The Supreme Court’s verdict on Wednesday is a relief to market regulator Securities and Exchange Board of India (SEBI) which was under fire for the tardiness of its investigation into the Adani-Hindenburg matter and its inability to establish a prima facie case of legal violations by the promoters of Adani Group.

“The judgment has come as a shot in the arm for SEBI’s reputation as a regulator, policy-maker, investigator and prosecutor,” said Pradyuman Dubey, Partner, DSK Legal.

The SC has reposed its faith in the investigation conducted by SEBI, its systems and processes. This is likely to increase the confidence of the investor community in the sanctity of the regulator and its workings, said experts.

Ankur Mahindro, Managing Partner at Kred Jure, said that the court’s order reinforces the autonomy granted to SEBI in formulating regulations and could constrain courts and authorities from unduly intervening in its jurisdiction going forward.

The apex court affirmed the principle that courts do not sit in appeal over policies made by specialised regulatory bodies and would interfere only when a policy was violative of fundamental rights, the constitution, any statute or was manifestly arbitrary.

“The SC’s direction to the government and SEBI to probe whether the short-selling of Adani shares by Hindenburg involved violation of any law is likely to deter short-sellers from circumventing the law, reducing chances of manufactured volatility in the market,” said Dubey.

SEBI has been directed to conclude two pending investigations within the next three months, and continue its efforts to implement recommendations from the six-member expert committee.

“Although the initial turbulence appears to have subsided, SEBI now faces a renewed set of challenges following the SC judgment,” Sumit Agrawal, Founder, Regstreet Law Advisors, said.

The recommendations span areas such as structural reforms, enforcement and settlement policies, better timelines for initiating and concluding proceedings, establishment of a financial redress agency, and the creation of a framework for a multi-agency committee tasked with investigating complex enforcement matters.

The SC directive may necessitate a thorough evaluation of the existing regulations and powers of SEBI, said Agrawal.

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“The government must determine whether the current framework of SEBI is sufficient for effectively addressing short sellers based overseas. There may be a need to amend the SEBI Act to grant additional powers, ensuring a more robust approach to such situations in the future,” Agrawal added.

Existing regulations include provisions to penalise the dissemination of false or misleading information through any media, especially if done recklessly with the intent to influence the decisions of investors dealing in securities.

According to the apex court’s directive, investigative authorities (like SEBI) may or may not rely upon media reports, howsoever credible, while they investigate the concerned issues, said Shashank Agarwal, Advocate, Delhi High Court.

“Despite the SC order, the entire episode still remains shrouded in mystery. Since the regulator is no more under a court-monitored investigation, there are chances that investors will have to bear the consequences of arbitrariness at the hands of SEBI,” Tushar Agarwal, Advocate, Supreme Court of India, said.

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