New Delhi, July 15 -- Five foreign portfolio investors (FPIs), named in the Securities and Exchange Board of India's (SEBI) probe into holdings in Adani Group companies, may amend their appeal before the Securities Appellate Tribunal (SAT), after the tribunal on Wednesday accepted the market regulator's preliminary objections and suggested the FPIs revise their appeal.
The funds, named in the Hindenburg Research report, had approached SAT over SEBI's conduct of adjudication proceedings against them, arguing that they were not given adequate reasoning by the regulator for continuing with proceedings against them. However, SEBI refuted it.
Background
The five foreign funds, namely Albula Investment Fund, Asia Investment Corporation (Mauritius), LTS Investment Fund, Cresta Fund and APMS Investment Fund, were sent a show-cause notice by the market regulator.
According to people familiar with the matter, SEBI had examined the FPIs' holdings between March 2018 and December 2022 in Adani Group companies after the publication of the Hindenburg report. Following this, the regulator issued a show-cause notice alleging a breach of Section 20(7) of FPI Regulations and Operational Guidelines.
Section 20 (7) limits ownership by a single FPI or its investor group in a domestic listed company to below 10% of the latter's paid-up equity capital. If the FPI or its investor group exceeds this limit, it has to divest the excess holding in five trading days. If the divestment is not done in the set timeline, the investment is considered a foreign direct investment (FDI).
After issuing the show-cause notice, SEBI appointed an adjudicating officer, who asked the FPIs to explain why action should not be taken against them for the violations alleged in the show-cause notice. Under Section 4(3) of the Sebi (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, if the officer - after considering the reason given by an entity under investigation - finds an inquiry should take place, a date is fixed for a personal hearing.
The officer, in this case, decided to continue with the proceedings, asking the FPIs to appear for a hearing.
In May this year, the FPIs appealed to SAT, seeking to know the officer's reasons for continuing the proceedings.
Ahead of the SAT hearing, SEBI provided an extract of the officer's opinion.
However, on Wednesday, the day of the hearing of the appeal, the FPIs argued that the officer's answer did not qualify as an opinion and merely reproduced the show-cause notice. According to the FPIs' submissions, their defence, given as replies to the show-cause notice, was not considered for the officer's opinion.
In response, SEBI raised two preliminary objections. First, it said that only an order issued by the officer can be appealed under Section 15(t), while an officer's opinion formed under Section 4(3) can't be. Second, it said that it had already provided a paraphrased version of the officer's opinion.
The regulator said that as a matter of policy it does not share file notings, which record an officer's opinion in detail, and that's why it had shared a paraphrased version. It also argued that whether the opinion was "right, wrong or meets the parameters of 4(3)" is not the subject matter of the appeal.
Further, it said that after receiving the officer's opinion, the FPIs were attempting to expand the scope of their appeal.
The next hearing on the matter is scheduled for the first week of August.
Published by HT Digital Content Services with permission from VC Circle.