SEBI Attention on Adani: Six Companies Get Show-Cause Notices

Six companies within the Adani Group, including Adani Enterprises, Adani Ports & Special Economic Zone, Adani Power, Adani Energy Solutions, Adani Total Gas, and Adani Wilmar, have disclosed in their financial statements for the March quarter and the fiscal year 2024 that they have received show cause notices from the Securities and Exchange Board of India (SEBI). These notices pertain to alleged breaches of related party transaction rules and non-adherence to listing regulations, as reported in their filings with the stock exchange.

The companies have stated that there are no significant violations of relevant laws and regulations, nor are there any substantial consequential effects. Nevertheless, except for Adani Total Gas and Adani Wilmar, the auditors issued a qualified opinion on the financial statements of these firms, suggesting that the results of the ongoing SEBI investigation could potentially impact future financial disclosures. Meanwhile, Adani Green Energy has not yet released its earnings. In contrast, ACC and Ambuja Cement reported that they have not received any notices from SEBI regarding non-compliance issues, and there are no unresolved matters concerning them.

The SEBI notices issued to the six companies are linked to an investigation initiated after Hindenburg Research released a report in January 2023 accusing the Adani Group of corporate fraud and manipulating stock prices. Despite Adani's strong denial of these allegations and any misconduct, the publication of the report led to a significant decline in the group's stock values, erasing approximately $150 billion from its market capitalization at the lowest point.

The stocks of the group have largely recovered as the Adani Group has implemented a strategy for a comeback. It would be pertinent to mention that a show-cause notice (SCN) is not an allegation but calling from the entity for justification as to why legal action shall not be initiated against them. Adani Enterprises in its earnings statement on Thursday said the short seller's report had accused some Adani Group firms of multiple allegations. The case reached the Supreme Court, which said indeed SEBI was looking into the matter. Furthermore, the Supreme Court established an expert committee tasked with investigating the situation and recommending enhancements to the current laws and regulations.

On January 3, 2024, the Supreme Court concluded all matters involved in various petitions, which included those concerning separate independent investigations related to the allegations made in the short seller's report (SSR). Additionally, the Supreme Court instructed SEBI to finalize the two ongoing investigations, ideally within three months, and to bring these and the 22 already completed investigations to their appropriate conclusion in line with legal standards.

“During Q4 the Parent Company received two SCNs from SEBI alleging non-compliance of provisions of the Listing Agreement and LODR Regulations pertaining to related party transactions in respect of certain transactions with third parties and validity of peer review certificates of statutory auditors with respect to earlier years," the firm said.

It however did not disclose the nature of the allegations.

"The management believes that there is no material consequential effect of above show cause notices to relevant financial statements and no material non-compliance of applicable laws and regulations," it added.

In April 2023, the parent company conducted an independent review of the transactions mentioned in the short seller's report (SSR) through an external law firm. This assessment confirmed that none of the entities alleged in the SSR to be related parties were in fact related to the parent company or its subsidiaries according to the applicable frameworks. Additionally, it was affirmed that the parent company complies with the requirements of relevant laws and regulations. 

"Based on above independent assessment, the SC order and the fact that there are no pending regulatory or adjudicatory proceedings as of date, except as mentioned above, the management concludes that that there is no material non-compliance of applicable laws and regulations… Based on legal advice obtained, management believes that considering that alleged transactions with third parties were undertaken in compliance with applicable law at the relevant time... there is no non-compliance of applicable laws and regulations as alleged by the SCNs," it said.

Adani Total Gas, Adani Energy Solutions and Adani Wilmar in separate filings said that during Q4, the holding company received SCN from SEBI relating to validity of Peer Review Certificate (PRC) of predecessor auditors in previous financial year, which has been responded to.