Explained | Decoding the expert committee report on Adani

Explaining the expert committee report on Adani which has shown regulatory fault with SEBI

The story so far:

The Supreme Court order dated March 2, 2023 led to two parallel inquiries into contraventions of the Adani group of companies, alleged by Hindenburg Research. The U.S.-based investment research firm had alleged in January that the Adani Group was engaged in brazen stock manipulation and money laundering through shell companies; charges denied by the company. The Security and Exchange Board of India (SEBI), which was asked to investigate whether there was a violation of Rule 19A of the Securities Contracts (Regulation) Rules, 1957, sought an extension after the two-month deadline was over, and will now have to report to the apex court by August 14. In addition, a separate Expert Committee was constituted to inter alia investigate whether there has been regulatory failure in dealing with the alleged flouting of laws by the Adani Group or other companies.

The SEBI was directed to probe whether the Securities Contracts (Regulation) Rules, 1957, were violated. The court wanted SEBI to find out whether Rule 19A, which stipulates that every company listed in the stock market has to maintain at least 25% public shareholding, was ignored. It was also asked to find out whether there was a failure to disclose transactions and other relevant information concerning “related parties” to SEBI, in accordance with the law; and also whether there was any manipulation of stock prices in contravention of existing laws. When SEBI sought an extension, citing complexity of the transactions it was investigating, the court granted it more time. Meanwhile, the six-member, court-appointed Expert Committee, submitted a 173-page report to the court on May 6. It has been widely reported that the expert committee has found “no regulatory failure” on the part of SEBI. A perusal of the expert committee report, however, reveals several facts as well as a sequence of events, which not only point towards regulatory failure, but regulatory capture and collapse.

In the committee’s findings on SEBI’s regulatory performance contained in the fourth chapter of the report, there is an indication of a gigantic scam involving serious economic offences perpetrated by the Adani group.

The expert committee report states that SEBI had begun investigating the Adani group companies in October 2020, following complaints received in June-July 2020. However, regulatory proceedings like the issuance of show-cause notices have not been initiated by SEBI under the ruse of being unable to establish a prima facie case. SEBI has been investigating 13 suspected overseas entities, mostly foreign portfolio investors (FPIs), based in tax havens like Mauritius, which they suspect are front companies of the Adani promoters.

This Table names the 13 overseas entities being investigated by SEBI with respect to the Adani Group.

These FPIs together held significant shares in five listed Adani group companies as on March 2020 — 15.5% in Adani Enterprises Limited/AEL, 18% in Adani Transmission Limited/ATL, 17.9% in Adani Total Gas/ATG, 20.3% in Adani Green Energy Limited/AGEL and 14.1% in Adani Power Limited/APL, as per SEBI’s compilation.