Adani-Hindenburg Case: Justice Denied
by Prasenjit Bose

The Supreme Court verdict on the Adani-Hindenburg matter was delivered on January 3, 2024. While the judgement did not give any clean chit to the Adani Group of companies vis-a-vis the allegations made in the Hindenburg report, it ruled that there was no regulatory failure on the part of the Securities and Exchange Board of India (SEBI) in investigating the matter and rejected the plea for constituting a Special Investigating Team. SEBI has been asked to continue its ongoing inquiries and "preferably" conclude them in the next three months.

Following the publication of the Hindenburg report and the consequent crash in the prices of Adani company shares in January 2023, the Supreme Court had admitted a batch of petitions in the matter. In an interim order on March 2, 2023, the apex court had set the terms of reference for SEBI inquiry and also formed an Expert Committee (EC) to inter alia investigate whether there was any regulatory failure.

The SEBI was directed to investigate: (i) Whether there had been a violation of Rule 19A of the Securities Contracts (Regulation) Rules 1957 (SCRR, 1957); (ii) Whether there had been a failure to disclose transactions with related parties to SEBI, in accordance with the law; and (iii) Whether there was any manipulation of stock prices in contravention of existing laws.

Rule 19A of the SCRR, 1957 stipulates that every company listed in the stock market must maintain at least 25 per cent public shareholding, which implies that the promoter group of a company cannot own shares beyond a threshold of 75%. This rule is meant to ensure that adequate shares of a listed company are available in the stock market to enable coherent price discovery and to prevent market manipulation.

Hindenburg's Exposé

The Hindenburg report had provided elaborate material pointing to the existence of a massive web of overseas shell companies acting as front companies for the Adani group. The overseas entities identified by Hindenburg included: (I) Elara India Opportunities Fund, with a total market value of about $ 3.04 billion, of which over 98% was invested in 3 Adani stocks; (II) Monterosa Investment Holdings, which held 1.69% of Adani Enterprises, 5.09% of Adani Transmission, 2.72% of Adani Total Gas and 1.29% of Adani Power in end-December 2022; (III) Cyprus based New Leaina’s investments which held over 1% stake in Adani Green Energy (IV) Mauritius based Opal Investment Private Ltd which held 4.69% of total shares of Adani Power as on December 2022.

In short, Hindenburg concluded that stock parking entities like Monterosa, Elara and New Leaina, together with suspicious offshore entities like EM Resurgent Fund, Asia Investment Corporation, Emerging India Focus Fund, etc., held and transacted in Adani companies' scrips in disproportionately large magnitudes. Hindenburg also provided evidence which linked these suspect overseas entities with the Adani group promoters via Gautam Adani's elder brother Vinod Adani and his associates like Subir Mittra and Chang Chung-Ling.

As per Hindenburg's analysis, if the shareholdings of the suspected entities were included, four listed Adani group companies were clearly violating the 75% threshold for promoter ownership in end-December 2022 (table below). The proper classification of the suspected shareholdings as insider or promoter holdings would result in the delisting of these Adani group companies.

Expert Committee Findings

The report of the expert committee (EC) appointed by the Supreme Court revealed that 13 overseas entities having significant shareholdings in Adani group companies were being investigated by SEBI since October/November 2020. It is noteworthy that all the 13 entities suspected by SEBI and named in the EC report were independently identified in the Hindenburg report, among many others, as those owned by Vinod Adani and his associates.

The EC noted that SEBI, despite its investigation into these overseas entities, was unable to gather conclusive evidence of their link to the Adani promoter group. The EC further noted that significant regulatory amendments were made to SEBI's Foreign Portfolio Investors' Regulations in 2018 and 2019, which diluted the restrictions on FPIs having any “opaque structure” and helped in concealing the "ultimate beneficial owners" of FPIs.

The 13 overseas entities suspected by SEBI had declared their “beneficial owners" in accordance with the amended FPI regulations. Yet, SEBI had expressed suspicion about shareholders who had contributed capital that was invested by these 13 entities. The names of such controlling shareholders and economic interest shareholders of companies incorporated in tax haven jurisdictions, however, were not made available to SEBI.

The EC had expressed scepticism regarding SEBI’s ability to obtain full disclosure on the ultimate beneficial owners of these entities in the following words: “[T]his is where it has hit a wall. It is evident that SEBI had drawn a blank in this investigation and the publication of the Hindenburg Report has revived SEBI’s efforts to attempt figuring out economic interest in the FPIs that have these investments in listed Adani stocks. It is evident that such an exercise could be a voluminous one but potentially a journey without a destination.”

EC further elaborated on SEBI’s references made to the Central Board of Direct Taxes (CBDT) and Directorate of Enforcement (ED), asking them to investigate the 13 suspected overseas entities. CBDT stated that it could not take up any investigation unless the “tax evasion petition” contained specific, verifiable and actionable intelligence. The ED responded that it could not proceed unless SEBI filed a case under the scheduled offences listed under the Prevention of Money Laundering Act, 2002. This was characterised by the EC as "a chicken-and-egg situation”.

EC further noted that SEBI’s regulatory policies and enforcement stance had moved in opposite directions — on the one hand, SEBI had diluted regulations regarding foreign portfolio investors since 2018 to enable concealment of their ultimate beneficial ownership, while on the other it had been trying to establish non-compliance by 13 suspected FPIs on the basis of rules and regulations existing prior to their dilution.

How Adani Companies Flouted Rule 19A of SCRR, 1957 (as on End-December 2022)


Disclosed Promoter Group Shareholding (%)

Suspect Overseas Holdings (%)

Suspected % over 75% Rule

Adani Transmission Ltd.




Adani Enterprises Ltd.




Adani Power Ltd.




Adani total Gas Ltd.




Source: Hindenburg Report, January 2023

Evidence Ignored

The Supreme Court judgement could have taken cognisance of the evidence of SEBI's regulatory failures contained in the EC report. Rather, the apex court relied upon a status report filed by SEBI that it has already concluded 22 investigations related to the allegations of insider trading, price manipulation of shares, non-disclosure of related party transactions, etc. and 2 of its investigations, including the crucial one on violation of Rule 19A of SCRR, 1957 by Adani group companies, are still ongoing. The findings of the 22 completed SEBI investigations have remained unknown. The apex court did not allow the petitioners access to the completed SEBI investigation reports. The EC was also not asked to examine them and provide their final observations on regulatory failure.

Since the EC could not conclude that there was a regulatory failure based on SEBI's initial submissions, the apex court evidently did not dissolve the EC after the submission of its first report. It was only logical then to ask the EC to vet the finalised SEBI investigation reports.

The EC report also indicated that SEBI's successive amendments of FPI regulations went against Section 12A of the SEBI Act, 1992. Yet these statutory violations were not struck down by the apex court on the basis of SEBI's assertion made through an affidavit filed on July 10, 2023, that the amendments to FPI regulations in 2018 and 2019 had continuously "tightened" regulations for the disclosure of beneficial owners of FPIs. This was not a true claim because the amendments had decisively diluted the FPI regulations in three significant ways:

(i)    The crucial term "ultimate beneficial owner" as per the definition of the 2010 Master Circular on Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT) Standards, was replaced with "beneficial owner"

(ii)   "Beneficial owner" was redefined as per the Prevention of Money Laundering Act, 2002 (PMLA, 2002) and Rules framed thereunder, which mandated 25% shareholding thresholds for identifying beneficial ownership

(iii)   The term "opaque structure" was deleted altogether

SEBI's July 10 affidavit admitted that "the existence of thresholds for determination of beneficial owners" offered a challenge in identifying beneficial ownership of FPIs. Yet, SEBI suppressed the fact that the 25% shareholding threshold in the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, was amended only on March 7, 2023, by the Ministry of Finance to lower the threshold to 10%. This amendment was made after the Supreme Court order on March 2, 2023 had already set the terms of reference for the SEBI inquiry and the matter was already sub judice.

The Organised Crime and Corruption Reporting Project (OCCRP) had also reported that two Mauritius based funds, namely Emerging India Focus Fund and EM Resurgent Fund had invested and traded in large volumes of shares in four Adani companies between 2013 and 2018. Two key foreign investors of these funds were Nasser Ali Shaban Ahli from UAE and Chang Chung-Ling from Taiwan, who had channelled the money through Bermuda-based Global Opportunities Fund. Links with Vinod Adani were also traced. These investigative findings were published in the Financial Times and The Guardian on August 31, 2023. The apex court, however, ruled that the OCCRP findings were "allegations" which could not be regarded as "conclusive proof".

The OCCRP report had also revealed the correspondence between the Director General of the Directorate of Revenue Intelligence (DRI) to the SEBI chairperson in January 2014 on “the dealings of the Adani Group of companies in the stock market”. One of the letters was accompanied by a CD of evidence from a DRI probe into allegations of over-invoicing of capital equipment imports against Adani power projects, stating that “there are indications that a part of the siphoned off money may have found its way to stock markets in India as investment and disinvestment in [the] Adani Group.” How SEBI acted on the DRI alert vis-à-vis money flowing from Mauritius based entities into Adani scrips way back in 2014, has remained undisclosed till date. 


SEBI's inaction vis-a-vis the Adani group and its reluctance to consider the evidence provided by Hindenburg, OCCRP or the DRI, is evident. Yet, the apex court has chosen to repose faith in the SEBI investigation and also directed a probe into Hindenburg for causing market volatility and investor losses. The findings of the completed SEBI inquiries on share price manipulation, insider trading, non-disclosure of related party transactions, etc., continue to remain secret.

Continuation of an endless "chicken and egg" SEBI inquiry into the violation of minimum shareholding norms by the Adani group companies would only make ordinary investors in the stock market vulnerable to shocks like the one delivered by Hindenburg last year. It also poses a risk to the stability of public sector financial institutions like the Life Insurance Corporation of India, which has already suffered substantial losses on their Adani shareholdings. Public sector banks like the State Bank of India, which are major lenders to the Adani group, shall also remain vulnerable. Justice, far from prevailing in the case, has become a casualty in the Adani-Hindenburg matter.

Adani-Hindenburg Case: Justice Denied