The Securities Appellate Tribunal (SAT) on Friday adjourned to June 22 the hearing on an appeal filed by five foreign portfolio investors against the Securities and Exchange Board of India. According to The Hindu BusinessLine, the tribunal has deferred the proceedings to allow for proper consideration of the case. The appeals have been filed by LTS Investment Fund, Cresta Fund, Asia Investment Corporation (Mauritius), APMS Investment Fund, and Albula Investment Fund — entities that were named by now-defunct short-seller Hindenburg Research in its 2023 report on the Adani Group.
The dispute relates to show-cause notices issued by Sebi over alleged compliance lapses, including deficiencies in filings and disclosures made to designated depository participants, as reported by LiveMint. Senior advocate Zal Andhyarujina, appearing for the funds, argued that after receiving a response to a show-cause notice, an adjudicating officer is required to form and communicate an opinion on whether proceedings should continue, under Rule 4(3) of SEBI's adjudication regulations. According to the FPIs, a copy of such opinion, along with the reasons for initiating adjudication, has not been furnished to them. The markets regulator's counsel, senior advocate Chetan Kapadia, stated they will file a short note within a week.
According to LiveMint, the funds appeared before Sebi for hearings in the matter, but claim that the AO declined to provide the reasons sought, prompting them to approach the tribunal. A legal practitioner representing the FPIs explained that "The opinion has to be recorded and communicated. If that is not done, the inquiry cannot proceed. This is essentially a procedural issue concerning the rights of the noticees." The plea filed before SAT has specifically referred to Rules 4.3 and 4.4 of the SEBI Adjudication Rules, which state that after a person or entity receives a show-cause notice and submits its response, the Adjudicating Officer must first consider the explanation provided. Another source familiar with the matter indicated that the proceedings may also be linked to Sebi's examination of the ultimate beneficial ownership of the FPIs.
As reported by LiveMint, Sebi had earlier alleged that certain offshore funds named in the Hindenburg report may have violated disclosure norms as well as prescribed investment limits. According to the regulator, while the funds disclosed their investments in Adani Group companies individually on a fund-by-fund basis, disclosure requirements were expected to be made on an aggregated basis at the offshore fund group level. The funds have questioned SEBI's decision to proceed with adjudication without providing the reasons that led to the initiation of the proceedings. Counsels representing the funds have sought a stay on SEBI's adjudication process until the appellate tribunal decides the matter, with reports noting that the funds had specifically requested the reasons and material relied upon by the regulator for initiating the proceedings.
The funds have further sought a direction restraining the adjudicating officer from proceeding further until a proper opinion is issued after considering their replies. As reported by The Hindu BusinessLine, SEBI's counsel stated that the regulator had followed the process prescribed under the rules but the funds "don't want the inquiry to proceed." "There are stages at which an opinion has to be formed," Kapadia said, adding that the exercise of examining the material placed before them was conducted internally and had called them for a hearing, which also the funds had appealed in SAT "to bring an end to the matter." The Adani-Hindenburg controversy traces back to January 2023, when US-based short seller Hindenburg Research published a report alleging stock manipulation and accounting irregularities within the Adani Group, which triggered a sharp selloff in Adani Group stocks and sparked multiple regulatory and legal reviews.
