Adani-Hindenburg controversy: SC committee finds ‘no regulatory failure’

The Supreme Court appointed committee has found that there was ‘no regulatory failure’ in Adani-Hindenburg controversy and that the Hindenburg Report contains ‘no new data’ and is “collection of infereces from data in the public domain’. The committee is headed by retired judge AM Sapre which was probing the controversy.

What has the report said?

The committee has submitted the report to the Supreme Court. It says,”The committee is of the view that it would not be possible to return a finding of a regulatory failure in relation to compliance with the regulatory stipulations governing minimum public shareholding stipulation…”

The report has been mentioned by news agency IANS.

“Hindenburg Report…contained no new data but was substantially a collection of inferences from data in the public domain”.

The report said: “It is noteworthy that a strong feedback on the Hindenburg Report is that it contained no new data but was substantially a collection of inferences from data in the public domain.”

The committee said the Foreign portfolio investors (FPIs) in question have made declarations of the beneficial owner by identifying the natural persons controlling their decisions for purposes of the Prevention of Money Laundering Act (PMLA) and this is the declaration that comports to compliance with the FPI Regulations. “Sebi has been investigating the ownership of the 13 overseas entities since October 2020…,” it noted.

 “The legislative policy of SEBI under the FPI Regulations requiring disclosure of beneficial owners was in consonance with the requirements under the PMLA. Besides, in 2018, the very provision dealing with `opaque structure` and requiring an FPI to be able to disclose every ultimate natural person at the end of the chain of every owner of economic interest in the FPI, was done away with.”

“Yet, in 2020, the investigation and enforcement has moved in the opposite direction, stating that the ultimate owner of every piece of economic interest in an FPI must be capable of being ascertained. It is this dichotomy that has led to SEBI drawing a blank worldwide, despite its best efforts,” said the report.

The report said that without this information, Securities and Exchange Board of India (SEBI) is unable satisfy itself that its suspicion that has aroused can be put to rest.

“The securities market regulator suspects wrongdoing, but also finds compliance with various stipulations in attendant regulations. Therefore, the record reveals a chicken-and-egg situation,” said the report.

Only ascertaining if there was ‘regulatory failure’

The committee said that it has restricted itself to its stated remit, which was acertaining whether there was a regulatory failure. 

“The committee is of the view that it would not be possible to return a finding of a regulatory failure in the context of the regulations prevailing when the transactions were effected,” said the committee.

On March 2 this year, the apex court constituted the expert committee headed by Justice Abhay Manohar Sapre, a former judge of the Supreme Court, and comprising O.P. Bhatt, Justice J.P. Devadhar (retired), K.V. Kamath, Nandan Nilekani, and advocate Somashekhar Sundaresan.

The top court had said: “The remit of the committee shall be as follows: To provide an overall assessment of the situation, including the relevant causal factors which have led to the volatility in the securities market in the recent past; To suggest measures to strengthen investor awareness.”

(With inputs from agencies)

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