The Securities and Exchange Board of India (Sebi) on Monday justified its request for a six-month extension to its probe into the Adani Group before the Supreme Court. The markets regulator said that any incorrect or premature conclusion of the case would not serve the ends of justice.

The regulator also said that it had not probed any Adani Group companies since 2016 as alleged by some of the petitioners wanting a probe into the claims made by Hindenburg Research against the Adani Group. The 2016 investigation was related to the issuance of global depository receipts by 51 Indian listed companies, and did not include any listed Adani Group company, Sebi said. The SC has deferred hearing the plea.

However, hours after Sebi’s statement, the finance ministry said that it stands by its reply in the Lok Sabha on July 19, 2021 that said that the Sebi and Department of Revenue Intelligence were investigating Adani Group companies since 2016. In a tweet today (Monday), the ministry said: “The government stands by its reply in Lok Sabha on July 19, 2021 to Q. No. 72, which was based on due diligence and inputs from all concerned agencies.”

Replying to a question by Trinamool Congress MP, Mohua Moitra, minister of state for finance Pankaj Chaudhary had said that “Sebi was investigating some Adani Group companies with regard to compliance with Sebi regulations. Further, the DRI is investigating certain entities belonging to the Adani Group of Companies under laws administered by it.”  

The issue led to a political controversy with Congress spokesperson Jairam Ramesh tweeting “whether Parliament was misled, or the market regulator was fast asleep as investors were duped.”

Tushar Agarwal, an advocate in the Supreme Court, said the stand taken by the apex court reflects its concern for investors’ protection. SC has clearly stated that an extension of minimum six months without any valid justification cannot be granted. The observation that a special team be assigned for this investigation, will compel Sebi to take this investigation on utmost priority.

He added that instead of diversifying its investigation into various issues, Sebi should focus on the key areas as directed by the Supreme Court. Further delays can distort the real reason behind the entire Hindenburg-Adani episode due to various known and unknown extraneous influences.

Sebi informed the SC that it had already approached eleven overseas regulators under the Multilateral Memorandum of Understanding signed with International Organization of Securities Commissions for investigation into minimum public shareholding norms. The first request to overseas regulators was made on October 6, 2020 and a detailed note had been submitted to the six member expert committee.  

“The application for extension of time filed by Sebi is meant to ensure carriage of justice, keeping in mind the interest of investors and the securities market since any incorrect or premature conclusion of the case, arrived at without full facts and material on record would not serve the ends of justice and hence would be legally untenable,” the regulator said in an affidavit filed with the SC.

The regulator said the 12 transactions referred to in the Hindenburg report were complex and had many sub-transactions across numerous jurisdictions. A thorough investigation would require collation of data from various sources, including bank statements from multiple domestic as well as international banks, financial statements of onshore and offshore entities involved in the transactions and contracts and agreements entered between the entities, along with other supporting documents. The documents will have to be analysed before conclusive findings can be arrived at.

“A key area of focus for Sebi would be the detailed investigation into the layers of transactions that were allegedly executed by the Adani group of companies involving several jurisdictions, including international banks and an in-depth analysis of financial statements of onshore and offshore entities involved in such transactions. This would entail an investigation and examination of the agreements that were executed for such cross-border transactions and would warrant an independent verification of the terms and conditions,” said Suvigya Awasthy, Associate Partner, PSL Advocates & Solicitors.

The SC, vide order dated March 2, has stated that Sebi should focus on: whether there has been a violation of Rule 19A of the Securities Contracts (Regulation) Rules 1957; whether there has been a failure to disclose transactions with related parties and other relevant information which concerns related parties to Sebi, in accordance with law; and whether there was any manipulation of stock prices in contravention of existing laws.

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