Adani FPI Probe Enters New Phase As SEBI Rejects All 13 Settlement Applications

India's markets regulator has rejected settlement applications filed by 13 foreign portfolio investors that held significant stakes in listed Adani Group companies, after the funds' proposed terms failed to meet Securities and Exchange Board of India’s (SEBI) requirements, people familiar with the matter said. The regulator communicated the decision to the foreign portfolio investors’ (FPIs) representatives last week.

The rejection revives a case that dates to October 2020, when SEBI's surveillance systems first flagged the unusual concentration of these funds' holdings in Adani Group stocks.

Why The Applications Were Turned Down

Two separate sticking points prevented a settlement:

• Several FPIs were unwilling to disclose information SEBI considered a precondition for any resolution.

• Some FPIs resisted demands to disgorge amounts running into hundreds of crores that SEBI had sought at a joint meeting.

In its communication to the funds, SEBI said the terms were not in line with those it had suggested and that the High-Powered Advisory Committee on Settlement Orders' recommendation to reject the applications was accepted by a panel of whole-time members under Regulation 15(1) of the Settlement Regulations 2018.

The 13 Funds Named

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.

The Background

The probe gained global attention after Hindenburg Research's January 2023 short-sale report accused the Adani Group of round-tripping and market manipulation. Adani Group pushed back against every claim in the report.

The 13 FPIs filed settlement applications in April 2024 after receiving show-cause notices under two tracks. One notice questioned why their FPI registrations should not be cancelled, while the other sought fines for securities law breaches.

With the applications now rejected, SEBI will continue legal proceedings against the funds. However, the regulator is also planning to revise its settlement rules to allow rejected applicants to reapply if circumstances change, at a cost of an additional 20% on top of the settlement amount, potentially giving these funds another route to resolution.

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