Adani-Hindenburg: SEBI informs SC ‘allegation Adani Group companies are under investigation since 2016 is baseless’

The Securities and Exchange Board of India (SEBI) has filed a rejoinder affidavit with the Supreme Court of India giving additional reasons for seeking more time to probe the Adani-Hindenburg issue. The Adani-Hindenburg issue pertains to alleged violations of securities law by the Adani Group in the wake of the US-based short seller Hindenburg report, which led to a massive wipe-out of more than USD 140 billion of the Adani Group’s market value.

SEBI submitted, “The application for extension of time filed by SEBI is meant to ensure carriage of justice keeping in mind the interest of investors and the securities market since any incorrect or premature conclusion of the case arrived at without full facts material on record would not serve the ends of justice and hence would be legally untenable.”

SEBI submitted that the 12 transactions referred to in the Hindenburg Report are ‘highly complex’ and have many sub-transactions across numerous jurisdictions, therefore, a rigorous investigation of these transactions requires information from various sources.

“In respect of the investigation/examination relating to 12 transactions referred to in the Hindenburg Report, prima facie it is noted that these transactions are highly complex and have many sub-transactions across numerous jurisdictions and a rigorous investigation of these transactions would require collation of data/information from various sources including bank statements from multiple domestic as well as international banks, financial statements of onshore and offshore entities involved in the transactions and contracts and agreements, if any, entered between the entities along with other supporting documents. Thereafter, analysis would have to be conducted on the documents received from various sources before conclusive findings can be arrived at,” the SEBI affidavit read.

Furthermore, the SEBI affidavit has denied the petitioner’s allegations claiming that the apex regulatory body had been investigating Adani since 2016. The affidavit states, “The allegation that Securities and Exchange Board of India is investigating Adani since 2016 is factually baseless. The reliance sought to be placed on the investigation pertaining to GDRs is wholly misplaced.” SEBI clarified that the investigation pertained to Global Depository Receipts by 51 Indian listed companies, which did not include Adani Group companies.

SEBI has also submitted that it has approached eleven overseas regulators under the Multilateral Memorandum of Understanding (MMOU) with International Organisation of Securities Commissions (IOSCO) concerning the investigation into Minimum Public Shareholding (MPS) norms.

“Various requests for information were made to these regulators. The first request to overseas regulators was made as early as on October 6, 2020. A detailed note has been submitted to the expert committee constituted by this court covering the steps taken, responses received and the current status of information gathering under the MMOU of IOSCO,” the affidavit read.

Background

On March 2, the apex court had directed the capital market regulator SEBI to investigate the Adani-Hindenburg issue which led to a massive wipe-out of more than USD 140 billion of the Adani Group’s market value.

In an application moved before the Supreme Court, SEBI submitted that keeping in view the forgoing circumstances, it would take further time to arrive at verified findings and conclude the investigation. However, the Supreme Court orally remarked that it cannot provide SEBI with 6 months additional time, however, indicated that it can grant 3 months’ time maximum during the last hearing and adjourned the hearing to May 15. Earlier, the court granted two months’ time to SEBI through its March 2 order, which ended on May 2.

SEBI’s counsel Solicitor General of India Tushar Mehta argued that 6 months additional time is need considering the complexities of the case. He further submitted that as per the SEBI’s application at least 15 months are needed, however, it will take best efforts to complete the investigation within 6 months’ time.

However, the Chief Justice of India DY Chandrachud said, “Six months is an unfair time…we will place the matter around 14th August. You complete your investigation in three months and come back to us. There has to be alacrity.. We can’t say you need minimum 6 months. SEBI cannot take an indefinitely long period.”

Advocate Prashant Bhushan, appearing for one of the petitioners, opposed SEBI’s application and submitted that SEBI is a member of the International Organisation of Securities Commission and therefore, it is not difficult to procure information from foreign countries regarding international transactions. Furthermore, he submitted that SEBI’s stand is that it started to investigate some of the alleged benami transactions back in 2017.