A) ABSTRACT / HEADNOTE

In the case of Vishal Tiwari v. Union of India & Ors., the Supreme Court addresses issues surrounding allegations of stock price manipulation by the Adani Group, as raised by a Hindenburg Research report. The petitioner, invoking Article 32 of the Indian Constitution, seeks an investigation into these claims by either the Special Investigation Team (SIT) or the Central Bureau of Investigation (CBI), citing concerns over regulatory lapses and transparency. The Court examines whether such intervention is warranted within SEBI’s regulatory purview, particularly on claims of impropriety or conflict of interest regarding committee members assessing SEBI’s efficacy. Additionally, the Court weighs SEBI’s stance on stock market regulations, including short selling and Foreign Portfolio Investments (FPIs), while affirming SEBI’s autonomy in regulating the securities market. Ultimately, the Court upholds SEBI’s handling of the investigations and affirms the limits of judicial review over specialized regulatory functions, citing the sufficiency of SEBI’s actions and investigations.

Keywords: Judicial Review, SEBI, Regulatory Framework, Adani Group, Stock Market Manipulation

B) CASE DETAILS

• i) Judgement Cause Title: Vishal Tiwari v. Union of India & Ors.
• ii) Case Number: Writ Petition (C) No. 162 of 2023
• iii) Judgement Date: 03 January 2024
• iv) Court: Supreme Court of India
• v) Quorum: Dr. Dhananjaya Y. Chandrachud, CJI, J.B. Pardiwala, J., Manoj Misra, J.
• vi) Author: Dr. Dhananjaya Y. Chandrachud, CJI
• vii) Citation: [2024] 1 S.C.R. 171
• viii) Legal Provisions Involved: Constitution of India (Art. 32), SEBI Act, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, SEBI (Foreign Portfolio Investments) Regulations, 2014, Securities Contracts (Regulation) Rules, 1957.
• ix) Judgments Overruled by the Case: None
• x) Case is Related to Which Law Subjects: Securities Regulation, Constitutional Law, Judicial Review

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The Supreme Court’s judgment in Vishal Tiwari v. Union of India & Ors. centers on the Hindenburg Research report’s allegations that the Adani Group manipulated its share prices through related-party transactions and lack of transparent disclosures, which purportedly violated SEBI regulations. Filed as a public interest litigation under Article 32, the case primarily questioned SEBI’s regulatory efficacy and sought judicial intervention to transfer the investigation to an independent body, citing potential conflicts of interest. The petitioner argued for a SIT or CBI-led investigation due to perceived conflicts of interest among SEBI officials and the members of the expert committee constituted by the Court. However, the Court delineated the limitations of judicial review concerning specialized regulatory agencies like SEBI, emphasizing SEBI’s competence in regulatory matters unless a clear regulatory failure could be demonstrated.

D) FACTS OF THE CASE

The petitioner, Vishal Tiwari, highlighted the impact on Indian investors due to the alleged stock price manipulation by the Adani Group, which came to light after the Hindenburg Report. This report claimed that the Adani Group engaged in fraudulent financial practices by failing to disclose related-party transactions and using offshore entities to control stock prices artificially. The petition sought a comprehensive investigation, suggesting that SEBI’s inquiry might be insufficient due to potential regulatory gaps and claimed biases within SEBI’s investigative processes. Tiwari argued that SEBI’s inaction might expose Indian investors to considerable financial risk, thus necessitating a transparent and independent investigation.

E) LEGAL ISSUES RAISED

1. Whether SEBI’s investigation into the Adani Group’s alleged manipulation was adequate or demonstrated regulatory failure.
2. Whether the investigation should be transferred to an independent SIT or CBI.
3. Whether the amendments to SEBI’s regulations on FPIs and related-party transactions facilitated regulatory lapses favoring the Adani Group.
4. Whether SEBI members or committee appointees demonstrated any conflict of interest, warranting judicial intervention.

F) PETITIONER/APPELLANT’S ARGUMENTS

i. Constitution of SIT or Transfer to CBI: The petitioner argued that SEBI’s investigation, while ongoing, lacked independence due to potential regulatory conflicts and urged the Court to transfer the inquiry to an SIT or the CBI for impartiality. He argued that the transfer would ensure unbiased findings and transparency.

ii. Alleged Regulatory Failures: The petitioner claimed that SEBI’s amendments to the FPI Regulations and LODR Regulations inadvertently allowed for regulatory arbitrage, which facilitated non-transparent related-party transactions by the Adani Group. These amendments, he argued, weakened SEBI’s regulatory control over opaque foreign investments and allowed violations of minimum public shareholding requirements.

iii. Conflict of Interest: The petitioner cited concerns over SEBI committee members’ alleged prior associations with the Adani Group. He claimed that these associations compromised the impartiality of SEBI’s investigation and undermined the credibility of any findings, as members might be biased.

iv. Reliance on External Reports: The petitioner referenced third-party investigative reports, particularly from the Organized Crime and Corruption Reporting Project (OCCRP) and letters from the Directorate of Revenue Intelligence (DRI), to assert that SEBI should have acted sooner on red flags regarding Adani Group’s financial dealings.

G) RESPONDENT’S ARGUMENTS

i. Adequacy of SEBI’s Investigation: SEBI, through its counsel, argued that the investigation was comprehensive, with twenty-two of twenty-four inquiries concluded. SEBI maintained that any delay in concluding the investigation was minor and justified, given the complex, cross-border nature of the inquiries.

ii. Legislative Power and Regulatory Framework: SEBI asserted that its amended regulations were within its delegated legislative authority, countering that these regulations actually strengthened, rather than weakened, the regulatory framework. SEBI cited mandatory upfront disclosure requirements for FPIs and argued that the amendments addressed loopholes rather than creating them.

iii. Independence of the Committee: SEBI contended that committee members, though they may have had prior professional engagements, did not exhibit conflicts of interest that would impair impartiality. SEBI argued that these professional connections were distant in time and unrelated to the matters at hand.

iv. Judicial Deference to Regulatory Expertise: The Solicitor General urged judicial restraint in SEBI’s specialized domain, emphasizing that financial regulatory agencies must possess the autonomy to enact and enforce regulations without interference unless they explicitly violate legal or constitutional principles.

H) JUDGEMENT

a. Ratio Decidendi

The Court held that SEBI’s investigation into the Adani Group’s alleged market manipulation did not exhibit a regulatory failure, nor did it justify judicial intervention by transferring the investigation. SEBI’s comprehensive approach to the inquiry, coupled with its regulatory autonomy, underscored that the judicial oversight should be limited, especially in the realm of economic regulation where specialized agencies are deemed competent.

b. Obiter Dicta

The Court underscored the principle that judicial intervention in regulatory policies should be minimal unless clear, arbitrary, or constitutional violations are evident. The Court expressed concern that undue reliance on unverified external reports like those from OCCRP or media articles could detract from a specialized agency’s findings.

c. Guidelines

1. Judicial review of regulatory agencies like SEBI should focus on legal validity and adherence to constitutional norms, not on policy judgments.
2. Investigative transfers to SITs or the CBI should only occur in cases of substantial evidence of regulatory inaction or bias.
3. SEBI should continue to evolve its regulations to balance transparency and investor protection, particularly in high-stakes matters like stock market volatility and foreign investment transparency.

I) CONCLUSION & COMMENTS

The Court’s ruling reaffirms SEBI’s mandate as India’s securities market regulator and delineates the judiciary’s limited scope in second-guessing specialized regulatory functions. The judgment reflects the Court’s inclination to rely on regulatory agencies in handling complex financial inquiries, provided there is no evidence of glaring failure or bias. This decision not only supports SEBI’s legislative discretion but also sets a precedent for limited judicial interference in matters of financial regulation unless egregious lapses occur.

J) REFERENCES

a. Important Cases Referred:

• IFB Agro Industries Ltd v. SICGIL India Ltd (2023) 4 SCC 209
• Prakash Gupta v. SEBI 2021 SCC OnLine SC 485
• Himanshu Kumar v. State of Chhattisgarh 2022 SCC OnLine SC 884
• K.V. Rajendran v. Superintendent of Police CBCID South Zone, Chennai [2013] 9 SCR 199

b. Important Statutes Referred:

• Constitution of India (Article 32)
• SEBI Act, 1992
• SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
• SEBI (Foreign Portfolio Investments) Regulations, 2014
• Securities Contracts (Regulation) Rules, 1957