India's capital markets regulator has rejected settlement applications by foreign portfolio investors (FPIs) that held significant stakes in listed Adani Group companies. According to reports from The Economic Times, the regulator communicated its decision to the FPIs' representatives last week, reviving a case that dates back to October 2020, when Sebi's surveillance systems first flagged the unusual concentration of their holdings. The regulator stated that the terms were not in line with the settlement terms suggested by Sebi, and the recommendation of the high-powered advisory committee on settlement orders was accepted by the panel of whole-time members in terms of regulation 15(1) of the Settlement Regulations, 2018. The development marks a fresh twist in a yearslong investigation that was cited by former short seller Hindenburg Research in its short-sale report in 2023, alleging corporate malpractice at the Adani Group.
At the centre of the standoff was the reluctance of some FPIs to fully disclose information Sebi considered essential to any settlement. As reported by The Economic Times, one person familiar with the matter stated that "entities must first agree to the non-monetary terms" and some FPIs were unwilling to provide certain details to Sebi, which was a precondition for settlement. Additionally, some FPIs were unwilling to 'disgorge' the amount sought by the regulator, which ran into hundreds of crores at a joint meeting with Sebi. The person emphasized that "You have to come clean if you want to settle a case. Some FPIs were unwilling to provide certain details to Sebi, which was a precondition for settlement." Some of the funds were unwilling to provide information the regulator considered necessary to settle the case, while others resisted demands to disgorge money sought by Sebi, as reported by Business Standard.
Sebi's investigation had flagged 13 FPIs including 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 and Opal Investments. According to The Economic Times, the regulator identified 42 contributories to the FPIs' assets under management but hit a wall trying to trace their ultimate beneficial owners, hampered by a lack of cooperation from its foreign counterparts. The probe gained global attention after a January 2023 report by Hindenburg Research accused the Adani Group of round-tripping and market manipulation, triggering a sharp sell-off in its stocks. The 13 funds being probed by SEBI include Albula Investment Fund, Cresta Fund, Asia Investment Corporation (Mauritius), APMS Investment Fund, Elara India Opportunities Fund, Vespera Fund, and LTS Investment Fund. These funds owned significant equity in listed Adani Group companies and subsequently reduced their holdings in the conglomerate's units, according to the latest shareholding data.
With Sebi rejecting the settlement applications, the regulator will now continue legal proceedings against the FPIs. As reported by The Economic Times, the funds filed multiple settlement applications in April 2024 after Sebi issued show-cause notices to them under two separate tracks - one questioning why their FPI registrations should not be cancelled, and the other seeking to fine them for breaches of securities law. The regulator's original concern was whether these FPIs were genuine public shareholders, or fronts for the Adani Group's own promoters. In its submissions to the Supreme Court in August 2023, amid multiple public interest litigations seeking a probe into the Hindenburg claims, Sebi disclosed that it had reviewed trading in seven Adani stocks between March 2020 and December 2022, examining price-volume manipulation and breaches of minimum public shareholding, FPI investment limit and offshore derivative instrument norms. The conglomerate has denied any links to the funds, which faced intense scrutiny in June 2021 for investing almost all of their assets in Adani stocks.
The door may not stay shut for long as Sebi is planning to revise its settlement rules in a way that could give rejected applicants, including potentially these FPIs, another shot at resolving their cases. According to The Economic Times, currently, an entity that has had its settlement application rejected cannot reapply at any stage of proceedings, including during an appeal. Under the proposed changes, applicants would be allowed to return to the settlement table if circumstances have changed and the grounds for the original rejection no longer apply, with the price of a second chance being an additional 20% on top of the settlement amount. Settlement is a well-trodden route for entities facing securities law violations in India, allowing them to resolve disputes without admitting or denying wrongdoing.
