The Securities and Exchange Board of India (SEBI) has given a clean chit to the Adani Group in connection with allegations made by US short-seller Hindenburg Research that group entities used Milestone Tradelinks Pvt. Ltd. and Rehvar Infrastructure Pvt. Ltd. as conduits to route funds between Adani Ports & SEZ (APSEZ), Adani Power (APL), and Adani Enterprises (AEL).

In its final order, SEBI held that the loans between FY 2018–19 and FY 2022–23 were genuine transactions that were fully repaid with interest, and that the law in force at the time did not classify such indirect transactions as related party transactions (RPTs)

On January 24, 2023, Hindenburg Research published a report alleging that Adani Enterprises and Adani Power Mundra (later merged with Adani Power) had been funded by MTPL and RIPL through Adani Infra (India) Ltd. in FY 2020–21. The report also questioned the original source of funds of MTPL and RIPL.

SEBI launched an investigation to examine whether the loans amounted to undisclosed RPTs or fraudulent transactions. A show cause notice (SCN) issued in January 2024 alleged that “funds transfer to related party through the momentary stop in the account of MTPL and RIPL suggests that MTPL and RIPL were only used as intermediary entities so as not to classify these transactions with related parties like APL and AEL as related party transactions”

According to SEBI, loans extended by APSEZ to MTPL and RIPL were almost immediately advanced to APL and AEL. The SCN alleged that the Adani entities “avoided the classification of their loan transactions with the related parties as related party transactions thereby not only underreported their related party transactions in the financial statements … but also allegedly avoided the approval of the Audit Committee”

It further alleged that promoters Gautam Adani and Rajesh Adani, along with Group CFO Jugeshinder Singh, devised a scheme “whereby related party transactions have been entered into over the years among Noticees nos. 1 and 2 indirectly without due approvals and disclosures”

The Adani group maintained that the transactions in question did not fall within the definition of related party transactions under the regulatory framework that existed during the investigation period. They emphasised that the provision in the LODR Regulations which broadened the scope to cover indirect dealings through third parties only came into effect from April 1, 2023, and could not be applied retrospectively to loans routed via Milestone Tradelinks and Rehvar Infrastructure.

The group further argued that the transactions caused no prejudice to investors. They pointed out that there had been no diversion or misuse of funds, no manipulation of share prices, and no unfair benefit to any shareholder. According to them, every rupee lent by Adani Ports & SEZ had been repaid in full, along with interest.

With respect to allegations of fraudulent conduct under the PFUTP Regulations, the companies contended that merely transferring funds through Milestone and Rehvar could not, by itself, satisfy the evidentiary threshold needed to establish a case of fraud or securities market manipulation under the SEBI Act.

SEBI examined bank statements and confirmed that all loans had been repaid with interest within the investigation period. It held that the broader definition of RPTs introduced in 2021 could not apply retrospectively.

The order observed: “The applicable un-amended clause (zb) of sub-regulation (1) of regulation 2 of the LODR Regulations defines a related party as ‘a related party’ as defined under sub-section 76 of section 2 of the Companies Act, 2013 or under the applicable accounting standards. None of the conditions provided… applies to the relation between Noticees nos.1, 2 or 3 on the one hand and with the Noticee nos. 7 or 8 on the other hand."

It further clarified: “Having expressly provided that amendments to the LODR Regulations would have prospective operation, it is not open to SEBI to now apply the amended definitions retrospectively.”

On PFUTP charges, SEBI noted that there was no evidence of fraud: “Transactions of Noticees nos.1, 2 and 3 with Noticee nos.7 and 8 and vice versa, are not related party transactions, even for the purpose of Ind-AS 24. Therefore, the transactions of Noticees are not ‘related party transactions’ and were in compliance of the relevant provisions of the LODR Regulations applicable during the investigation period.”

In its closing findings, SEBI held that the disputed loans did not amount to related party transactions under the framework that applied during the investigation period. It emphasised that the definition of RPTs, as it then stood, covered only direct dealings with related parties. The 2021 amendment that broadened the scope to include indirect arrangements through unrelated parties was a substantive change, made effective prospectively from April 1, 2022, with a glide path until April 1, 2023.

SEBI noted that applying this amendment retrospectively would be legally impermissible, pointing out that past precedents and even the Expert Committee appointed by the Supreme Court in the Vishal Tiwari case had confirmed the prospective nature of the reform. The Supreme Court, too, had upheld SEBI’s legislative choice and rejected challenges to revoke the amendment.

On the allegations of fraud under the SEBI Act and the PFUTP Regulations, the regulator found no case made out. Since the central charge stemmed from the alleged non-classification of the loans as RPTs, once that issue failed, the rest of the case collapsed. SEBI stressed that the transactions could not be labelled as manipulative or fraudulent because there was no siphoning of money, no diversion of funds, and no investor harm — all loans had been repaid with interest well before the investigation commenced.

Concluding, SEBI observed that once the principal charges were not established, the ancillary allegations also fell. The order therefore stated that the proceedings against all noticees stood disposed of without any directions or penalties.

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