In March 2023, two months after Hindenburg Research accused the Adani Group of using opaque offshore entities to route funds into India to manipulate the stock prices of its companies, the Supreme Court tasked the Securities and Exchange Board of India with investigating the allegations.
Responding to public interest petitions, the court also created a six-member expert committee to investigate, among other things, “whether there has been regulatory failure in dealing with the alleged contravention of laws pertaining to the securities market in relation to the Adani Group or other companies”.
In May 2023, the expert committee concluded that it would “not be possible to return a finding of a regulatory failure” on the part of SEBI.
This conclusion is under fresh scrutiny after a new report released by Hindenburg Research on Saturday alleged that SEBI chairperson Madhabi Puri Buch and her husband Dhaval Buch had “hidden stakes” in the same Bermuda- and Mauritius-based offshore entities linked to the Adani Group.
The Buchs said in a statement that the investments were made before Madhabi was appointed to SEBI, and that “all disclosures” had been made as required. SEBI also said that Buch had disclosed details about her security holdings and had recused herself in matters that potentially involved a conflict of interest.
But the question that many are asking is whether Buch had disclosed her investments in the Adani-linked funds to the Supreme Court-appointed expert committee – particularly since she had an opportunity to make such a disclosure. According to a report in the Economic Times, Buch had briefed the committee in person on April 2, 2023.
What did Buch tell the panel?
The expert committee was headed by former Supreme Court judge Abhay Manohar Sapre. Other members included former Bombay high court judge JP Devadhar, senior advocate Somasekhar Sundaresan, bankers OP Bhatt and KV Kamath, and entrepreneur Nandan Nilekani.
According to the Supreme Court’s March 2023 order, the SEBI had to apprise the committee about the manner in which it was conducting its probe into the allegations against the Adani Group.
Buch met the panel in Delhi, the Economic Times reported, citing people familiar with the matter. “The New Delhi briefing to the panel by Securities and Exchange Board of India chairperson Madhabi Puri Buch was her first, and an important one, said these people. Henceforth, she will not appear before the committee unless required,” the newspaper wrote.
Did Buch tell the committee about her and her husband’s investments in funds linked to alleged stock price manipulation and money laundering by the Adani Group and recuse herself from the probe?
Scroll sought comments from the members of the expert committee.
Nilekani and Kamath did not respond to messages and calls. Sapre hung up before we could pose any questions. Sundaresan, now a judge at the Bombay High Court, Bhatt and Devadhar declined comment.
One of the petitioners in the Supreme Court, lawyer Vishal Tiwari, told Scroll that it was clear that Buch or SEBI had not made these disclosures to the expert committee since nothing in its report indicates that. “It seems that the fact was not presented to the committee,” Tiwari said.
A flawed conclusion
The expert committee does not currently subsist, having completed its remit upon the publication of its report in May 2023. But a person familiar with the members told Scroll the committee will release a public statement on the latest controversy about the SEBI chief “after things have cooled down”.
Last year, another petitioner in the Supreme Court case, law student Anamika Jaiswal, had raisedobjections in the court against two members of the expert committee on grounds of conflict of interest. She had alleged that Bhatt and Sundaresan had professional ties with the Adani Group. These objections had been dismissed by the apex court as unsubstantiated.
Jaiswal’s lawyer, Neha Rathi, told Scroll that she continued to stand behind the objections.
Rathi pointed out that the expert panel, in its report, had revealed several failures on part of SEBI and also pointed towards market manipulation by Adani. “Yet, its conclusion purports to give a clean chit to the Adani Group,” she said.
The expert committee report noted that SEBI had been investigating 13 foreign portfolio investors since April 2016, focusing on their significant investments in Adani Group companies, and yet had failed to identify their ultimate beneficial owners.
This failure is significant because the Hindenburg report and findings by the Organized Crime and Corruption Reporting Project or OCCRP, suggest a connection between these investors and the Adani Group, which could reveal violations of the law regarding minimum public shareholding.
The expert committee report noted that the Directorate of Revenue Intelligence had alerted SEBI in January 2014 about potential stock market manipulation by the Adani Group, involving over-valuation of imported power equipment. Despite receiving substantial evidence, including a CD detailing the siphoning of Rs. 6,278 crores, SEBI did not act on this information or conduct an investigation, the report said.
The report also pointed out that the Red Herring Prospectus issued by Adani Enterprises Limited in January 2023 disclosed SEBI’s inquiries into certain Adani entities in 2020. But, despite substantial evidence of legal violations, the market regulator took no action – no show cause notices were issued, nor were any first information reports filed against the Adani entities.
Even after the publication of the Hindenburg report in January 2023, SEBI allowed Adani Enterprises’ Follow-on Public Offer to proceed until its eventual withdrawal by the Adani Group, the expert committee report said.
The report also flagged SEBI’s inaction following 849 trading alerts generated between April 2018 and December 2022, which indicated a failure to address potential irregularities. Out of these alerts, 603 pertained to price volume movements, and 246 to suspected insider trading. Despite these warnings, the regulator did not initiate any thorough investigation until the Adani stock prices crashed, after which they acknowledged “unusual price movement”.
Additionally, amendments to its regulations, particularly those concerning foreign portfolio investors and the listing obligations and disclosure requirements by SEBI, facilitated non-compliance by the Adani Group, the report found. These regulatory changes created a complex situation where establishing price manipulation and insider trading has become more difficult.
Despite “collating and presenting a large body of evidence of regulatory failure”, economist Prasenjit Bose wrote in The Hindu last year, “the expert committee has drawn ambivalent conclusions” and refused to conclude that there had been regulatory failure by SEBI.
SEBI yet to finish probe
While the expert committee submitted its report to the Supreme Court in May 2023, the SEBI investigation into Hindenburg’s allegations remains incomplete. The market regulator has repeatedly missed court-imposed deadlines.
In its order on March 2, 2023, the Supreme Court had directed the SEBI to conclude the probe within two months. In April, SEBI asked for six more months, citing complex transactions involving the conglomerate’s listed, unlisted and offshore entities. In May, the Supreme Court granted it an extension till August 14, 2023. The market regulator then sought 15 more days from the apex court.
Despite SEBI not submitting its report in the matter, the Supreme Court passed a final judgment on January 3 this year, disposing off the public interest petitions. In the order, the court directed the SEBI to conclude its probe “expeditiously preferably within three months”.
In February, Jaiswal sought a review of the judgment. The review petition was dismissed by the Supreme Court on July 15.
Tiwari had earlier this year filed an application in the Supreme Court demanding a status report on the progress of the SEBI’s Adani probe.
The Supreme Court Registrar had in July refused to list the application on the ground that it was misconceived and did not disclose any reasonable cause, since the January judgment had not set any deadline for the market regulator to complete its probe.
Tiwari earlier this week filed an appeal against this order. He told Scroll that the new allegations against Buch have “created an atmosphere of doubt in the minds of public and investors” and therefore it is incumbent on the SEBI to complete its investigation and make its findings public.
“Such transparent action is needed,” he said.
Rathi said that the new Hindenburg report had vindicated her client’s allegations of regulatory failure on part of SEBI.
“They have been investigating Adani since 2020 without any conclusion. Now we know why they had been sitting on it,” she said.
She added that the Supreme Court should take suo motu notice of the allegations against Buch. “The court had reposed faith in the Securities and Exchange Board to carry out the probe fairly,” she said. “That has been proven wrong”.
