Adani-Hindenburg: The apex court has endorsed regulatory independence

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In its decision of 3 January on the matter of an Adani Group probe in the wake of Hindenburg’s allegations, the Supreme Court (SC) upheld trust in the regulatory system under the Securities and Exchange Board of India (Sebi), emphasizing its commitment to financial transparency and market integrity, by endorsing Sebi’s regulations. It dismissed conflict-of-interest concerns and asked the market regulator to conclude its investigation of the remaining parts within three months. This issue has been a test—not just for Adani, but more of Sebi’s supervisory competence and regulatory autonomy.

The SC confirmed the inadequacy of relying on newspaper articles or reports from third-party organizations to challenge an investigation conducted by a specialized regulator like Sebi. The court highlighted that while reports from independent groups or investigative journalists may serve as initial inputs for Sebi or an expert committee, they cannot be considered conclusive evidence of any shortcomings in Sebi’s probe. The SC’s stance underscores the importance of recognizing Sebi’s authority and competence. The SC also directed Sebi to scrutinize any “infractions” by Hindenburg, making it clear that we must trust the Indian regulatory system over the claims of a US-based short-seller. This validation of Sebi’s role sends a positive signal to investors, underscoring the existence of a robust regulatory framework designed to protect the interests of all stakeholders. This judgement marks a significant stride towards fostering a fair and transparent business environment, instilling investor confidence and preserving the integrity of Indian financial markets.

Moreover, we must recognize that with each instance of market volatility or company-related issues, a worrying pattern has emerged: Vested interests often rush to question the investigative ability of regulators, even casting doubt on their integrity. This behaviour, driven by speculation and scepticism, could cast a needless shadow on regulatory bodies.

It is essential to dispel any misconceptions around Indian financial regulators. The dual responsibility they shoulder—to oversee and foster sectoral development—requires a balance, and accusations of laxity usually fail to acknowledge the equilibrium these regulators maintain. Collaborating with industry stakeholders with the aim of development should not be misconstrued as a weakness in regulatory supervision; instead, it reflects a proactive and hands-on approach. The collaborative spirit is a strength, indicative of regulators’ commitment to understanding industry dynamics, fostering innovation and ensuring a resilient and adaptive regulatory framework. Doubting regulators in times of uncertainty does a disservice to the work done to maintain the integrity and stability of the financial system.

India’s institutions are not playgrounds for opportunistic profiteering. The SC’s decision elevates Sebi’s prestige and effectively serves to shield India’s industrial conglomerates from an onslaught of unfair attacks by lobbies within the country and abroad. The SC’s decision not only fortifies Sebi, but delivers a stern warning to all, particularly foreign entities seeking to exploit and undermine Indian institutions for their very own gains.

There is a message for regulators, too. It is incumbent upon them to fulfil their remits. They must encourage information exchange among themselves, research the world’s latest market mechanisms and supervisory tools, and promote compliance and disclosure. Regulators must wield their authority with an iron grip, ensuring that the financial landscape is characterized by transparency, accountability and strict adherence to regulatory standards. The SC’s acknowledgement of the supervisory prowess of a specialized regulator seems based on such expectations. Its judgement is not just good for broad market stability, but also bolsters the interests of minority shareholders who must rely on Sebi’s supervision of stock markets. Micro, small and medium enterprises also benefit from well regulated markets.

Public respect for and confidence in Indian regulatory processes must be maintained and enhanced, so that all stakeholders can benefit from secure and transparent financial markets. We must recognize that regulators play a pivotal role as custodians of integrity, fostering an environment where investors, businesses and the public can confidently participate. The efficacy of Indian regulatory systems need not be put to perpetual tests; their resilience and integrity shine through.

The SC’s affirmation of trust underscores the imperative for Sebi and other financial regulators to leverage their independence to set global benchmarks for regulation and supervision. In their pursuit of public attention, lobbies, cynics and others may persist with negative views even in the face of clearances and assurances from all relevant pillars of democracy, but we must remember that in the context of a rapidly growing economy like India’s, not all regulatory or market practices from Western or developed nations are applicable or necessary.

Our homegrown regulatory frameworks, with their rule-making sovereignty and responsiveness to matters of public interest, are aligned with the unique dynamics of a fast-emerging economy, and they do ensure effective oversight while fostering sustainable growth.

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