The Adani-Hindenburg controversy is again in the news as five offshore funds move to the Securities Appellate Tribunal (SAT) against the Securities and Exchange Board of India (SEBI). The case is scheduled for a hearing on Friday and raises questions about whether there is sufficient transparency and disclosure to advance the regulatory proceedings.
The entities involved in the appeal are Albula Investment Fund, LTS Investment Fund, Cresta Fund, Asia Investment Corporation Mauritius and APMS Investment Fund. The five funds are all part of Hindenburg Research's report on stock manipulation and accounting irregularities in the Adani Group, which was released in January 2023.
The funds have disputed SEBI's move to initiate the adjudication process, saying they were not provided with reasons or material to justify the move beyond the initial show-cause stage, according to media reports.
The funds have reportedly requested a stay of the adjudication proceedings until the SAT examines whether SEBI complied with due process under the law.
According to sources familiar with the matter, said that the offshore funds had already replied to the show-cause notices issued by SEBI last year. But they say they did not receive an explanation from the regulator why it chose to proceed with the adjudication process after receiving their responses.
"SEBI's adjudication officer has not shared any opinion after submission of replies from the funds post issuance of the show-cause notice," a legal source reportedly said.
The source further added that "without access to such key material, it was difficult to understand the basis on which the adjudication proceedings were going ahead."
The plea is said to be based on Rule 4.3 and 4.4 of the SEBI Adjudicating Rules, which state that the Adjudicating Officer must consider the explanation filed by the noticee and decide whether further inquiry is necessary.
The probe by SEBI was initiated due to “concerns on aspects of disclosure norms and investment concentration limits” for FPIs.
The regulator said that while individual funds have reported investments in Adani Group firms, these should have been reported on an aggregated basis at the offshore fund group level.
The decision of the proceedings may have far-reaching implications in the assessment of foreign investment structures under India's securities regulations.
The controversy started in January 2023, when a short seller, Hindenburg Research LLC, released a report alleging that Adani Group engaged in stock manipulation and accounting irregularities. The charges led to a sharp decline in the market valuations of all Adani Group companies, wiping billions of dollars within weeks.
The Adani Group has consistently denied the allegations in the report, calling them "malicious" and "unfounded”.
Since then, SEBI has investigated the issue on several occasions, from its probes into offshore funds linked to Adani stocks to its investigations into the disclosures made by those funds.
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The SAT proceedings could set a precedent for the procedures SEBI must follow when making the shift from show-cause to formal adjudication.
The tribunal's decision may influence future enforcement against foreign portfolio investors and complex offshore investment vehicles.