India’s capital markets regulator has turned down settlement proposals from foreign portfolio investors (FPIs) that had held significant stakes in listed Adani Group companies. The FPIs’ proposals failed to match the terms put forward by the Securities and Exchange Board of India (SEBI), according to a report by The Economic Times.
The report further stated that the regulator communicated its decision to the FPIs’ representatives last week, reviving a case dating back to October 2020, when SEBI’s surveillance systems first flagged the unusual concentration of their holdings. SEBI’s investigation had flagged 13 FPIs. They subsequently sought to settle the case.
Why did SEBI turn down Adani-linked FPIs’ settlement applications?
“The terms were not in line with the settlement terms suggested by SEBI. Therefore, SEBI rejected the application,” the regulator said in its communication to the FPIs. “This recommendation (rejection of the application) of HPAC (high-powered advisory committee on settlement orders) was accepted by the panel of whole-time members in terms of regulation 15(1) of the Settlement Regulations, 2018,” according to ET.
SEBI settlement depends on full disclosure as FPIs resist sharing key details
Further, the report, citing one of the people aware of the matter at the centre of the standoff, noted the reluctance of some FPIs to disclose information SEBI considered essential to any settlement fully. “You have to come clean if you want to settle a case. However, some FPIs were unwilling to provide certain details to SEBI, which was a precondition for settlement.” “Entities must first agree to the non-monetary terms.”
The 13 FPIs are Albula Investment Fund, Cresta Fund, MGC Fund, Asia Investment Corporation (Mauritius), APMS Investment Fund, Elara India Opportunities Fund, Vespera Fund, LTS Investment Fund, Emerging India Focus Funds, EM Resurgent Fund, Polus Global Fund, New Leaina Investments and Opal Investments.
How SEBI settlement works…
Settlement is a common way for entities facing securities law violations in India to resolve such cases, one that lets them resolve disputes without admitting or denying wrongdoing. An applicant proposes terms to SEBI, which reviews the application and counters with its own, typically a monetary settlement amount, and sometimes non-monetary conditions such as trading bans. The two sides negotiate, and the final proposal goes to SEBI’s high-powered advisory committee, led by a former High Court judge, for approval or rejection.
Multiple settlement applications filed after SEBI notices on FPI registrations, violations
According to the ET report, the funds filed multiple settlement applications in April 2024 after SEBI issued show-cause notices to them under two separate tracks – one questioning why their FPI registrations should not be cancelled, and the other seeking to fine them for breaches of securities law. It could not be ascertained which applications were turned down.
The regulator’s original concern was whether these FPIs were genuine public shareholders or fronts for the Adani Group’s own promoters.
The probe drew global attention after Hindenburg Research, in a January 2023 report, accused the Adani Group of round-tripping and market manipulation. The allegations triggered a sharp sell-off in Adani stocks, which the conglomerate denied.
When the Supreme Court disposed of the PILs in January 2024, it directed SEBI to bring its investigations to a “logical conclusion in accordance with law.”
SEBI may revise settlement rules, giving rejected applicants another opportunity to resolve cases
The door may not remain closed for long. SEBI is considering changes to its settlement rules that could allow applicants whose proposals were rejected to seek another opportunity to resolve their cases, potentially including the FPIs involved in the Adani matter, according to the report.
