Supreme Court asks SEBI why law was tweaked to remove provisions prohibiting opacity in FPI ownership

The Supreme Court asked SEBI to explain why the law was tweaked in 2018 to junk crucial provisions prohibiting opacity in the ownership structure of FPIs, leading to investigation into the Adani Group hitting a wall

The Supreme Court on July 11 asked the Securities and Exchange Board of India (SEBI) to explain why the law was tweaked in 2018 to junk crucial provisions which prohibited opacity in the ownership structure of Foreign Portfolio Investors (FPI).

The court’s concern was in light of a finding in the Justice A.M. Sapre expert committee report that the SEBI investigation into the allegations made by U.S.-based Hindenburg Research against the Adani Group had hit a wall because of amendments made in the FPI Regulations, 2014. These amendments had put the market regulator in a “chicken-and-egg situation” in its investigation into the “ownership” of 13 overseas entities, including the 12 FPIs mentioned in the Hindenburg report. The expert committee has said the SEBI itself suspected these 13 entities of having “opaque structures” because their chain of ownership was not clear.

Also read: Explained | Decoding the expert committee report on Adani

“In 2018, the very provision dealing with ‘opaque structure’ and requiring an FPI to be able to disclose every ultimate natural person at the end of the chain of every owner of economic interest in the FPI was done away with,” the Justice Sapre panel report had said in May.

It said for the SEBI to put to rest its suspicions, its investigation would require information about the “ultimate economic ownership”, and not just the “beneficial owners”, of the 13 overseas entities under its lens.

“Then you should go into the background of these amendments… What are the circumstances under which you had changed the provisions dealing with ‘opaque structure’... “ Chief Justice Chandrachud addressed Solicitor General Tushar Mehta, appearing for the SEBI.

Mr. Mehta however insisted that the SEBI investigation “is going on at full speed”.