The Supreme Court-appointed Expert Committee—constituted in the aftermath of the Adani-Hindenburg saga said it was not possible to conclude regulatory failure on SEBI’s part since it was actively engaged with developments and price movements in the market.
The six-member committee noted that since the Securities and Exchange Board of India (SEBI) sought additional time to probe the Hindenburg report allegations against Adani Companies, it was premature to conclude if it failed in its role as a market regulator.
SC on May 17 gave SEBI time till August 14 to conclude it's probe in the Adani-Hindenberg matter.
However, the court-appointed panel further noted that because of its policies, SEBI has "drawn a blank" in its probe into suspected violations in overseas investments in the Adani group, adding that continuing this case could be a "journey without a destination".
The committee further criticised SEBI’s policies where the market regulator suspects companies of wrongdoing but finds them complying with various stipulations revealing a “chicken and egg” situation.
The committee observed that in a “disclosure” based system followed in the country, SEBI's policies were in consonance with the requirements under the Prevention of Money Laundering Act (PMLA). In 2018, the market regulator did away with the provision of “opaque structure” and the requirement of declaring every “ultimate natural person” at the end of a chain of every owner of economic interest in the foreign portfolio investors (FPI), the report said.
And yet, in 2020, SEBI stated that the “ultimate owner of every piece of economic interest in an FPI must be capable of being ascertained”, the committee report read.
This “dichotomy” where SEBI’s investigation and enforcement policies moved in the “opposite direction” of its own laws resulted in the market regulator “drawing a blank” on tracing the ultimate owners of 13 foreign entities holding Adani Group stocks.
“The foundation of SEBI's suspicion that led to investigations into the shareholding of the FPIs in the Adani-listed companies is that their ownership structure is ‘opaque’…,” the 178-page report said. Despite pursuing various routes through the CBDT, ED etc., SEBI has not determined the ultimate ownership of these 13 entities.
“It has been a long-standing suspicion of SEBI that some of the public shareholders are not truly public shareholders and could be fronts for the promoters of these companies,” the report added.
Despite this, the six-member committee noted that since SEBI sought additional time to probe the Hindenburg report allegations against Adani Companies, it was premature to conclude if SEBI failed in its role as a market regulator.
Suggesting reforms, the committee found the need for SEBI to implement an effective enforcement policy that is “coherent and consistent” with the legislative position it has adopted.
Earlier this year in March, when the top court directed SEBI to probe Hindenburg report allegations against the Adani Group of companies, it also constituted a six-member committee to probe and suggest remedial measures, if any, in the existing regulatory framework and submit its report in a sealed cover within two months.
The six-member committee also comprised ex-chief of the New Development Bank of BRICS countries KV Kamath, ex-SBI chairman OP Bhatt, Infosys co-founder Nandan Nilekani, advocate Somasekhar Sundaresan and ex-High-Court judge JP Devadhar.