Adani-Hindenburg PILs: SEBI Responds To Expert Committee's Report
The Expert Committee has expressed certain interpretations of facts and law which has a bearing on the investigation, SEBI says.
The Securities and Exchange Board of India has expressed its views and observations on the Expert Committee report in the Adani Group-Hindenburg Research matter.
The market regulator has said that the Expert Committee has expressed certain interpretations of facts and law in the report which has a bearing on the ongoing investigation. The regulator has clarified that the submissions made before the Expert Committee were based on the prima facie facts available to SEBI as on the date of submission and not based on the application of law on facts found out on completed examination.
The regulator has also tackled specific suggestions of the committee on regulatory approaches regarding Related Party Transaction norms.
To recap, the committee had highlighted that once SEBI has adopted an approach while formulating rules or regulations, it cannot change the underlying approach prospectively and then call into question past transactions based on the former approach.
To this, the regulator has responded saying its securities laws bar "schemes" and "artifices" designed to circumvent the regulations. Once the definition is refined to address a circumvention, applying the provision barring "schemes" and "artifices" to the situation when the definition was narrow and test a violation is legally justified.
"In such a case, the law as applicable at the relevant point of time is applied and no retrospective application of refined or explicit stipulation is applied retrospectively." - SEBI's response
The Expert Committee had also raised a question regarding burdening an arm's length business relationship as a Related Party Transaction for no reason other than having been a long-standing relationship.
In its response, SEBI said that long associations can impair independence as an underlying principle. By itself, this won't make the entities 'related parties'. But if a scheme to circumvent regulations is identified, then the presence of a long-standing relationship in such a scheme can lend credence to the allegation of violation.
Another key area where the regulator has responded to the committee's suggestions pertains to identifying 'opaque structures'.
The report of the Expert Committee had suggested that the regulator's doing away with the 2014 regulations on 'opaque structures' was partly the reason why SEBI is finding it difficult to identify holders of economic interest.
The market regulator has clarified that the 2019 Foreign Portfolio Investors Regulations tightened the beneficial owner disclosure requirements, which rendered the opaque structures clause redundant. The issue, it said, primarily arose from the existence of thresholds for determining beneficial owners.
Since granular details of all underlying investors with ownership, economic, or control interest in entities below the threshold was never required to be made available to the DDP/Custodian, there was a possibility that the same natural person could hold a significant aggregate economic interest in the FPI via different investing entities, each of which were individually below the threshold for identification as a beneficial owner. - SEBI's response
Besides RPTs and FPI norms, SEBI has also placed on record its responses on suggestions relating to judicial discipline, enforcement and settlements.
It has said that:
Regulatory action is always basis existing securities law.
New facts, which were previously unknown, are also actioned against basis existing framework.
Whole-time members and Adjudicating Officers are independent authorities. Ordinarily, decisions by one WTM/AO are followed by others. Except in cases "where the latter authority does not agree with the ratio laid down by the former as it has no precedential value".
Violations of securities laws demand prompt action so as to limit the negative impact on the market. If SEBI is asked to always follow the law laid down by SAT in subsequent cases, and the apex court later overturns the SAT order, the regulator won't be able to take belated action against violators. Grave injustice may be caused if SEBI is asked to always follow the ratio laid down by SAT.
Nature, scope and complexity of cases in securities markets vary. Hence, it may not be appropriate to prescribe timelines for disposal of settlement proceedings.
A documented enforcement manual is applicable to all proceedings. Enforcement manual has been amended on multiple occasions to ensure optimal use of available regulatory resources.
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