Adani v Hindenburg: Court and tribunal orders relied on by the Indian conglomerate to counter research firm's allegations

The Adani Group found itself in the eye of a storm after US-based investment research firm Hindenburg Research released a report alleging fraud on the part of the conglomerate, as a result of which its stocks suffered losses to the tune ₹65 billion..Adani released a response to the allegations on January 29, claiming that the report was a "malicious combination of selective misinformation and concealed facts to drive an ulterior motive". The response further stated,"This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India, ahead of largest ever further public offering of equity shares in India."Hindenburg has since come out with a rebuttal to Adani's response, saying that the company failed to answer 62 of its 88 questions specifically,"We also believe India’s future is being held back by the Adani Group, which has draped itself in the Indian flag while systematically looting the nation.".The Indian company owned by Gautam Adani - recently touted as the third richest person in the world - also claims that Hindenburg's report presents no new findings and only dredges up allegations which have been judicially determined in the company's favour, and which have also been disclosed to investors and regulators. The allegations pertain to supposed violations of laws and policies by Adani in the past related to diamond exports and over-valuation of goods by its power companies, among others..The report goes on to cite a number of orders passed by courts and tribunals in India which address some of the allegations made by Hindenburg. Here is a look at these rulings, as well as the litigation pending against Gautam Adani and his younger brother, Rajesh..Customs, Excise & Service Tax Appellate Tribunal (CESTAT) order dated August 26, 2015.This order was cited in response to Hindenburg's questions of why Rajesh Adani and Gautam's brother-in-law Samir Vora - who were accused in a diamond export scam - were elevated to the positions of Managing Director of the Adani Group and Executive Director of the company's Australia division, respectively.The Directorate of Revenue Intelligence (DRI) had alleged that Adani Enterprises Limited (AEL) indulged in circular trading of diamonds by importing them into India and exporting them after no processing or after insignificant processes. Since there was no value addition, the free on board (FOB) price (the price of goods at the frontier of the exporting country) was inflated, which was in violation of the Foreign Trade (Development & Regulation) Act and Rules. It was also alleged that AEL mis-declared the value of export goods, and that its modus operandi qualified as "smuggling" as defined under the Act.However, the CESTAT ruled in 2015 that since customs officers verified the value of the goods, the Commissioner could not have rejected the FOB value. The Appellate Tribunal also held that the allegations of over-valuation and over-invoicing made by a DRI officer was not conclusive. It thus set aside the penalties imposed on then AEL Managing Director Rajesh Adani, Vora, and others.On appeal against this order, the Supreme Court refused to intefere with the findings of the CESTAT. In 2017, a review petition filed against the apex court's order was also dismissed. Adani highlights that these facts have been deliberately ignored and concealed in the Hindenburg report, which "contemptuously raises questions on the competence of the Appellate Tribunal with baseless claims that it has ignored evidence.".CESTAT order dated July 18, 2022.Adani cited two CESTAT order passed in its favour last year to address the following question raised by Hindenburg:"As part of the DRI investigation into over-invoicing of power imports, Adani claimed that Vinod Adani was “not at all having any involvement in any Adani Group of companies”, except as shareholder. Despite this claim, a pre-IPO prospectus for Adani Power from 2009 detailed that Vinod was director of at least 6 Adani Group companies. Were Adani’s original statements about Vinod, made to regulators, false?".The first order pertained to over-valuation of goods imported by subsidiaries of Adani Power Limited (APL) in Maharashtra and Rajasthan for setting up power projects at Tiroda and Kawai in the two states respectively. The Customs Department alleged that though power sector projects carry nil rate of duty and the goods were imported directly to India, the documents were routed through an intermediary entity created by APL for the purpose of raising invoices with inflated prices. An investigation was thus initiated by the DRI, which found that the extent of over-valuation of supplies was around ₹3,975 crore.The CESTAT found that contradictory findings were recorded by the adjudicating authority, and that the documents relied upon by the Department were inadmissible as evidence. While noting that the investigation carried out by the authorities was incomplete, the Appellate Tribunal held that re-determination of the value under the Customs Valuation (Determination of Value of Imported Goods) Rules 2007, was not warranted.An appeal preferred by the Revenue against this order is still pending before the Supreme Court. In its response, Adani states,"Whilst an appeal in this respect has been preferred and is pending, we strongly believe this will be decided in our favour in line with the decision of the lower court and CESTAT.".CESTAT order dated August 11, 2022.In 2009, the Maharashtra government encouraged private sector participation in power generation, transmission and distribution owing to the power shortage in the State. A Special Purpose Vehicle called Maharashtra Eastern Grid Power Transmission Limited (MEGPTCL) was set up between Adani Enterprises and Maharashtra State Electricity Transmission Company Limited to start power projects in the State, with the former holding 74% equity share. Later, MSETCL regretted its inability to participate in the joint venture as a result of which MEGPTCL became a wholly-owned subsidiary of AEL. The DRI alleged that AEL over-valued goods that were imported for the purpose of setting up transmission lines and sub-stations in Maharashtra. Vinod Adani and others were asked to show cause as to why penalties should not be levied on them for the same.The CESTAT held that there was absolutely no evidence available on record which could create a doubt on the correctness of the declared transaction value. It was held that the documents which form the basis for the proposed redetermination of value were inadmissible in evidence..National Company Law Tribunal (NCLT) order approving Adani Power Limited’s resolution plan for Mahan Energen Limited.This order was cited in response to the following Hindenburg allegation:"A Vinod Adani-controlled UAE entity called Emerging Market Investment DMCC lists no employees on LinkedIn, has no substantive online presence, has announced no clients or deals, and is based out of an apartment in the UAE. It lent U.S. $1 billion to an Adani Power subsidiary. What was the source of the Emerging Market Investment DMCC funds?"Adani responded that Hindenburg falsely claimed that Emerging Market Investment DMCC gave a loan of $1 billion to Mahan Energen. "Emerging Market acquired the USD 1 billion “unsustainable debt” of Mahan Energen from its lenders for USD 100 as part of a resolution plan duly approved by the National Company Law Tribunal under the Indian Bankruptcy Code," the company claimed.The NCLT found that in the absence of any tenable objection to the Resolution Plan, which was passed by 100% votes by the Committee of Creditors, there was no reason to not allow the Plan..Gujarat High Court order approving scheme of amalgamation of Growmore Trade and Investment Private Limited with Adani Power Limited dated April 11, 2012.Hindenburg had asked in its report:"Another secretive Mauritius entity called Growmore Trade and Investment netted an overnight $423 million gain through a stock merger with Adani Power...What is the explanation for this windfall gain to an opaque private entity controlled by a close associate of the Adani family?"In response, Adani claimed that the stock merger was undertaken after following due process as per the Companies Act, as well as all applicable regulations including SEBI Regulations. Further, it was approved by majority shareholders of both companies, various regulatory authorities including stock exchanges, the Central government and the Gujarat High Court.The High Court had held that it could not probe deeper into the object and purpose of the amalgamation/scheme, and that such aspects are mainly in the realm of the commercial wisdom of the Board of Directors and the members of the company..Pending litigation against the Adanis.The report also details the following cases that are pending against Gautam before various courts:(i) Civil dispute filed by Container Corporation of India Limited seeking to restrain AEL and Gautam Adani from proceeding with a cold chain project; (ii) Alleged violation of certain provisions of the Customs Act, 1962 relating to the alleged misuse of an advance license granted to a third party for the import of metallurgical coke and the evasion of customs duty in relation thereto; and (iii) Alleged violation of certain provisions of the Customs Act relating to the import and misuse of an aircraft. These proceedings are pending at various stages of adjudication before the Supreme Court and the CESTAT.Additionally, certain complaints were filed against Gautam Adani in relation to products of Adani Wilmar Limited before various forums under the Prevention of Food Adulteration Act, 1954. The matters are currently pending..Against Rajesh, there are pending legal proceedings related to alleged violations of the Customs Act, the Foreign Exchange Regulations Act, 1973 and the Foreign Exchange Management Act (FEMA). Such proceedings relate to alleged violations in relation to the import and export of various items by AEL and investment in a wholly-owned subsidiary without prior approval from the Reserve Bank of India (RBI).Additionally, a criminal complaint under Sections 420 (cheating) and 120B (criminal conspiracy) of the Indian Penal Code was filed by the Serious Fraud Investigation Office (SFIO) before the a magistrate court in Mumbai against Rajesh Adani and others on the allegation that he conspired with the other accused in relation to share prices of AEL. After the magistrate discharged Rajesh Adani on the ground that no prima facie case was made out against him, the SFIO challenged that order before a sessions court, which directed the parties to appear before an Additional Chief Metropolitan Magistrate. Subsequently, Rajesh and Gautam Adani filed a writ petition before the Bombay High Court challenging this order. The High Court stayed the order until the next date of hearing.