SEBI Issues Show-Cause Notices to Seven AdaniGroup CompaniesOver Alleged Violations

SEBI serves show-cause notices to seven Adani Group companies, alleging violations of related-party transaction rules and non-compliance with listing regulations. The notices are part of an ongoing probe triggered by a Hindenburg Research report in January 2023, alleging corporate fraud and stock price manipulation.

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Dil Bar Irshad
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SEBI Issues Show-Cause Notices to Seven AdaniGroup CompaniesOver Alleged Violations

SEBI Issues Show-Cause Notices to Seven AdaniGroup CompaniesOver Alleged Violations

The Securities and Exchange Board of India (SEBI) has served show-cause notices to seven listed companies of the Adani Group, alleging violations of related-party transaction rules and non-compliance with listing regulations. The notices, issued during the quarter ending March 31, 2024, were disclosed by the companies in their regulatory filings to the stock exchanges.

Why this matters: The allegations of corporate fraud and stock price manipulation against the Adani Group have far-reaching implications for India's financial markets and investor confidence. The outcome of SEBI's investigations could have significant consequences for the group's market value and the broader Indian economy.

The companies that received the notices include Adani Enterprises Ltd (AEL), Adani Green Energy Ltd (AGEL), Adani Total Gas Ltd, Adani Ports Special Economic Zone (APSEZ), Adani Power, Adani Energy Solutions, and Adani Wilmar. The notices are part of SEBI's ongoing probe, which was triggered by a report from U.S. short seller Hindenburg Research in January 2023, alleging corporate fraud and stock price manipulation against the Adani Group.

Adani Enterprises, the flagship company of the group, received two show-cause notices, alleging non-compliance with provisions of the listing agreement and LODR regulations pertaining to related party transactions and the validity of peer review certificates of statutory auditors. The other Adani Group companies also received notices, with allegations including failure to report certain transactions in financial statements, not obtaining requisite approvals, and not making required disclosures.

Adani Ports and SEZ disclosed the specific allegations against them, stating, "The allegations are that the company has not obtained the requisite approvals, and have not made the required disclosure in the financial statements/ annual report. Not recalling security deposits against terminated contracts leading to not using the funds for company's core business purposes and thus not complying with the company's code of conduct."

In response to the notices, the companies have stated that there is no material non-compliance with applicable laws and regulations, and no material consequential effect on their financial statements. However, the auditors of Adani Enterprises have taken a more cautious stance, noting, "...on account of pending adjudications/outcome of the investigations by the Securities and Exchange Board of India and based on our review of related documents, we are unable to comment on the possible adjustments and /or disclosures, if any, that may be required to be made in the accompanying statement in respect of this matter." This suggests that the outcome of SEBI's investigations could have implications on future financial statements.

The regulatory scrutiny follows the allegations levelled by Hindenburg Research, which raised questions about the appropriateness of over 6,000 related party transactions within the Adani Group. SEBI identified 13 specific related party transactions that are under investigation in its August report to the Supreme Court. The Supreme Court had also constituted an Expert Committee to investigate the allegations and suggest measures to strengthen existing laws and regulations.

The Expert Committee submitted its report on May 6, 2023, finding no regulatory failure in respect of applicable laws and regulations. SEBI also concluded its investigations in 22 of the 24 matters as per the status report dated August 25, 2023, to the Supreme Court. On January 3, 2024, the Supreme Court disposed of all matters in various petitions, directing SEBI to complete the pending two investigations within three months.

The regulatory probe progresses, and the Adani Group maintains that it has not identified any non-compliances or irregularities through its independent legal and accounting review of the allegations. The outcome of SEBI's investigations and the Adani Group's response to the show-cause notices will be closely watched by investors, regulators, and market participants. The allegations and subsequent regulatory actions have already had a significant impact on the Adani Group'smarket value, with the Hindenburg report triggering a stock rout that wiped out around $150 billion of the group's market capitalization.

Key Takeaways

  • SEBI serves show-cause notices to 7 Adani Group companies over related-party transactions and listing regulation violations.
  • Allegations include non-compliance with listing agreement, failure to report transactions, and inadequate disclosures.
  • Adani Group companies respond, claiming no material non-compliance with laws and regulations.
  • SEBI's probe was triggered by a Hindenburg Research report alleging corporate fraud and stock price manipulation.
  • Outcome of SEBI's investigations could impact Adani Group's market value and the broader Indian economy.