JN Gupta

The report of the Supreme Court-appointed committee has effectively diffused all the time-bombs that were waiting to explode and bring the Adani group down. Unfortunately, such diffusion does not bring any solace to investors—as stocks will take time to come back to their previous level, if at all they do. The committee acknowledges that no violation has been established, and concludes in para 103 that Adani shares have only partially recouped their loss—because market gives weightage to compliance in spirit as well. This is what good governance means. However, till date, even the violation of the spirit of the law has not been established, and investigations are based on suspicion only. Two questions arise: What is the threshold of suspicion, and how long can the sword hang? Can it hang indefinitely? As the panel has itself has stated, based on SC cases, investigations must have an expiry period. The present share prices don’t reflect the hangover of governance issues. They largely reflect the setback to growth that the group now suffers. One cannot simply turn the clock back and say, “Ok, we go back to pre-Hindenburg report.” A damage has been caused to Adani and its investors, as well as to the growth momentum of the sectors where Adani was present—unless, of course, someone else invests in those sectors. Even so, the benefits of scale will be lost.

The committee, while unequivocally stating that it has not found any regulatory failure at Sebi’s end, observes in paragraphs 59 and 60 that law and enforcement at Sebi is akin to the chicken-and-egg story—where even though no illegality has been found, investigation is continuing based on suspicion. One can only sympathise with Sebi, as pressure from all sides makes it extra-cautious—”Caesar’s wife must be above suspicion.” This, while fully knowing that, based on violation—if any—of the spirit of the law, no court of law will ever penalize any entity. This results in an extra workload as it also puts avoidable pressure on Sebi. ‘Spirit of law’ violations are penalized by investors through their vote, and Sebi must aim to increase investor participation and awareness.

The committee has concluded that, as per the existing law, nothing has been established to conclude any violation of minimum public shareholding (MPS) norms. Yet, suspicion remains, and is being investigated. In paragraph 62a, Sebi says that holding of 13 entities need not qualify as public holding. When all this is based on suspicion, the appropriate word would be “may”. However, in para 62 (g&h), it says the Hindenburg report has added to the suspicion of Sebi, while concluding that no prima facie evidence is there.

The report, in Para 94a, concludes that the allegation of non-disclosures of related party transactions (RPTs) is not maintainable. While various citing laws, it makes an interesting point that, unless specifically prohibited, human ingenuity is allowed and does not result in violation. While the legal position may be acceptable, for a governance practitioner, any ingenuity that is unfair to stakeholders or cuts corners with regards to the provisions of law is an absolute no-no.

The report conclusively proves that Sebi, in its investigation from three years before the Hindenburg report (HBR) and after the report being made public, did not find any price manipulation or suspicious trade, except a few trades just before the HBR.

We read statements like “State Bank will sink” or “LIC will go bust” or Adani will run away like Mallya or Nirav Modi. SBI has the largest customer-base in the world and LIC probably has the maximum life policies in operation. What message did we give to their stakeholders? If tomorrow they lose business, who will own up to this?

Effectively, the committee didn’t find any truth in any allegation—yet, a lot of damage has been caused to all stakeholders. A basic premise of accepting any third-party opinion is that it must be without any bias or motive. In this case, HBR had a clear-cut motive; Yet, everyone accepted it as the gospel truth, not realising that everything that HBR claimed was already in the public domain. Our political class created a robust ghost, not realizing negative impact of the ghost. The Adani group has many employees and millions of investors. The support to HBR caused irreversible damage to Adani, and withdrawal of credit support by a bank that itself went belly up a few weeks later. All this will impact employees and investors. While business-politics nexus is undesirable, in India, can businesses operate in isolation? In fact, can any business survive if it aligns with the ruling party? What if there is a change in dispensation? Business is not to be shunned, as it is the engine for growth.

‘Once bitten, twice shy’ and ‘Caesar’s wife must be above suspicion’ are the two mantras the Adani group should follow, via a deep dive into all issues relating to governance. Lastly, a question to politicians and a poser for law-makers—will political parties compensate investors for their loss? Can Sebi find fault with political parties under its Prohibition of Fraudulent and Unfair Trade Practices norms? Probably not. Can investors then file class action suits against politicians?

(The author is Managing Director, Stakeholders Empowerment Services.)

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