There are several legal options available to the Adani Group with regard to action against US-based forensic financial research firm Hindenburg Research, over its report released on Wednesday. Here are a few major ones:
Suit for defamation: Under Indian law, defamation is a criminal offence, recognised under Section 499 of the Indian Penal Code, 1860. To constitute an offence u/s 499 IPC, any imputation lowering the credit of any person or company is sufficient.
“In the present case, the intentional and reckless attempt by a foreign entity to mislead the investor community and the general public, undermine the goodwill and reputation of the Adani Group and sabotage the follow-on public offering from Adani Enterprises, can attract punishment for defamation u/s 500 IPC. The group can file a criminal complaint u/s 200 CrPC before the jurisdictional magistrate court against the proposed accused persons for committing the offence of defamation,” said Tushar Agarwal, advocate, Supreme Court of India.
According to Agarwal, there are international precedents regarding this. In 2008, BankAtlantic, a Florida-based bank, sued a prominent Wall Street analyst over a report on potential bank failures. BankAtlantic said the analyst had defamed the bank by suggesting that it might fail. In 2009, Hertz Global Holdings sued an analyst for defamation over a report suggesting that the world’s largest car-rental company could go bankrupt.
“In such cases, the first legal option available is to file a suit for defamation for a libellous statement which has the ability to harm the reputation that Adani Group has built over the years. The claim for damages could be in multiples of the damage done. However, the biggest risk associated with this action is to prove that the report is untrue and published with the sole intent of damaging the reputation,” said Shashank Agarwal, advocate, Delhi HC.
Suit for Damages: The group can file a suit seeking damages for financial and reputational losses pertaining to a deleterious effect on the share values of Adani Group companies as Hindenburg Research, by its own admission, is positioned to benefit from a slide in Adani shares. The suit can be filed before the jurisdictional high court, said Agarwal.
In 2020, Edelweiss Financial Services sued rating agency Moody’s Corporation, a global rating agency, for $100 million before the Bombay High Court for misreporting its numbers in one of the firm’s investor reports. In May 2020, Moody’s published a report comparing asset quality and liquidity of various non-banking financial companies. Edelweiss alleged that Moody’s published an incorrect report with malicious intent to create panic among shareholders and damage its brand and share prices.
Internationally, in 2020, Binance, one of the world’s largest digital asset exchanges, filed a defamation lawsuit against Forbes Media. Approach market regulator Sebi: Adani Group can approach Sebi and request an inquiry regarding the report published by Hindenburg.
“The report will not escape the eye of the market regulator in India, which has the power to take suo motu action. The Adani Group also has several remedies under Indian as well US laws, inter alia under Sebi (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and 18 US Code 35 for imparting or conveying false information,” said Himanshu Sachdeva, senior associate at TAS Law.