In the report of Hindenburg, which smelled the ground for the shares of Adani Group, the Securities and Exchange Board of India (SEBI) has also made scathing comments. Hindenburg has said in it that ‘it seems that SEBI is more interested in protecting the culprits than in punishing them’.
Hindenburg’s report came on January 24, 2023 and till now SEBI’s silence has not been broken. This forced former RBI Governor Raghuram Rajan to say that it is surprising that SEBI is facing such a problem in this? If Hindenburg Research, a New York-based counting staff, can extract facts that have not been refuted so far, then the Indian regulator should have had no difficulty in extracting much more information than that. Speaking to the Press Trust of India, Rajan said, “Does SEBI need the help of investigative agencies?”
Indian journalists and parliamentarians are raising the question that why SEBI has not been able to extract the horoscope of those fund companies of Mauritius which have invested only and only in the shares of Adani Group? Why didn’t SEBI notice that the Adani group was allegedly violating its guideline that a listed company must hold 25 per cent shares to the public? The reality is that only 2-3 percent of its shares are for the common people. The Hindenburg Research report pointed out how suspicious transactions took place between dubious shell companies and Adani group companies listed in India, these shell companies made huge investments in group companies and the group companies are heavily indebted. The result of this was that after this report there was a massacre in the stock market.
SEBI’s Guidelines (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, Chapter 1 clause (c) states: ‘fraud’ includes any act, disclosure or suppression of information- irrespective of whether the method of doing so is fraudulent or not—by which he has induced his agent or any other person to deal in securities…’. (c) (9) states, ‘any act of the issuer of a security which disseminates any false information which affects the market price of the security and which results in misleading an investor …’
As per SEBI guidelines, Foreign Portfolio Investors are required to provide the names of Ultimate Beneficial Owners (UBOs) and Senior Management Officers to the regulator. But a list made available by SEBI and shared by the Union Minister of State for Finance shows that some foreign portfolio investors (FPIs) who have huge exposure to Adani group companies were using proxies to hide the identity of the UBOs.
When Trinamool Congress MP Mahua Moitra asked for information about the ultimate beneficial owners of FPIs invested in the Adani group, Union Minister of State for Finance Pankaj Chowdhary replied on July 19, 2021 to a former investment banker-turned-politician. Mahua had also asked whether this FPI, the Adani group companies and in particular the Monterosa group and its associated persons (Alastair Guggenbuhl-Ivens, Erik Widmer, Martinde Queven, Florian Linner) are facing any investigation by Indian enforcement agencies Are? So the minister replied that SEBI and Directorate of Revenue Intelligence (DRI) are probing some FPIs who have invested only in Adani Group. The reply also stated that disclosure of any investigation details by the Income Tax Department is prohibited under the Income Tax Act, 1961 and the Enforcement Directorate (ED) is not probing the allegations.
The minister’s reply contained an 84-page annexure received from SEBI and mentioned the names of FPIs who had invested in six listed companies of the Adani group (Adani Total Gas, Adani Power, Adani Ports and Special Economic Zone, Adani Enterprises, Adani Green Energy and Adani Transmission). Further, the papers did not identify the name of the ultimate beneficial owner or the senior most official of the fund in case the ultimate beneficial owner is not known.
SEBI’s guidelines for Foreign Portfolio Investors, Designated Depository Participant and Qualified Foreign Investor states that ‘Beneficial Owner (BO) is the natural person who ultimately owns or controls the FPI and who is subject to anti-money laundering (record maintenance) Rules, 2005 to be recognized as per rule 9 of the …’. The guidelines also mention that ‘if companies/trusts are represented by service providers such as lawyers/accountants, FPIs should provide information on the actual owners/effective controllers of those companies/trusts’. If the BO exercises control through means such as voting rights, agreements, any other arrangement, the same should also be disclosed. It is clarified that the BO cannot be a nominee of any other person and the actual BO should be identified.
Is SEBI following its own guidelines for FPIs? Did SEBI follow its rules in Adani Group case? The regulator’s stand shows that it either did not care or gave a free hand to FPIs to invest only in the Adani group.
Independent investigation has revealed that the persons named in the SEBI list are not the ultimate beneficial owners or actual fund managers of these FPIs. These were all proxies appointed by middlemen who helped anonymous investors hide their money through opaque companies and funds. Many of them have been found to be linked to opaque funds from tax havens notorious for money laundering and tax evasion.
It is difficult to believe that SEBI was not aware of these facts. In July 2021, the Minister of State for Finance told the Parliament that SEBI is already probing the case related to these FPIs and DRI is conducting another probe related to some transactions of Adani Group. A SEBI source in conversation with this reporter claimed that jurisdictional issues stalled the regulator’s probe as all these funds were based in Mauritius or some other tax haven. The source also said that those tax havens refused to share the details or did not respond to SEBI. If this is true, did the SEBI board inform the Union finance ministry and the corporate affairs ministry about it? ? What happened to the DRI investigation? Why didn’t the government speed up the investigation earlier?
In May 2022, there were reports that SEBI had sought response from the Adani group in the case of 17 foreign companies involved in the acquisition of ACC and Ambuja Cements from Holcim. The same information is being received from all sides that the regulator is still examining the reply given by the group. Why is SEBI taking so long to investigate?
‘The Hindu Businessline’ has published that Gautam Adani visited SEBI headquarters twice during four weeks in September and October 2022 and met officials, directors and SEBI chairman Madhavi Puri there. If SEBI was already probing the Adani Group, its offshore entities and their transactions as well as the issues raised against FPIs who invested big money in the group, was it right for SEBI Chairman and Directors to meet Gautam Adani ? What happened in these meetings? Does the government even know about it? There is no possibility that SEBI or the government will answer these questions. This is the reason why there is a need to get a Joint Parliamentary Committee to investigate the various allegations against the Adani Group.
However, a lawyer representing the Adani group recently told NDTV, a news channel owned by the Adani group, that pressuring the government to form a JPC is an attempt to tarnish the image of the Modi government (and the prime minister).