SEBI Challenges Expert Panel Findings in Adani Controversy, Vows to Take Swift Action Against Violations

Capital markets regulator SEBI informed the Supreme Court on Monday that its rule changes in 2019 do not make it more difficult to identify beneficiaries of offshore funds. The regulator emphasized that it will take appropriate action if any violations are discovered or established. SEBI stated that it has consistently strengthened regulations related to beneficial ownership and related-party transactions, which are crucial factors in the allegations of stock price manipulation by the Adani Group.

An expert committee appointed by the Supreme Court had previously released an interim report in May, stating that it found "no evident pattern of manipulation" in Gautam Adani's companies and identified no regulatory failures. However, the committee highlighted several amendments made by SEBI between 2014 and 2019 that limited regulators' ability to investigate, leading to a lack of progress in the probe into alleged violations involving offshore entities.

In its recent affidavit to the Supreme Court, SEBI did not comment on the status of its own investigation into the allegations against the Adani Group. Instead, it disagreed with the expert committee's observation that identifying holders of economic interest behind an offshore fund posed difficulties. SEBI also disputed the panel's view that stock prices would adjust if the market perceived past actions by a company as undesirable. SEBI argued that even if stocks were repriced based on past transactions, it had the authority to examine any violations of securities laws.

SEBI made it clear that it does not concur with the expert committee's opinions and stated that appropriate action would be taken if any violations were found or established.

Following a report by US short-seller Hindenburg Research alleging accounting fraud, stock market manipulation, and improper use of offshore entities by the Adani Group, controversy arose, leading to a sharp decline in the conglomerate's stocks and Gautam Adani losing his position as the world's third richest person. On March 2, the Supreme Court formed the expert committee to investigate whether there were any failures to disclose transactions with related parties and if stock prices had been manipulated. The committee worked simultaneously with SEBI's probe into offshore entities' investments in the Adani Group. Initially given two months, SEBI was later granted an additional three months until August 14 to complete the investigation.

In its 43-page affidavit, SEBI asserted that its rule changes in 2019 had actually strengthened the disclosure requirements pertaining to beneficial owners. The regulator opposed the expert committee's recommendation to embed a firm timeline for completing investigations into the law, expressing concerns that such limits could compromise the quality of the investigation, impose constraints, and increase litigation.

A bench led by Chief Justice D Y Chandrachud is scheduled to hear the ongoing Adani-Hindenburg case on Tuesday. In the affidavit, SEBI provided its perspective on the expert committee's recommendations regarding effective enforcement policy, judicial discipline, robust settlement policy, necessary timelines, surveillance and market administration measures, and the establishment of a financial redress agency.

SEBI stated that prescribing timelines for initiating investigations and proceedings may not be appropriate, as the Board is required to form a prima facie opinion (reasonable grounds) to appoint an investigating authority. The regulator highlighted that the nature, scope, and complexity of cases in the securities market vary significantly, and determining a "reasonable time" to complete investigations depends on the specific facts and availability of information in each case. Therefore, SEBI argued against prescribing specific timelines, as it could compromise the quality of investigations.