In recent months, the Adani Group has been under the regulatory spotlight as six of its companies received show cause notices from the Securities and Exchange Board of India (SEBI). These notices shed light on alleged violations in related party transactions and non-compliance with listing rules. Here’s a detailed breakdown of the situation:
- Show Cause Notices:– During the quarter ended March 31, 2024, Adani Enterprises, the group’s flagship company, disclosed receiving two show notice causes from SEBI. This triggered a series of disclosures from other Adani Group companies, including Adani Ports and Special Economic Zone, Adani Power, Adani Energy Solutions, Adani Wilmar, and Adani Total Gas. The notices relate to compliance issues with listing agreement provisions and LODR regulations concerning related party transactions. SEBI raised concerns about certain transactions with third parties and the legality of peer reviews, prompting a review by statutory auditors.
- Response from Adani Enterprises:- Adani Enterprises’ auditors expressed inability to comment on potential adjustments or disclosures until the outcome of SEBI’s investigation is known. They emphasized a commitment to evaluate the impact of the matter based on evolving circumstances and additional information.
- Allegations Against Adani Power and Adani Ports:- Adani Power clarified that it responded to SEBI’s notices by the year-end, addressing allegations of unreported transactions and lack of approvals. Adani Ports and Special Economic Zone highlighted SEBI’s allegations regarding the non-utilization of funds for core business purposes and non-compliance with the company’s code of conduct.
- Nature of Show Cause Notices:- It’s important to note that a show cause notice is not tantamount to prosecution but serves as a precursor for entities to explain why legal action, including monetary penalties, should not be imposed.
- Background to SEBI Probe:– SEBI’s investigation followed allegations raised by US-based Hindenburg Research, which questioned the appropriateness of over 6,000 related party transactions within the Adani Group, impacting its operations. The regulator identified 13 specific related party transactions under scrutiny, echoing concerns highlighted in the Hindenburg report.
- Independent Investigation and Expert Committee:– In response to the allegations, an independent investigation was initiated. However, a subsequent expert committee’s report found no regulatory failures concerning applicable laws and regulations. As of January 3, 2024, the Supreme Court disposed of matters related to separate independent investigations, directing SEBI to conclude its pending investigations in accordance with the law.
The SEBI probe into the Adani Group underscores the importance of regulatory compliance and transparency in corporate dealings. While the outcome of the investigation remains pending, it highlights the need for companies to adhere to stringent regulatory frameworks to maintain investor trust and market integrity. As developments unfold, stakeholders will keenly observe how the Adani Group addresses these allegations and navigates the regulatory landscape.
