Did Adani Benefit from a Regulatory ‘Blind Spot’ in Hindenburg Case? Experts Explain Sebi Orders

The Securities and Exchange Board of India (Sebi) on Thursday passed its final order on Hindenburg Research’s allegations against the Adani Group. In two orders covering transactions between Gautam Adani’s companies and three so-called "related" firms, Sebi found no violations.

In both orders, Sebi was examining two key allegations, “Whether the transactions highlighted in the US short seller’s report could be classified as related-party transactions under the earlier Listing Agreement or subsequent LODR Regulations.” And if there was a scheme to conceal related-party transactions that would otherwise fall under its regulations.

The regulator concluded that the transactions under examination did not qualify as related-party transactions for the period in question. The order also noted that the transactions were genuine commercial dealings in the ordinary course of business, and that all loans were repaid with interest.

“There is no diversion or siphoning off of funds, and in fact, there is not even an allegation of diversion, siphoning, or loss to investors in the SCN (Show Cause Notice),” Sebi said.

Still, at least one legal expert believes the port-to-power conglomerate benefited from a “regulatory blind spot.”

According to Amit Tungare, Managing Partner at Asahi Legal, Sebi’s approach “tracked the letter of the law” but exposed gaps in the pre-amendment framework.

“Sebi had limited flexibility to act beyond what the statute and notification allowed, despite concerns about opaque governance or investor misrepresentation. The orders themselves label the intermediaries as ‘conduits’, suggesting an ongoing need for stricter scrutiny of such arrangements, even if entities appear unaffiliated on paper,” he said.

However, Aditya Bhansali, Founding Partner at Mindspright Legal, cautioned that it would be misleading to suggest that the Adani Group simply benefited from old definitions.

“This is not an unusual outcome in securities law. Regulators frequently refine definitions over time, but those refinements cannot retroactively criminalise or reclassify transactions that were compliant when carried out. What the order reflects is not a ‘benefit’ but the consistent application of settled principles of legal certainty,” he noted.

Following the orders, Adani Group Chairman Gautam Adani welcomed the ruling in a post on X.

“After an exhaustive investigation, Sebi has reaffirmed what we have always maintained, that the Hindenburg claims were baseless. We deeply feel the pain of investors who lost money because of this fraudulent and motivated report. Those who spread false narratives owe the nation an apology,” he wrote.

Shares of 10 Adani-linked companies rose on Friday as investors digested the order. Morgan Stanley also initiated an "overweight" rating on Adani Power. Adani Enterprises, Adani Power, Adani Green Energy, and Adani Total Gas gained up to 10% in early trade. At the time of writing, Adani Power was up 12%, Adani Green 8.8%, Adani Enterprises 5%, Adani Energy Solutions 5.44%, NDTV 4.99%, Adani Ports 1.76%, and ACC 1%.adani

Hindenburg’s Allegations, After Effect

The probe was based on a more then 100-page report by short seller Hindenburg Research in 2023. The report targeted the port-to-power conglomerate with a series of accusations, including stock manipulation and accounting fraud through offshore shell networks tied to Gautam Adani’s brother, Vinod Adani. It alleged inflated stock prices via hidden related-party deals and opaque offshore funds that secretly held concentrated stakes in Adani companies. It also claimed that Adani firms carried high debt and weak liquidity, propped up financials through undisclosed transactions, and were audited by small, inexperienced firms ill-equipped for the scale. The Adani Group has denied all allegations.

The report triggered heavy losses for Adani Group’s investors, as shares of listed group companies nosedived. At one point, reports said volatile trading wiped out over $100 billion of investor wealth.

Subsequently, Advocate Vishal Tiwari filed a PIL seeking a court-monitored probe into allegations of stock manipulation, accounting fraud, and the steep fall in Adani Group shares. The Supreme Court directed Sebi to investigate possible disclosure lapses, stock manipulation, and related-party transactions involving Adani companies, while also setting up an expert committee led by Justice A.M. Sapre to examine Sebi’s functioning and recommend reforms.

By January 2024, the Court accepted Sebi and the expert committee’s findings that no evidence of fraud had been established and it declined calls for a Special Investigation Team, effectively closing the matter.

Transactions Sebi Probed

However, the market regulator sought a few more days to complete investigations into transactions linked to three entities flagged by Hindenburg.

The short seller had claimed that Adicorp, a coal supplier and longstanding Adani client, “was simply used to route funds from various Adani Group companies to publicly listed Adani Power.”

Hindenburg also alleged that Milestone Tradelinks, run by a longtime Adani associate and former group director, lent $101 million to Adani Infra, while Rehvar Infrastructure, a little-known “silver bar” trader with no real operations but linked to Adani directors, lent another $202 million. It alleged that neither loan was disclosed as a related-party transaction, raising concerns of hidden funding ties within the Adani Group.

The report claimed to have “identified numerous undisclosed related-party transactions by both listed and private companies, seemingly an open and repeated violation of Indian disclosure laws.”

What Sebi’s Probe Found

In its show-cause notice to Adani Group companies, promoter Gautam Adani, his brother Rajesh Adani, and others, the market regulator alleged that between FY13 and FY19, Adani Ports and SEZ transferred about ₹1,282 crore to Adicorp, which then passed the same amounts to Adani Power “on the same or next day.” Later, Adani Power repaid these loans with interest through the intermediary, which in turn returned the money to Adani Ports or its subsidiary Adani Logistics. Similar circular fund movements were observed in FY19 and FY21, with only minor differences in amounts.

Sebi noted that Adicorp borrowed from Adani Ports and its subsidiary at rates of 10.8–11.75% and on-lent to Adani Power at slightly higher rates, earning just 20 basis points. The regulator questioned the genuineness of these loans because, Adicorp had a very small presence, over two-thirds of its transactions were only with the Adani Group, its net worth was negligible compared to the loan sizes, nearly all its income came from interest and loan agreements were executed and funds transferred on the same day without credit checks.

Adding to suspicion, Adicorp’s director was a close family friend of the Adanis for 30 years, Sebi’s intial notice noted.

In the second probe, Sebi found similar patterns. Between FY19 and FY23, Adani Ports routed large sums to Milestone Tradelinks and Rehvar Infrastructure, which then passed funds to Adani Power, Adani Enterprises, and others. These intermediaries also received repayments from Adani entities, which they used to repay Adani Ports, often with interest. Although the loans, running into thousands of crores, were repaid in full with interest, Sebi questioned why they were not classified as related-party transactions given the close ties and repeated circular flow of funds.

The notice named Adani Ports, Adani Power, Adani Enterprises, Gautam Adani, Rajesh Adani, CFO Jugeshinder Singh, along with Milestone and Rehvar.

Sebi examined both cases under the Sebi Act, 1992, the Sebi (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (PFUTP Regulations), the disclosure provisions of the old Listing Agreement, and the Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations).

'Related Party' Dilemma

The central question, in both the probe, was whether large loan transactions routed through little-known intermediaries should have been treated as related-party transactions (RPTs).

Under Ind-AS 24 (Related Party Disclosures), a related party includes entities under common control, those with significant influence, joint ventures, associates, key managerial personnel, and their close family members. It requires disclosure of all transactions with such parties, even if conducted at arm’s length.

The Sebi (LODR) Regulations, 2015, originally based on Ind-AS 24 and the Companies Act, 2013, had a narrower scope, covering promoters, directors, Key Management Personals (KMPs), and entities directly related through shareholding or control. Listed firms had to disclose material RPTs and obtain audit committee approval.

In November 2021, Sebi expanded the definition under Regulation 2(1)(zb) and 23 to include all promoter group entities (even without direct shareholding) and any entity holding 20% or more equity (later reduced to 10% from April 2023). These amendments introduced stricter disclosure and shareholder approval requirements to close loopholes and improve transparency. Though it was effective from from April 2022, and provide companies chance to comply with them by April 2023.

The Adani Group, in its submissions to Sebi, argued that the entities mentioned were independent and not “related parties” under law or accounting standards, making the loans ordinary commercial transactions. It further said that at the time of the transactions, Adicorp was not a related party under the Companies Act, Ind-AS 24, or Sebi’s LODR Regulations. The 2021 amendments, it argued, cannot be applied retrospectively.

In the Milestone–Rehvar case, the group maintained there was no legal requirement to classify such loans as related-party transactions under the rules then in force.

The market regulators orders also acknowledged that all funds were repaid with interest and no diversion was established.

What Experts Say

According to Tungare, the orders clarify that under the pre-April 2023 regulations, transactions routed through intermediary entities such as Milestone Tradelinks and Rehvar Infrastructure—even if circular or benefiting group companies, did not legally qualify as Related Party Transactions (RPTs).

“The regulator was therefore bound by the explicit language of the old LODR regime, which covered only direct dealings with related parties. While the ‘substance over form’ doctrine is recognised in Indian law, Sebi could not invoke it to override unambiguous statutory definitions in force at the time,” he noted.

He explained that this was precisely why the law was amended in April 2023—to plug the gap and bring indirect, conduit-based arrangements within the RPT framework, mandating full disclosure and shareholder approval.

“Today, similar structures would be caught, requiring transparency and approvals,” he said.

Tungare added that “Sebi had limited flexibility to act beyond what the statute and notification allowed, despite concerns about opaque governance or investor misrepresentation. The orders themselves label the intermediaries as ‘conduits’, suggesting an ongoing need for stricter scrutiny of such arrangements, even if entities appear unaffiliated on paper.”

Shankey Agrawal, Partner at BMR Legal also says that companies did gain the benefit under the pre-2021 narrower SEBI LODR definition of related party transactions.

"That erstwhile definition applied only to direct legal relationships i.e. subsidiaries, associate or relative directors and not to those routed through third parties. Because of that, funds could be shifted within a group utilising technically unrelated intermediaries, but still qualifying as third-party transactions," he said. Adding that this implies no financial statement disclosure, no audit committee review and no shareholder approval by the Group Companies.

"SEBI order has clarified that these structures are related party transactions in substance, however the wider post-2021 definition to catch these transactions were introduced later," Agrawal said.

By contrast, Bhansali, Founding Partner at Mindspright Legal, argued that Sebi’s order makes detailed findings.

“The transactions were genuine commercial bargains between the parties, undertaken in the ordinary course of business, at arm’s length, duly authorised by the finance committee of the board, and supported by proper documentation,” he said.

He added that each transaction carried interest, which was repaid in full, and Sebi specifically recorded that there was no indication of pre-planning or artificial structuring.

“Against this factual background, the regulator applied the law as it then stood. Under the pre-2023 framework, Related Party Transactions were defined narrowly and turned on shareholding or control relationships that the non-Adani group entities did not meet,” he explained.

Bhansali added, “What the order reflects, therefore, is that participants are entitled to rely on the yardstick in force at the time, and those who complied with it cannot later be penalised under a broader rule introduced years afterward.”

What Happens Now in the Adani Case?

Tungare noted that any aggrieved party retains the statutory right to challenge Sebi’s decisions before the Securities Appellate Tribunal (SAT), though the legal path is steep if the regulator has complied with the explicit law as it stood.

However, Rohit Jain, Managing Partner at Singhania & Co, explained that Section 15T of the Sebi Act, 1992 allows only a “person aggrieved” by a Sebi order to file an appeal.
“The courts have interpreted this to mean a person who has suffered a legal grievance or has been directly and adversely affected by the decision. A general investor or member of the public who was not a party to the original proceedings would likely not have the legal standing to be considered an ‘aggrieved person’,” he said.

He added that such a party would need to demonstrate a direct, personal, and substantial injury, beyond that suffered by the general public, for their appeal to be admitted by the SAT.