May 3rd 2024.
In recent news, it has been reported that six companies within the Adani group have been issued show cause notices by the Securities and Exchange Board of India (SEBI) for potential violations of related party transactions and non-compliance with listing regulations. These companies include Adani Enterprises, Adani Ports & Special Economic Zone, Adani Power, Adani Energy Solutions, Adani Total Gas, and Adani Wilmar, all of which have disclosed this information in their respective March quarter and FY24 financial results.
Despite these notices, the companies have stated that there is no significant non-compliance with laws and regulations, nor any material consequential effect. However, it should be noted that the auditors for all companies, except Adani Total Gas and Adani Wilmar, have issued a qualified opinion on their financial statements. This implies that the outcome of the SEBI investigation may have an impact on the accuracy of these statements in the future.
It is worth mentioning that Adani Green Energy has yet to announce its earnings, while ACC and Ambuja Cement have not received any notices from SEBI and have no open matters relating to non-compliance with regulations. These show cause notices are a result of an investigation that was launched following allegations made by short seller Hindenburg Research in January 2023. Although the Adani Group has strongly refuted these claims and denied any wrongdoing, the report caused a significant drop in the group's market value, amounting to about USD 150 billion at its lowest point.
Fortunately, most of the group's stocks have since recovered as the group works on a comeback strategy. It is essential to note that a show cause notice is not an indictment, but rather a request for entities to explain why legal action should not be taken against them. In its earnings statement on Thursday, Adani Enterprises acknowledged that a short seller's report had made certain allegations against some of the companies within the group. This matter also reached the Supreme Court, which noted that SEBI was investigating the issue and constituted an expert committee to review and suggest measures to strengthen existing laws and regulations.
The committee's report, released on May 6, 2023, found that there was no regulatory failure in regards to applicable laws and regulations. Furthermore, SEBI has concluded its investigations in 22 out of the 24 matters, as stated in the status report dated August 25, 2023, to the Supreme Court. On January 3, 2024, the Supreme Court resolved all matters related to the various petitions, including those pertaining to independent investigations into the allegations made in the short seller's report. The court also directed SEBI to complete the remaining two investigations within three months and bring them to a logical conclusion in accordance with the law.
During the fourth quarter, the parent company, Adani Enterprises, received two show cause notices from SEBI, alleging non-compliance with provisions of the Listing Agreement and LODR Regulations regarding related party transactions and the validity of peer review certificates from previous years. However, the nature of these allegations has not been disclosed. The company's management has stated that there is no significant impact on their financial statements and that they have complied with all applicable laws and regulations.
In April 2023, the parent company conducted an independent assessment through a law firm, which confirmed that none of the alleged related parties mentioned in the short seller's report were, in fact, related parties to the parent company or its subsidiaries. The assessment also found that the company was in compliance with all applicable laws and regulations. Based on this assessment, the Supreme Court's order, and the fact that there are no pending regulatory or adjudicatory proceedings, except for those mentioned above, the management has concluded that there is no significant non-compliance with applicable laws and regulations.
Similarly, APSEZ received show cause notices from SEBI during FY24, alleging non-compliance with provisions related to related party transactions and the failure to obtain necessary approvals and make required disclosures in financial statements and annual reports. The company has responded to these allegations, stating that they have received the due amounts in full, including interest, and there were no losses incurred. Additionally, in April 2023, the company obtained a legal opinion from an independent law firm, which confirmed that none of the alleged related parties mentioned in the short seller's report were related parties to the group.
In their responses to SEBI, the company has denied all charges and maintained that their transactions were in full compliance with laws and regulations. Adani Power also received show cause notices from SEBI in the fourth quarter of FY24, to which the company has responded, stating that they have not violated any laws and regulations. The management has received legal advice, which supports their belief that the transactions in question were in compliance with applicable laws at the time. Similarly, Adani Total Gas, Adani Energy Solutions, and Adani Wilmar have also received show cause notices from SEBI, to which they have responded and maintained their compliance with the law.
In conclusion, while these show cause notices have caused concern, the companies within the Adani group have responded and denied any non-compliance with laws and regulations. They have also taken necessary steps, such as conducting independent assessments and obtaining legal opinions, to support their claims. The Supreme Court has also directed SEBI to complete its investigations and bring them to a logical conclusion within three months. As of now, the management has stated that there is no significant impact on their financial statements, and they are confident in their compliance with applicable laws and regulations.
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