SC adjourns hearing in Adani-Hindenburg case to Aug

The Supreme Court (SC) today adjourned the hearing in the Adani-Hindenburg case to August 2023 and asked the market regulator SEBI (Securities and Exchange Board of India) to provide soft copies of its 43-page affidavit to the petitioners and court, and also upload it on record.

SEBI on Monday filed a 43-page affidavit at the Supreme Court after the recommendations by a panel appointed by the Apex court.

On the status of its investigation into the allegations leveled against the Adani conglomerate, solicitor general Tushar Mehta, appearing for SEBI, said a "constructive response" has already been filed as per the SC expert committee’s suggestions, and its probe is on in full swing.

Mehta told the top court, SEBI has been granted time till August 14, 2023, to complete the probe, and the current response is based on the SC expert panel's recommendations.

The SC in May had released a report submitted by the A.M. Sapre committee, saying there was “no prima facie violation of existing rules”, and that it could not conclude about “regulatory failure around price manipulations”.

In its 41-page affidavit filed in the SC on Monday, SEBI said the changes made in FPI rules in 2018 and 2019 effectively, “tightened the disclosure requirement” related to beneficial owners.

The response came after an SC expert panel report stated that 2019 rules made it difficult for the regulator to find out the real beneficiaries of offshore funds. Saying that "appropriate orders" should be passed with respect to the matter, the regulator stated the challenges presented before the expert committee in respect of getting the details about the economic interest holders, did not emanate from the "repeal of the opaque structure provisions in 2019".

“The challenges with respect to the identification of natural person economic interest holders in FPIs are in no way a consequence of the 2018 Circular or the 2019 FPI Regulations, as elaborated earlier. On the contrary, the regulatory framework was tightened during this period rather than relaxed.”

Instead, the issue primarily arose from the “existence of thresholds for determination of the 80s”, said SEBI, adding that the thresholds were only lowered (i.e., made tighter) between 2014 and 2019.

It added that despite that the 2018 FPI circular and FPI 2019 rules tightened beneficial owners' identification and disclosure requirements, "challenges remained in the identification of those with an economic interest in some FPIs".

The regulator also observed that since granular details of all underlying investors with ownership, economic, or control interest in entities below the threshold were never required to be made available to the DDP/custodian, there was a possibility that the same natural person could hold a significant aggregate economic interest in the FPI via different investing entities, each of which was individually below the threshold for identification as a beneficial owners.

The Expert Committee observed that the proceedings initiated by SEBI in 2021-22 skyrocketed to 7,195 cases as compared with 562 cases in 2020-21 and 249 cases in 2019-20. In this respect, SEBI said the increase was an “outlier” due to the large number of adjudication proceedings in Illiquid Stock Options (ISO) matters initiated that year. “If ISO matters, being the anomaly, are netted out for FY 2021-22, the total number of proceedings initiated in FY 2021-22 would only be 416.”

After the US-based short seller Hindenburg Research had released an adverse report against the Adani group on January 24, 2023, the SC directed the SEBI to probe the matter with regard to violations of securities (regulation) rules, related party rules, and stock manipulation.