On March 2, the apex court had formed a six-member expert panel headed by retired SC judge Justice AM Sapre. 
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On March 2, the apex court had formed a six-member expert panel headed by retired SC judge Justice AM Sapre. The Supreme Court on Friday released the report on the Adani-Hindenburg case submitted by the AM Sapre committee, which said that at this stage, it is not possible to conclude that there was a regulatory failure on the price manipulation allegation.
The panel report noted: "The committee is of the view that it would not be possible to return a finding of a regulatory failure in relation to compliance with the regulatory stipulations governing minimum public shareholding stipulation..."
The six-member panel said: "It is noteworthy that a strong feedback on the Hindenburg Report is that it contained no new data but was substantially a collection of inferences from data in the public domain."
The AM Sapre committee in its report to the apex court noted that the base of capital market regulator the Securities and Exchange Board of India's (Sebi) suspicion that led to the investigations into the overseas entities' ownership of Adani Group is that the group has an “opaque” structure due to which the ultimate chain of ownership around the 13 overseas entities is not clear.
"The foundation of Sebi's suspicion that led to investigations into the shareholding of the FPIs in the Adani-listed companies is that their ownership structure is "opaque" because the ultimate chain of ownership above the 13 overseas entities holding Adani Group stocks is not clear," the report said.
It further noted that the Sebi has identified 13 specific transactions where it is investigating the underlying transactions regardless of whether they are legally considered 'related party transactions' from the standpoint of assessing if they were fraudulent in nature.
It added that while the capital market regulator is actively collecting data on these transactions, it has to complete the investigations in a time-bound manner.
The six-member panel has gone into various aspects of market volatility, investor confidence, regulatory framework, investor awareness, and the investigation into the Adani Group companies.
It added that that the Sebi must be well structured, and its own governance must be well thought through. “Effective measures, transparency in law-making, involvement in contributing to ensure greater societal the law, and consequently greater acceptance and compliance with the regulations, should be the focus,” the panel said in its report.
“Effective enforcement policy would mean laying down criteria on the basis of which Sebi may choose whether to initiate proceedings and what type of proceedings to initiate, in a clear, reasoned and non-arbitrary fashion. Enforcement must also be consistent with the legislation and policy stance of Sebi,” the panel said.
The panel added that in complex matters, the law must allow setting up an investigative committee with members from various probing agencies.
Such multi-agency investigation committee may be setup under the aegis of the Financial Stability and Development Council, it noted.
On March 2, the apex court had formed a six-member expert panel headed by retired SC judge Justice AM Sapre. Other members of the committee are OP Bhatt, KV Kamath, Nandan Nilekani, JP Devadhar and Somasekhar Sundaresan.
Effect on stock prices
The committee said after the scathing report by Hindenburg was released, the market has re-priced and re-assessed the Adani stocks. "While they may not have returned to the pre-January 24 levels, they are stable at the newly re-priced level," it said.
The experts' panel noted that as per empirical data, retail investors' exposure to Adani stocks increased after January 24, 2023. And based on this, the panel concluded that the Indian stock market as a whole was not unduly volatile during the period under reference.
"The volatility in the Adani stocks was indeed high, which is attributable to the publication of the Hindenburg report and its consequences," the report said.
Some of the major takeaways from the report are:
> The panel reported that Sebi-flagged "suspicious transactions" investigation are going on.
> Around 849 alerts were generated in the trading system over Adani stocks in the last few years. Four reports were sent to Sebi by stock exchanges regarding this.
> Sebi has found 42 contributories to the Assets Under Management of the 13 overseas entities and has been pursuing various avenues to ascertain the same.
> Sebi found that there were some entities who took short positions before Hindenburg published its report and profited by squaring off their positions once the prices crashed.
> The regulatory framework has been changed multiple times that allowed the companies to escape "breaking letter of the law" due to the time given for compliance
> Adani firms are under Sebi investigation since 2020, much before the Hindenberg report.
> The committee further flagged the need to improve investors' awareness.
> It also suggested a framework for inter-agency coordination for enforcement.
What did Hindenburg Report say
In January, Hindenburg Research raised several governance concerns around the Adani Group, alleging improper use of tax havens and stock manipulation by the ports-to-energy conglomerate.
> The report said it has identified 38 Mauritius shell entities controlled by Adani’s brother, Vinod Adani, or his close associates plus entities controlled by him in other tax havens.
> The offshore shell network seems to be used for earnings manipulation.
> “Our research indicates that offshore shells and funds tied to the Adani Group comprise many of the largest “public” (i.e., non-promoter) holders of Adani stock, an issue that would subject the Adani companies to delisting, were Indian securities regulator SEBI’s rules enforced,” the report alleged.
> Adani Group has previously been the focus of four major government investigations relating to allegations of fraud.
> Four of Adani’s listed companies are on the brink of the delisting threshold due to high promoter ownership.
> Adani Enterprises and Adani Total Gas appear to be audited by a tiny firm, with no current website, only four partners and 11 employees, and which has audited just one other listed firm.
> The auditor “hardly seems capable of complex audit work,” it said, when Adani Enterprises alone has 156 subsidiaries and many more joint ventures.
> It said that five companies in the group (all but Adani Ports and Adani Wilmar) have current ratios below 1.0, suggesting a heightened short-term liquidity risk.
>The report said that from a solvency perspective, multiple listed entities in the group are highly leveraged relative to industry averages.
> “Four of 7 of these entities have negative free cash flow, indicating that the situation is worsening. A company’s ‘current ratio’ is a measure of liquid assets less near-term liabilities. Five companies in the group (all but Adani Ports and Adani Wilmar) have current ratios below 1.0, suggesting a heightened short-term liquidity risk,” it said.
> Hindenburg Research said the Adani Group companies are intricately and distinctly linked and dependent upon one another. None of the listed entities are isolated from the performance, or failure, of the other group companies.
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