SC Panel to Look into Regulatory Failure in Adani Group Issue

The Supreme Court, in March 2023, formed a five-member apex committee to look into allegations of regulatory lapse by the Hindenburg report which led to the decline of the Adani group of shares. This is an important development with respect to current affairs for the IAS exam.

Supreme Court Panel on Adani

The five-member expert committee is headed by former Supreme Court judge, Justice Abhay Manohar Sapre. The Hindenburg report led to investors losing crores of money due to volatility in the stock market.

Read more about the Adani-Hindenburg issue in the linked article.

• The committee has been tasked with the following objectives:
  • To provide an overall assessment of the reason for volatility in the security market in recent times.
  • To suggest measures to strengthen awareness among Indian investors.
  • To investigate alleged violations of regulatory laws that protect the securities market as alleged by the Hindenburg report.
  • Suggest measures to strengthen the regulatory and statutory framework and ensure compliance with the existing framework to protect investor interest.   
• The committee has been asked to submit its report within two months in a sealed cover.
• Market regulator Securities and Exchange Board of India (SEBI) has been tasked with providing relevant materials and requisite information and cooperating with the expert committee.
• The Securities and Exchange Board of India (SEBI) is also investigating the alleged violation of regulations.
• The court ordered SEBI to include three more aspects to its probe:
  • Whether there was any stock manipulation
  • Whether there was any failure to disclose transactions with related parties
  • Whether Rule 19A of the Securities Contracts (Regulation) Rules, 1957 Act was violated or not
• Listed companies excluding public sector units (PSU) must reduce promoter shareholding to 75% and maintain public shareholding to 25% within a specific time period.
• As per Rule 19A of the Securities Contracts (Regulation) Rules, 1957 Act, public shareholding must be maintained at 25% within a certain time period.
• The court also brought the SEBI probe into its ambit and directed SEBI to submit the report within two months.

What are the laws governing the market?

• The securities market in India is regulated by four key laws — 
  • The Companies Act, 2013
  • The Securities and Exchange Board of India Act, 1992 (SEBI Act)
  • The Securities Contracts (Regulation) Act, 1956 (SCRA) and 
  • The Depositories Act, 1996. 
• The SEBI Act empowers SEBI to protect the interests of investors and to promote the development of the capital/securities market, besides regulating it. 
• SEBI was given the power to register intermediaries like stock brokers, merchant bankers, and portfolio managers and regulate their functioning by prescribing eligibility criteria, conditions to carry on activities and periodic inspections. 
• It also has the power to impose penalties such as monetary penalties, including suspending or cancelling the registration. 
• The SCRA empowers SEBI to recognise (and derecognise) stock exchanges, prescribe rules and bye-laws for their functioning, and regulate trading, clearing and settlement on stock exchanges. 
• The Depositories Act introduced and legitimised the concept of dematerialised securities being held in an electronic form. 
  • Today almost all the listed securities are held in dematerialised form. 
• The depository regulations empower SEBI to regulate the functioning of depositories and depository participants by prescribing eligibility conditions, periodic inspections and powers to impose penalties including suspending or cancelling the registration as well as monetary penalties.

SC Panel to Look into Regulatory Failure in Adani Group Issue:- Download PDF Here