Sebi slaps Adani Enterprises, Adani Power, five other group firms with show cause notices

Seven out of the 10 listed firms of Adani group have received show cause notices from the Securities and Exchange Board of India (SEBI) for alleged violation of related party transactions and non-compliance with listing regulations, the companies said in their regulatory filings to the stock exchanges.

While group's flagship Adani Enterprises Ltd, renewable energy firm Adani Green Energy Ltd (AGEL) and city gas distributor Adani Total Gas Ltd said SEBI sent notices of their parent or holding company controlled by conglomerate's chairman Gautam Adani, ports company Adani Ports & Special Economic Zone, Adani Power, electricity transmission firm Adani Energy Solutions, and commodities firm Adani Wilmar said they have received SEBI notices.

Making the disclosure as part of notes to their respective January-March quarter and 2023-24 financial results statements, all the firms in almost identical statements said there is no material non-compliance with applicable laws and regulations and no material consequential effect.

However, auditors of the companies, except those for Adani Green Energy, Adani Total Gas Ltd and Adani Wilmar, issued a qualified opinion on the financial statements, implying that the outcome of the SEBI investigation may have a bearing on the financial statements in the future.

The conglomerate's cement companies ACC and Ambuja Cement said they have not received any notice from SEBI on the matter and there was no open matter relating to them and any non-compliance of applicable regulations. Its media unit NDTV did not say anything about receiving SEBI notices.

The SEBI notices are part of a probe that followed US short-seller Hindenburg Research making damning allegations of corporate fraud and stock price manipulation against the Adani Group in January 2023. Though Adani vehemently denied all allegations, the report triggered a stock rout that wiped out about USD 150 billion of the group's market value at its lowest point.

Most of the group stocks have bounced back as the ports-to-energy conglomerate plotted a comeback strategy. A show cause notice is not an indictment and seeks an explanation from entities as to why legal action should not be taken against them. AGEL in the filing on Friday said a short-seller's report (SSR) made certain allegations against some of the Adani Group companies.

The matter went to the Supreme Court (SC), which observed that SEBI was investigating the matter while also constituting an Expert Committee to investigate as well as suggest measures to strengthen existing laws and regulations.

The Expert Committee in its May 6, 2023, report found "no regulatory failure in respect of applicable laws and regulations," AGEL said. "The SEBI also concluded its investigations in 22 of the 24 matters as per the status report dated August 25, 2023, to the SC." On January 3, 2024, the SC disposed of all matters in various petitions, including those relating to separate independent investigations relating to the allegations in the SSR. Further, the SC directed SEBI to complete the pending two investigations, preferably within three months, and take its investigations (including 22 already completed) to their logical conclusion in accordance with the law.

"During the quarter ended March 31, 2024, the holding company has received a show cause notice from the SEBI relating to validity of Peer Review Certificate (PRC) of one of joint auditors in earlier financial years, which the holding company has responded to," it said.

Adani Enterprises Ltd (AEL) on Thursday stated that it has received the notices from SEBI alleging non-compliance with provisions of the Listing Agreement and LODR Regulations pertaining to related party transactions in respect of certain transactions with third parties and validity of peer review certificates of statutory auditors with respect to earlier years. It, however, did not disclose the nature of the allegations.

AGEL termed the notices as "technical in nature" that have "no material consequential effects on the relevant financial statements, while AEL said, "there is no material consequential effect of above show cause notices to relevant financial statements and no material non-compliance of applicable laws and regulations." All the Adani group firms stated that in April 2023, the parent company had undertaken a review of transactions referred in SSR through an independent assessment by a law firm, which confirmed "that (a) none of the alleged related parties mentioned in the SSR were related parties to the Parent Company or its subsidiaries, under applicable frameworks; and (b) the Parent Company (and the Group) is in compliance with the requirements of applicable laws and regulations." "Subsequent to the SC order dated January 3, 2024, to uphold the principles of good governance, the Adani Group has also initiated an independent legal and accounting review of the allegations in the SSR and other allegations (including any allegations related to the Group) to reassert compliance of applicable laws and regulations. Such independent review also did not identify any non-compliances or irregularities by the Group, and it has noted on record, the results of this review," AGEL said.

Based on the above independent assessment, the SC order and the fact that there are no pending regulatory or adjudicatory proceedings as of date, except the one mentioned in the SEBI notice, the management concludes that there is no material non-compliance with applicable laws and regulations and there are no consequences of the allegations mentioned in the SSR and other allegations on the group, the firms said, adding that accordingly, the financial statements do not carry any adjustments in this regard.

APSEZ said show cause notices were received from SEBI alleging non-compliance of provisions pertaining to related party transactions with regard to the transactions entered in the earlier years with certain parties and not recalling security deposits against terminated contracts leading to not using the funds for the company's core business purposes.
The firm said it has in its replies to SEBI, denied the charges in its entirety on grounds that these transactions were in full compliance with the prevailing laws and regulations.