SEBI Issues Show Cause Notice To Adani Group Over Alleged Misclassification Of Public Shareholders; Details

The Securities and Exchange Board of India (Sebi) has issued a show-cause notice to the Adani Group for allegedly misclassifying certain investors as public shareholders. This disclosure was made by Adani Energy Solutions in its quarterly results for the September quarter, filed on Tuesday, October 22. According to the filing, the notice was received during the September quarter, though the company did not provide further specifics.

The notice alleges that Adani Group wrongly categorized the shareholding of certain entities as part of its public shareholding. In response, Adani Energy Solutions stated, "During the current quarter, a show-cause notice (SCN) has been received alleging wrongful categorization of shareholding of certain entities as public shareholding and consequences therefrom." The company further emphasized that it plans to cooperate with regulatory and statutory authorities by submitting the necessary information, documents, and clarifications in due time.

Despite the notice, Adani Energy Solutions reassured stakeholders by stating that, based on legal advice and an accounting review undertaken by the Adani Group, there are no additional regulatory actions against the company, aside from two pending show-cause notices. One of these notices pertains to the investor classification issue, while the other was received in the March quarter, questioning the validity of peer review certificates issued by the company's statutory auditors. The latter issue remains unresolved.

Adani Energy Solutions also addressed the ongoing impact of the Hindenburg report in its quarterly results. The company reiterated its stance, noting, "The management of the company concluded that there were no material consequences of the SSR (Hindenburg report), and the company continues to hold its position as regards compliance with applicable laws and regulations."

The controversy stems from allegations made by US-based short-seller Hindenburg Research in January 2023. The report accused Adani Group entities of violating the Minimum Public Shareholding (MPS) norms, claiming that certain foreign funds holding stakes in Adani Group companies had ties to the promoter entities. Adani Group has consistently denied these allegations.

Under Sebi's rules, every listed company must ensure that at least 25% of its equity is owned by public shareholders. Any holdings by entities, including foreign portfolio investors, that have links to the promoter group are required to be reclassified as promoter holdings.