Adani-Hindenburg saga far from over: Five offshore funds challenge SEBI before SAT

More than three years after the Hindenburg Research report triggered one of the biggest market controversies in recent Indian corporate history, five offshore investment funds have approached the Securities Appellate Tribunal (SAT), questioning the manner in which market regulator SEBI has pursued proceedings against them.

The funds — Albula Investment Fund, LTS Investment Fund, Cresta Fund, Asia Investment Corporation Mauritius and APMS Investment Fund — have challenged adjudication proceedings initiated by the Securities and Exchange Board of India (SEBI). The matter is expected to be heard by SAT on Friday. The dispute centres not on the original allegations themselves, but on whether the regulator adequately explained the basis for moving from preliminary notices to formal adjudication.

According to legal filings cited in reports, the funds contend that they had responded to SEBI's show-cause notices issued during the regulator's investigation into offshore investments linked to Adani Group companies. However, they argue that they were subsequently not provided with the reasons or supporting material that prompted SEBI to proceed with adjudication proceedings. The funds have sought interim relief from the tribunal, requesting that the ongoing adjudication process be paused until their challenge is decided.

At the heart of the dispute is a question of procedural fairness. The funds have referred to provisions under the SEBI Adjudication Rules that require an adjudicating officer to consider a response submitted by a noticee before deciding whether a deeper inquiry is warranted. Their argument is that without access to the reasoning and evidence relied upon by the regulator, they are unable to effectively defend themselves or understand the precise basis of the proceedings.

The case is rooted in the wider regulatory scrutiny that followed the publication of the Hindenburg Research report in January 2023. The report alleged stock manipulation and accounting irregularities involving the Adani Group and drew attention to several offshore entities that held significant positions in Adani companies. The allegations triggered a sharp market reaction and prompted multiple investigations by regulators and courts.

SEBI's subsequent examination included questions around disclosure norms and investment concentration limits applicable to offshore funds. The regulator has previously indicated concerns that some investment disclosures may have been made at the individual fund level rather than on an aggregated group basis, potentially raising compliance issues under securities regulations.

While the Adani Group has consistently denied the allegations made in the Hindenburg report, describing them as baseless and motivated, the regulatory and legal fallout from the episode continues to generate fresh developments. The latest challenge before SAT could become an important test of procedural safeguards in securities enforcement actions, particularly regarding the extent to which regulators must disclose the rationale behind advancing investigations into formal adjudication.

The tribunal's decision may not determine the underlying allegations, but it could shape how future enforcement proceedings are conducted and how much information regulators are required to share with entities facing scrutiny. As the long-running Adani-Hindenburg saga evolves, the focus has now shifted from market allegations to questions of regulatory process and due procedure.