SEBI Concealed 2014 DRI Alert About Adani Group Manipulations, Has Conflict Of Interest : Petitioner Tells Supreme Court

In the Adani-Hindenburg matter, the petitioner seeking a Court monitored investigation against the Adani group companies has filed a new affidavit in the Supreme Court in the light of the recent investigative reports published by certain media houses against the conglomerate. 

The affidavit filed by petitioner Anamika Jaiswal has alleged that the Securities and Exchange Board of India(SEBI) has an apparent 'conflict of interest' in investigating the matter. The petitioner has also alleged that the market regulator brought in multiple amendments to 'shield' regulatory contraventions and price manipulations by Adani group.

The affidavit also provided details of alleged suppression of facts by SEBI before the Supreme Court and incriminating findings of Adani family discreetly acquiring stock in its own companies.

• SEBI Concealed 2014 DRI Alert About Adani Siphoning Off Money

It is stated in the affidavit that in 2014, the Directorate of Revenue Intelligence (DRI) had been investigating a case of overvaluation of import of equipment and machinery by various entities of the Adani group from a UAE-based subsidiary. At that time, the DRI had sent a letter to the then SEBI chairperson alerting him that there may be stock market manipulation being committed by Adani group of companies which could be siphoning off money using the modus operandi of overvaluation in the import of power equipment by the Adani group. The letter was also accompanied by a CD containing evidence of siphoning of ₹2323 crores and to notes on the case being investigated by DRI. The affidavit has alleged that SEBI suppressed and concealed this information and never conducted any investigation based on the DRI alert.

"It is shocking that SEBI has not disclosed the receipt of the said letter (DRI letter) and evidence from the DRI till date before this Hon'ble Court", the affidavit stated pointing out to the stand taken by the SEBI before the Supreme Court that it started the investigation against Adani group only in in June – July 2020. The affidavit asserted that this was suppression of facts and providing false information which amounts to perjury.

The affidavit also highlighted that the person who was the SEBI Director in 2014, UK Sinha, is now a non-executive director of NDTV, which was acquired by Adani group in 2022.

• SEBI Hasn't Disclosed Findings Of Any Investigation

As per the affidavit, SEBI submitted its status report which states that out of 24 investigations arising out of the Hindenburg report against Adani group, 22 were final in nature and two were interim in nature. However, the SEBI had not disclosed findings in any of these investigations. The affidavit further states that the time period of the very first investigation pertaining to the violation of Rule 19A of the Securities Contracts (Regulation) Rules, 1957 was mentioned as between 2016 to 2020. This implied that the entire period from October 2020 till the publication of the Hindenburg report, that is, January 2023 was "kept outside the purview of investigations in this case". Further, it is stated that the SEBI investigation covered 13 overseas entities, which included 12 FPIs as per its report. However, SEBI had been unable to establish the economic interest shareholders of the 12 FPIs since their entities were located in tax haven jurisdictions.

• Apparent 'Conflict Of Interest' In SEBI Investigating Adani

It has also been submitted that there is an apparent conflict of interest in SEBI conducting an investigation in the matter. Mr Cyril Shroff, managing partner, Cyril Amarchand Mangaldas (CAM) has been a member of SEBI's committee on corporate governance, which looks at offences like insider trading. As per the affidavit, Mr Shroff's daughter is married to Karan Adani, son of Gautam Adani, hence causing the conflict of interest.  The affidavit has also highlighted that 5 out of the 24 SEBI investigation reports are on insider trading allegations against the Adani group companies. 

• Organised Crime And Corruption Reporting Project Show Opaque Investment funds Based In Mauritius Investing in Adani stocks

As per the affidavit, there have been new documents of the Organised Crime And Corruption Reporting Project (OCCRP) which show that two Mauritius-based companies, namely Emerging India Focus Fund (EIFF) and EM Resurgent Fund (EMRF) had invested and traded in large volumes of shares of for Adani companies between 2013 and 2018. The names of these two companies occur in SEBI's list of 13 suspected FPIs, however, SEBI has been unable to trace their ultimate beneficial owners or economic interests shareholders. The affidavit states that the money invested by the two was channelled through a Bermuda-based investment fund called the Global Opportunities Fund (GOF). As per the affidavit, the OCCRP investigation has further revealed that a UAE-based secretive firm named Excel Investment and Advisory Services Ltd owned by Vinod Adani (brother of Gautam Adani) and member of Adani promoter group had received over $1.4 million in advisory fees from management companies of EIFF, EMRF, and GOF between 2012 to 2014. The OCCRP also unearthed internal emails which suggest that EIFF, EMRF, and GOF were investing funds into the Adani group stocks at the behest of Vinod Adani.  

• Other Incriminating Facts

The affidavit also relies on other 'incriminating facts' as published by international papers such as the Guardian (which published an article titled 'Modi linked Adani family secretly invested in own shares, documents suggest') as per which new documents obtained by the OCCRP reveal the details of "an undisclosed and complex offshore operation in Mauritius" which seem to be controlled by Adani associates that was used to support the share prices of its group of companies from 2013 to 2018. It is suggested that the associates of the Adani family may have spent years discreetly acquiring stock in the Adani group's own companies. The affidavit also cites an article on the same published by Reuters.

• SEBI brought about series of amendments to benefit Adani

The affidavit stated that SEBI not only turned a blind eye but also brought in frequent amendments into the regulations and definitions to shield and excuse Adani group's regulatory contraventions and price manipulations. These include–

1. Amendments of the FPI regulations- The regulations had specified that designated depository participants in the stock market are obligated to ensure that foreign portfolio investor does not have opaque structures. This was amended by SEBI in 2018, whereby the 'ultimate beneficial owners' were redefined to have the same meaning as 'beneficial owner' as defined under the PMLA, 2002. Subsequently, in 2019, the 'opaque structure' clause in the FPI regulations was done away with altogether and replaced by 'compliance with all the requirements under PMLA'.

2. Amendments to LODR- SEBI LODR (Listing Obligations and Disclosure Requirement) had defined 'related party' as having the same meaning ascribed to it under Section 2(76) of the Companies Act. The definition of 'related party' was amended by SEBI in 2018 adding a separate provision enabling a member or entity of the promoter group of a listed company being deemed as a related party only if the shareholding of that person was at least 20%.