Did not probe Adani since 2016, Sebi tells SC; row erupts

SEBI denied in an affidavit to Supreme Court that it has been investigating the Adani Group since 2016, contrary to claims made by several opposition leaders.

A political row broke out on Monday after the Securities and Exchange Board of India (Sebi) submitted an affidavit in the Supreme Court calling it “factually baseless” that the Adani Group was being investigated by the regulator since 2016, prompting several Opposition leaders to cite a July 2021 reply by the junior finance minister to Parliament stating that “Sebi is investigating some Adani Group companies with regard to compliance with Sebi Regulations”. To be sure, the affidavit itself answers this in a way by saying that Sebi first approached overseas regulators on October 6, 2020, in the “context of investigation into Minimum Public Shareholding (MPS) norms” of some Adani companies. Indian stock market laws require a listed company to have a minimum public shareholding of 25%.

The matter got adjourned to July 10 due to paucity of time. (HT FIle)

On Monday, Sebi submitted an additional affidavit before a bench led by Chief Justice of India Dhananjaya Y Chandrachud, contending that no listed company of the Adani Group has been investigated by it since 2016 for suspected misuse of Global Depository Receipts (GDRs) instruments for routing black money back to India.

The top court, which is monitoring the Sebi probe into Adani-Hindenburg episode and has also set up a panel headed by its retired judge AM Sapre to look into regulatory failure and breach of laws, was expected to rule on an application by Sebi asking for at least six more months to complete its investigation.

While the matter got adjourned to July 10 due to paucity of time, Sebi brought on record an additional affidavit to refute a claim made last week by advocate Prashant Bhushan on behalf of one of the PIL petitioners that the regulator has already been looking into some complaints of alleged violation of laws by the Adani group since 2016.

Sebi said in its affidavit that its 2016 investigation had nothing to do with the Hindenburg report but pertained only to GDRs by 51 Indian listed companies. “However, no listed company of Adani Group was part of the aforesaid 51 companies. Pursuant to completion of investigation, appropriate enforcement actions were taken in this matter. Hence, the allegation that Sebi is investigating Adani since 2016 is factually baseless,” it added.

“The Government stands by its reply in Lok Sabha on 19th July 2021 to Q. No. 72, which was based on due diligence and inputs from all concerned agencies,” the finance ministry tweeted.

Attacking Sebi’s stance in the top court, senior Congress leader and former Union minister Jairam Ramesh tweeted a written reply by the Union minister of state for finance, Pankaj Chaudhary, on July 19, 2021, that Sebi was investigating the Adani Group.

“Now Sebi tells the Supreme Court that they have not been investigating any of the serious allegations against Adani! Which is worse—misleading Parliament, or being fast asleep as lakhs of investors are duped by alleged money-laundering and round-tripping using offshore shell companies? Or even worse, was there a restraining hand from above?” posted Ramesh, attaching the junior minister’s reply to his tweet.

Shiv Sena leader Priyanka Chaturvedi tweeted: “Was the junior finance minister lying to the country regarding the investigation in his answer on 19 July 2021? This smells of a cover up but at whose behest?”

TMC MP Mahua Moitra had in July 2021 raised a question in Parliament: “Whether the FPIs and/or Adani entities are under investigation by SEBI, IT, ED, DRI, MCA for suspicious transactions and if so, the details thereof and if not, the reasons.”

Responding, Chaudhary said in his reply: “Yes Ma’am. Sebi is investigating some Adani Group companies with regard to compliance with Sebi Regulations. Further, the Directorate of Revenue Intelligence (DRI) is investigating certain entities belonging to the Adani Group of Companies under laws administered by it. As far as investigation under Income Tax Act, 1961 is concerned, disclosure of information regarding specific taxpayer is prohibited except as provided under Section 138 of Act. No such investigation is going on in the Enforcement Directorate (ED).”

Hindenburg’s report, released on 24 January, claimed “brazen accounting fraud” and “stock manipulation” by the Gautam Adani-led group. Though the conglomerate rejected the report as “unresearched” and “maliciously mischievous”, it triggered a massive rout of Adani Group stocks, which lost over $140 billion in days and forced the cancellation of a ₹20,000 crore share sale in the group’s flagship.

The Adani Group, however, denied allegations of stock market manipulation and accounting fraud by Hindenburg.

Meanwhile, Sebi’s affidavit on Monday reiterated its request for extending the time by at least six months, maintaining that the 12 transactions referred to as suspicious in the Hindenburg report are highly complex and they have many sub-transactions across numerous jurisdictions.

“A rigorous investigation of these transactions would require collation of data/information from various sources including bank statements from multiple domestic as well as international banks, financial statements of onshore and offshore entities involved in the transactions and contracts and agreements, if any, entered between entities. Thereafter, analysis would have to be conducted on the documents received from various sources before conclusive findings can be arrived at,” said Sebi.

About its investigation into the minimum public shareholding (MPS) norms, the affidavit said that the regulator has already approached 11 overseas regulators under the multilateral memorandum of understanding with International Organization of Securities Commissions (IOSCO) and the first request to overseas regulators was made as early as in October 2020.

“The application for extension of time filed by Sebi is meant to ensure carriage of justice keeping in mind the interest of investors and the securities market since any incorrect or premature conclusion of the case arrived at without full facts material on record would not serve the ends of justice and hence would be legally untenable,” it emphasised.

On Friday last week, the Supreme Court offered an additional three months to Sebi, expressing reservations about the regulator’s request for a six-month timeframe. The court, however, said that it would review the Justice Sapre committee’s report on regulatory failure and breach of laws before deciding on an extension to Sebi.

Sebi, during the proceedings on Friday, told the bench that it is yet to form a final opinion regarding the “suspicious” nature of transactions and alleged breach of laws by the Adani group, as pointed out by Hindenburg Research .

On that day, advocate Bhushan, appearing for PIL petitioner Anamika Jaiswal, opposed Sebi’s request, claiming that the regulator has been looking into similar complaints against the Adani group since 2016.

A six-member panel, led by former Supreme Court judge AM Sapre, was set up by the court’s March 2 order to investigate allegations of regulatory failure and breach of laws against the Adani group and to suggest steps to bolster the statutory and supervisory regime.

At that time, the Adani Group, in a statement, had said it welcomes the investigation, “which represents a fair opportunity for everyone to be heard and for all issues to be addressed”.