SEBI seeks more time on Adani-Hindenburg report: The case so far

January 24: The US-based short seller Hindenburg Research publishes a 106-page report accusing the Adani Group of ‘brazen stock manipulation and accounting fraud’. Hindenburg flags concerns over the Group’s high leverage. The report comes out just a few days ahead of the opening up of the Rs 20,000-crore follow-on public offer (FPO) of Adani Enterprises Ltd (AEL). The FPO is to open for subscription on January 27 and close on January 31.

The shares of the listed companies of Adani Group come under heavy selling pressure on the stock exchanges after the Hindenburg report comes out.

January 26: The Adani Group issues a statement saying it is planning to sue Hindenburg Research for its “maliciously mischievous” report.

“The maliciously mischievous, unresearched report published by Hindenburg Research on January 24, 2023 has adversely affected the Adani Group, our shareholders and investors. The volatility in Indian stock markets created by the report is of great concern and has led to unwanted anguish for Indian citizens,” Adani Group says.

In response to the legal threat, Hindenberg Research says it stands by its report and believes that any legal action taken against it would be ‘meritless’.

January 31: Corporates and foreign investors bail out the Rs 20,000-crore FPO of Adani Enterprises amid the volatility in the stock market and crash in Adani Group shares.

Despite the market price of the AEL share quoting below the issue price, the FPO gets subscribed 1.12 times on the last day of the issue (January 31) in the wake of good response from qualified institutional buyers (QIBs), including foreign institutional investors (FIIs) and non-institutional investors (NIIs), comprising corporates. The QIB portion gets subscribed 1.26 times and NIIs 3.32 times. Corporates bid for 1.66 crore shares worth Rs 5,438 crore and FIIs applied for 1.24 crore shares worth Rs 4,127 crore.

February 1: One day after the AEL’s FPO closes for subscription, the Adani Group decides to call off the fully subscribed issue and return the money to the investors.

“Given these extraordinary circumstances, the company’s board felt that going ahead with the issue will not be morally correct. The interest of the investors is paramount and hence to insulate them from any potential financial losses, the board has decided not to go ahead with the FPO,” Adani said in a statement.

February 14: SEBI, in a note to the Supreme Court, says it is “already inquiring into both, the allegations made in the Hindenburg report as well as the market activity immediately preceding and post the publication of the report, to identify violations of SEBI Regulations…” including those related to short selling.

March 2: The Supreme Court on March 2 sets up an expert committee headed by its former judge Justice A M Sapre to investigate whether there was a regulatory failure in dealing with the alleged contravention of laws pertaining to the securities market by the Adani Group or other companies. The other members included KV Kamath (former CEO of ICICI Bank), OP Bhat (former SBI Chairman), Nandan Nilekani (Infosys Chairman), justice (retired) JP Devadhar, and Somasekhar Sundaresan, a lawyer with expertise in securities laws.

Separately, the Supreme Court asks the capital markets regulator SEBI – already probing allegations against Adani Group companies – to specifically investigate: i) if there has been a violation of the minimum public shareholding norms in public limited companies, ii) if there has been a failure to disclose transactions with related parties, and iii) if there was any manipulation of stock prices.

SEBI is given two months to complete the probe it was already conducting into the allegations against the Adani group.

The SEBI Chairperson is asked to help the committee with all required information, and the committee can also seek the cooperation of all law enforcement and other financial sector regulation agencies.

The six-member panel is to suggest measures to strengthen the statutory framework and regulatory framework and secure compliance with the existing framework for the protection of investors.

The Supreme Court ruling comes on a batch of petitions seeking a probe into various aspects of the controversy following the publication of the Hindenburg Research report.

April 29: Citing “complexity of the matter” and the “interest of justice,” SEBI moves the Supreme Court seeking a six-month extension, “at least,” to complete its probe into allegations of fraud and stock manipulation made by the Hindenburg against the Adani Group.

“In respect of the investigation/examination relating to 12 suspicious transactions, prima facie it is noted that these transactions are complex and have many sub-transactions and a rigorous investigation of these transactions would require collation of data/information from various sources along with detailed analysis including verification of submissions made by the companies,” SEBI said in an application filed before the apex court.

May 15: SEBI informs the Supreme Court that it had not probed any Adani Group companies since 2016, as alleged by some of the petitioners.

This comes after one of the petitioners opposes the markets regulator’s application seeking six more months. The petitioner says that the markets regulator had been probing Adani since 2016.

In a rejoinder affidavit, SEBI says that the contention by the petitioners in their reply affidavit “has no relation and/or connection to the issues referred to and/or arising out of the Hindenburg report”.

It adds that “the matter referred to” in the reply affidavit of the petitioners “pertains to the issuance of Global Depository Receipts by 51 Indian listed companies in respect of which investigation was conducted” and says, “however, no listed company of Adani Group was part of the…51 companies”.

May 17: The Supreme Court gives SEBI time till August 14 to complete its probe.

A bench presided by Chief Justice of India D Y Chandrachud also asks the markets regulator to submit an updated status report on the investigation. Fixing the matter for hearing next on July 11, the bench asks the expert committee to continue to assist the court. “The committee may hold further deliberations in the meantime,” it says.

May 19: The six-member expert committee says that the markets regulator “had drawn a blank” in its investigation into alleged violations in money flows from offshore entities into the conglomerate.

Stating that there was no evidence of a “regulatory failure” on the part of SEBI, the committee says the market regulator’s investigations on the foreign portfolio investors’ economic interest in the Adani group could be “a journey without destination”.

The committee, in its 173-page report, says that the markets regulator “suspects wrongdoing” on the ownership of foreign portfolio investors (FPIs) but it was unable to pinpoint the violations.

July 10: SEBI tells the Supreme Court that its 2019 rule changes do not make it tougher to identify beneficiaries of offshore funds, and action will be taken if any violation is found or established.

The markets regulator says it has continuously tightened rules concerning beneficial ownership and related-party transactions – key aspects in the allegations of Adani Group manipulating its stock price, as per a PTI report.

July 11: SEBI says that despite tightening norms to lift the veil around the ‘opaque structure’ of FPIs, the regulator has faced a wall since entities actually controlling FPIs are in jurisdictions which leave ambiguity around entities that have economic interest in FPIs, but no ostensible control.

In its affidavit submitted in the Supreme Court, the markets regulator says that with the regulatory changes governing FPIs in 2018 and 2019, it had tightened the disclosure requirement for beneficial owners (BOs) of FPIs.

Further, according to the regulator, in some cases entities having economic interest in an FPI are in jurisdictions where the equivalent PMLA (Prevention of Money Laundering Act, 2002) regulations require BO identification only on the basis of control or ownership.

August 14: SEBI asks the Supreme Court for a 15-day extension to complete its inquiry.

The market regulator, in its fresh application, says it had “substantially progressed” in its investigations. “Out of the said 24 investigations/examinations, 17 are final and complete and approved by the competent authority in accordance with SEBI’s extant practice and procedures,” the regulator states.