Unravelling the enigmatic intricacies of the expert committee's findings on the Securities and Exchange Board of India's regulatory deficiencies. .—.Read Part 1 here..A Supreme Court Order dated March 2, 2023 brought into play two parallel inquiries into alleged contraventions of the Adani group of companies, with separate but interrelated remits..The Security and Exchange Board of India (SEBI) was directed to investigate:.(a) Whether there has been a violation of Rule 19A of the Securities Contracts (Regulation) Rules 1957; .(b) Whether there has been a failure to disclose transactions with related parties and other relevant information which concerns related parties to SEBI, in accordance with law; and .(c) Whether there was any manipulation of stock prices in contravention of existing laws..In addition, a separate 'expert committee' (EC) was constituted to investigate whether there has been regulatory failure in dealing with the alleged contravention of laws by the Adani group or other companies..On expiry of the two months deadline set for the inquiries by the Supreme Court, SEBI applied for a six month extension citing the complexity of the transactions it was investigating, volume of material that needs to be examined, multiplicity of jurisdictions from where information needs to be obtained, etc..“SEBI seems to be operating under the puerile belief system that a stock price can be manipulated only through net buying and not net selling. Similar analysis vis-à-vis Adani group companies other than AEL is reportedly "work in progress"..In its latest Order, the Supreme Court has granted SEBI extension till August 14. Meanwhile, the EC has submitted a 173-page report to the court on May 6. What has been widely reported is that the EC has found 'no regulatory failure' on the part of the SEBI..The perusal of the EC report, however, reveals several facts as well as sequences of events, which not only point towards regulatory failure, but regulatory capture and collapse. .In this part, we focus on the committee's findings on regulatory performance vis-à-vis the third specific term of reference set by the Supreme Court before the SEBI inquiry, contained in Chapter 4 of the report. .We also draw some conclusions from this examination..The committee's findings on regulatory performance vis-à-vis two other specific terms of reference set by the Supreme Court before the SEBI inquiry, contained in Chapter 4 of the report, are discussed in part 1 of this piece. .Price manipulation in Adani scrips.According to Paras 109–111 of the committee, the stock exchanges submitted four reports on the price movements of Adani shares to SEBI, two well before the publication of the Hindenburg report and two after January 24, 2023..In all the four reports, no prima facie "evidence of any artificiality" was found by the stock exchanges to the price rise in Adani scrips..SEBI, however, has submitted that it observed from the first report, submitted on September 28, 2020, that "a set of common FPIs were having shareholding across the Adani Group companies"..This coincided with complaints received against the Adani group contraventions by SEBI in June–July 2020, which led to the commencement of a formal investigation on October 23, 2020..The initial investigation, however, was not on alleged price manipulation but into potential violation of minimum public shareholding norms..The second report received in May 2021 also revealed "common FPIs". However, Para 116 of the committee report records that SEBI did not find any evidence of "wash trades" (where connected parties transact in stocks continually to artificially inflate its price without any intention to actually transfer ownership of the stocks) with regard to the Adani scrips..The Hindenburg report states: "The trading patterns suggest that the stock parking entities and the suspicious offshore entities may have artificially inflated the volume and price of some Adani listed companies." .As per Hindenburg's analysis, stock parking entities (Elara, Cresta, APMS, Vespera, LTS Investment Fund) and other suspicious offshore entities (Emerging India Focus, EM Resurgent Fund and Asia Investment Corporation) taken together accounted for 44 percent, 47 percent, and 9 percent of the delivered volume in Adani Transmission shares for 2018, 2019 and 2020..Same entities accounted for 33 percent, 26 percent and 3 percent of the delivered volume in Adani Enterprises for the 2018, 2019 and 2020 and 17 percent, 33 percent, and 11 percent in Adani Power volume for 2018, 2019 and 2020..It is to be noted that the period of examination of the reports submitted to SEBI by stock exchanges start from October 1, 2019 as per the expert committee report, which implies that price data of Adani script for the entire year of 2018 and nine months of 2019 were not examined in these reports..Also read: Hindenburg Adani report fallout: Supreme Court forms committee to review regulatory framework.SEBI has also submitted that "suspicious trading has been observed on the part of six entities"; four foreign portfolio investors, one body corporate and one individual..The suspicion is based on "build up of short positions by these entities in the Adani Scrips prior to the Hindenburg Report, and substantial profits earned by them by squaring off their short positions after publication of the Hindenburg report on January 24, 2023." .“SEBI chose to suppress information regarding its stock price alerts and publicly asserted that the market is continuing to function in a "transparent, fair and efficient manner". This is yet another instance of regulatory failure. .SEBI is carrying out an investigation into the trading of these six entities (Paras 119–121)..According to Paras 122–125 of the report, 849 alerts were generated vis-à-vis the Adani scrips through SEBI's automated surveillance systems, between April 1, 2018 and December 31, 2022..Out of 849 alerts, 603 alerts were related to price volume movements, while the remaining 246 alerts were related to suspected insider trading..The 603 alerts were closed after "processing the same as per approved the (sic) standard operating procedures"..Reports have been generated on the 246 alerts related to suspected insider trading by the stock exchanges to SEBI "on which work is in progress"..According to Para 127 of the committee report, the SEBI has handled the alerts and arrived at their conclusions vis-à-vis only one of the Adani group companies, the Adani Enterprises Limited (AEL)..The price of AEL shares had risen from ₹219 on March 1, 2020 to ₹3,859 on December 31, 2022.Within this period, bulk of the price rise occurred between April 1, 2021, when AEL share price was ₹1,031 and December 31, 2022, when the share price reached ₹3,859..The largest buyer of AEL shares during this period was the Life Insurance Corporation of India (LIC), buying around 4.8 crore shares..The FPIs suspected by the SEBI as fronts for the Adani promoters were among the top net sellers during this period, having sold around 8.6 crore shares..After presenting these facts, however, SEBI has erroneously inferred that the "net seller" status of the suspected FPIs during the period of price rise has rendered it "impossible to conclude that they (suspected FPIs) had a hand in the price rise" (Para 127(l))..What is more plausible is that the LIC and the suspected FPIs were transacting in AEL shares in tandem during the period of price rise, with the latter being the biggest beneficiary..In fact, if the suspected FPIs were the net sellers of 8.6 crore AEL shares during the period of price rise between April 2021 and December 2022, they must have made huge capital gains much before the publication of the Hindenburg report in January 2023..As the largest net buyer of AEL scrips, it is the LIC— a government-owned company— which must have taken the bulk of the post-Hindenburg hit in capital losses..SEBI seems to be operating under the puerile belief system that a stock price can be manipulated only through net buying and not net selling. Similar analysis vis-à-vis Adani group companies other than AEL, which reportedly is "work in progress" as per the EC report, can actually reveal more patterns on such trades between the suspected FPIs and influential buyers of large blocks of Adani scrips. .Also read: Hindenburg Adani report fallout: Supreme Court grants SEBI time till August to complete its probe.Conclusions on SEBI's regulatory failure.After presenting comprehensive evidence of flagrant regulatory failures on the part of SEBI, as summarised in Sections A, B in Part I of the article & Section C above, however, the expert committee (EC) has chosen to drift in the opposite direction while drawing its conclusions:.On matter A, i.e., whether there has been a violation of public shareholding norms, the committee has concluded in Para 62(h): "[T]he regulator has not been able to prove that its suspicion can be translated into a firm case of prosecuting an allegation of violation"..Yet the committee has not drawn an explicit conclusion of regulatory failure..“Prima facie evidence of regulatory failure and false declarations or disclosures made by the Adani group promoters also exist elsewhere, which need to be taken into cognisance, alongside the expert committee findings..On B, i.e., whether there has been a failure to disclose related party transactions in accordance with law, the committee has suggested in Para 104 (b), "[I]t would be difficult to arrive at a finding of a regulatory failure on the legislative side, when SEBI has been intervening to regularly raise the bar in its stipulation of desirable conduct" and noted in Para 104 (h) the need for "an effective enforcement policy that is coherent and consistent with the legislative position adopted by SEBI, so that precious regulatory resources are not expended on regulatory action that is infirm on the ground of applying the law retrospectively.".On C, i.e whether there has been any manipulation of stock prices, the committee has concluded in Para 131: "At this stage, taking into account the explanations provided by SEBI, supported by empirical data, prima facie, it would not be possible for the committee to conclude that there has been a regulatory failure around the allegation of price manipulation.".By drawing such ambivalent conclusions, which run contrary to the evidence that has been collated and presented in its report, the EC has not done justice to its remit. It is now for the Supreme Court Bench to study the voluminous report in its entirety and draw its own conclusions..Given the large body of evidence of regulatory improprieties and subversion contained in the EC report, the prima facie confirmation of SEBI's regulatory failure cannot escape the notice of the Supreme Court..Prima facie evidence of regulatory failure and false declarations or disclosures made by the Adani group promoters also exist elsewhere, which need to be taken into cognisance, alongside the EC findings..As can be seen from Table 2, the bellwether BSE Sensex had risen from 47,868 on January 1, 2021 to reach an all-time peak of 63,583 on December 1, 2022, an appreciation of around 32 percent in 23 months..During this period, the share price of AEL went up from ₹491 on January 1, 2021 to peak at ₹4,190 on December 21, 2022; an increase of 753 percent in almost two years..The price increase of ATL from January 2021 to its September 2022 peak price was by 874 percent. ATG shares witnessed a price appreciation of 960 percent between January 2021 and January 2023. .Share prices of all the Adani group companies had outperformed the market by several times for a period of over two years, in a manner which was expected to raise regulatory alerts (and it did). .Post-Hindenburg report, the share prices of the Adani group companies fell precipitously, but have recovered partially since then. Such volatility in the share prices of multiple companies of a single business group is unprecedented in India's corporate history. .Also read: Why is the Adani–Hindenburg matter a public interest issue? Neeraj Grover explains at event organised by Alternative Law Forum.Following the publication of the Hindenburg report on January 24, 2023 and the subsequent sharp depreciation in the price of Adani stocks, the SEBI had issued only one public statement dated February 4, 2023, relevant excerpts of which are reproduced below:."The Indian financial market as represented by Sensex and Nifty has demonstrated ongoing stability and is continuing to function in a transparent, fair and efficient manner..“There are certain outstanding legal proceedings involving Rajesh S. Adani in relation to alleged violations of the Customs Act, 1962, Foreign Exchange Regulations Act, 1973 and Foreign Exchange Management Act, 1999.."During the past week, unusual price movement in the stocks of a business conglomerate has been observed. As part of its mandate, SEBI seeks to maintain orderly and efficient functioning of the market and has put in place a set of well defined, publicly available surveillance measures (including the ASM framework) to address excessive volatility in specific stocks.."This mechanism gets automatically triggered under certain conditions of price volatility in any stock… SEBI is committed to ensuring market integrity and to ensuring that the markets continue to have the appropriate structural strength to function in an uninterrupted, transparent and efficient manner as has been the case so far (emphasis added).".SEBI's official stance that "unusual price movement in the stocks of a business conglomerate" was observed only one week ahead of its statement, i.e., only after the publication of the Hindenburg report, was grossly misleading..As revealed by the EC report, 849 alerts were generated vis-à-vis the shares of Adani group of companies through SEBI's automated surveillance systems, between April 1, 2018 and December 31, 2022. .While these alerts were clear signals of excess volatility in Adani scrips, SEBI did not find them as "unusual" as long as their prices were rising. It is only when the Adani stock prices crashed that SEBI publicly observed "unusual price movement"..SEBI chose to suppress information regarding its stock price alerts and publicly asserted that the market is continuing to function in a "transparent, fair and efficient manner". This is yet another instance of regulatory failure. .Among the multiple allegations levelled against the Adani group of companies in the Hindenburg report, the ones involving Vinod Adani and the vast network of Mauritius-based shell companies owned by him and his associates like Subir Mittra and Chang Chung-Ling, had evoked the weakest and most evasive response in the Adani group's rejoinder. .The Adani group has stated on record on January 29, 2023:."Vinod Adani does not hold any managerial position in any Adani listed entities or their subsidiaries and has no role in their day to day affairs. As such, these questions have no relevance to the entities in the Adani portfolio and we are not in a position to comment on your allegations on the business dealings and transactions of Vinod Adani.."We reiterate that any transactions by the Adani portfolio companies with any related party have been duly identified and disclosed as related party transactions in compliance with Indian laws and standard, and have been carried out on arm's length terms.".With regard to the transactions of its listed companies with the shell companies owned by Vinod Adani and associates, the Adani group has stated:."The above cited transactions with Krunal Trade & Investment, Vakoder, Rehvar Infrastructure, Milestone Tradelink, Gardenia Trade and Investment and the 'private Adani entities' are not 'related party transactions' under laws of Indian or accounting standards. Consequently, we are neither aware nor required to be aware of their 'source of funds'.".Therefore, the Adani group has not denied undertaking transactions with the shell companies linked with Vinod Adani or denied Vinod Adani's status as their beneficial owner, but only claimed that they are not "related party transactions" implying Vinod Adani is not a "related party" with regard to the Adani group companies..Also read: Rahul Gandhi defamation, Maharashtra and GNCTD judgments, Adani and more: An interview with Dr Abhishek Manu Singhvi.In a media release issued on September 16, 2022 on the acquisition of the Ambuja Cements Ltd and ACC Ltd, which made them India's "second largest cement player", the Adani group had stated:."The Adani Family, through Endeavour Trade and Investment Ltd (BidCo), a special purpose vehicle, has successfully completed the acquisition of Ambuja Cements Ltd and ACC Ltd. The transaction involved the acquisition of Holcim's stake in Ambuja and ACC along with an open offer in both entities as per SEBI Regulations.."The value of the Holcim stake and open offer consideration for Ambuja Cements and ACC is US $6.50 billion, which makes this the largest ever acquisition by Adani, and also India's largest ever M&A transaction in the infrastructure and materials space. Post the transaction, Adani will hold 63.15 percent in Ambuja Cements and 56.69 percent in ACC (of which 50.05 percent is held through Ambuja Cements).".“A foreign country based short-seller's report was required to puncture the bubble, by unravelling the maze of contrivances and deceit by the Adani group promoters, on which SEBI had put a regulatory lid..The details of the "special purpose vehicle" Endeavour Trade and Investment Ltd, i.e., the acquirer in the acquisition deal, was provided in a detailed public statement to the public shareholders of Ambuja Cements Limited issued on May 21, 2022:."The acquirer is a company, incorporated under the laws of Mauritius on April, 29, 2021… The acquirer has its registered office in the Republic of Mauritius. The acquirer belongs to the Adani Group. The acquirer is engaged in the business of investment holding and related activities.."The shares of the acquirer are not listed on any stock exchange. The shareholder of the acquirer is Xcent Trade and Investment Ltd, a Mauritius-incorporated company. The promoter of the acquirer is Acropolis Trade and Investment Ltd, a Mauritius-incorporated company.."The ultimate beneficial ownership of Acropolis Trade and Investment Ltd is held by certain members of the Adani family… The acquirer has not been prohibited by the SEBI from dealing in securities, in terms of directions issued by SEBI under Section 11B of the Securities and Exchange Board of India Act, 1992, as amended (the SEBI Act) or any other regulations made under the SEBI Act (emphasis added).".The letter of offer sent to the public shareholders of ACC Ltd dated August 23, 2022 provided further details regarding the "acquirer" Endeavour Trade and Investment Ltd as follows:."100 percent of the shareholding of the acquirer is held by Xcent Trade and Investment Ltd, a Mauritius-incorporated company… Xcent Trade and Investment Ltd is held 100 percent by Acropolis Trade and Investment Ltd, a Mauritius-incorporated company… Acropolis Trade and Investment Ltd is held 100 percent by Adani Global Investment DMCC, a UAE-incorporated company… Adani Global Investment DMCC is held 100 percent by AR Global Holding Limited, a British Virgin Islands (BVI)-incorporated company… AR Global Holding Limited is held 100 percent by Amulya Resources Holding Limited, a BVI-incorporated company… Amulya Resources Holding Limited is held 100 percent by Amulya Resources Family Trust (settled on May 15, 2017), a BVI-incorporated trust… The ultimate beneficial ownership of the acquirer is held by Vinod Shantilal Adani and Ranjanben Vinod Adani.".These disclosures reveal a peculiar situation whereby a company, whose ultimate beneficial owner is Vinod Shantilal Adani, can acquire controlling shares of another company on behalf of the Adani promoter group and yet the Adani group of companies can claim that he is not a "related party" when it comes to transactions with suspicious FPIs or overseas entities linked to him..Also read: Welcome changes to SEBI (Alternative Investment Funds) Regulations, 2012 but bottlenecks remain.This prima facie contrivance or mischief has been enabled by the amendments made to the SEBI regulations, as elaborated in Sections A & B in Part-I of the piece. .The Red Herring Prospectus of the AEL follow-on public offer (FPO) issued on January 18, 2023 named Vinod S. Adani as one of the "natural persons who are a part of our promoter group" and also named Vinod S. Adani Family Trust as one of the "entities forming part of our promoter group" (p. 348–349)..It further revealed that the promoter group of AEL held 72.63 percent of the equity share capital before the FPO (p. 79). .Clearly, the disclosures made during the acquisition of Ambuja Cements or ACC through Mauritius-based Endeavour Trade and Investment Ltd owned by Vinod Adani that the Adani group conducts high value financial transactions through complex and multi-layered structures involving FPIs or overseas entities based in tax haven jurisdictions like Mauritius, UAE and British Virgin Islands (BVI). .If similar FPIs own significant shares in AEL whose ultimate beneficial owner is Vinod Adani, the declaration made in the prospectus of AEL FPO that only 72.63 percent of AEL shares were held by the promoter group, is false. The AEL FPO episode therefore warrants a fresh investigation. .It is noteworthy that the AEL FPO's bid offer opened on January 27, i.e., after the Hindenburg report was published, and closed on January 31, 2023..As per a statement issued by the Adani group on February 1, 2023 the AEL FPO had closed "successfully" despite the volatility in the stock market, and yet it was cancelled after the company's stock price "fluctuated" over the course of one day, because the company's board thought it "would not be morally correct" to expose investors to "potential financial losses"..Also read: Arrest Warrant Against Journalist Paranjoy Guha Thakurta in Adani's 2017 Defamation Case.The section on 'Risks Relating to our Business' in the Red Herring Prospectus (p. 28) of the AEL FPO released on January 18, 2023 stated the following:."Certain companies within the Adani group are involved in various legal, regulatory and other proceedings which could have an adverse impact on our business and reputation.."In November 2020, Investigations Department of SEBI had approached our companies, Adani Ports And Special Economic Zone Limited, Adani Total Gas Limited and Adani Transmission Limited and directed them to provide certain specific information and documents with respect to themselves, including (amongst others) copies of constitutional documents, disclosure made under specific regulations and shareholders agreements, if any, details of directors and certain others, shareholders holding more than 1 percent stake, chronology of compliance with minimum public shareholding and association with certain identified persons or entities, etc.."These requests were responded to by each of these entities to SEBI in November 2020.."Separately, the investigations department of SEBI has approached Adani Global Limited, with a direction to provide certain specific information and documents with respect to itself including (amongst others) KYC details, details of directors and certain others, shareholders holding more than 1 percent stake and association with certain identified persons or entities, etc.."Specific information with respect to Adani Global Limited was also sought from our Company under Section 11C(3) of the Securities and Exchange Board of India Act, 1992, as amended. These requests have been responded by them to SEBI.."As on the date of this Red Herring Prospectus, the above mentioned Adani group entities have not received any further communication (including show cause notices) from SEBI and no proceedings have been initiated against them by SEBI, pursuant to such engagement with SEBI. ."However, in the event SEBI is not satisfied with the responses provided or has made a prima facie determination that relevant Adani group entities are in breach of law, SEBI may initiate regulatory proceedings against such entities, its promoters or directors and may impose fines or penalties on such entities.".These disclosures by the Adani promoters clearly demonstrate: (a) The Adani group companies were under SEBI investigation since November 2020; (b) SEBI has dragged its feet in initiating regulatory proceedings against the Adani group companies despite receiving relevant documents from them in November 2020; (c) The Adani group is confident that actions by SEBI in case of regulatory breach would not exceed imposition of "fines and penalties". .This confidence arises from the Adani group's past experience with the SEBI. .Adani group disclosure made in the APSEZ Institutional Private Placement Prospectus dated June 5, 2013 stated the following:."Our promoters and certain promoter group entities have in the past been subject to criminal litigations initiated by SEBI which were compounded pursuant to consent applications.."SEBI had filed a criminal complaint against Adani Enterprises Limited, Rajeshbhai S. Adani Family Trust (represented by its trustees Rajesh S. Adani and Ms. Shilin R. Adani) and certain other promoter group entities (collectively the "promoter group entities") in the court of additional chief metropolitan magistrate, Mumbai in relation to violation of various provisions of the SCRA and certain notifications issued by SEBI … the criminal case was compounded by the court of additional chief metropolitan magistrate court, Mumbai through an Order dated August 30, 2008 upon payment of ₹3 million.."SEBI had issued a show cause notice to certain entities forming part of the promoter group ("prohibited entities") in relation to aiding and abetting entities associated with Ketan Parekh in manipulating the price of the equity shares of Adani Enterprises Limited.."Further, by an Order dated May 25, 2007, SEBI prohibited the prohibited entities from accessing the securities market directly or indirectly and also prohibited them from buying, selling or otherwise dealing in securities, in any manner whatsoever, for a period of two years.."An appeal was filed with Securities Appellate Tribunal (SAT) against the above mentioned SEBI Order. In accordance with the circular, the prohibited entities had filed consent applications dated November 28, 2007. SEBI vide its letter dated April 17, 2008 agreed to settle the case upon payment of certain amounts by the prohibited entities. The terms of the settlement were approved by SAT by its Order dated April 24, 2008..Also read: Can NSE Cherry-pick Its Punishment for the Algo Scam? Does SEBI Have the Power To Permit It?."Litigation against directors."There are two outstanding legal proceedings involving Gautam S. Adani.."These relate to: (i) a civil dispute seeking to restrain defendants named therein from proceeding with a cold chain project, and (ii) alleged violation of certain provisions of the Customs Act, 1962 emanating from alleged misuse of the advance licence granted to a third party for import of metallurgical coke and evasion of customs duty in relation thereof. These proceedings are pending at various stages of adjudication.."There are certain outstanding legal proceedings involving Rajesh S. Adani in relation to alleged violations of the Customs Act, 1962, Foreign Exchange Regulations Act, 1973 and Foreign Exchange Management Act, 1999.."Such proceedings relate to violations stemming from import and export of various items, investment in a wholly owned subsidiary without prior approval from RBI and remittance of overseas agency commission. These proceedings are pending at various stages of adjudication.".The above disclosures show: (a) SEBI had earlier filed a criminal complaint against Adani group promoters for regulatory violations and the matter was finally settled in a Mumbai court in 2008 with the payment of ₹30 lakh in fines; (b) Certain members of the Adani promoter group have been indicted by SEBI for price manipulation of AEL shares in league with convicted or debarred trader Ketan Parekh and themselves debarred from the stock market for two years; case was settled "upon payment of certain amounts" in April 2008; (c) Adani group promoters Gautam S. Adani and Rajesh S. Adani have legal proceedings pending against them for violation of Customs Act, 1962 and FEMA, 1999..Given such a history of regulatory violations and indictment, SEBI's inability to establish a prima facie case of regulatory non-compliance and legal violations against the Adani group promoters till date, despite starting investigation in November 2020, appears to be self-inflicted..The unprecedented rise in the price of the Adani scrips occurred between January 2021 and December 2022 (see Table 2), during a period when the companies were already under SEBI investigation. This is the starkest prima facie evidence of regulatory failure and SEBI's complicity..A foreign country based short-seller's report was required to puncture the bubble, by unravelling the maze of contrivances and deceit by the Adani group promoters, on which SEBI had put a regulatory lid..In effect, SEBI has been complicit in the wilful subversion of the SEBI Act, 1992, Prevention of Money Laundering Act, 2002 (PMLA 2002) and FEMA, 1999 by the Adani group promoters and suspicious FPIs or overseas entities to commit grave economic offences like securities fraud, insider trading, round tripping, forex violations, money laundering and tax evasion. Not only has there been regulatory failure, but regulatory capture and collapse..The violations of the Adani group promoters, including Vinod Adani, seem to have dwarfed those by Harshad Mehta and Ketan Parekh, which had led to the stock market scams of 1992 and 2001, respectively..However, any investigation into the alleged contraventions of the laws, rules and regulations by the Adani group promoters and the suspected FPIs would find it difficult to establish culpability, unless SEBI's role in facilitating and regularising these violations is also investigated simultaneously..The role of the LIC, Adani's lenders, especially the public sector banks, RBI and multiple agencies under the revenue department and Union finance ministry, which deal with regulation and enforcement, should also be investigated..Also read: How PMLA lost its procedural fairness, counsel explains to the Supreme Court.The following suggestions may be considered to initiate proper and effective investigation under the supervision of the Supreme Court: .Immediate termination of SEBI inquiry into the Adani group of companies and transfer of all records related to the investigation into Supreme Court's custody.Striking down those amendments made to the FPI Regulations, 2014, (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations, 2015), PMLA 2002 and Prevention of Money Laundering (Maintenance of Records) Rules, 2005, since 2018, which have wilfully subverted the letter and spirit of Section 12A of the SEBI Act, 1992, PMLA 2002 and FEMA, 1999 in order to facilitate and regularise the legal violations and contraventions of the Adani group promoters, including Vinod Shantilal Adani.Initiating criminal investigation against the Adani group promoters, including Vinod Shantilal Adani and other "beneficial owners" of the suspected FPIs or overseas entities, as well as LIC, for committing securities fraud, insider trading, forex violations, money laundering and tax evasion, subverting and violating the SEBI Act, 1992, PMLA 2002 and FEMA, 1999;Conducting forensic audit of all Adani group companies and overseas entities or FPIs linked to Vinod Shantilal Adani, through an independent auditor appointed by the Supreme Court.Bringing SEBI within the ambit of criminal investigation for wilful subversion of Section 12A of the SEBI Act, 1992, PMLA 2002 and FEMA, 1999 and interrogating all key SEBI personnel, present and past, who were involved in decision-making regarding regulatory changes which has impacted Adani group investigation;Bringing the Union finance ministry, RBI, public sector banks and the relevant agencies operating under their supervision within the ambit of criminal investigation for wilful subversion of Section 12A of the SEBI Act, 1992, PMLA 2002 and FEMA, 1999..An abridged version of the article was published in The Hindu as 'Decoding the expert committee report on Adani' on June 19, 2023.
Unravelling the enigmatic intricacies of the expert committee's findings on the Securities and Exchange Board of India's regulatory deficiencies. .—.Read Part 1 here..A Supreme Court Order dated March 2, 2023 brought into play two parallel inquiries into alleged contraventions of the Adani group of companies, with separate but interrelated remits..The Security and Exchange Board of India (SEBI) was directed to investigate:.(a) Whether there has been a violation of Rule 19A of the Securities Contracts (Regulation) Rules 1957; .(b) Whether there has been a failure to disclose transactions with related parties and other relevant information which concerns related parties to SEBI, in accordance with law; and .(c) Whether there was any manipulation of stock prices in contravention of existing laws..In addition, a separate 'expert committee' (EC) was constituted to investigate whether there has been regulatory failure in dealing with the alleged contravention of laws by the Adani group or other companies..On expiry of the two months deadline set for the inquiries by the Supreme Court, SEBI applied for a six month extension citing the complexity of the transactions it was investigating, volume of material that needs to be examined, multiplicity of jurisdictions from where information needs to be obtained, etc..“SEBI seems to be operating under the puerile belief system that a stock price can be manipulated only through net buying and not net selling. Similar analysis vis-à-vis Adani group companies other than AEL is reportedly "work in progress"..In its latest Order, the Supreme Court has granted SEBI extension till August 14. Meanwhile, the EC has submitted a 173-page report to the court on May 6. What has been widely reported is that the EC has found 'no regulatory failure' on the part of the SEBI..The perusal of the EC report, however, reveals several facts as well as sequences of events, which not only point towards regulatory failure, but regulatory capture and collapse. .In this part, we focus on the committee's findings on regulatory performance vis-à-vis the third specific term of reference set by the Supreme Court before the SEBI inquiry, contained in Chapter 4 of the report. .We also draw some conclusions from this examination..The committee's findings on regulatory performance vis-à-vis two other specific terms of reference set by the Supreme Court before the SEBI inquiry, contained in Chapter 4 of the report, are discussed in part 1 of this piece. .Price manipulation in Adani scrips.According to Paras 109–111 of the committee, the stock exchanges submitted four reports on the price movements of Adani shares to SEBI, two well before the publication of the Hindenburg report and two after January 24, 2023..In all the four reports, no prima facie "evidence of any artificiality" was found by the stock exchanges to the price rise in Adani scrips..SEBI, however, has submitted that it observed from the first report, submitted on September 28, 2020, that "a set of common FPIs were having shareholding across the Adani Group companies"..This coincided with complaints received against the Adani group contraventions by SEBI in June–July 2020, which led to the commencement of a formal investigation on October 23, 2020..The initial investigation, however, was not on alleged price manipulation but into potential violation of minimum public shareholding norms..The second report received in May 2021 also revealed "common FPIs". However, Para 116 of the committee report records that SEBI did not find any evidence of "wash trades" (where connected parties transact in stocks continually to artificially inflate its price without any intention to actually transfer ownership of the stocks) with regard to the Adani scrips..The Hindenburg report states: "The trading patterns suggest that the stock parking entities and the suspicious offshore entities may have artificially inflated the volume and price of some Adani listed companies." .As per Hindenburg's analysis, stock parking entities (Elara, Cresta, APMS, Vespera, LTS Investment Fund) and other suspicious offshore entities (Emerging India Focus, EM Resurgent Fund and Asia Investment Corporation) taken together accounted for 44 percent, 47 percent, and 9 percent of the delivered volume in Adani Transmission shares for 2018, 2019 and 2020..Same entities accounted for 33 percent, 26 percent and 3 percent of the delivered volume in Adani Enterprises for the 2018, 2019 and 2020 and 17 percent, 33 percent, and 11 percent in Adani Power volume for 2018, 2019 and 2020..It is to be noted that the period of examination of the reports submitted to SEBI by stock exchanges start from October 1, 2019 as per the expert committee report, which implies that price data of Adani script for the entire year of 2018 and nine months of 2019 were not examined in these reports..Also read: Hindenburg Adani report fallout: Supreme Court forms committee to review regulatory framework.SEBI has also submitted that "suspicious trading has been observed on the part of six entities"; four foreign portfolio investors, one body corporate and one individual..The suspicion is based on "build up of short positions by these entities in the Adani Scrips prior to the Hindenburg Report, and substantial profits earned by them by squaring off their short positions after publication of the Hindenburg report on January 24, 2023." .“SEBI chose to suppress information regarding its stock price alerts and publicly asserted that the market is continuing to function in a "transparent, fair and efficient manner". This is yet another instance of regulatory failure. .SEBI is carrying out an investigation into the trading of these six entities (Paras 119–121)..According to Paras 122–125 of the report, 849 alerts were generated vis-à-vis the Adani scrips through SEBI's automated surveillance systems, between April 1, 2018 and December 31, 2022..Out of 849 alerts, 603 alerts were related to price volume movements, while the remaining 246 alerts were related to suspected insider trading..The 603 alerts were closed after "processing the same as per approved the (sic) standard operating procedures"..Reports have been generated on the 246 alerts related to suspected insider trading by the stock exchanges to SEBI "on which work is in progress"..According to Para 127 of the committee report, the SEBI has handled the alerts and arrived at their conclusions vis-à-vis only one of the Adani group companies, the Adani Enterprises Limited (AEL)..The price of AEL shares had risen from ₹219 on March 1, 2020 to ₹3,859 on December 31, 2022.Within this period, bulk of the price rise occurred between April 1, 2021, when AEL share price was ₹1,031 and December 31, 2022, when the share price reached ₹3,859..The largest buyer of AEL shares during this period was the Life Insurance Corporation of India (LIC), buying around 4.8 crore shares..The FPIs suspected by the SEBI as fronts for the Adani promoters were among the top net sellers during this period, having sold around 8.6 crore shares..After presenting these facts, however, SEBI has erroneously inferred that the "net seller" status of the suspected FPIs during the period of price rise has rendered it "impossible to conclude that they (suspected FPIs) had a hand in the price rise" (Para 127(l))..What is more plausible is that the LIC and the suspected FPIs were transacting in AEL shares in tandem during the period of price rise, with the latter being the biggest beneficiary..In fact, if the suspected FPIs were the net sellers of 8.6 crore AEL shares during the period of price rise between April 2021 and December 2022, they must have made huge capital gains much before the publication of the Hindenburg report in January 2023..As the largest net buyer of AEL scrips, it is the LIC— a government-owned company— which must have taken the bulk of the post-Hindenburg hit in capital losses..SEBI seems to be operating under the puerile belief system that a stock price can be manipulated only through net buying and not net selling. Similar analysis vis-à-vis Adani group companies other than AEL, which reportedly is "work in progress" as per the EC report, can actually reveal more patterns on such trades between the suspected FPIs and influential buyers of large blocks of Adani scrips. .Also read: Hindenburg Adani report fallout: Supreme Court grants SEBI time till August to complete its probe.Conclusions on SEBI's regulatory failure.After presenting comprehensive evidence of flagrant regulatory failures on the part of SEBI, as summarised in Sections A, B in Part I of the article & Section C above, however, the expert committee (EC) has chosen to drift in the opposite direction while drawing its conclusions:.On matter A, i.e., whether there has been a violation of public shareholding norms, the committee has concluded in Para 62(h): "[T]he regulator has not been able to prove that its suspicion can be translated into a firm case of prosecuting an allegation of violation"..Yet the committee has not drawn an explicit conclusion of regulatory failure..“Prima facie evidence of regulatory failure and false declarations or disclosures made by the Adani group promoters also exist elsewhere, which need to be taken into cognisance, alongside the expert committee findings..On B, i.e., whether there has been a failure to disclose related party transactions in accordance with law, the committee has suggested in Para 104 (b), "[I]t would be difficult to arrive at a finding of a regulatory failure on the legislative side, when SEBI has been intervening to regularly raise the bar in its stipulation of desirable conduct" and noted in Para 104 (h) the need for "an effective enforcement policy that is coherent and consistent with the legislative position adopted by SEBI, so that precious regulatory resources are not expended on regulatory action that is infirm on the ground of applying the law retrospectively.".On C, i.e whether there has been any manipulation of stock prices, the committee has concluded in Para 131: "At this stage, taking into account the explanations provided by SEBI, supported by empirical data, prima facie, it would not be possible for the committee to conclude that there has been a regulatory failure around the allegation of price manipulation.".By drawing such ambivalent conclusions, which run contrary to the evidence that has been collated and presented in its report, the EC has not done justice to its remit. It is now for the Supreme Court Bench to study the voluminous report in its entirety and draw its own conclusions..Given the large body of evidence of regulatory improprieties and subversion contained in the EC report, the prima facie confirmation of SEBI's regulatory failure cannot escape the notice of the Supreme Court..Prima facie evidence of regulatory failure and false declarations or disclosures made by the Adani group promoters also exist elsewhere, which need to be taken into cognisance, alongside the EC findings..As can be seen from Table 2, the bellwether BSE Sensex had risen from 47,868 on January 1, 2021 to reach an all-time peak of 63,583 on December 1, 2022, an appreciation of around 32 percent in 23 months..During this period, the share price of AEL went up from ₹491 on January 1, 2021 to peak at ₹4,190 on December 21, 2022; an increase of 753 percent in almost two years..The price increase of ATL from January 2021 to its September 2022 peak price was by 874 percent. ATG shares witnessed a price appreciation of 960 percent between January 2021 and January 2023. .Share prices of all the Adani group companies had outperformed the market by several times for a period of over two years, in a manner which was expected to raise regulatory alerts (and it did). .Post-Hindenburg report, the share prices of the Adani group companies fell precipitously, but have recovered partially since then. Such volatility in the share prices of multiple companies of a single business group is unprecedented in India's corporate history. .Also read: Why is the Adani–Hindenburg matter a public interest issue? Neeraj Grover explains at event organised by Alternative Law Forum.Following the publication of the Hindenburg report on January 24, 2023 and the subsequent sharp depreciation in the price of Adani stocks, the SEBI had issued only one public statement dated February 4, 2023, relevant excerpts of which are reproduced below:."The Indian financial market as represented by Sensex and Nifty has demonstrated ongoing stability and is continuing to function in a transparent, fair and efficient manner..“There are certain outstanding legal proceedings involving Rajesh S. Adani in relation to alleged violations of the Customs Act, 1962, Foreign Exchange Regulations Act, 1973 and Foreign Exchange Management Act, 1999.."During the past week, unusual price movement in the stocks of a business conglomerate has been observed. As part of its mandate, SEBI seeks to maintain orderly and efficient functioning of the market and has put in place a set of well defined, publicly available surveillance measures (including the ASM framework) to address excessive volatility in specific stocks.."This mechanism gets automatically triggered under certain conditions of price volatility in any stock… SEBI is committed to ensuring market integrity and to ensuring that the markets continue to have the appropriate structural strength to function in an uninterrupted, transparent and efficient manner as has been the case so far (emphasis added).".SEBI's official stance that "unusual price movement in the stocks of a business conglomerate" was observed only one week ahead of its statement, i.e., only after the publication of the Hindenburg report, was grossly misleading..As revealed by the EC report, 849 alerts were generated vis-à-vis the shares of Adani group of companies through SEBI's automated surveillance systems, between April 1, 2018 and December 31, 2022. .While these alerts were clear signals of excess volatility in Adani scrips, SEBI did not find them as "unusual" as long as their prices were rising. It is only when the Adani stock prices crashed that SEBI publicly observed "unusual price movement"..SEBI chose to suppress information regarding its stock price alerts and publicly asserted that the market is continuing to function in a "transparent, fair and efficient manner". This is yet another instance of regulatory failure. .Among the multiple allegations levelled against the Adani group of companies in the Hindenburg report, the ones involving Vinod Adani and the vast network of Mauritius-based shell companies owned by him and his associates like Subir Mittra and Chang Chung-Ling, had evoked the weakest and most evasive response in the Adani group's rejoinder. .The Adani group has stated on record on January 29, 2023:."Vinod Adani does not hold any managerial position in any Adani listed entities or their subsidiaries and has no role in their day to day affairs. As such, these questions have no relevance to the entities in the Adani portfolio and we are not in a position to comment on your allegations on the business dealings and transactions of Vinod Adani.."We reiterate that any transactions by the Adani portfolio companies with any related party have been duly identified and disclosed as related party transactions in compliance with Indian laws and standard, and have been carried out on arm's length terms.".With regard to the transactions of its listed companies with the shell companies owned by Vinod Adani and associates, the Adani group has stated:."The above cited transactions with Krunal Trade & Investment, Vakoder, Rehvar Infrastructure, Milestone Tradelink, Gardenia Trade and Investment and the 'private Adani entities' are not 'related party transactions' under laws of Indian or accounting standards. Consequently, we are neither aware nor required to be aware of their 'source of funds'.".Therefore, the Adani group has not denied undertaking transactions with the shell companies linked with Vinod Adani or denied Vinod Adani's status as their beneficial owner, but only claimed that they are not "related party transactions" implying Vinod Adani is not a "related party" with regard to the Adani group companies..Also read: Rahul Gandhi defamation, Maharashtra and GNCTD judgments, Adani and more: An interview with Dr Abhishek Manu Singhvi.In a media release issued on September 16, 2022 on the acquisition of the Ambuja Cements Ltd and ACC Ltd, which made them India's "second largest cement player", the Adani group had stated:."The Adani Family, through Endeavour Trade and Investment Ltd (BidCo), a special purpose vehicle, has successfully completed the acquisition of Ambuja Cements Ltd and ACC Ltd. The transaction involved the acquisition of Holcim's stake in Ambuja and ACC along with an open offer in both entities as per SEBI Regulations.."The value of the Holcim stake and open offer consideration for Ambuja Cements and ACC is US $6.50 billion, which makes this the largest ever acquisition by Adani, and also India's largest ever M&A transaction in the infrastructure and materials space. Post the transaction, Adani will hold 63.15 percent in Ambuja Cements and 56.69 percent in ACC (of which 50.05 percent is held through Ambuja Cements).".“A foreign country based short-seller's report was required to puncture the bubble, by unravelling the maze of contrivances and deceit by the Adani group promoters, on which SEBI had put a regulatory lid..The details of the "special purpose vehicle" Endeavour Trade and Investment Ltd, i.e., the acquirer in the acquisition deal, was provided in a detailed public statement to the public shareholders of Ambuja Cements Limited issued on May 21, 2022:."The acquirer is a company, incorporated under the laws of Mauritius on April, 29, 2021… The acquirer has its registered office in the Republic of Mauritius. The acquirer belongs to the Adani Group. The acquirer is engaged in the business of investment holding and related activities.."The shares of the acquirer are not listed on any stock exchange. The shareholder of the acquirer is Xcent Trade and Investment Ltd, a Mauritius-incorporated company. The promoter of the acquirer is Acropolis Trade and Investment Ltd, a Mauritius-incorporated company.."The ultimate beneficial ownership of Acropolis Trade and Investment Ltd is held by certain members of the Adani family… The acquirer has not been prohibited by the SEBI from dealing in securities, in terms of directions issued by SEBI under Section 11B of the Securities and Exchange Board of India Act, 1992, as amended (the SEBI Act) or any other regulations made under the SEBI Act (emphasis added).".The letter of offer sent to the public shareholders of ACC Ltd dated August 23, 2022 provided further details regarding the "acquirer" Endeavour Trade and Investment Ltd as follows:."100 percent of the shareholding of the acquirer is held by Xcent Trade and Investment Ltd, a Mauritius-incorporated company… Xcent Trade and Investment Ltd is held 100 percent by Acropolis Trade and Investment Ltd, a Mauritius-incorporated company… Acropolis Trade and Investment Ltd is held 100 percent by Adani Global Investment DMCC, a UAE-incorporated company… Adani Global Investment DMCC is held 100 percent by AR Global Holding Limited, a British Virgin Islands (BVI)-incorporated company… AR Global Holding Limited is held 100 percent by Amulya Resources Holding Limited, a BVI-incorporated company… Amulya Resources Holding Limited is held 100 percent by Amulya Resources Family Trust (settled on May 15, 2017), a BVI-incorporated trust… The ultimate beneficial ownership of the acquirer is held by Vinod Shantilal Adani and Ranjanben Vinod Adani.".These disclosures reveal a peculiar situation whereby a company, whose ultimate beneficial owner is Vinod Shantilal Adani, can acquire controlling shares of another company on behalf of the Adani promoter group and yet the Adani group of companies can claim that he is not a "related party" when it comes to transactions with suspicious FPIs or overseas entities linked to him..Also read: Welcome changes to SEBI (Alternative Investment Funds) Regulations, 2012 but bottlenecks remain.This prima facie contrivance or mischief has been enabled by the amendments made to the SEBI regulations, as elaborated in Sections A & B in Part-I of the piece. .The Red Herring Prospectus of the AEL follow-on public offer (FPO) issued on January 18, 2023 named Vinod S. Adani as one of the "natural persons who are a part of our promoter group" and also named Vinod S. Adani Family Trust as one of the "entities forming part of our promoter group" (p. 348–349)..It further revealed that the promoter group of AEL held 72.63 percent of the equity share capital before the FPO (p. 79). .Clearly, the disclosures made during the acquisition of Ambuja Cements or ACC through Mauritius-based Endeavour Trade and Investment Ltd owned by Vinod Adani that the Adani group conducts high value financial transactions through complex and multi-layered structures involving FPIs or overseas entities based in tax haven jurisdictions like Mauritius, UAE and British Virgin Islands (BVI). .If similar FPIs own significant shares in AEL whose ultimate beneficial owner is Vinod Adani, the declaration made in the prospectus of AEL FPO that only 72.63 percent of AEL shares were held by the promoter group, is false. The AEL FPO episode therefore warrants a fresh investigation. .It is noteworthy that the AEL FPO's bid offer opened on January 27, i.e., after the Hindenburg report was published, and closed on January 31, 2023..As per a statement issued by the Adani group on February 1, 2023 the AEL FPO had closed "successfully" despite the volatility in the stock market, and yet it was cancelled after the company's stock price "fluctuated" over the course of one day, because the company's board thought it "would not be morally correct" to expose investors to "potential financial losses"..Also read: Arrest Warrant Against Journalist Paranjoy Guha Thakurta in Adani's 2017 Defamation Case.The section on 'Risks Relating to our Business' in the Red Herring Prospectus (p. 28) of the AEL FPO released on January 18, 2023 stated the following:."Certain companies within the Adani group are involved in various legal, regulatory and other proceedings which could have an adverse impact on our business and reputation.."In November 2020, Investigations Department of SEBI had approached our companies, Adani Ports And Special Economic Zone Limited, Adani Total Gas Limited and Adani Transmission Limited and directed them to provide certain specific information and documents with respect to themselves, including (amongst others) copies of constitutional documents, disclosure made under specific regulations and shareholders agreements, if any, details of directors and certain others, shareholders holding more than 1 percent stake, chronology of compliance with minimum public shareholding and association with certain identified persons or entities, etc.."These requests were responded to by each of these entities to SEBI in November 2020.."Separately, the investigations department of SEBI has approached Adani Global Limited, with a direction to provide certain specific information and documents with respect to itself including (amongst others) KYC details, details of directors and certain others, shareholders holding more than 1 percent stake and association with certain identified persons or entities, etc.."Specific information with respect to Adani Global Limited was also sought from our Company under Section 11C(3) of the Securities and Exchange Board of India Act, 1992, as amended. These requests have been responded by them to SEBI.."As on the date of this Red Herring Prospectus, the above mentioned Adani group entities have not received any further communication (including show cause notices) from SEBI and no proceedings have been initiated against them by SEBI, pursuant to such engagement with SEBI. ."However, in the event SEBI is not satisfied with the responses provided or has made a prima facie determination that relevant Adani group entities are in breach of law, SEBI may initiate regulatory proceedings against such entities, its promoters or directors and may impose fines or penalties on such entities.".These disclosures by the Adani promoters clearly demonstrate: (a) The Adani group companies were under SEBI investigation since November 2020; (b) SEBI has dragged its feet in initiating regulatory proceedings against the Adani group companies despite receiving relevant documents from them in November 2020; (c) The Adani group is confident that actions by SEBI in case of regulatory breach would not exceed imposition of "fines and penalties". .This confidence arises from the Adani group's past experience with the SEBI. .Adani group disclosure made in the APSEZ Institutional Private Placement Prospectus dated June 5, 2013 stated the following:."Our promoters and certain promoter group entities have in the past been subject to criminal litigations initiated by SEBI which were compounded pursuant to consent applications.."SEBI had filed a criminal complaint against Adani Enterprises Limited, Rajeshbhai S. Adani Family Trust (represented by its trustees Rajesh S. Adani and Ms. Shilin R. Adani) and certain other promoter group entities (collectively the "promoter group entities") in the court of additional chief metropolitan magistrate, Mumbai in relation to violation of various provisions of the SCRA and certain notifications issued by SEBI … the criminal case was compounded by the court of additional chief metropolitan magistrate court, Mumbai through an Order dated August 30, 2008 upon payment of ₹3 million.."SEBI had issued a show cause notice to certain entities forming part of the promoter group ("prohibited entities") in relation to aiding and abetting entities associated with Ketan Parekh in manipulating the price of the equity shares of Adani Enterprises Limited.."Further, by an Order dated May 25, 2007, SEBI prohibited the prohibited entities from accessing the securities market directly or indirectly and also prohibited them from buying, selling or otherwise dealing in securities, in any manner whatsoever, for a period of two years.."An appeal was filed with Securities Appellate Tribunal (SAT) against the above mentioned SEBI Order. In accordance with the circular, the prohibited entities had filed consent applications dated November 28, 2007. SEBI vide its letter dated April 17, 2008 agreed to settle the case upon payment of certain amounts by the prohibited entities. The terms of the settlement were approved by SAT by its Order dated April 24, 2008..Also read: Can NSE Cherry-pick Its Punishment for the Algo Scam? Does SEBI Have the Power To Permit It?."Litigation against directors."There are two outstanding legal proceedings involving Gautam S. Adani.."These relate to: (i) a civil dispute seeking to restrain defendants named therein from proceeding with a cold chain project, and (ii) alleged violation of certain provisions of the Customs Act, 1962 emanating from alleged misuse of the advance licence granted to a third party for import of metallurgical coke and evasion of customs duty in relation thereof. These proceedings are pending at various stages of adjudication.."There are certain outstanding legal proceedings involving Rajesh S. Adani in relation to alleged violations of the Customs Act, 1962, Foreign Exchange Regulations Act, 1973 and Foreign Exchange Management Act, 1999.."Such proceedings relate to violations stemming from import and export of various items, investment in a wholly owned subsidiary without prior approval from RBI and remittance of overseas agency commission. These proceedings are pending at various stages of adjudication.".The above disclosures show: (a) SEBI had earlier filed a criminal complaint against Adani group promoters for regulatory violations and the matter was finally settled in a Mumbai court in 2008 with the payment of ₹30 lakh in fines; (b) Certain members of the Adani promoter group have been indicted by SEBI for price manipulation of AEL shares in league with convicted or debarred trader Ketan Parekh and themselves debarred from the stock market for two years; case was settled "upon payment of certain amounts" in April 2008; (c) Adani group promoters Gautam S. Adani and Rajesh S. Adani have legal proceedings pending against them for violation of Customs Act, 1962 and FEMA, 1999..Given such a history of regulatory violations and indictment, SEBI's inability to establish a prima facie case of regulatory non-compliance and legal violations against the Adani group promoters till date, despite starting investigation in November 2020, appears to be self-inflicted..The unprecedented rise in the price of the Adani scrips occurred between January 2021 and December 2022 (see Table 2), during a period when the companies were already under SEBI investigation. This is the starkest prima facie evidence of regulatory failure and SEBI's complicity..A foreign country based short-seller's report was required to puncture the bubble, by unravelling the maze of contrivances and deceit by the Adani group promoters, on which SEBI had put a regulatory lid..In effect, SEBI has been complicit in the wilful subversion of the SEBI Act, 1992, Prevention of Money Laundering Act, 2002 (PMLA 2002) and FEMA, 1999 by the Adani group promoters and suspicious FPIs or overseas entities to commit grave economic offences like securities fraud, insider trading, round tripping, forex violations, money laundering and tax evasion. Not only has there been regulatory failure, but regulatory capture and collapse..The violations of the Adani group promoters, including Vinod Adani, seem to have dwarfed those by Harshad Mehta and Ketan Parekh, which had led to the stock market scams of 1992 and 2001, respectively..However, any investigation into the alleged contraventions of the laws, rules and regulations by the Adani group promoters and the suspected FPIs would find it difficult to establish culpability, unless SEBI's role in facilitating and regularising these violations is also investigated simultaneously..The role of the LIC, Adani's lenders, especially the public sector banks, RBI and multiple agencies under the revenue department and Union finance ministry, which deal with regulation and enforcement, should also be investigated..Also read: How PMLA lost its procedural fairness, counsel explains to the Supreme Court.The following suggestions may be considered to initiate proper and effective investigation under the supervision of the Supreme Court: .Immediate termination of SEBI inquiry into the Adani group of companies and transfer of all records related to the investigation into Supreme Court's custody.Striking down those amendments made to the FPI Regulations, 2014, (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations, 2015), PMLA 2002 and Prevention of Money Laundering (Maintenance of Records) Rules, 2005, since 2018, which have wilfully subverted the letter and spirit of Section 12A of the SEBI Act, 1992, PMLA 2002 and FEMA, 1999 in order to facilitate and regularise the legal violations and contraventions of the Adani group promoters, including Vinod Shantilal Adani.Initiating criminal investigation against the Adani group promoters, including Vinod Shantilal Adani and other "beneficial owners" of the suspected FPIs or overseas entities, as well as LIC, for committing securities fraud, insider trading, forex violations, money laundering and tax evasion, subverting and violating the SEBI Act, 1992, PMLA 2002 and FEMA, 1999;Conducting forensic audit of all Adani group companies and overseas entities or FPIs linked to Vinod Shantilal Adani, through an independent auditor appointed by the Supreme Court.Bringing SEBI within the ambit of criminal investigation for wilful subversion of Section 12A of the SEBI Act, 1992, PMLA 2002 and FEMA, 1999 and interrogating all key SEBI personnel, present and past, who were involved in decision-making regarding regulatory changes which has impacted Adani group investigation;Bringing the Union finance ministry, RBI, public sector banks and the relevant agencies operating under their supervision within the ambit of criminal investigation for wilful subversion of Section 12A of the SEBI Act, 1992, PMLA 2002 and FEMA, 1999..An abridged version of the article was published in The Hindu as 'Decoding the expert committee report on Adani' on June 19, 2023.
