were provided to Mallya’s companies. It was the CBI’s case that the SBI-led consortium of lenders did not conduct any ‘forensic audit’ despite being aware of the ‘poor financial health’ of Mallya’s companies.

Both the ICICI Bank Fraud case and Mallya’s case are open and active. This makes both Kamath and Bhatt vulnerable to Modi’s law enforcement agencies. By now, it is well documented how agencies like the Central Bureau of Investigation, the Income Tax agency, the Enforcement Directorate for economic crimes and other such agencies have been ‘weaponised’ by Modi’s government to go after opposition politicians, dissenters, and anyone else who does not toe his government’s line (here, here, here, here).

Nandan Nilekani, the co-founder of Infosys, is known to be a close associate of Prime Minister Narendra Modi. Ever since Modi's rise to power in 2014, the Indian billionaire has been a key figure in the government’s push for ‘Digital India’. Nilekani was personally roped in by the Prime Minister after the demonetisation of high-value currency notes in 2016 to create a blueprint for digital payments. He has now partnered with the government to create a freely accessible online system facilitating trade for small merchants. Critics fear his open association with Modi might have a bearing on his objectivity while serving on the Expert Committee.

The appointment of corporate lawyer Somasekhar Sundaresan to the committee has come as a surprise to many. On 16 February 2022, the Supreme Court collegium, a committee of three senior-most judges of the court, recommended Sundaresan for judgeship in the High Court of the western state of Maharashtra. Modi’s government had objected to Sundaresan’s candidature on the grounds that he is ‘highly biased opinionated person’ and ‘selectively critical’ of the government.

On 18 January 2023, the collegium rejected government’s objections and reiterated its earlier recommendation. However, Modi’s government has been adamant and in defiance of the court, continues to withhold assent to his candidacy.

The appointment of Sundaresan to the Supreme Court’s expert committee could lead to two potential outcomes. Firstly, that the government swiftly clears his appointment as a judge, thereby causing a vacancy on the committee and as a result, stall or delay the committee’s work. Such a delay would enable the government to buy more time and let the Adani-Hindenburg issue die down. Secondly, that Sundaresan’s candidature continues to be kept in a state of limbo, at least until the Expert Committee fulfils its mandate. Either way, the government stands to benefit politically, at least for a short while.

It is not known how and why the Supreme Court selected the persons it did.

Anuj Bhuwania, a lawyer, fellow at SCRIPTS, a Berlin-based research institute, and author of the 2017 book Courting the People: Public Interest Litigation in Post-Emergency India, tells AdaniWatch that the process to pick and appoint persons to a committee by the Supreme Court is ‘usually random’.

‘What is the process for the court to select these six people? Suppose they are good people, but how did the court know? Usually, it is based on hearsay. It is a random process,’ he said.

Overloaded agenda of the committee

The Supreme Court has asked the committee to ponder four things. They are:

  1. To provide an overall assessment of the situation including the relevant causal factors which have led to the volatility in the securities market in the recent past;
  2. To suggest measures to strengthen investor awareness;
  3. To investigate whether there has been regulatory failure in dealing with the alleged contravention of laws pertaining to the securities market in relation to the Adani Group or other companies;
  4. To suggest measures to (i) strengthen the statutory and/or regulatory framework; (ii) secure compliance with the existing framework for the protection of investors.

These remits of the Expert Committee – to provide an assessment of causal factors which have led to volatility in the securities market, to consider measures to increase investor awareness, to consider measures to strengthen statutory and regulatory framework – are clearly the domain of an elected government, rather than of a court.

It should be noted that the Expert Committee has no powers to oversee SEBI’s investigation. It is to undertake a purely academic task of analysing the securities market, finding whether regulations have failed in any cases, and making recommendations to strengthen the legal framework.

Critics point out that issues such as volatility in the securities market that the court seems to be so worried about are ‘non-issues’ that even the market regulator SEBI should be unconcerned about—unless of course regulations for trading are broken and foul play is suspected.

Bhuwania points out that the court has gotten itself into something that should have been left for governmental institutions to do—analysing and making policies.

‘This committee business is not a particularly important exercise. It is not the court’s job to analyse laws and policies. The committee is just a diversion from the main matter to investigate Hindenburg’s claims,’ Bhuwania told this reporter.

Swamped with ‘concerns’, the court has missed the prime need arising from the Adani-Hindenburg case – that of an impartial, independent inquiry into allegations of wrongdoing.

Does nothing to ensure an independent, fair probe

To begin with, the Supreme Court has failed to ensure an independent and fair probe into the matter, either by way of ordering a court-monitored investigation or a supervised investigation under a former judge.

Instead, it has instructed SEBI, the market regulator, to continue with its protracted investigation into a controversy that SEBI itself might share responsibility for, given that its investigation into Adani’s offshore investors has produced no outcomes in over 20 months. (SEBI’s investigation was first announced in July 2021 after the issue of Adani’s offshore investors was raised in the media and in parliament.) Previous experiences have shown (here and here) how agencies can bury issues when the political stakes are high, serving as a ‘clean-chit’ exercise.

Numerous other allegations of wrongdoing on the part of the Adani Group have been made over the years. SEBI has moved slowly, or rather not moved at all to investigate such claims.

Take the example of the four Mauritius-based Foreign Portfolio Investment (FPI) funds that hold US $7 billion in the Adani Group’s publicly-listed companies. All four funds — Elara India Opportunities Fund, Cresta Fund, Albula Investment Fund and APMS Investment Fund — have a history of investing in firms which ended up defaulting or were investigated for wrongdoing.

Three of these funds — Cresta, Albula and Elara — have been subject to probes for alleged round-tripping. (Round-trip trading, or ‘round-tripping’, usually refers to the unethical practice of purchasing and selling shares of the same security over and over again in an attempt to manipulate observers into believing that the security is in higher demand than it is in actuality.)

Despite calls by the likes of Indian opposition lawmaker Mahua Moitra seeking an investigation into whether the Mauritius funds are being used as shell companies for Adani’s own money, SEBI has failed to produce any findings.

Therefore, the Supreme Court’s order to SEBI does little to ensure a fair and independent probe into the Hindenburg allegations (and the related ones reported on as far back as June 2021). Some prominent critics believe this is possible only via a court-monitored investigation.

Though the Supreme Court order additionally requires SEBI to provide ‘all requisite information to the committee’ and to inform the committee of ‘steps that it has taken in furtherance of its ongoing investigation’, this does not grant the committee powers to oversee the SEBI investigation into the Adani Group.

Neither is it guaranteed that SEBI would cooperate by providing ‘requisite information’ to the committee, as past examples such as that of the Pegasus snooping scandal, in which Modi’s government was alleged to have illegally snooped upon Indian citizens using a sophisticated Israeli spyware called Pegasus, have shown how government and its agencies could still refuse to cooperate and provide crucial information to a Supreme Court committee.

A court-monitored investigation could have dispelled doubts, reinforced public trust in SEBI’s investigation, and ensured compliance with the court’s order.

Dampening criticism of Modi Government

The Supreme Court has long been criticised for transgressing judicial limits and overreaching into the policy domain—the job of Parliament and the Executive.

Critics point out that the Supreme Court, and other courts across the country have been in the habit of ‘solving problems’, which ideally should be left to the other two branches of the government.

There are concerns that the Expert Committee, which has been given two months to submit its report, may seek extensions, as has happened in many such cases of Supreme Court-appointed committees.

In India, issues that might show Modi’s government in a bad light eventually land at the Supreme Court. The current Supreme Court order and any further delay will serve to shield Modi and his government from any criticism on the issue, defeating any political momentum created thus far.

Reports have also shown how Supreme Court-appointed committees usually turn out to be ineffective, serve little purpose, and operate under a veil of secrecy.

An opposition, hungry for issues to hold the government accountable, is then left with a matter that is sub-judice or under judicial scrutiny, thereby handcuffing them from forcing government accountability. Eventually, public memory fades, people move on, and issues are put into cold storage.

The way ahead for Adani-Hindenburg matter?

The Supreme Court has asked the Expert Committee to submit its final report in a ‘sealed cover’. The Supreme Court rules allow papers to be kept confidential in this manner if publication of the records is ‘considered to be not in the interest of the public’.

Over the past few years, India’s Supreme Court has been criticised for accepting sealed covers in matters of public importance and keeping the public in dark. Many of these issues have been politically sensitive (here, here, here).

In all likelihood SEBI’s investigation report into the Hindenburg allegations against the Adani Group, too, will be provided in a sealed cover. It will be up to the Chief Justice of India D Y Chandrachud to decide if the records are ‘in the interest of the public’ and therefore be disclosed.

(Saurav Das is an independent investigative journalist and transparency activist. He tweets @OfficialSauravD)