Sebi turns down Adani-linked FPIs' settlement applications

Sebi rejects settlement applications from Adani-linked FPIs

India's capital markets regulator has rejected settlement applications from foreign portfolio investors (FPIs) that held significant stakes in listed Adani Group companies, according to people familiar with the matter. The Securities and Exchange Board of India (Sebi) communicated its decision to the funds' representatives last week, after the FPIs' proposed terms failed to align with those suggested by the regulator.

The Economic Times, which first reported the development, said Sebi's communication to the FPIs stated: "The terms were not in line with the settlement terms suggested by Sebi. Therefore, Sebi rejected the application." The letter also mentioned that the recommendation to reject the applications was made by the high-powered advisory committee on settlement orders (HPAC) and accepted by the panel of whole-time members under regulation 15(1) of the Settlement Regulations, 2018. The Economic Times said it had reviewed a copy of the letter.

The case dates back to October 2020, when Sebi's surveillance systems flagged an unusual concentration of holdings by the 13 FPIs. The regulator's investigation sought to determine whether these funds were genuine public shareholders or entities acting on behalf of Adani Group founders. The funds subsequently filed multiple settlement applications in April 2024, after Sebi issued show-cause notices under two separate tracks—one questioning their FPI registrations and another seeking fines for alleged securities law breaches.

According to the Economic Times, some FPIs were reluctant to fully disclose information Sebi considered essential for a settlement. "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," one person said. "Entities must first agree to the non-monetary terms." Another person said that at a joint meeting with Sebi, some FPIs were unwilling to disgorge the amount sought, which ran into hundreds of crores.

Settlement is a well-established route in India's securities law, allowing entities to resolve disputes without admitting or denying wrongdoing. The process typically involves an applicant proposing terms, Sebi countering with monetary and non-monetary conditions, negotiation, and final approval by the HPAC, which is led by a former high court judge. However, with the rejection of these applications, Sebi will continue legal proceedings against the FPIs, as reported by the Economic Times.

The 13 FPIs named in the reports are 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. Business Standard noted that these funds owned significant equity in listed Adani Group companies and subsequently reduced their holdings.

The investigation into these funds gained global attention after a January 2023 report by Hindenburg Research accused the Adani Group of round-tripping and market manipulation. The conglomerate has repeatedly denied those allegations. In its submissions to the Supreme Court in August 2023, Sebi disclosed that it had reviewed trading in seven Adani stocks between March 2020 and December 2022. The regulator also said it had identified 42 contributors to the FPIs' assets under management but faced difficulties tracing ultimate beneficial owners due to a lack of cooperation from foreign counterparts.

The Supreme Court disposed of public interest litigations in January 2024, directing Sebi to bring its investigations to a "logical conclusion in accordance with law." The regulator had previously asked some global funds in 2024 to defend themselves against possible violations of disclosure norms.

Sebi, the Adani Group, and the foreign investors did not respond to emailed queries from the Economic Times. Bloomberg News also sought comment without response, as reported by Business Standard.

In a related development, the Economic Times reported that Sebi is planning to revise its settlement rules to allow rejected applicants a second chance if circumstances change, with an additional 20% on the settlement amount. However, this change has not yet been implemented, and for now, the rejected applications mean the regulatory proceedings against these FPIs will continue.