SEBI clears four Adani firms of shareholding violation charges

Securities and Exchange Board of India ruled Monday that allegations of minimum public shareholding violations by four Adani Group companies were not established, closing a probe that began in 2020.

Complaints filed in June and July 2020 said certain listed Adani Group companies were not meeting minimum public shareholding (MPS) requirements, the rule that obliges listed firms to keep a fixed minimum share of equity with public investors. A show cause notice followed, claiming that shares held by two foreign portfolio investors in Adani Enterprises, Adani Power, Adani Ports and SEZ, and Adani Transmission, since renamed Adani Energy Solutions, between 2013 and 2018 were in substance promoter holdings but recorded as public shareholding. The notice also invoked the Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market Regulations, 2003 (PFUTP).

The notice's theory was that the two FPIs' holdings were promoter shares in substance, meaning the four companies' public float fell short of the MPS floor. Control of the two FPIs was the hinge. If Vinod Adani, brother of group chairman Gautam Adani, directed their investments, the theory held.

SEBI found the evidence did not support it. In its 81-page order Monday, the regulator said the allegations in the show cause notice were not established.

"It has been held that there is no evidence to demonstrate involvement of Vinod Adani in decision making process of investments of the two FPIs in Adani Group Companies," SEBI said in its order. "Thus, it has been held that the investigation has not been able to prove that Vinod Adani controlled the decision of investment of two FPIs in Adani Group of Companies."

SEBI also rejected a similar allegation over Opal Investments Pvt Ltd's shareholding in Adani Power. "Since the foundational allegation of effective control over the FPIs as well as Opal has not been established, the consequential allegation relating to violation of the minimum public shareholding requirements has not been upheld," the order said.

Once the MPS charge failed, the PFUTP allegations fell with it. The order carries no penalty and directs no change to the companies' shareholding.

The show cause notice had further alleged that Vinod Adani exercised control through business relations Nasser Ali Shaban Ahli and Chang Chung Ling, and that the two men financed four underlying investors who invested in the Adani companies through the FPIs. "It has been held that no evidence has been produced which can show that Vinod Adani controlled Mr. Ahli or Mr. Ling and through them the investment decisions of Four Underlying Investors," the order said. "Merely based on business or financial relationship, it cannot be held that Vinod Adani is in control of all of them. Any such conclusion would have unintended consequences for implementation of various securities laws in the capital market."