A Supreme Court-appointed expert committee said that Sebi's investigation into suspected irregularities in money flows from offshore organizations into the conglomerate has “drawn a blank” and that it cannot draw any regulatory conclusions about the stock price increases of Adani Group.
The six-member panel, however, said that there was evidence of a build-up in short positions on Adani Group stocks before to the publishing of the report by US-based short seller Hindenburg Research, as well as benefitting from settling holdings when prices fell after the publication of the damaging claims.
“At this stage, taking into account the explanations provided by Sebi, supported by empirical data, prima facie, it would not be possible for the committee to conclude that there has been a regulatory failure around the allegation of price manipulation,” the panel wrote in the report it sent to the Supreme Court.
It went on to say that strong enforcement policies are required that are “coherent and consistent” with the legislative stance taken by Sebi.
The committee claims that it is likewise impossible to accuse Sebi of failing to enforce its regulations on related party transactions or minimum public ownership requirements.
The committee was established by the supreme court in tandem with the Sebi probe into claims against Adani Group and the decline in the shares of the apples-to-port conglomerate brought on by Hindenburg's allegations.
The expert group, which included OP Bhatt, KV Kamath, Nandan Nilekani, and Somsekhar Sundaresan, was presided over by retired Supreme Court Justice AM Sapre.
“The ultimate chain of ownership above the 13 overseas entities holding Adani Group stocks is not clear,” the report stated, “which is the basis of Sebi's suspicion that led to investigations into the shareholding of the foreign portfolio investors (FPIs) in the Adani-listed companies.”
Sebi has identified 42 contributors to the assets managed by the 13 foreign corporations and has been investigating different options to confirm this information.
Sebi has long had the idea that certain public shareholders aren't really in the public eye and could instead be fronts for the firms' promoters.
Despite exploring many avenues via the Income Tax Department and the Enforcement Directorate, Sebi has not established who the actual proprietors of these 13 organizations are.
A 2018 legislation had eliminated the very necessity to declare the last natural person possessing any economic interest in the FPI, despite the fact that the FPIs in issue made declarations of the beneficial owner by identifying the natural people in charge of their choices.
Since October 2020, Sebi has been looking into the ownership of the 13 foreign firms.
“The investigation and enforcement have progressed in the other direction, arguing that it must be possible to identify the ultimate owner of every economic interest in an FPI. Despite its best efforts, Sebi has been forced to draw a balance globally due to this paradox, the statement stated.
Sebi is unable to feel satisfied that its suspicions can be allayed in the absence of such information.
“The securities market regulator suspects fraud but also determines that other requirements in accompanying rules have been followed. As a result, the evidence demonstrates a chicken-and-egg scenario, it added.
The committee said that the market has updated its valuation and pricing of the Adani stocks. “While they may not have returned to the pre-January 24 levels, they are stable at the newly re-priced level,” the report said.
The committee found that empirical evidence showed that after January 24, 2023, retail investors' exposure to Adani equities rose. And on the basis of this, it came to the conclusion that the overall volatility of the Indian stock market during the reference period was not excessive.
The release of the Hindenburg report and its effects, according to the research, were to blame for the “high volatility in the Adani stocks.”
Earlier last week, the Supreme Court gave Sebi till August 14 to wrap up its investigation into the accusations against Adani Group.
Stocks of the Adani Group were downgraded on the exchanges after Hindenburg leveled a number of accusations against the corporate behemoth, including ones involving shady activities and share price manipulation.
The allegations were denied by Adani Group, which said that it complies with all legal and transparency obligations.