Supreme Court Committee Report: Alleged Contraventions & Regulatory Failure

Supreme Court Committee Report – Highlights

Key Findings of the Committee in Chapter IV Titled: Alleged Contraventions & Regulatory Failure

A: Short Seller

The Committee has confirmed that there has been short selling on Adani stocks and undue profiting by some entities based on the SEBI investigation. In short, the Report states that:

SEBI has found out some entities have taken short positions prior to the Hindenburg Report and profited after the price crashed upon the publication of the Report on Jan 24.

Suspicious trading has been observed on the part of six entities. It has stated that of this, four are FPIs, one body corporate, and one individual.

The trading pattern by FPIs is suspicious due to the build-up of short positions before the Hindenburg Report.

Detailed investigation being carried out by SEBI on short sellers

B: Measures by Adani Group

The Committee has outlined various mitigating measures undertaken by Adani Group to bring down debt and build confidence. In short, the Report states that:

1. The mitigating measures from the Adani Group such as paring down the debt secured by encumbrances on their shareholding, infusion of fresh investment into Adani stocks by way of investment of nearly USD 2 billion by a private equity investor and the like, built confidence in the stocks.

2. The Committee concluded that based on empirical evidence that the Indian market as a whole was not unduly volatile during the period under reference. The volatility in the Adani stocks was indeed high, which is attributable to the publication of the Hindenburg Report and its consequences.

C: Key Findings on areas of investigation

The Committee identified three areas of investigation into the alleged violations as specified in the Supreme Court’s order dated March 2, 2023. These areas are:

• Minimum Public Shareholding
• Disclosure of transactions with related parties in accordance with law and
• Stock price manipulation

The Report says that Committee has not found any price manipulation by Adani Group and there is no pattern of any artificial trading. In short, the Report states that:

No violation found on Minimum Public Shareholding (MPS) compliances

1. Compliant with FPI Regulations as FPIs have made declarations of the beneficial ownership by identifying the natural persons for the purposes of PMLA.

2. Sufficient compliance of requirement to disclose last natural person above every person owning any economic interest as it was done away in 2018.

3. FPI regulations are in consonance with PMLA requirements and the Committee is of the view that there is no finding of regulatory failure regarding MPS.

4. The Report says that parties have affirmed on oath that FPI investments are not funded by the Adani Group.

5. Further, the report has not found any violation on the disclosure of transactions with related parties.

Disclosure of transactions with related parties in accordance with law  

1. Committee has not found any regulatory failure.

2. In fact, it has recommended a coherent enforcement policy on RPT.

No stock price manipulation

1. The report did not find any price manipulation or artificial trading among the same parties multiple times.

2. There is no coherent pattern of abusive trading that came to light and the report has stated that prima facie found no evidence of any artificiality to the price rise.

3. It did not find material to attribute the rise to any single entity or group of connected entities.

4. There is no adverse observation with respect to Adani scrips in the cash segment. Also, there is no finding of any regulatory failure.