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Adani-Hindenburg row: Supreme Court expert panel report finds no regulatory failure

A panel of experts appointed by the Supreme Court (SC) to investigate the Adani Group has stated that it is difficult to determine whether there has been a failure in regulatory oversight concerning price manipulations. On March 2, the highest court directed the establishment of a six-member committee to investigate the accusations of stock manipulation against the Adani Group made by Hindenburg Research, a short-seller based in the United States. Based on the information provided by the Securities Exchange Board of India (SEBI), the committee came to the conclusion that there was no regulatory failure.

Adani Group has disclosed all beneficial owners

The committee concluded that the Adani Group has disclosed the information of all the beneficial owners of the business. The report also lists all the details of these beneficial owners as obtained from the SEBI. The report says, “SEBI has been suspecting 13 overseas entities of having links to the promoters of the Adani Group and thereby suspecting that the shareholding in the listed Adani stocks in the hands of these 13 overseas entities need not qualify as a public shareholding. If such holding is not public shareholding, the listed Adani companies would have violated Rule 19A of the SCRR. At this stage, each of the 13 overseas entities has provided the details of the beneficial owners to the respective reporting entities and to SEBI in compliance with Rule 9 of the PMLA Rules.”

The committee also underlined that the SEBI has not categorically rejected Adani’s declaration of these beneficial owners. The committee report said, “According to SEBI, there is no demonstration that the persons declared to be beneficial owners are not “beneficial owners” for purposes of Rule 9 of the PMLA Rules. Both the Adani promoters and the FPI’s beneficial owners appear to have affirmed on oath that the FPI investments are not funded by the Adani Group.”

SEBI can not make out any case

The committee further concluded, “In the instant case, it appears that SEBI is not able to make out a case, and such a position of the case not being made out is presented as a prima facie position, which cannot be confirmed unless more investigation is done. In any prosecution of proceedings, whether civil or criminal, the presentation of a “prima facie” case is the responsibility of the plaintiff or the prosecutor. Once a prima facie case is made out, the burden shifts to the accused.”

No allegation against Adani Group is proved

The committee also concluded that be it a suspicion of SEBI or a report by Hindenburg, it is nothing more than a row surrounding the Adani Group with allegations without any proof. The committee said, “The inversion of the process of proving a charge, leaves the matter in the realm of suspicion. It is trite law that suspicion, however strong, cannot replace proof. However, the publication of the Hindenburg Report has reinforced SEBI’s suspicion that perhaps there is something amiss and it desires to probe this further, and is seeking time.”

It added, “Even the fundamental rules of evidence would require a conclusion of whether an allegation is “proved”, “disproved” or “not proved”. At this stage, the factual matrix appears to place the matter in the realm of “not proved” – the regulator has not been able to prove that its suspicion can be translated into a firm case of prosecuting an allegation of violation.”

Extrapolation of Hindenburg report caused loss to Adani stocks

The committee said in its report, “The Committee is equally cognizant of the fact that the allegations in the Hindenburg Report are substantially based on publicly available information. However, the manner in which it has extrapolated the information and presented it has led to a serious nose-dive in the prices of Adani stocks. The prices have undergone a correction and have improved but not to the level as existing prior to January 24, 2023, the date of publication of the Hindenburg Report.”

The committee also questioned the legal position of the SEBI while investigating the matter. It said that just because the market took the allegations seriously, regardless of whether any law is violated, the stocks of the Adani Group underwent repricing. However, the committee also underlined that the retail shareholding of the Adani Group has gone up after the Hindenburg report was published. The committee also acknowledged Adani Group’s efforts to comfort their investors. The committee also noted that there were short-selling profits made by entities after the Hindenburg report was published. The committee also mentioned that this needs to be probed separately while it underlined that prima facie it does not see any violation of any existing law by Adani Group as per the SEBI’s investigations so far.

No regulatory failure around allegations of price manipulation of the Adani stocks found

The committee said in its conclusion, “The Committee’s remit is not to examine whether the price rise was justified, whereas its remit is to ascertain if there was a regulatory failure. It is apparent that SEBI was actively engaged with developments and price movements in the market. The Committee notes that all such investigations must be completed in a time-bound manner. At this stage, taking into account the explanations provided by SEBI, supported by empirical data, prima facie, it would not be possible for the Committee to conclude that there has been a regulatory failure around the allegation of price manipulation.”

The Adani Group has already trashed the Hindenburg Research report as a ‘malicious combination of selective misinformation and stale, baseless and discredited allegations’. The Group stocks lost Rs 46,000 crores in market cap after Hindenburg claimed that the Indian giant had participated in a clear stock manipulation and accounting fraud scheme over decades. The report was published on 24th January 2023.

The Supreme Court said on May 13 it may consider granting three more months to SEBI for concluding its enquiry proceedings in the Hindenburg research report on the Adani Group of companies. Notably, on March 2, the Supreme Court directed market regulator SEBI to complete its inquiry proceedings in 2 months and submit the status report in a sealed envelope before the court within the stipulated time frame.

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