New Delhi: Current partnership and past association with the Adani group and alleged involvement in bank fraud.
Three of six members on a committee appointed by the Supreme Court to investigate regulatory lapses in dealing with allegations of financial fraud and stock manipulation against one of India’s largest conglomerates, the Adani group, have a conflict of interest or should otherwise be disqualified, a petitioner has alleged to the Court.
The allegations:
–Former State Bank of India chairman O P Bhatt heads an energy company that has a deal to supply power to an Adani industrial complex
–When Bhatt was chairman, India’s leading investigative agency accused his bank of lending money to tycoon Vijay Mallya based on “imaginary claims”, according to investigators
–Former chief of the New Development Bank of BRICS countries K V Kamath is named in a first information report (FIR) related to an alleged Rs-3,250-crore loan fraud
–Corporate lawyer Somasekharan Sundaresan represented the Adani Group in 2006 before a regulatory body
Filed before the Supreme Court on 18 September 2023, the affidavit from Anamika Jaiswal, a Lucknow-based law student, one of four petitioners who in January demanded a court-monitored investigation against the Adani group, questions the impartiality of the committee.
Emails sent and calls made to Bhatt’s and Kamath’s offices did not elicit a response. Sundaresan refused to comment, since the matter was sub-judice.
A 24 January 2023 report by Hindenburg Research, a US-based short-seller, alleged that the Adani Group had engaged in what they termed “the largest con in corporate history”.
In the 100-page report, Hindenburg accused the conglomerate of using a complex web of companies in tax havens to artificially boost its revenue and stock prices. It identified 38 shell entities in Mauritius controlled by Vinod Adani, the brother of Adani Group's founder, or his close associates for allegedly manipulating earnings.
The Adani group called the report a “malicious combination of selective misinformation and stale, baseless and discredited allegations”.
The group, which has witnessed a significant surge in its fortunes under Prime Minister Narendra Modi since 2014, was accused of involvement in “stock manipulation and accounting fraud”, triggering a 60% fall in the group’s market capitalisation over one month from the report’s publication.
Thirty eight days after these revelations, on 3 March 2023, a Supreme Court bench of Chief Justice D Y Chandrachud, Justice P S Narasimha, and Justice J B Pardiwala, constituted a committee of experts, headed by former Supreme Court judge Justice Abhay Manohar Sapre and comprising co-founder of Infosys Limited Nandan Nilekani, presiding officer of the Securities Appellate Tribunal J P Devadhar, along with Bhatt, Kamath, and Sundaresan.
This expert committee was asked to make recommendations to strengthen the regulatory framework in India’s securities market and to also “investigate whether there was a regulatory framework in dealing with alleged violations of law related to the securities market by the Adani Group or other companies”.
The court also ordered the Securities and Exchange Board of India (SEBI), the stock market regulator, to complete its investigation of the Adani-Hindenburg issue within two months, which has since been delayed.
The expert committee’s final report, submitted to the court on 6 May, prima-facie found “no regulatory failure” on SEBI’s part.
“At this stage, taking into account the explanations provided by SEBI, supported by empirical data, prima facie, it would not be possible for the Committee to conclude that there has been a regulatory failure around the allegation of price manipulation,” the 173-page report said.
Months later, on 31 August 2023, a report by the Organised Crime and Corruption Reporting Project (OCCRP), a global investigative journalism consortium, appeared to confirm Hindenburg’s claims. The OCCRP report revealed that Adani's family and associates invested millions of dollars in Adani companies via “opaque” Mauritius funds. The conglomerate rejected the findings of the report, terming them “recycled” and “misleading”.
A publicly listed company is required to leave at least 25% of its shares available only for public trading on the stock market, called a free float. Controlling over 75% of shares, as the Adanis have alleged to have done through offshore shell entities, is prohibited by the Securities Contracts (Regulation) Rules, 1957 in order to protect investors. Adani’s associates are alleged to have invested Adani’s own money in this 25% free float, thereby potentially manipulating share prices.
If OCCRP’s allegations are proven, Adani Group companies could be delisted from the stock market.
Some have suggested that the committee did indeed provide a “large body of evidence of regulatory failure” in its report and yet, drew ambivalent conclusions. For instance, the report noted that between 1 April 2018 and 31 December 2022, 849 alerts were generated regarding Adani group companies on SEBI’s surveillance systems—603 related to price volume movements and 246 related to suspected insider trading.
Some experts believe that the SEBI failed to investigate these alerts until it admitted, without naming the Adani group, to having observed “unusual price movement” on 4 February 2023 after the Hindenburg report. The committee did not use these conclusions in its final report.
One of the four petitioners before the Supreme Court, Jaiswal, on 19 September 2023, filed an affidavit that questioned the antecedents of three committee members—Bhatt, Sundaresan, and Kamath.
‘Does Not Inspire Confidence’
Jaiswal, who seeks a court-monitored investigation by a special investigation team or by the Central Bureau of Investigation (CBI), against the Adani group companies, contended in her new affidavit that “there is an apprehension that the present expert committee would fail to inspire confidence among the people of the country”.
Jaiswal’s lawyer and advocate-on-record at the Supreme Court, Ramesh Kumar Mishra, told Article 14 that the affidavit not only raised concerns over conflict of interest but also the integrity of two of the three committee members.
“Although the affidavit does not mention this, the other main ground is that certain committee members may not be of impeccable integrity,” said Mishra.
Against Bhatt, the petitioner has two points of contention—his company’s dealing with the Adani Group and his examination by the CBI in a high-profile alleged loan default.
Bhatt is the chairman of Greenko Group, one of the largest renewable energy companies in India with assets spread across 15 states. In March 2022, Bhatt’s company signed a deal with the Adani Group to supply 1 gigawatt of power to an Adani industrial complex.
Jaiswal’s affidavit to the court attached a copy of Greenko’s press release about the deal. “The above shows clear conflict of interest of Mr. O.P. Bhatt which in the respectful submission of the petitioner ought to have been pointed out by Mr. Bhatt himself,” said the affidavit.
Her petition also alleged that during Bhatt’s tenure as chairman of India’s largest nationalised bank, the State Bank of India, from 2006 to 2011, a majority of loans were disbursed to fugitive economic offender Vijay Mallya’s companies.
The former liquor baron is accused of defrauding banks, including the SBI, of US $1.2 billion.
“Mr. O.P. Bhatt was examined by the CBI in March 2018 in a case of alleged wrongdoing in disbursing loans [to Mallya],” Jaiswal stated.
The CBI alleged that the SBI-led consortium of lenders did not conduct any “forensic audit” despite being aware of the “poor financial health” of Mallya’s companies. The agency had alleged that their investigation had shown loans were given on the pretext of “promises” and “imaginary claims” made by the Mallya.
Mallya’s case is currently active, making Bhatt vulnerable to the government’s law enforcement agency at a time when Modi’s government is accused of “weaponising” agencies against dissenters, critics, and anyone who might come in conflict with the interests of his close associates, such as Adani.
‘An Issue Of Integrity’
Against Kamath, Jaiswal referred to his role in what is called the ICICI Bank Fraud case. The case involves Chanda Kochhar, former chief executive officer and managing director of the bank from 2009 to 2018, and her husband Deepak Kochhar, a wind energy entrepreneur.
The Kochhars were arrested on 23 December 2022 by the CBI for alleged irregularities in loans provided to Venugopal Dhoot’s Videocon Group. The couple is accused of receiving kickbacks in exchange for these loans, which later turned into non-performing assets (NPAs), causing losses to the bank.
Chanda Kochhar's role in approving these loans while she was a member of the committee is under scrutiny, and the Kochhars have denied any wrongdoing.
Kamath’s name also appears in a 2019 CBI FIR in the fraud case. He was the chairman of the ICICI Bank from 1996 to 2009. In 2020, the All India Bank Employees' Association alleged that some loans given to the Videocon Group were approved by a committee with Kamath, who was non-executive chairman of the bank, on it.
With Kamath, Jaiswal’s affidavit has referred to a conflict of interest. “The question is not of conflict of interest here but of integrity,” said Mishra, Jaiswal’s lawyer.
The last person on the list is Sundaresan. Jaiswal accused him of representing Adani Group before “various forums” including the SEBI Board. Her affidavit quotes a 1 September 2006 order passed by the SEBI Board, showing Sundaresan as having appeared for the conglomerate.
Jaiswal sought the replacement of the expert committee with a new committee “consisting of experts from the field of finance, law and stock market, who have impeccable integrity and who have no conflict of interest in the outcome of the instant matter”.
Other Conflicts of Interest
Jaiswal had filed another affidavit on 11 September 2023, after the OCCRP report was published. Quoting the report, she alleged that the SEBI has a “conflict of interest” in investigating the Adani Group.
She alleged that the SEBI amended its regulations in order to “shield” the Adani Group from regulatory contraventions and price manipulations.
One of the allegations is that in 2014, the Directorate of Revenue Intelligence (DRI) investigated the overvaluation of import of equipment and machinery by Adani Group entities from a subsidiary based in the United Arab Emirates.
The DRI reportedly sent a letter to the then SEBI chairperson U K Sinha, alerting him to possible stock market manipulation by the Adani Group. The letter referred to the department’s investigation against the company for over-valuation of power plants and machinery it had purchased through a United Arab Emirates-based intermediary.
The DRI letter said a “substantial portion” of the approximately Rs 6,278 crore transferred to Mauritius “may have found its way back to the stock markets in India” and the Adani group. Hindenburg and OCCRP reports now corroborate these findings.
Jawal’s affidavit alleged that SEBI “suppressed and concealed” this information and failed to investigate the DRI’s alert, even though it was relevant to the Adani Group’s actions.
“It is shocking that SEBI has not disclosed the receipt of the said letter (DRI letter) and evidence from the DRI till date before this Hon’ble Court,” said the affidavit.
Sinha is now non-executive director of the news channel NDTV, which was acquired by the Adani group in 2022. Responding to these reports, Sinha, who had received two extensions of his tenure under Modi, had said that he did not “recollect the facts”.
“You should not expect me in all fairness to remember everything what happened nine years ago, given that I retired from SEBI six years ago,” Sinha told Scroll, when asked about the DRI letter.
Referring to SEBI’s August 2023 investigation status report to the Supreme Court, Jaiswal’s affidavit said that the regulator failed to disclose the findings of any of its 24 investigations in response to the Hindenburg report. SEBI’s investigation timeline excluded the period from October 2020 to January 2023, excluding crucial investigation periods from scrutiny.
Jaiswal’s affidavit also alleged a potential conflict of interest within SEBI’s investigative process: Cyril Shroff, managing partner of Cyril Amarchand Mangaldas (CAM) and whose daughter is married to Karan Adani, the son of Gautam Adani, has been a member of SEBI’s committee on corporate governance.
Given that this committee looks at offences that include insider trading and because five out of the 24 investigations by SEBI relate to insider trading accusations, Jaiswal said it “could create a conflict of interest in SEBI’s investigations into the Adani Group”.
Jaiswal’s affidavit cited several new documents from the OCCRP report, alleging that SEBI failed to trace the ultimate beneficial owners or economic interest shareholders of offshore funds that invested in Adani Group from 2013 to 2018.
On the last day of the hearing, the Supreme Court had set 14 August 2023 as the deadline for the SEBI to conclude its probe in the matter and submit its final report. The market regulator sought a 15-day extension, but instead submitted a status report on its probe on 25 August.
“Out of the 24 investigations, 22 are final in nature and two are interim in nature,” SEBI’s status report had said.
Since the second round of revelations by the OCCRP was published on 31 August and two new affidavits filed by Jaiswal since, the probe is likely to be delayed further. The Supreme Court is likely to hear the case on 13 October 2023.
(Saurav Das is an independent investigative journalist.)
Get exclusive access to new databases, expert analyses, weekly newsletters, book excerpts and new ideas on democracy, law and society in India. Subscribe to Article 14.