Six Adani Group firms have received show cause notices from the Securities and Exchange Board of India (SEBI) for alleged breaches in related party transactions and non-compliance with listing regulations, the companies disclosed in their regulatory filings to the stock exchanges.
Adani Enterprises, the flagship firm of the group, disclosed the receipt of two show-cause notices during the quarter ending on March 31. Adani Ports & Special Economic Zone, Adani Power, Adani Energy Solutions, Adani Wilmar and Adani Total Gas also informed the bourses about SEBI’s recent inquiries.
During the quarter ended March 31, 2024, the parent company received two show cause notices from the 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, Adani Enterprises said its disclosure to the bourses.
The firms have said that legal counsel suggests minimal impact from the regulatory notices, auditors, excluding those of Adani Wilmar and Adani Total Gas, took a cautious stance. This apprehension arises from the possibility that SEBI’s investigations could have implications on future financial statements.
“… on account of pending adjudications/outcome of the investigations by the Securities and Exchange Board of India and based on our review of related documents, we are unable to comment on the possible adjustments and /or disclosures, if any, that may be required to be made in the accompanying statement in respect of this matter. We will continue to evaluate the impact of this matter on our opinion based on any changes in circumstances or additional information that may become available,” auditors of Adani Enterprises said.
Subsequent to year-end, the company has responded to SEBI on both show cause notices, Adani Power said in its filing. It said that the regulator alleged that certain transactions were not reported in the financial statements of the relevant years and requisite approvals for these transactions were not taken.
“The allegations are that the company has not obtained the requisite approvals, and have not made the required disclosure in the financial statements/ annual report. Not recalling security deposits against terminated contracts leading to not using the funds for company’s core business purposes and thus not complying with the company’s code of conduct,” Adani Ports and SEZ said in its disclosures.
A show-cause notice is not an indictment. It asks the entities to explain why legal action including monetary penalties shouldn’t be taken against them.
SEBI’s scrutiny follows an investigation into allegations levelled against the Adani Group by US-based Hindenburg Research. The regulator, in its August report to the Supreme Court, identified 13 specific related party transactions under investigation, echoing concerns highlighted in the Hindenburg Report.
The latter had raised questions about the appropriateness of over 6,000 related party transactions, casting a shadow over the Adani Group’s operations.
“During the quarter ended March 31, 2023, a short seller’s report was published making certain allegations against some of the Adani Group companies (including the parent company). In this regard. certain writ petitions were filed with the Hon’ble Supreme Court seeking an independent investigation of the allegations in the short seller’s report. During the proceedings, SC observed that the Securities and Exchange Board of India was investigating the matter. The SC also constituted an Expert Committee to investigate as well as suggest measures to strengthen existing laws and regulations and also directed the SEBI to consider certain additional aspects in its scope,” Adani Enterprises said in its disclosure.
The expert committee submitted its report dated May 6, 2023, finding no regulatory failure in respect of applicable laws and regulations. The SEBI also concluded its investigations in twenty-two of the twenty-four matters as per the status report dated August 25, 2023, to the SC. On January 3, 2024, the SC disposed off all matters in various petitions including those relating to separate independent investigations relating to the allegations in the short seller’s report. Further, the SC directed SEBI to complete the pending two investigations, preferably within three months, and take its investigations (including 22 already completed) to their logical conclusion in accordance with law, the company added.
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