SEBI Seeks 15 More Days To File Its Report on Adani-Hindenburg Issue
Moneylife Digital Team 14 August 2023
Market regulator Securities and Exchange Board of India (SEBI) has approached the Supreme Court seeking 15 more days for filing its investigation report on the Adani-Hindenburg issue, including alleged stock market manipulation in the scrips of Adani group companies. 
 
In an application, SEBI submitted to the apex court that substantial work had been done, and the report will be filed after 15 days.
 
The market regulator says that it has examined 24 matters in compliance with orders of the SC, and "out of the said 24 investigations or examinations, 17 are final and complete."

The application says that in one matter, SEBI has completed the investigation based on the material that could be gathered by it so far and had sought information from agencies or regulators in foreign jurisdictions. "Upon receipt of such information, will evaluate the same to determine further course of action, if any, in the said matter," it added.

In the remaining six matters, findings from four investigations have been crystallised, and the reports prepared are awaiting the approval of the competent authority. "SEBI expects to complete the approval process in respect of the aforesaid four matters shortly and in any event before the next hearing date," the application added.

"In the remaining two matters (out of six), the investigation is at an advanced stage in one matter and in the other matter, the interim report is under preparation based on information gathered by SEBI thus far," the market regulator told the apex court, which is scheduled to hear the matter on 29 August 2023.

"SEBI had sought information from entities, agencies and regulators in foreign jurisdictions and, upon receipt of such information, will evaluate the same vis-a-vis the interim report to determine further course of action," it added.
 
It may be recalled that the Supreme Court-appointed ‘expert’ committee had identified SEBI’s dilution of rules as an obstacle to identifying the ultimate economic beneficiaries of key offshore funds that had large investments in Adani group companies. The Court had given SEBI until 14 August 2023 to complete its probe into the matter.
 
In July, SEBI submitted a 41-page affidavit to the Supreme Court regarding the Adani-Hindenburg case. In the filing, SEBI upheld its 2019 reporting rule changes for offshore funds stating they did not hinder the identification efforts of ultimate fund beneficiaries.
 
Responding to the expert committee’s observation that the proceedings initiated by SEBI in 2021-22 have 'skyrocketed', it said that the increase was due to the large number of adjudication proceedings in 'illiquid stock options' (ISO) matters.
 
With regard to the judicial discipline, SEBI said that "In the ordinary course, the ratio laid down by one adjudicating officer(AO)/whole-time member (WTM) is followed by another WTMs/ AO, except in the cases where the latter authority does not agree with the ratio laid down by the former as it has no precedential value."
 
“Violations of securities laws demand prompt action so as to limit the negative impact on the securities market. The entire matrix of securities law is crafted with the objective of ensuring a secure investment environment, and hence, immediate action is warranted under securities law,” it said. It stated that, in SEBI cases, if appropriate action is not taken in a timely manner, irreparable damage to investors can be caused which cannot be reversed by the higher Court.
 
Interestingly, in what was seen as a clean chit and a defence on behalf of Adani, the expert committee had said although SEBI has been investigating the run-up in Adani prices and was suspicious about the concentration of investment in Adani stocks by certain offshore investors, it was 'a journey without a destination', because SEBI’s own dilution of rules prevented it from demanding the identity of ultimate economic beneficiaries.
 
Until 2014, such entities were required to disclose the ultimate natural person owning an economic interest in each FPI. From around 2017, SEBI quietly began work on diluting the rules, first setting up the HR Khan (former deputy governor of the Reserve Bank of India-RBI) committee. Finally, disclosure rules for foreign portfolio investors were changed to drop a specific clause (on ‘Opaque Structures’), opening up a gaping loophole that allowed ultimate economic beneficiaries to remain undisclosed.
 
Pertinently, on 29 June 2023, SEBI tightened disclosure norms for ‘high risk’ offshore funds as if to counter the impact of the 2019 dilution that had done away with the ‘opaque structures’ prohibition. (Read: Adani-Hindenburg Case: SEBI Files 41-page Affidavit in Supreme Court, Defends 2019 Rule Change)
 
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