India Finance
Contradictions and delays cast doubts on regulator’s probe into Adani’s transactions
May 19, 2023
Questions have been raised about the integrity of the regulator's probe into allegations against the Adani Group. Image Damian Navas / Creative Commons

The investigations by the Securities and Exchange Board of India (SEBI) into transactions by Adani Group entities have been marred by controversy, raising questions about its ability to handle the high-stakes probe with transparency and efficiency. The Supreme Court of India stipulated a deadline of 2 May 2023 for SEBI to conclude its investigation. However, in May, in response to applications by SEBI, the court extended that deadline to 14 August 2023. SEBI’s floundering has brought the regulator under increased scrutiny.

Since the Hindenburg allegations were released, the role of the Securities and Exchange Board of India (SEBI), the regulatory authority responsible for overseeing the country’s financial markets, has come under greater public scrutiny. Several petitions have been filed in courts, some seeking the prosecution of promoters of the Adani Group, while others have sought to hold Hindenburg Research to account.

SEBI pleads for more time

Recognising the urgency and significance of the allegations, the Supreme Court issued a directive to SEBI asking it to complete its inquiry within two months, that is, by 2 May 2023.

The Supreme Court of India. Image Wikimedia Commons

As the deadline approached, SEBI provided an update on April 29, indicating that the regulator was investigating 12 specific transactions identified in the Hindenburg Report that included allegations relating to manipulation of share prices by exploiting loopholes in the norms on minimum public shareholding. SEBI claimed these transactions were highly intricate, involving multiple sub-transactions spanning various jurisdictions.

The regulator argued before the Supreme Court that the complexity of these transactions posed significant challenges to the investigative process and required thorough examination of voluminous data and coordination with international authorities.

SEBI said in its application to the court: ‘To ascertain possible violations related to misrepresentation of financials, circumvention of regulations, and investigate the fraudulent nature of transactions mentioned in the Hindenburg report, it would take in the normal course at least 15 months,’ adding that it would try and complete its probe in six months. 

Concerns were voiced by Opposition politicians alleging that SEBI was ‘under pressure’ to go slow on its investigation.

On 12 May, a three-judge bench of the Supreme Court led by the Chief Justice of India D Y Chandrachud, expressed its willingness to consider a three-month extension to the deadline set for SEBI.

‘There has to be some sense of responsibility… You must be conscious of the fact that whatever allegations you make, it affects the stability and volatility of the stock market,’ Justice Chandrachud said in court in reaction to a lawyer who argued that there had been ‘regulatory failure’ on the part of SEBI.

Subsequently, on 15 May, SEBI submitted an affidavit through a 22-year-old assistant manager requesting a further extension of the deadline. On 17 May, the Supreme Court granted the regulator an extension to 14 August 2023.

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SEBI and government contradict each other over Adani probe

Almost two years ago, in an exchange in the lower house of India’s Parliament, Mahua Moitra, a prominent Opposition MP belonging to the Trinamool Congress, raised a series of questions to the Ministry of Finance seeking clarifications about SEBI’s investigations into the Adani Group. Responding to her queries on 19 June 2021, Minister of State for Finance, Pankaj Chaudhary, revealed that SEBI was investigating allegations against the Adani Group.

However, in its 15 May 2023 application to the apex court, SEBI stated that it had not initiated any investigations into Adani Group companies since 2016. This statement stood in stark contrast to the earlier statement of Minister Chaudhary. The Ministry of Finance, through its official account on Twitter, reaffirmed its stance that ‘SEBI is investigating some Adani Group companies with regards to compliance with SEBI Regulations’.

Image: Screenshot of the statement shared by the Indian Ministry of Finance on 15 May 2023. Source: Twitter

On the following day, Moitra responded angrily regarding the discrepancies between the government’s and SEBI’s versions of events.

On 17 May, SEBI gave its clarifications through another affidavit submitted by an assistant manager, claiming there had been a typo in the earlier affidavit. It said ‘the investigation (related to Adani Group) referred to, was in respect of possible non-compliance with Minimum Public Shareholding (MSP) norms, and consequential violations. This investigation had commenced in October 2020 and not 2016.’

It further explained that ‘SEBI had passed an order in 2016 pertaining to issuance of Global Depository Receipts (GDRs) by 51 Indian listed companies.’ According to the affidavit, ‘no company of Adani Group was part of the aforesaid list. However, there were some FPIs including APMS Funds limited, Cresta Funds Limited, and Albula Funds limited whose GDR related accounts were frozen due to the 2016 order.’

The FPIs (foreign portfolio investments) referred to are entities whose names have cropped up again and again with respect to the Adani Group. They reportedly held about US $7 billion invested in Adani Group companies in 2021, and according to the statement that SEBI gave in its latest affidavit on 17 May, ‘freezing of the accounts of these firms was a consequence of the GDR matter and not related to any examination into any Adani Group Company’, referring to the linkage between the two investigations as ‘erroneous’.

The unexpected twists and turns in the probe into the Adani Group by SEBI have raised questions about the thoroughness, transparency and efficiency of the market regulator’s investigations. SEBI’s credibility is at stake.