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Six companies within the Adani Group have disclosed receiving show-cause notices from Securities and Exchange Board of India (Sebi), as per their recent filings with the stock exchanges. The notices were issued for suspected non-compliance with regulations related to related party transactions, listing rules, and the authenticity of auditor certificates.
According to an ET report by Reena Zachariah, Adani Enterprises, the group's flagship entity, revealed that it had been served with two such notices during the first quarter of this year, which concluded on March 31.
Similarly, other Adani Group companies, namely Adani Ports & Special Economic Zone, Adani Power, Adani Energy Solutions, Adani Wilmar , and Adani Total Gas, also reported receiving show-cause notices from the market regulator earlier this week.
These companies have stated that the show-cause notices issued by the Sebi are not expected to have a significant impact, according to the legal advice they have received. However, the auditors of most of these companies, except Adani Wilmar and Adani Total Gas, have expressed a qualified opinion in their reports. This suggests that the results of Sebi's investigation could potentially affect the financial statements of these companies in the future.
The auditors of Adani Enterprises, in their qualified opinion, stated, "... on account of pending adjudications/ outcome of the investigations by the Securities and Exchange Board of India and based on our review of related documents, we are unable to comment on the possible adjustments and /or disclosures, if any, that may be required to be made in the accompanying Statement in respect of this matter. We will continue to evaluate the impact of this matter on our opinion based on any changes in circumstances or additional information that may become available."
Sebi issued these notices following its investigation into the allegations made by Hindenburg Research, a US-based firm, against the Adani Group. It is important to note that a show-cause notice does not imply guilt or wrongdoing. Instead, it is a formal request for the entities to explain as to why legal action, including financial penalties, should not be taken against them based on the findings of the investigation.
Adani Ports and SEZ, in its disclosures, stated, "The allegations are that the company has not obtained the requisite approvals, and have not made the required disclosure in the financial statements/ annual report. Not recalling security deposits against terminated contracts leading to not using the funds for the company's core business purposes and thus not complying with the company's code of conduct."
According to Adani Power, it has responded to the notices issued by Sebi. The company revealed that the regulator claimed certain transactions were not properly reported in the relevant years' financial statements and that the necessary approvals for these transactions were not obtained.
In its August report submitted to the Supreme Court, Sebi disclosed that it was investigating 13 specific related party transactions that had been identified.
The Hindenburg Report, released in January 2023, mentioned more than 6,000 related party transactions and raised questions about their appropriateness.
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