For Adani group, SC verdict brings curtains down on a turbulent year

The court directed Sebi to complete its investigation into the two remaining cases within three months. Photo: Reuters
The court directed Sebi to complete its investigation into the two remaining cases within three months. Photo: Reuters


Supreme Court rejects probe by special investigation team into allegations against Adani Group, directs Securities and Exchange Board of India to continue investigation

New Delhi: The Supreme Court (SC) on Wednesday placed its trust in the market regulator and dismissed petitions seeking a separate investigation into Hindenburg Research’s allegations against the Adani group, lifting a year-long cloud over the ports-to-cement conglomerate.

The top court also directed the Securities and Exchange Board of India (Sebi) to complete its investigation in three months, and asked both Sebi and the government to examine if the Hindenburg report itself involves potential legal violations, and take necessary action.

A person close to the Adani group said the legal tangle had made the conglomerate “untouchable" for private banks and sovereign funds, whose boards turned wary of its proposals. “This will change after the Supreme Court verdict and will make fund availability easier for us," the person said on condition of anonymity.

An industry insider concurred that the favourable SC order will encourage more foreign investors to put money into the conglomerate. This assumes significance as the Adani group has plans to tap into international debt markets to aid its expansion plans.

Investors took the development favourably, with Adani Enterprises Ltd, the group’s flagship company, rising 2.45% to close at 3,003.95 on BSE on Wednesday, while the benchmark Sensex index fell 0.75%.

The judgement evoked mixed reactions from experts. “I don’t necessarily see this as a win for the Adani group. I don’t actually see this as a win for anybody," said Sharmila Gopinath, specialist advisor, India, Asian Corporate Governance Association. “I think the Supreme Court has basically told the market that the regulator needs to finish what it started (investigations). And whatever Sebi comes out with at the end of it is what we will have to live with..."

Gopinath added that the petitioners went too early to the apex court, because “a court anywhere in the world will not step on regulators’ toes before they have even finished their investigations."

InGovern Research founder and managing director Shriram Subramanian said that beyond the SC scrutiny going off, there is no impact on the Adani group. “They continued to make acquisitions and raise funds...the depressed prices after the Hindenburg report helped them raise funds from Rajiv Jain’s GQG Partners instead. They even secured Haifa Port in Israel and bagged the Dharavi project while the case was going on."

Tushar Agarwal, an advocate at the SC, said the court reposed trust in Sebi’s investigation to protect investors’ interest. “Also, this order is indicative of the basic fabric of the Constitution of India; in terms of separation of powers, the judiciary is not supposed to interfere with legislative and executive functions," he said.

Meanwhile, the three-judge bench of Chief Justice D.Y. Chandrachud and Justices J.B. Pardiwala and Manoj Mishra directed Sebi to complete investigations into the remaining two out of the total 24 cases within three months.

The regulator had earlier informed the court that it had completed investigations in 22 cases, with information awaited from foreign regulators for the last two. The two cases aim to establish the ownership of 12 foreign portfolio investors (FPIs) owning stakes in Adani group companies, and short sellers in Adani shares around the time of the release of the Hindenburg report.

The SC noted that the petitioners did not present valid grounds to direct Sebi to revoke its amendments to FPI regulations and listing obligations and disclosure requirements (LODR) regulations. “The regulations do not suffer from any infirmities," the bench stated. The petitioners had contended that these amendments had helped some foreign investors hide their ultimate owners.

Additionally, the court dismissed the reliability of various third-party reports and news articles, including one from the Organized Crime and Corruption Reporting Project, as credible sources of proof. Investigative reports could be inputs for Sebi, but they cannot be considered credible evidence or proof of regulatory failure, the court said.

The Hindenburg report released on 24 January last year had alleged various malpractices at Adani group companies, hammering its shares and forcing its flagship firm to cancel a $2.4 billion share sale. The Adani group denied the allegations in a 413-page response.

Subsequently, public interest litigations (PILs) were filed in the SC by advocates Vishal Tiwari, M.L. Sharma, Congress leader Jaya Thakur and activist Anamika Jaiswal, prompting the court to form a committee, headed by former SC judge Justice A.M. Sapre, to investigate the matter. The committee included former State Bank of India chairman O.P. Bhatt, retired Justice J.P. Devadhar, K.V. Kamath, Nandan Nilekani and Somasekhar Sundaresan. The committee’s findings had raised concerns about the removal of restrictions on FPIs with an “opaque structure" by Sebi in 2018 and 2019.

Prior to 2019, FPIs were required to provide beneficial ownership (BO) information only when requested by Sebi, and there was a prohibition on opaque FPI structures. However, in 2018 and 2019, Sebi tweaked these rules, making it mandatory for all FPIs excluding sovereign funds to submit their BO information upfront. The specific prohibition on opaque structures became redundant, and it was removed. The petitioners contended that this change helped some FPIs hide their beneficial owners, a charge that SC dismissed on Tuesday.

Sebi informed the SC in August that it is investigating the “economic interest shareholders" of 12 FPIs that are public shareholders of Adani companies. In its status report filed in the SC, Sebi mentioned the challenges in identifying the economic interest shareholders of these FPIs due to their connections to entities in tax havens. The regulator has said that it is working to gather details from five foreign jurisdictions.

In December, Mint reported that Sebi had issued show-cause notices to foreign investors owning a big chunk of Adani companies in an attempt to unveil their true ownership.

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