VISHAL TIWARIversusUNION OF INDIA & ORS

                         [2023] 2 S.C.R. 951                             951


                         VISHAL TIWARI                                   A
                                  v.
                    UNION OF INDIA & ORS.
                 (Writ Petition (C) No. 162 of 2023)
                         MARCH 02, 2023                                  B
        [DR DHANANJAYA Y CHANDRACHUD, CJI,
         PAMIDIGHANTAM SRI NARASIMHA AND
                J. B. PARDIWALA, JJ.]
       Securities Contracts (Regulation) Rules, 1957 – r. 19A – Loss
                                                                         C
of the investor wealth in securities market – The Hidenburg Report
– Investigation – The batch of petition in the instant case are
regarding the loss of investor wealth in the securities market because
of the steep decline in the share of the Adani Group of Companies
because of the report published by one Hidenburg Reasearch in
which it was alleged that the Adani Group of Companies has               D
manipulated its share prices and also has failed to disclose the
transaction with related parties in contravention of the regulations
framed by SEBI – The report alleges that company has violated
other provision of securities laws – Hindenburg Research has taken
a short position in the Adani Group companies through US traded
                                                                         E
bonds and non-Indian traded derivative instruments – SEBI had
started the investigation, the Court directed it to extend the scope
of its investigation which should include investigation as to any
violation of r. 19A, and also that whether there has been any failure
to disclose transaction with related parties along with other relevant
information and also that whether there was any manipulation of          F
stock prices in contravention of existing laws – Further, the Court
ordered the appointment of an Expert Committee for the assessment
of the extant of regulatory framework and for the recommendation
to strengthen and also to suggest the measures to strengthen investor
awareness – Also, for effective working of Expert Committee, the
                                                                         G
Court directed SEBI to provide requisite information relevant for
the purpose and also directed other agencies of the Union
Government to cooperate with the committee.
      ORIGINAL CIVIL/CRIMINAL JURISDICTION: Writ Petition
(C) No. 162 of 2023.
                                                                         H
                                 951
952                    SUPREME COURT REPORTS                        [2023] 2 S.C.R.


A                 Under Article 32 of The Constitution of India.
                  With
            Writ Petition (Crl.) No. 39 of 2023, Writ Petition (C) No. 201 of
      2023 and Writ Petition (Crl.) No. 57 of 2023.
B           Prashant Bhushan, Ms. Neha Rathi, Ramesh Kumar Mishra,
      Kamal Kishore, V.V. Gotam, Varun Thakur, Varinder Kumar Sharma,
      Advs. for the Petitioner.
           Tushar Mehta, SG, Jaideep Gupta, Sr. Adv., Akhil Abraham Roy,
      Ms. Surekha Raman, Abhishek Anand, M/s KJ John & Co., Kanu
C     Agarwal, Rajat Nair, Arvind Kumar Sharma, Ramesh Babu MR, Ms.
      Manisha Singh, Ms. Nisha Sharma, Ms. Jagriti Bharti, Ms. Tanya
      Chowdhary, Rohan Srivastava, Advs. for the Respondents.
                  Vishal Tiwari, Manohar Lal Sharma, Petitioner-in-Person.
                  The following Order of the Court was passed:
D
                                          ORDER
                  1. Notice.
             2. The present batch of petitions concerns the loss of investor
      wealth in the securities market over the last few weeks because of a
E     steep decline in the share price of the Adani Group of companies. The
      decline in the share price was precipitated by a report published by
      Hindenburg Research on 24 January 2023. This report inter alia alleges
      that the Adani Group of companies has manipulated its share prices;
      failed to disclose transactions with related parties and other relevant
      information concerning related parties in contravention of the regulations
F     framed by SEBI; and violated other provisions of securities laws. The
      report also states that Hindenburg Research has taken a short position
      in the Adani Group companies through US traded bonds and non-Indian
      traded derivative instruments. It is in this background that the present
      batch of petitions came to be filed.
G                 3. A brief overview of the petitions follows:
                  a.     WP(C) No. 162 of 2023 states that public money amounting
                         to thousands of crores is at risk because public institutions
                         like the State Bank of India 1 and the Life Insurance

H     1
          “SBI”
                 VISHAL TIWARI v. UNION OF INDIA & ORS.                             953


                   Corporation of India2 are exposed to the Adani Group. It         A
                   inter alia seeks the issuance of directions to the Union of
                   India and the Union Ministry of Home Affairs to constitute
                   a committee headed by a retired judge of the Supreme Court
                   to investigate the contents of the report published by
                   Hindenburg Research;
                                                                                    B
            b.     WP(Crl) No. 39 of 2023 is for the issuance of directions to
                   the Union Ministry of Home Affairs to register an FIR
                   against Mr. Nathan Anderson (founder of Hindenburg
                   Research) and his associates for short selling, and for
                   directions to recover the profits yielded by the short selling
                   to compensate investors;                                         C

            c.     WP(C) No. 201 of 2023 inter alia states that “the Adani
                   Group has been in flagrant violation of ... Rule 19A of
                   the Securities Contracts (Regulation) Rules by
                   surreptitiously controlling more than 75% of the shares
                   of public listed Adani group companies, thereby                  D
                   manipulating the price of its shares in the market.” It
                   inter alia seeks a court monitored investigation by a Special
                   Investigation Team or by the Central Bureau of Investigation
                   into the allegations of fraud and the role played by top
                   officials of leading public sector banks and other lender        E
                   institutions; and
            d.     WP(Crl) 57 of 2023 is for directions to any investigative
                   authority to: (i) investigate the Adani Group companies under
                   the supervision of a sitting judge of this Court; and (ii)
                   investigate the role of LIC and SBI in these transactions.       F
       4. In its order dated 10 February 2023, this Court noted that there
was a need to review existing regulatory mechanisms in the financial
sector to ensure that they are strengthened with a view to protect Indian
investors from volatilities in the market. Accordingly, it was suggested to
the Solicitor General that he may seek instructions from the Union of               G
India on the constitution and remit of an expert committee.
      5. We have heard Mr. Prashant Bhushan, learned senior counsel
appearing for the petitioners and Mr. Tushar Mehta, learned Solicitor
General appearing for the Union of India. Both of them have also placed
2
    “LIC”                                                                           H
954                 SUPREME COURT REPORTS                           [2023] 2 S.C.R.


A     on record brief notes indicating their suggestions for the remit of the
      expert committee to be constituted. Further, SEBI has placed on record
      a brief note on the factual and legal aspects describing the existing
      statutory regime, regulatory mechanisms and frameworks in place for
      the protection of investors. It has also laid out the regulatory framework
      governing short selling. Mr Vishal Tiwari and Mr Manohar Lal Sharma
B
      have appeared in person.
               6. SEBI has submitted in its note that:
               a.      It has adopted a disclosure based regulatory regime for both
                       issuance of and trading in securities. This is in line with the
C                      discontinuation of pricing control for capital issues in favour
                       of the principle of free discovery by the markets based on
                       demand and supply from informed investors; and
               b.      It is “strongly and adequately empowered to put in place
                       regulatory frameworks for effecting stable operations and
D                      development of the securities markets including protection
                       of investors.” It has also detailed the extant framework
                       governing investor protection in the context of the subject
                       matter at hand. It has stated that the key pillars of investor
                       protection are:

E                   “11.1 Mandatory disclosures by listed companies to facilitate
                    free and fair price discovery and to ensure that all investors
                    have equal access to material information for them to be able
                    to take informed investment decisions;
                    11.2 Market systems to ensure seamless trading and settlement
F                   including volatility management;
                    11.3 Enforcement action in the event of misconduct in the
                    market including fraud or violations of SEBI regulations.”
            7. In Prakash Gupta v. SEBI,3 a two Judge Bench of this Court,
      of which one of us (D.Y. Chandrachud, J) was a part discussed the
G     specialized regulatory role of SEBI and noted that:
               “99. The provisions of the SEBI Act, as analyzed earlier in this
               judgment, would indicate the importance of the role which has
               been ascribed to it as a regulatory, adjudicatory and prosecuting
      3
H         2021 SCC OnLine SC 485
            VISHAL TIWARI v. UNION OF INDIA & ORS.                               955


       agency. SEBI has vital functions to discharge in the context of           A
       maintaining an orderly and stable securities’ market so as to protect
       the interests of investors.”
       8. On the subject matter of these petitions, SEBI has stated that:
       “21.1 SEBI is already enquiring into both, the allegations made in
       the Hindenburg report as well as the market activity immediately          B
       preceding and post the publication of the report, to identify
       violations of SEBI Regulations including but not limited to SEBI
       (Prohibition of Fraudulent and Unfair Trade Practices I relating
       to Securities Market) Regulations 2003, SEBI (Prohibition of
       Insider Trading) Regulations 2015, SEBI (Foreign Portfolio                C
       Investors) Regulations 2019, Offshore Derivative Instruments
       (ODI) norms, short selling norms, if any. As the matter is in early
       stages of examination, it may not be appropriate to list details
       about the ongoing proceedings at this stage.”
       9. In view of the above statement, it appears that SEBI is seized         D
of the investigation into the allegations made against the Adani Group
companies. SEBI has not expressly referred to an investigation into the
alleged violation of the Securities Contracts (Regulation) Rules 1957
which provide for the maintenance of minimum public shareholding in a
public limited company. Similarly, there may be various other allegations
that SEBI must include in its investigation.                                     E

       10. As a part of its ongoing investigation, SEBI shall also investigate
the following aspects of the issues raised in the present batch of petitions:
       a.     Whether there has been a violation of Rule 19A of the
              Securities Contracts (Regulation) Rules 1957;                      F
       b.     Whether there has been a failure to disclose transactions
              with related parties and other relevant information which
              concerns related parties to SEBI, in accordance with law;
              and
       c.     Whether there was any manipulation of stock prices in              G
              contravention of existing laws.
       11. The above directions shall not be construed to limit the contours
of the ongoing investigation. SEBI shall expeditiously conclude the
investigation within two months and file a status report.
                                                                                 H
956               SUPREME COURT REPORTS                          [2023] 2 S.C.R.


A            12. Further, SEBI shall apprise the expert committee (constituted
      in paragraph 14 of this order) 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. The constitution of the expert
      committee does not divest SEBI of its powers or responsibilities in
      continuing with its investigation into the recent volatility in the securities
B
      market.
             13. In Prakash Gupta (supra), we took note of the developing
      nature of the regulations pertaining to the securities market. This Court
      noted that:
C            “101. Therefore, the SEBI Act and the rules, regulations and
             circulars made or issued under the legislation, are constantly
             evolving with a concerted aim to enforce order in the securities
             market and promote its healthy growth while protecting investor
             wealth.”

D              14. In order to protect Indian investors against volatility of the
      kind which has been witnessed in the recent past, we are of the view
      that it is appropriate to constitute an Expert Committee for the assessment
      of the extant regulatory framework and for making recommendations to
      strengthen it. We hereby constitute a committee consisting of the
      following members:
E
             a. Mr. O P Bhatt;
             b. Justice J P Devadhar (retired)
             c. Mr. KV Kamath;
             d. Mr. Nandan Nilekani; and
F
             e. Mr. Somashekhar Sundaresan.
            The Expert Committee shall be headed by Justice Abhay Manohar
      Sapre, a former judge of the Supreme Court of India.
             15. The remit of the Committee shall be as follows:
G
             a.     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;
             b.     To suggest measures to strengthen investor awareness;
H
            VISHAL TIWARI v. UNION OF INDIA & ORS.                               957


       c.     To investigate whether there has been regulatory failure in        A
              dealing with the alleged contravention of laws pertaining to
              the securities market in relation to the Adani Group or other
              companies; and
       d.     To suggest measures to (i) strengthen the statutory and/or
              regulatory framework; and (ii) secure compliance with the          B
              existing framework for the protection of investors.
       16. The Chairperson of the Securities and Exchange Board of
India is requested to ensure that all requisite information is provided to
the Committee. All agencies of the Union Government including agencies
connected with financial regulation, fiscal agencies and law enforcement         C
agencies shall co-operate with the Committee. The Committee is at liberty
to seek recourse to external experts in its work.
       17. The honorarium payable to the members of the Committee
shall be fixed by the Chairperson and shall be borne by the Union
Government. The Secretary, Ministry of Finance shall nominate a senior           D
officer who will act as a nodal officer to provide logistical assistance to
the Committee. All the expenses incurred in connection with the work
of the Committee shall be defrayed by the Union Government.
      18. The Committee is requested to furnish its report in sealed
cover to this Court within two months.                                           E

Ankit Gyan                                                  Directions issued.
(Assisted by : Mahendra Yadav, LCRA)



                                                                                 F




                                                                                 G




                                                                                 H