Sebi Rejects Adani FPI Settlement, Revives 2020 Probe

India’s capital markets regulator, Sebi, has rejected settlement applications from thirteen foreign portfolio investors (FPIs) holding substantial stakes in listed Adani Group companies. This decision effectively revives a long-standing case that originated in October 2020, focusing on an unusual concentration of holdings by these entities.

The primary reason for the rejection was the FPIs’ failure to align with Sebi’s proposed settlement terms. Specifically, these investors were unwilling to fully disclose essential information and to disgorge specific amounts sought by the regulator.

Understanding the Rejection

Sebi’s initial investigation had flagged the following thirteen FPIs:

Albula Investment Fund

Cresta Fund

MGC Fund

Asia Investment Corporation (Mauritius)

APMS Investment Fund

Elara India Opportunities Fund

Vespera Fund

LTS Investment Fund

Emerging India Focus Funds

EM Resurgent Fund

Polus Global Fund

New Leaina Investments

Opal Investments

The core concern for the regulator was to determine whether these FPIs were genuine public shareholders or merely acting as fronts for the Adani Group’s promoters.

The Investigation’s Trajectory

The probe gained significant global attention following a January 2023 report by Hindenburg Research, which made allegations of market manipulation and round-tripping against the Adani Group. The Adani Group consistently denied these allegations.

In August 2023, Sebi informed the Supreme Court that it had thoroughly examined trading activities in seven Adani stocks. This review covered the period between March 2020 and December 2022, looking for potential price-volume manipulation and breaches of various regulations.

Despite identifying 42 contributories to the FPIs’ assets under management, Sebi encountered difficulties in tracing their ultimate beneficial owners. This challenge largely stemmed from a lack of cooperation received from foreign counterparts in its investigation.

Legal Action and Rule Revisions

Following a directive from the Supreme Court in January 2024 to bring its investigations to a logical conclusion, Sebi will now proceed with legal action against these FPIs. This move signals a more assertive stance from the regulator.

Interestingly, Sebi is reportedly planning to revise its settlement rules, which could offer a potential pathway for these rejected applicants to resolve their cases. Any such resolution would, however, likely involve an additional 20% penalty on the settlement amount.