Bans from trading, seizure of assets. How US indictment opens door for SEBI legal action against Adanis

Indictment says Adani Group made 'false & misleading' statements to media & Indian stock exchanges. SEBI’s regulations have several provisions regarding such potential breaches.

File photo of SEBI HQ in Mumbai | Reuters

New Delhi: The US Department of Justice indictment against Gautam Adani and others has opened the doors for the Securities and Exchange Board of India (SEBI) to potentially take strict action against them, including suspending the trading of Adani Group stocks, banning the executives of the company from accessing the stock market, and seizing some of their assets.

According to the indictment, the Adani Group and its subsidiary Adani Green Energy—listed on Indian stock exchanges—allegedly violated fair practice norms laid out by the SEBI by “falsely” stating in the media and in stock exchange filings that it had no knowledge of a US investigation into Gautam Adani, and that it had received no communications from the American authorities regarding this.

The Indian market watchdog has two broad regulations that deal with fair practice norms and disclosure requirements—the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Between them, the regulations prescribe what constitute unfair trade practices, violations of the disclosure norms, and the penalties for these actions.

ThePrint has reached out to SEBI for comment. This report will be updated as and when a reply is received.

A search warrant & grand jury subpoena

According to the indictment, Federal Bureau of Investigation (FBI) special agents on 17 March 2023 approached Sagar Adani, an executive director of Adani Green Energy and nephew of Adani Group chairman Gautam Adani. They provided him a copy of a judicially authorised search warrant and a grand jury subpoena and took into their custody Sagar Adani’s electronic devices.

A subpoena is basically a writ ordering a person to appear in court.

“The search warrant identified offences, individuals and entities under investigation by the United States government, specifically: violations of the FCPA (Foreign Corrupt Practices Act), securities fraud, wire fraud and related conspiracies involving Sagar R. Adani and the defendants Gautam S. Adani and Vneet S. Jain (MD and CEO of Adani Green Energy), as well as the Indian energy company (Adani Green Energy),” the indictment read.

It added that the search warrant also included details of evidence “related to the payment of or an offer to pay, bribes, kickbacks or provide or offer to provide any other thing of value to Indian government officials in order to obtain or retain business advantages”.

The next day, 18 March 2023, the indictment said, Gautam Adani allegedly emailed himself photographs of each page of the search warrant and grand jury subpoena on Sagar Adani.

‘False & misleading statements’

These details assume significance because of the Adani Group’s subsequent statements to the media and to India’s stock exchanges.

The indictment, in particular, took note of a news report by Bloomberg, published on 15 March 2024—about a year after the search warrant and subpoena were issued—in which the Adani Group was quoted as saying: “We are not aware of any investigation against our chairman”.

This statement in the media by the Adani Group could itself potentially breach SEBI’s unfair trade practises norms, securities law experts said.

According to the norms, a person would be in violation of the norms if, among other things, they are “disseminating information or advice through any media, whether physical or digital, which the disseminator knows to be false or misleading in a reckless or careless manner and which is designed to, or likely to influence the decision of investors dealing in securities”.

However, a breach of this particular rule could hinge on whether the company was being “reckless or careless”, the experts explained.

On the other hand, the indictment mentions a further breach that would be more cut-and-dried under Indian regulations.

In response to a query regarding the Bloomberg story from the stock exchanges, Adani Green Energy on 19 March 2024 informed the exchanges that “it has not received any notice from the Department of Justice of U.S. in respect of the allegation referred to in the said article”. This filing is publicly available on the stock exchanges and easily verifiable.

Now, according to the fair practices rules, this could entail “knowingly publishing or causing to publish or reporting or causing to report by a person dealing in securities any information [relating to securities, including financial results, financial statements, mergers and acquisitions, regulatory approvals,] which is not true or which he does not believe to be true prior to or in the course of dealing in securities”. This, too, would be a violation of the rules.

Finally, Section 30 of the Listing Obligations and Disclosure Requirements regulations says “every listed entity shall make disclosures of any events or information which, in the opinion of the board of directors of the listed company, is material”.

The securities law experts say that a search warrant and grand jury subpoena against an executive director of a company, seeking further evidence of potential criminality by the group chairman, would “certainly have constituted material information”, and so should have been disclosed when it happened.

“In furtherance of the Fraud Scheme, in connection with the publication of a news article regarding the United States government’s investigation of the Bribery Scheme, the defendants Gautam S. Adani and Sagar R. Adani made or caused other conglomerate personnel to make false and misleading statements about the Indian Energy Company’s awareness of the United States government’s investigation and the Indian energy company’s anti-bribery practices,” the indictment said.

Potential bans from the stock market

Under the fair practices rules, the SEBI board, chairperson, or executive director can launch an investigation into whether “any intermediary or any person associated with the securities market has violated any of the provisions of the Act or the rules or the regulations”.

Following the investigation and the submission of the report, the SEBI board can, after providing the potential violator “a reasonable opportunity of hearing”, issue an official summons or notice to the violator. Following this, the board can then either issue a warning or censure, suspend the registration of the company, or even cancel the registration of the company.

In other words, the penalty could extend to a temporary or even permanent ban from the stock markets.

In addition, the law empowers the SEBI board to take suo motu action—without waiting for the investigation—to suspend the trading of a security that has been found to be “involved in fraudulent and unfair trade practice” in a recognised stock exchange.

This suo motu action also includes restraining people from accessing the securities market and prohibiting any person associated with the market to buy, sell or deal in securities.

The SEBI can also “impound and retain the proceeds or securities in respect of any transaction which is in violation or prima facie in violation of these regulations”.

(Edited by Tony Rai)