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May 3, 2024

Adani Group Under Sebi Scrutiny: Show-Cause Notices Raise Concerns Over Related Party Transactions

The Adani Group, a prominent conglomerate in India, is facing scrutiny from the Securities and Exchange Board of India (Sebi), with six of its firms receiving show-cause notices over alleged breaches in related party transactions and non-compliance with listing regulations.

During the quarter ending on March 31, Adani Enterprises, the flagship company of Gautam Adani’s business empire, disclosed the receipt of two show-cause notices. Additionally, other firms within the group, such as Adani Ports & Special Economic Zone, Adani Power, Adani Energy Solutions, Adani Wilmar, and Adani Total Gas, have also notified the bourses about Sebi’s recent inquiries.

While the companies have sought to downplay the impact of the regulatory notices, auditors, except for those of Adani Wilmar and Adani Total Gas, have adopted a cautious stance, issuing qualified opinions. This caution stems from the uncertainty surrounding Sebi’s investigations and the potential implications for future financial disclosures.

In a statement, auditors of Adani Enterprises expressed their inability to comment on possible adjustments or disclosures required in relation to the matter until the conclusion of Sebi’s investigations. The uncertainty surrounding the outcome of these investigations could influence their opinion on the financial statements.

Sebi’s scrutiny follows an investigation triggered by allegations made by US-based Hindenburg Research. It is important to note that receiving a show-cause notice does not imply guilt but rather prompts entities to provide explanations to avoid potential legal action, including monetary penalties.

Sebi, in its August report to the Supreme Court, identified 13 specific related party transactions under investigation, echoing concerns highlighted by the Hindenburg Report. The report raised questions about the appropriateness of over 6,000 related party transactions, casting doubt on the transparency and integrity of the Adani Group’s operations.

The ongoing scrutiny by Sebi has raised concerns among investors and stakeholders about the governance practices within the Adani Group. The conglomerate, which has seen rapid expansion in recent years across various sectors including energy, ports, and infrastructure, now faces a critical test in restoring investor confidence amidst regulatory challenges.

Gautam Adani, the chairman of the group, has reiterated the company’s commitment to compliance and cooperation with regulatory authorities. However, the outcome of Sebi’s investigations and the subsequent actions could have significant ramifications for the group’s reputation and market standing.

As the investigations unfold, investors and analysts will closely monitor developments within the Adani Group, particularly regarding any potential sanctions or changes in regulatory compliance practices. Transparency and adherence to governance norms will be key factors in navigating through this challenging period for one of India’s leading corporate entities.

Jhumpa Lahiri

Jhumpa Lahiri

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