The Timing Factor - SEBI Gives Adani A Clean Chit

In September 2025, the Adani Group successfully completed its agnipariksha (trial by fire) triggered by the Hindenburg report, with the Securities and Exchange Board of India ("SEBI") giving the Adani Group a clean chit in respect of the various allegations raised in the report.

The 2023 Hindenburg report, which was released by the Nathan Anderson backed Hindenburg Research firm, left the world divided. While some hailed the firm for exposing the purported irregularities committed by the Adani Group, others labelled it a malicious campaign against the Adani Group. The subsequent resignation of SEBI's chairperson, and eventual shut down of Nathan Anderson's business further fueled the political debate around the report.

In this article, we walk past the political controversy, and focus on SEBI's legal analysis in the twin orders and the aspects considered by it.

The Hindenburg report and its aftermath

On January 24, 2023, Hindenburg Research, a financial research firm and short seller based in the United States of America, had published a report titled 'Adani Group: How the world's third richest man is pulling the largest con in Corporate History'. In the report, the firm had alleged that the Adani Group was inter alia engaged in stock manipulation, accounting irregularities, forged documents, siphoned off funds and non-disclosure of related party transactions.

Upon its release, the report triggered a substantial decline in the shares of the Adani Group resulting in loss of investor wealth and volatility in the securities market. The magnitude of the allegations raised in the report and its widespread impact, eventually led to the Hon'ble Supreme Court of India taking cognizance of the matter and directing SEBI to probe into the allegations.

SEBI's investigation and the twin orders

While the Hindenburg report raised various allegations against the Adani Group, SEBI in its twin orders focused its investigation on the issue of non-disclosure of related party transactions/ money flows, broader controls critique and functioning of the shell companies. This was on account of the fact that the other allegations had been investigated and mostly completed as indicated by SEBI in its statement dated August 10, 2024.

Under the twin orders, SEBI while considering the transactions undertaken by the Adani Group noted that Adani Ports & Special Economic Zone Limited ("APSL") had transferred certain funds to Adicorp Enterprises Private Limited ("AEPL"). The said entity in turn transferred the same amount to Adani Power Limited ("APL") within the same/ next day. Similarly, AEPL and APL received funds from Milestone Tradelinks Private Limited and Rehvar Infrastructure Private Limited, which in turn majorly procured the said funds from related parties of AEPL and APL, including APSL.

SEBI's Whole Time Member analyzed whether these transactions, which took place between financial years 2012-2013 to 2020-2021 and financial years 2018-2019 to 2022-2023, can be classified as related party transactions under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("LODR"). SEBI also considered whether the Adani Group had devised any scheme or artifice to conceal related party transactions otherwise falling under the LODR Regulations.

In this regard, the Member considered the definition of 'related party' Section 2(76) of the Companies Act 2013, Clause 32 of the Listing Agreement and Clause (zb) of sub-regulation 1 of regulation (2) of the LODR Regulations. It also relied on the Indian Accounting Standards, Ind AS 18 and Ind AS 24. After analysing the same, SEBI clarified that the test for identifying a 'related party' is whether there is any control/ significant influence in decision making of one entity by another.

Applying the above test, the Member concluded that the transactions in question did not fall under the category of 'related party transactions' since APL was not a related party of AEPL or APSL.

The Member thereafter proceeded to consider the amended definition of a 'related party transaction' under clause (zc) of sub-regulation 1 of regulation (2) of the LODR Regulations which was substituted by the SEBI (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2021.

Pursuant to the amendment, the definition was revised to mean a transaction 'involving a transfer of resources, services or obligations between:

1. a listed entity or any of its subsidiaries on one hand and a related party of the listed entity or any of its subsidiaries on the other hand; or
2. a listed entity or any of its subsidiaries on one hand, and any other person or entity on the other hand, the purpose and effect of which is to benefit a related party of the listed entity or any of its subsidiaries, with effect from April 1, 2023'

Instead of the traditional definition which was earlier reflected in the LODR, this amendment seeks to analyse the 'purpose and effect' of the transaction and determines if the same is to benefit a related party of listed entity or any of its subsidiaries. This provision is similar to the UK Listing Rules dated 29 July 2024 and covers transactions which are in the nature of the transactions that were the subject matter of the present proceedings.

The Member however clarified that as specifically set out in the revised provision, this increased scope was effective from April 1, 2023 and not to transactions which took place prior to this period. Thus, in view of the applicable legal position at the time when the transactions in question took place, the Member concluded that the transactions in question cannot be categorised as related party transactions.

Basis the above, the Member proceeded to hold that the entities in question had not committed any violation of the LODR Regulations.

The shifting scales

As observed in SEBI's Working Group Report, the intent behind introducing clause (zc) of sub-regulation 1 of regulation (2) of the LODR Regulations was to address any 'innovative structures' adopted to avoid classification as 'related party transactions'. These include (i) use of complex structures; (ii) transactions undertaken between seemingly unrelated parties intended to benefit related parties; and (iii) loans being given to an unrelated party that in turn gives such loan to related party. Given this trend, the Working Group felt that there was a need to substantively review transactions and strengthen the law by expanding its ambit.

Subsequently, SEBI in its Board meeting held on September 28, 2021, proposed broadening of the definition of 'related party transactions' to include transactions between a listed entity/its subsidiaries with any other person/entity whose 'purpose and effect' was to benefit a related party of the listed entity/ its subsidiaries. This ultimately led to the Sixth Amendment in 2021.

While the Adani Group may have managed to come out unscathed from these proceedings, given the timing of the transactions in question, it would be interesting to see how SEBI tackles transactions which have been effected post April 1, 2023. Probably, an Adani-like instance would be covered within the contours of the revised provision. While one can only wait to see how SEBI proceeds on this aspect, one thing is clear, as the law finally catches up, all eyes will be on SEBI to see if its enforcement truly matches the clarity and reach of the new rules.

The views expressed in this article are the authors' personal views and do not reflect the views of AZB & Partners.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Urvashi Misra
AZB & Partners
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