Adani-Hindenburg case: SEBI files 41-page affidavit in SC, hearing on Tuesday

Market regulator SEBI on Monday filed a 41-page affidavit in Supreme Court in Adani-Hindenburg case and has sought "appropriate orders" from the apex court. 

Securities and Exchange Board of India has placed on record recommendations by SC-appointed expert committee and petitioners. Supreme Court is scheduled to hear the case on Tuesday.

The apex court had granted SEBI time till August 14, 2023 to complete its probe of the Adani-Hindenburg issue and submit its report.

The expert committee said violations of securities laws demand prompt action so as to limit the negative impact on the securities market. 

The committee has recommended a robust settlement policy. "Put in place a coherent policy on settlement of proceedings, whereby financial injury commensurate with the alleged violation may be inflicted on the party and resources need not be expended where a settlement is possible," the panel said.

SEBI, in its new filing to the Supreme Court, defended a 2019 change in rules for reporting by offshore funds, saying the alteration did not make it tougher to identify ultimate beneficiaries of offshore funds.

The change in rules was cited as one factor by a Supreme Court-appointed committee that made it difficult for the SEBI to identify beneficiaries of offshore funds allegedly investing in companies of the Adani Group.

The regulator told SC that all measures suggested by expert committee have already been taken by it. SEBI said in detail about its existing enforcement policy in response to committee's suggestions on regulatory/prosecution proceedings. It said regulatory action is always based on existing securities law. 

"New facts, which were previously unknown, are also actioned on basis of existing framework," said SEBI.

"If SEBI is always asked to follow the law laid down by SAT in subsequent cases, and the apex court later overturns SAT order the regulator won't be able to take belated actiona against violators," said the market regulator.

A Supreme Court-appointed expert committee had in an interim report in May stated that it saw ''no evident pattern of manipulation'' in billionaire Gautam Adani's companies and there was no regulatory failure.

It, however, cited several amendments the Securities and Exchange Board of India (SEBI) made between 2014-2019 that constrained regulators' ability to investigate, and its probe into alleged violation in money flows from offshore entities has ''drawn a blank''.

Without making any mention of the status report of its own investigation into allegations against Adani Group, SEBI in its latest affidavit to the Supreme Court said it did not agree with the expert committee observation of difficulties in identifying holders of economic interest behind an offshore fund.

It also differed with the panel observation that stocks will re-price if the markets feel actions taken in the past by the company were not desirable, saying even if the market may re-price the stocks of the company based on the past transactions, ''there is no bar on SEBI to examine any securities laws violations because re-pricing of the stock has happened.'' SEBI indicated it does not agree with the expert committee's views and action will be taken if any violation is found/established.

After a report of US short-seller Hindenburg Research alleging accounting fraud, stock market manipulation and improper use of offshore entities by Adani Group stirred a political row and triggered a rout in the conglomerate's stocks, dethroning Adani as the world's third richest man, the Supreme Court had on March 2 constituted the expert committee to investigate if there was any failure to disclose transactions with related parties and if stock prices were manipulated.

The committee was to work in parallel with the probe by Sebi into offshore entities investing in the Adani Group. The regulator was first asked to complete the probe in two months and then given another three months till August 14.

In the affidavit, SEBI said its 2019 rule changes in fact ''tightened the disclosure requirement'' related to beneficial owners.

In its 41-page filing, SEBI opposed the expert committee's recommendation that a firm timeline for the regulator to complete its investigation must be ''embedded into the law'', saying prescribing such limits ''may compromise the quality of investigation'', create constraints and increase litigation.

A bench headed by Chief Justice D Y Chandrachud is scheduled to hear the ongoing Adani-Hindenburg case on Tuesday.

In the affidavit, SEBI has given its views on the recommendations by the expert committee on issues like effective enforcement policy, judicial discipline, robust settlement policy, necessary timelines, surveillance and market administration measures, creation of financial redress agency and others.

''Prescribing timelines for initiation of investigation and proceedings may not be appropriate as the Board is mandated to form a prima-facie opinion (reasonable grounds) to appoint an investigating authority,'' it said.

''Further, the nature, scope and complexity of cases in the securities market vary significantly, and 'reasonable time' to complete investigation would depend on the facts of each specific case and availability of information. Therefore, prescribing specific timelines to complete the investigation may compromise the quality of the investigation,'' the SEBI said.

Petitioner Vishal Tiwari has highlighted Chapter IV of the expert committee report, which speaks of “SEBI’s Suspicion that led to investigation into the Shareholding of the FPI’s into the Adani listed companies is that their ownership Structure is “Opaque” because the ultimate chain of ownership above 13 overseas entities holding Adani group Stocks is not clear".

With inputs from PTI