Five offshore funds that were named in the January 2023 Hindenburg Research report have reportedly approached the Securities Appellate Tribunal (SAT), challenging adjudication proceedings initiated by the Securities and Exchange Board of India (). The matter is scheduled to come up for hearing before the appellate tribunal on Friday, as per media reports.
The funds involved in the case are Albula Investment Fund, LTS Investment Fund, Cresta Fund, Asia Investment Corporation Mauritius and APMS Investment Fund. According to the reports, the funds have questioned SEBI’s decision to proceed with adjudication without providing the reasons that led to the initiation of the proceedings.
The legal challenge comes after SEBI issued show-cause notices to the funds last year in connection with alleged violations relating to disclosure requirements and investment limits. The regulator had sought clarifications from several offshore funds named in the report as part of its investigation into investment structures linked to companies, as reported.
Funds question basis of SEBI proceedings
According to media reports, all five funds have raised a common grievance before the tribunal. They argued that they had responded to SEBI’s initial show-cause notices but were subsequently not informed about the rationale behind the regulator’s decision to move ahead with adjudication proceedings.
The counsels representing the funds have sought a stay on SEBI’s adjudication process until the appellate tribunal decides the matter. Reports noted that the funds had specifically requested the reasons and material relied upon by the regulator for initiating the proceedings, but those details were allegedly not provided.
Reports added that without access to such material, the funds found it difficult to understand the basis on which adjudication proceedings were being pursued.
The plea filed before SAT has referred to Rules 4.3 and 4.4 of the SEBI Adjudication Rules. These provisions state that after a person or entity receives a show-cause notice and submits its response, the Adjudicating Officer must first consider the explanation provided. If the officer believes further scrutiny is necessary, an inquiry may then be initiated, the report informed.
SEBI had earlier alleged that certain offshore funds named in the Hindenburg report may have violated disclosure norms as well as prescribed investment limits. According to the regulator, while the funds disclosed their investments in Adani Group companies individually on a fund-by-fund basis, disclosure requirements were expected to be made on an aggregated basis at the offshore fund group level.
Hindenburg report vs Adani Group
The Adani-Hindenburg controversy traces back to January 2023, when US-based short seller Hindenburg Research published a report alleging stock manipulation and accounting irregularities within the Adani Group. The report triggered a sharp selloff in Adani Group stocks and sparked multiple regulatory and legal reviews.
The Adani Group strongly denied the allegations, describing the report as unfounded and malicious. Following the publication of the report, SEBI initiated investigations into various aspects of the allegations, including disclosures made by certain offshore funds that held investments in Adani Group companies.
The five offshore funds now before SAT were among the entities named in the Hindenburg report, which alleged that a network of offshore funds had significant exposure to Adani Group stocks. The latest legal challenge represents another development in the regulatory scrutiny and legal proceedings that have followed the publication of the report.
Disclaimer: This story is for educational purposes only. Please consult with an investment advisor before making any investment decisions.