'No regulatory failure', committee headed by ex-SC judge on Adani Group-Hindenburg controversy

The Supreme Court-appointed committee headed by retired judge A.M. Sapre probing the Adani-Hindenburg controversy said there was no regulatory failure in relation to compliance with the regulatory stipulations governing minimum public shareholding stipulation and "Hindenburg Report...contained no new data but was substantially a collection of inferences from data in the public domain".

The report, submitted in the apex court, said: "The committee is of the view that it would not be possible to return a finding of a regulatory failure in relation to compliance with the regulatory stipulations governing minimum public shareholding stipulation..."

The report said: "It is noteworthy that a strong feedback on the Hindenburg Report is that it contained no new data but was substantially a collection of inferences from data in the public domain."

The committee said the Foreign portfolio investors (FPIs) in question have made declarations of the beneficial owner by identifying the natural persons controlling their decisions for purposes of the Prevention of Money Laundering Act (PMLA) and this is the declaration that comports to compliance with the FPI Regulations. "Sebi has been investigating the ownership of the 13 overseas entities since October 2020...," it noted.

The committee said: "The legislative policy of SEBI under the FPI Regulations requiring disclosure of beneficial owners was in consonance with the requirements under the PMLA. Besides, in 2018, the very provision dealing with 'opaque structure' and requiring an FPI to be able to disclose every ultimate natural person at the end of the chain of every owner of economic interest in the FPI, was done away with."

The report said: "Yet, in 2020, the investigation and enforcement has moved in the opposite direction, stating that the ultimate owner of every piece of economic interest in an FPI must be capable of being ascertained. It is this dichotomy that has led to SEBI drawing a blank worldwide, despite its best efforts."

The report said without such information Sebi is unable to satisfy itself that its suspicion that has been aroused can be put to rest. "The securities market regulator suspects wrongdoing, but also finds compliance with various stipulations in attendant regulations. Therefore, the record reveals a chicken-and-egg situation," said the report.

The committee said it has restricted itself to its stated remit -- of ascertaining whether there has been a regulatory failure. "The committee is of the view that it would not be possible to return a finding of a regulatory failure in the context of the regulations prevailing when the transactions were effected," said the committee.

On March 2 this year, the apex court constituted the expert committee headed by Justice Abhay Manohar Sapre, a former judge of the Supreme Court, and comprising O.P. Bhatt, Justice J.P. Devadhar (retired), K.V. Kamath, Nandan Nilekani, and advocate Somashekhar Sundaresan.

The top court had said: "The remit of the committee shall be as follows: To provide an overall assessment of the situation, including the relevant causal factors which have led to the volatility in the securities market in the recent past; To suggest measures to strengthen investor awareness."

It further added, "To investigate whether there has been regulatory failure in dealing with the alleged contravention of laws pertaining to the securities market in relation to the Adani Group or other companies; and To suggest measures to (i) strengthen the statutory and/or regulatory framework; and (ii) secure compliance with the existing framework for the protection of investors".