The Securities Exchange Board of India (SEBI) has submitted an application to the Supreme Court outlining its response to the recommendations made by the Court-appointed Expert Committee concerning the Hindenburg report's allegations of security law violations by the Adani group of companies. The Expert Committee had made nine recommendations, and SEBI has largely stated that it has addressed the concerns raised.
Among the concerns raised were the need for an effective enforcement policy, judicial discipline, a robust settlement policy, minimizing human bias in surveillance and market administration, and "ring-fencing" the quasi-judicial wing of SEBI. SEBI has maintained that it has measures in place to address these concerns.
However, SEBI has expressed reservations about implementing certain recommendations. For instance, the suggestion to establish timelines in SEBI inquiries or adjudications was deemed impractical by the securities market regulator. SEBI also questioned the relevance of some recommendations, such as the creation of a financial redress agency and a central unclaimed property agency, as they appeared unrelated to the Hindenburg-Adani case and involved multiple regulators.
Advocate Vishal Tiwari, the petitioner in the case, emphasized that the Expert Committee had not given a clear-cut finding or a "clean chit" to the Adani group. Tiwari pointed out that the committee's findings indicated regulatory failures and suspicions of legal violations by the conglomerate. He urged the Supreme Court to direct SEBI to conduct further investigations and implement the committee's recommendations for legal reform.
SEBI's response to the Expert Committee's report covers several key areas:
1. Effective Enforcement Policy: SEBI outlined its existing Enforcement Manual, Internal Guidelines for case selection, objective criteria for determining appropriate actions, and measures to tackle conflicts of interest. SEBI clarified that the number of cases in 2021-22 was inflated due to an increase in proceedings against Illiquid Stock Options (ISO) matters.
2. Judicial Discipline: SEBI stated that it follows established ratios in cases and maintains independent authorities. It emphasized the need for prompt action in security law violations to protect investors and cautioned against importing processes from income tax laws.
3. Robust Settlement Policy: SEBI highlighted the SEBI (Settlement Proceedings) Regulations, 2018, as a robust settlement policy. It contested the committee's claim that settlement proposals had decreased in recent years and attributed the increase in settlement applications to ISO cases.
4. Necessary Timelines: SEBI argued against prescribing specific timelines for investigations, stating that reasonable timeframes depend on case-specific factors. It cautioned that imposing strict timelines may compromise the quality of investigations and increase litigation.
5. Surveillance and Market Administration Measures: SEBI defended its existing measures to minimize human intervention and bias. It mentioned the Additional Surveillance Measures (ASM) and Graded Surveillance Measures (GSM) as data-driven surveillance actions and emphasized the majority of filings being in machine-readable form.
6. Ring-fencing of Quasi-judicial Functions: SEBI stated that it has separate departments handling legislative, executive, and quasi-judicial functions to avoid bias. It highlighted the involvement of different authorities in investigating and passing final orders.
SEBI also clarified that it did not claim Foreign Portfolio Investors (FPIs) are now "opaque." It explained that amendments made in 2018 and 2019 strengthened disclosure norms for Beneficial Owners (BOs) of FPIs, rendering the concern about "opaque" FPIs redundant.
The filing also briefly addressed Related Party Transactions (RPTs) and SEBI's recommendation to introduce provisions similar to general anti-avoidance rules in tax laws.
The Supreme Court will now review SEBI's response and consider the petitioner's request for further investigation and implementation of the Expert Committee's recommendations.
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