On the recent SC Ruling in the Adani Issue

Source: This post on the recent SC Ruling in the Adani Issue has been created based on the article “The apex court has endorsed regulatory independence” published in “Live Mint” on 5^th January 2024.

UPSC Syllabus Topic: GS Paper 2 Indian Polity – Statutory, regulatory and various quasi-judicial bodies.

News: The article discusses the observations of the SC in the recent Adani issue. It also highlights the positive implications of this judgment on the regulatory and business lanscape in India.

Background:

In its recent decision on the Adani Group probe in the wake of Hindenburg Report allegations, the Supreme Court (SC) upheld trust in the regulatory system under the Securities and Exchange Board of India (SEBI). It emphasized SEBI’s commitment to financial transparency and market integrity.

What were the observations of the SC?

1. The SC confirmed the inadequacy of relying on newspaper articles or reports from third-party organizations to challenge an investigation conducted by a specialized regulator like SEBI.
2. The court highlighted that such reports may serve as initial inputs for SEBI or an expert committee, but they cannot be considered conclusive evidence of any shortcomings in SEBI’s probe.
3. The SC’s stance highlights the importance of recognizing SEBI’s authority and competence.
4. The SC also directed SEBI to scrutinize any inappropriate action by Hindenburg (a US-based short-seller).

What are the positive implications of this judgment?

1. On the Regulatory Framework: This validation of SEBI’s role sends a positive signal to investors, underscoring the existence of a robust regulatory framework.
2. On the Business Environment: This judgement marks progress towards a fair and transparent business environment, instilling investor confidence and preserving the integrity of Indian financial markets.
3. Dispelling Misconceptions regarding SEBI’s Functioning: SEBI’s collaboration with industry stakeholders should not be regarded as a weakness in regulatory supervision. It reflects the regulators’ commitment to understanding industry dynamics, fostering innovation and ensuring a resilient and adaptive regulatory framework.
4. On Businesses: It will serve to shield India’s industrial conglomerates from unfair attacks by lobbies within the country and abroad.

What should be the way forward for regulators in light of the SC’s Judgment?

1. Regulators must encourage information exchange among themselves.
2. They should research the world’s latest market mechanisms and supervisory tools.
3. They should promote compliance and disclosure.
4. They should leverage their independence to set global benchmarks for regulation and supervision.
5. They must ensure that the financial landscape is characterized by transparency, accountability and strict adherence to regulatory standards.

According to the author, the SC judgement is good for broad market stability and bolsters the interests of minority shareholders who rely on SEBI’s supervision of stock markets.

Question for practice:

What are the implications of the recent SC judgment in the Adani issue on the business and regulatory landscape of India. Discuss with reference to the working of SEBI.