INTRODUCTION
Hindenburg is a forensic financial research firm that analyses derivatives, credit, and equity. It was founded in 2017 by Nathan Anderson. On the other hand, Gautam Adani, a native of Gujarat in western India, began as a commodities trader before establishing his empire. The Hindenburg Research analysis came barely two days before Adani Enterprises’ Rs 20,000-crore FPO launch. Adani was the third-richest man in the world until last report made by Hindenburg, but due to the collapse in the value of the Adani group’s equities, he has fallen to number 20thon the Forbes rich list.
HINDENBURG REPORT
An investor research and activist short-seller company located in the US named Hindenburg Research published a report containing 106 pages on January 24, 2023, alleging that the Adani Group had participated in market manipulation and accounting malfeasance over a period of many decades. The Adani Group firms had a dramatic decline as a result of this report by Hindenburg, which sparked fear among local investors.Adani family members were charged in the Hindenburg Research Report with setting up and overseeing “a massive labyrinth of offshore shell firms” in tax havens including Mauritius, Cyprus, and the UAE. Several of these organizations, according to the investigation, were used in market manipulation. It listed 38 Mauritius-based companies that billionaire Gautam Adani’s older brother Vinod Adani and his close friend’s controlled.The Directorate of Revenue Intelligence (DRI) investigated overbilling for coal imports involving other Indian businesses and public sector organizations, according to the Hindenburg report. Some of the group entities, such as Adani Enterprises and Adani Total Gas, were audited by a small firm with only four partners and 11 employees. Hindenburg claimed that even if investors ignore the findings of its investigation and take the financials of the Adani group at face value, the seven listed firms of the Adani group have an 85% downside just on a fundamental basis owing to exorbitant prices.
RESPONSE ON THE REPORT BY ADANI GROUP
The Adani Group, led by billionaire Gautam Adani, has reacted in 413 pages to Hindenburg Research’s 106-page analysis, stating that the claims levelled by the “Madoffs of Manhattan” are “nothing but a fabrication” and that the report is neither “independent,” “objective,” or “completely researched.”
The organization argued that Hindenburg, located in New York, was a “unethical short seller” who would only benefit from the subsequent drop in share prices. “Hindenburg held “short positions,” and in order to manipulate and lower the share price in order to earn an erroneous profit, Hindenburg issued a document. As a result, a phony market developed. The survey asks “88 questions,” 65 of which are about data stored by Adani Portfolio firms. Disclosed in their annual reports, which are available on their websites along with additional papers such as financial statements, memorandums, and stock exchange filings on occasion.It states that the other 23 questions are separated into 18 that concern public shareholders and other parties (rather than Adani portfolio enterprises), and the remaining 5 are false charges based on “imaginary fact patterns.”
By the Friday market close, the Adani Group’s market valuation had dropped by more over 3.86 lakh crore, following the downward trend that has been in place since the release of the Hindenburg report on January 24.According to the Adani group, Hindenburg is a company “without integrity or ethics” that has had a “significant and unprecedented detrimental impact” on its investors. The organization believes that this is a “calculated attack on India,” referring to the independence, integrity, and excellence of Indian institutions, as well as the country’s ambition and growth narrative.
HINDERBURG REBUTTAL ON THE RESPONSE OF ADANI GROUP
According to the reply, Adani’s answer does not address any of the substantial issues mentioned in the study. Rather, Adani has “stoked a nationalist narrative” that aims to connect the company’s “meteoric ascent and fortune of its Chairman, Gautam Adani, with India’s prosperity,” according to the reply.
“In terms of content, Adani’s ‘413-page’ answer had just roughly 30 pages devoted to problems raised in our study.”The rest of the response included 330 pages of court documents, 53 pages of high-level financials, general information, and details on unrelated company activities, such as how it fosters female entrepreneurship and the cultivation of healthy veggies,” Hindenburg stated. Among the problems addressed was the fact that “Adani’s response generally validated our findings while ignoring our critical queries,” according to the report.
Hindenburg has stated that it is continuing its investigation into the Adani Group and will update its list of complaints in the coming days. Adani, on the other side, has threatened legal action to safeguard its own and its investors’ interests.
WHAT DID SUPREME COURT SAY ON THE CONTROVERSY?
The Supreme Court of India on Monday rejected to take into account a petitioner’s recommendation and a Forbes article in a batch of PILs on the recent Adani Group share drop prompted by Hindenburg Research’s fraud claims.
A Bench consisting of Chief Justice D.Y. Chandrachud, Justices P.S. Narasimha and J.B. Pardiwala, refused the request made by one of the lawyer appearing for the petitioner.
On February 10, the Supreme Court stated that the interests of Indian investors must be safeguarded against market volatility in the aftermath of the Adani Group stock rout and asked the Centre to consider forming a panel of domain experts led by a former judge to investigate ways to strengthen the regulatory mechanism.
On February 17, the Supreme Court rejected to accept the Centre’s proposal for a panel of experts to improve regulatory measures for the stock market under a sealed cover. It stated that it would prefer not to accept the Centre’s recommendation under a sealed cover because it wants to retain full transparency in the interests of investors. “We will not accept your sealed cover suggestion by you because we want complete transperancy,” the bench stated.
Adani Group shares have plummeted on the bourses after Hindenburg Research levelled a slew of claims against the corporate giant, including illegal transactions and share-price manipulation.
Thus far, four PILs have been filed in the Supreme Court on the subject by lawyer M L Sharma and Vishal Tiwari, Congress politician Jaya Thakur, and activist Mukesh Kumar. The Adani Group has denied the allegations, claiming that it complies with all regulations and transparency obligations.
CONCLUSION
It’s tough to dismiss the Hindenburg report. They claim to have worked for three years, interviewed hundreds of people, including former Adani Group employees, analysed thousands of papers from throughout the world, and the final study is pretty lengthy.
The stock market continues to respond to news updates from both sides as the tale unfolds. It remains to be seen how the various parties will proceed. The domestic stock market will continue to fluctuate in and out in reaction to both parties’ activities. His detractors claim that he has utilised his connections to obtain preferential treatment from the Indian government, but his admirers point to his modest beginnings as proof that he is a self-made man. Whatever your feelings about him, there is no doubting that Gautam Adani is a strong and prominent businessman.
Author – Saba Khan
BA.LL.B – Sambhunath Institute of Law, Prayagraj
Really got to know the clear story of the controversy going on after reading this, great work Saba.