‘Not proven’ at this stage: SC panel on Adani-Hindenburg

Allegations of stock price manipulation or violation of minimum public shareholding (MPS) norms by Adani group companies remain unproven “at this stage”, according to the expert committee appointed by the Supreme Court to look into alleged regulatory failure by the Securities and Exchange Board of India (Sebi) and breach of laws in the wake of the Adani-Hindenburg episode.

Indian stock market laws require a listed company to have a minimum public shareholding of 25% to keep a free float available for the price discovery of stocks. “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,” the report reviewed by HT said.

To be sure, the 173-page report carefully added a caveat that its conclusions are based on the “prima facie position” of Sebi, which has decided to conduct further investigations into the alleged violation of MPS norms of some Adani companies following the US short-seller Hindenburg Research report released on 24 January.

On 17 May, the apex court gave Sebi time till 14 August to complete its probe into the allegations thrown up by the Hindenburg report, alleging “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 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 six-member panel, led by retired Supreme Court judge A.M. Sapre, was set up by the court on 2 March. The panel submitted its report to the CJI-led bench last week. While granting more time to Sebi for the probe, the court on Wednesday directed the sharing of the panel report with Sebi and the PIL petitioners “to enable them to assist in further deliberation” on 11 July, when the matter is heard next. The panel submitted its conclusions regarding the Adani-Hindenburg row under three major heads – alleged violation of MPS norms, disclosure of transactions with related parties in accordance with law and alleged stock price manipulation.

While the Sebi initiated an investigation in October 2020 to look into possible violation of MPS norms by Adani companies using 13 overseas entities that the regulator suspected “could be fronts for the promoters” of some Adani companies, the panel noted, it has “drawn a blank so far” and has not reported any offence under the Sebi Act or for alleged violation of the Foreign Exchange Management Act (FEMA). Sebi’s attempts to seek information from some foreign regulators about suspicious FPIs have also been unfavourably treated since they sought adequate justification for entertaining such a request, which the panel called a “chicken and egg” situation.

“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,” held the panel.