The story up to now: In its order dated March 2, on the batch of petitions regarding the Adani-Hindenburg matter, the Supreme Court of India had directed the Securities and Exchange Board of India (SEBI) to conduct investigations in accordance with particular phrases of reference. The first time period was to probe whether or not there was a violation of Rule 19A of the Securities Contracts (Regulation) Rules 1957. Two extra phrases had been set by the apex courtroom associated to non-disclosure of associated celebration transactions and the manipulation of inventory costs in contravention of present legal guidelines. In addition, a separate Expert Committee was shaped to inter alia look at whether or not there was a regulatory failure in coping with the alleged contravention of legal guidelines by the Adani group. Now, a media investigation has introduced forth additional allegations.
What is Rule 19A?
Rule 19A of the Securities Contracts (Regulation) Rules 1957, inserted by way of an modification made with impact from June 4, 2010 beneath “Continuous Listing Requirement”, stipulates that each firm listed in the Indian inventory market has to take care of no less than 25 p.c public shareholding. “Public” is outlined in the stated Rules as individuals apart from “the promoter and promoter group” — outlined as any partner of that particular person, or any dad or mum, brother, sister or little one of the particular person or of the partner, in addition to “subsidiaries or associates of the company”. This 25 per cent minimal threshold for public shareholding vitally ensures that enough shares of a listed firm is accessible for buying and selling in the inventory market to allow value discovery. Violations of this rule point out probably inventory value manipulation and insider buying and selling, jeopardising the integrity of the fairness market.
What are the newest revelations?
An investigation performed by the Organized Crime and Corruption Reporting Project (OCCRP), as reported in the Financial Times and The Guardian on August 31, has discovered that two Mauritius primarily based funds, particularly the Emerging India Focus Fund (EIFF) and the EM Resurgent Fund (EMRF) had invested and traded in massive quantity of shares of 4 Adani corporations between 2013 and 2018. Two key overseas traders of those funds had been Nasser Ali Shaban Ahli from the UAE and Chang Chung-Ling from Taiwan.
The cash was channelled by way of a Bermuda-based funding fund known as the Global Opportunities Fund (GOF). The worth of the investments of Nasser Ali and Chang Chung-Ling in Adani shares was round $430 million in March 2017 (roughly ₹2,795 crore at prevailing change charge). In January 2017, these two traders collectively held 3.4% of complete shares in Adani Enterprises, 4% in Adani Power and three.6% in Adani Transmission.
The OCCRP investigation has additional revealed {that a} UAE-based secretive agency named Excel Investment and Advisory Services Limited owned by Vinod Adani, brother of Gautam Adani and member of Adani promoter group, had obtained over $1.4 million in “advisory” charges from administration corporations of EIFF, EMRF and GOF between June 2012 and August 2014. The investigators haven’t solely dug up invoices and transaction data, but in addition inside emails which counsel that EIFF, EMRF and GOF had been investing funds into the Adani group shares at the behest of Excel Investment and Advisory Services Limited, that’s, Vinod Adani.
Therefore, there’s now prima facie proof that entities like EIFF, EMRF and GOF had been/are fronts by way of which Vinod Adani has invested huge funds into Adani group corporations shares. If one provides the shareholding of Vinod Adani in three Adani corporations — by way of offshore people and entities like Nasser Ali and Chang Chung-Ling through EIFF, EMRF and GOF, with the disclosed promoter group shareholding of these corporations — the promoter group shareholding of Adani Enterprises and Adani Transmission stood at over 78% in January 2017. This could be in clear breach of the 75% threshold contained in 19A of the Securities Contracts (Regulation) Rules.
The OCCRP proof is over and above the ones already supplied by the Hindenburg report which alleged an enormous international internet of tax haven primarily based shell corporations run by Vinod Adani by way of people like Chang Chung-Ling and offshore funds equivalent to EIFF, EMRF and so on. If extra shell corporations and transactions are investigated, it may additional reveal breaches and contraventions of guidelines and rules by the Adani group through the Vinod Adani channel.
The Adani conglomerate, nevertheless, has vehemently denied all the expenses made by the OCCRP.
SEBI and the DRI probe
A major revelation by the OCCRP pertains to the correspondence between the director normal of the Directorate of Revenue Intelligence (DRI) and the SEBI chief in January 2014 on “the dealings of the Adani Group of companies in the stock market”. One of the letters was accompanied by a CD of proof from a DRI probe into allegations of over-invoicing of capital gear imports towards Adani energy initiatives, stating that “there are indications that a part of the siphoned-off money may have found its way to stock markets in India as investment and disinvestment in [the] Adani Group.”
SEBI has not disclosed the receipt of such a letter and proof from the DRI until date earlier than the Supreme Court. Rather, they’ve categorically acknowledged earlier than the Expert Committee that the investigation into potential contraventions of guidelines and rules by the Adani group of corporations began on October 23, 2020 after receipt of complaints in June-July 2020.
The revelation of the DRI letter means that both SEBI has suppressed details and supplied false data which quantities to perjury; or that the then SEBI chairperson as a substitute of appearing on the DRI letter most well-liked to shut the ongoing investigations into the Adani group. The matter deserves the consideration of the apex courtroom as a result of the SEBI chairperson in January 2014 retired solely in February 2017 and is presently serving as “Non-Executive Independent Director-Chairperson” of NDTV, which was acquired by the Adani group in 2022.
In its newest affidavit earlier than the Supreme Court on August 25, SEBI has acknowledged that they’ve performed 24 investigations into Adani-Hindenburg associated issues since March 2023, of which 22 investigations have been accomplished whereas interim reviews have been submitted for 2 investigations. It is noteworthy that the two incomplete investigations embrace the one on the violation of Rule 19A of the Securities Contracts (Regulation) Rules 1957.
Mentioning the time interval coated beneath this investigation as between April 1, 2016 to September 30, 2020, SEBI has submitted to the Supreme Court that they’ve been unable to determine the “economic interest shareholder” in 13 suspected abroad entities due to their tax haven jurisdictions and that efforts are nonetheless being made to collect extra particulars. It is noteworthy that the names of EIFF and EMRF, which have been alleged to be fronts of Vinod Adani by the OCCRP investigation additionally determine in SEBI’s checklist of 13 suspected Foreign Portfolio Investors (FPIs). SEBI owes a proof as to how a consortium of investigative journalists may collate proof on such tax haven primarily based entities whereas a nationwide regulator has didn’t unearth up to now.
The SEBI investigation and fallout
OCCRP’s expose provides to the already substantial physique of proof which means that SEBI’s function in the Adani group matter goes past regulatory failure and potential regulatory seize.
SEBI has already been indicted by the Expert Committee for amending the FPI and Listing Obligations and Disclosure Requirement (LODR) Regulations since 2018 which opened up regulatory loopholes facilitating concealment of “ultimate beneficiary ownership” of FPIs and transactions with “related parties”. It is now clear that these amendments had been made after the alleged contraventions of the 75% rule of SCRR 1957 by no less than two Adani group corporations in 2017, as discovered by the OCCRP investigation. Therefore, the findings of the SEBI on inventory value manipulation and insider buying and selling in Adani shares are troublesome to take at face worth. The Expert Committee has already reported that 849 alerts had been generated vis-à-vis the Adani scrips by way of SEBI’s automated surveillance programs, between April 2018 and December 2022. Out of this, 603 alerts associated to cost quantity actions had been closed by SEBI and 246 alerts on suspected insider buying and selling had been nonetheless work in progress.
As per the Expert Committee findings, 13 FPIs suspected by SEBI offered round 8.6 crore shares of Adani Enterprises Limited (AEL) between April 2021 and December 2022 when AEL’s share value skyrocketed from round ₹1,000 to over ₹3,800. The Life Insurance Corporation of India purchased 4.8 crore of those shares throughout the identical interval. Yet, SEBI gave a clear chit to the suspected FPIs citing their “net seller” standing throughout the interval of value rise; whereas, it’s apparent that the suspected FPIs had been the main gainers of the irregular value rise and a public sector monetary firm enabled these positive factors. It is simply by way of an intensive forensic audit of all the listed Adani group corporations and the 13 suspected FPIs by an impartial auditor that the actual nature and extent of the alleged financial crimes dedicated by the Adani group through the Vinod Adani channel will be revealed. While being very meticulous, the OCCRP investigation has solely been capable of expose the tip of the iceberg.
Prasenjit Bose is an economist and activist primarily based in Kolkata
