Adani Group found innocent of accusations concerning loan transactions, claims SEBI in assessment related to Hindenburg's allegation
In a significant development, the Securities and Exchange Board of India (SEBI) has given a clean chit to the Adani Group, dismissing allegations made by US short-seller Hindenburg Research. The allegations concerned the use of Milestone Tradelinks Pvt. Ltd. and Rehvar Infrastructure Pvt. Ltd. as conduits to route funds between Adani Ports & SEZ (APSEZ), Adani Power (APL), and Adani Enterprises (AEL).
SEBI launched an investigation to examine whether the loans amounted to undisclosed related party transactions (RPTs) or fraudulent transactions. However, the regulator found no case made out for such allegations. The disputed loans between various Adani companies were not considered RPTs under the regulatory framework that existed during the investigation period.
The Adani group maintains that the transactions did not fall within the definition of 'related party transactions' under the regulatory framework that was in place during the investigation period. The group argues that the provision in the LODR Regulations, which broadened the scope to cover indirect dealings through third parties, only came into effect from April 1, 2023, and could not be applied retrospectively to loans routed via Milestone Tradelinks and Rehvar Infrastructure.
SEBI held that the broader definition of RPTs introduced in 2021 could not apply retrospectively. Applying this amendment retrospectively would be legally impermissible. The search results do not contain information about the names of entities acting as independent third parties between the accused and Adani companies under Ind-AS 24 or related transactions during the investigation period.
The transactions could not be labelled as manipulative or fraudulent because there was no siphoning of money, no diversion of funds, and no investor harm. The group contends that merely transferring funds through Milestone and Rehvar could not, by itself, satisfy the evidentiary threshold needed to establish a case of fraud or securities market manipulation under the SEBI Act.
A show cause notice (SCN) issued by SEBI alleged that the transactions were used to avoid classifying them as RPTs and underreporting in financial statements. However, SEBI examined bank statements and confirmed that all loans had been repaid with interest within the investigation period.
The Supreme Court had upheld SEBI's legislative choice and rejected challenges to revoke the amendment that broadened the scope of RPTs. The applicable un-amended clause of the LODR Regulations defines a related party as specified under sub-section 76 of section 2 of the Companies Act, 2013 or under the applicable accounting standards.
In conclusion, SEBI's investigation has found no evidence to support the allegations made against the Adani Group. The transactions between the various Adani companies were found to be genuine and were fully repaid with interest. The broader definition of RPTs, which came into effect in 2021, could not be applied retrospectively to the loans in question.
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