Adani-Hindenburg Case:- SC Panel Finds No Price Manipulation At Present

The committee has recently provided an update to the high court, stating that it has not yet uncovered any instances of price manipulation conducted by the ports-to-power conglomerate owned by the billionaire Adani.

In response to the criticism of the Adani Group raised in a report by Hindenburg Research, the Supreme Court has established an expert committee led by retired judge A M Sapre. According to the committee’s report, the Securities Exchange Board of India (SEBI) has encountered challenges in its inquiry regarding the “ownership” of 13 overseas entities, comprising 12 Foreign Portfolio Investors (FPIs). Despite its efforts, SEBI has not procured significant evidence of price manipulation in Adani shares.

“The committee of inquiry, after considering SEBI’s justifications supported by empirical data, finds it unreasonable to conclude that any regulatory violation related to price manipulation has occurred,” stated the six-member panel. They further stated that no fraudulent trading patterns or instances of wash transactions among the same parties were detected.

The committee’s report, released on May 6, confirmed the absence of any discernible abusive trading patterns and emphasized that the Minimum Public Shareholding (MPS) compliance had not been breached. The committee clearly highlighted that the regulator’s suspicion does not substantiate the accusation of a breach that can be prosecuted.

SEBI’s comprehensive study, spanning 178 pages, meticulously analyzed the involvement of 42 entities from 13 different countries in contributing to the assets under management. The investigation covered various jurisdictions, including the ED, CBDT, and multiple market regulators. However, SEBI’s efforts yielded no significant findings. Regarding the Hindenburg study, the statement noted that it contained no new data but rather comprised inferences drawn from publicly available information.

The committee, headed by former Supreme Court justice Justice AM Sapre, stressed the need for timely completion of investigations into the transactions being examined by SEBI. The committee acknowledged that Adani has taken the necessary steps to assure retail investors. They also highlighted that there is empirical evidence indicating a significant increase in retail investors’ exposure to Adani stocks since January 24.

The group’s efforts to instil confidence in the stock have resulted in its stability. The committee noted that SEBI had concerns about the lack of transparency in the ownership structures of the 13 companies, prompting a need for further scrutiny. SEBI has been investigating the ownership of these firms since October 2020, prompted by allegations in the Hindenburg report regarding the minimum public shareholding requirement.

The committee mentioned that SEBI’s investigations into alleged violations by foreign entities linked to the Adani group have not yielded any substantial findings, despite the involvement of several Indian and foreign agencies in the international inquiry, as reported.

The committee has determined that it is not viable to declare a “regulatory failure” based on the requirements for minimum public ownership. However, they emphasized the need for a “coherent enforcement policy.”

The Justice Sapre committee states that the challenges faced by the market regulator are a result of a change in SEBI’s legislative approach under the FPI Regulations 2014, following a recommendation from a working group in 2018. According to the committee’s statement, the Foreign Portfolio Investors (FPIs) in question have complied with the FPI Regulations by disclosing the beneficial owners who are responsible for decision-making related to the Prevention of Money Laundering Act (PMLA).

In relation to the investigation into price manipulation, the trading system generated a total of 849 alerts specifically related to Adani stocks. These notifications were taken into account by the stock exchanges in four separate submissions to the Securities and Exchange Board of India (SEBI). Among these reports, the Hindenburg report was mentioned in two, while the remaining two were compiled after January 24, 2023. 

According to the report, the stock exchanges thoroughly examined the content of all four reports. Based on the available information, they did not find any indications of artificial price inflation nor did they discover evidence attributing the rise to any particular individual or group of interconnected entities.

The committee further clarified that SEBI provided an explanation of their analysis methodology using Adani Enterprises Ltd. as an illustrative example. They segmented the trade data into four distinct “patches,” representing periods when the stock price experienced significant increases.

Prior to the Hindenburg report being published, several entities took short positions, and SEBI discovered that they profited by closing their bets when prices declined. The committee noted that the market has adjusted its valuation and pricing of Adani stocks. The report stated that while they may not have reached the levels seen before January 24, they have stabilized at the newly reassessed level.

The committee’s findings indicated that retail investors’ exposure to Adani equities increased after January 24, 2023, based on empirical evidence. Consequently, it concluded that the overall volatility of the Indian stock market during the reference period was not excessively high. The Hindenburg study’s publication and its impact were attributed to the excessive volatility observed in Adani stocks, as per the study’s analysis.

On January 24, Hindenburg Research, a research firm based in the United States, made allegations against the Adani Group, accusing them of engaging in stock manipulation and illicit utilization of tax havens. The Adani Group promptly refuted these claims, considering them baseless.

However, this revelation had a significant impact on Adani’s shares, leading to concerns regarding the safety of investors. To investigate the matter raised by the Adani Group report, a committee of six experts was appointed by the Supreme Court on March 2. Additionally, the Securities and Exchange Board of India (SEBI) received a directive from the Supreme Court to investigate any instances of stock price manipulation.

Despite a request for a six-month extension being denied by the highest court, SEBI has been given until August 14 to conclude its investigation into the allegations of stock price manipulation in this case. The stock value of the Adani Group has experienced a decline on Dalal Street, following the accusations of various unlawful practices, including the manipulation of share prices, made by a US-based short-seller.

Published By Naveenika Chauhan