India's Capital Markets Regulator Has Rejected Settlement Applications by Foreign Portfolio Investors That Held Significant Stakes in Listed

The regulator communicated its decision to the FP Is' representatives last week, reviving a case that dates back to October 2020, when Sebi's surveillance systems first flagged the unusual concentration of their holdings. The rejection came because the FP Is' terms failed to align with those proposed by Sebi, the people said. At the centre of the standoff was the reluctance of some FP Is to fully disclose information Sebi considered essential to any settlement, one person said.

Some FP Is were unwilling to provide certain details, a precondition for settlement. Another person said some FP Is, at a joint meeting with Sebi, were unwilling to 'disgorge' the amount sought by the regulator, which ran into hundreds of crores. Settlement is a well-trodden route for entities facing securities law violations in India, letting them resolve disputes without admitting or denying wrongdoing.

An applicant proposes terms to Sebi, which reviews and counters with its own, typically a monetary amount and sometimes non-monetary conditions such as trading bans. The final proposal goes to Sebi's high-powered advisory committee, led by a former high court judge, for approval or rejection. The 13 FP Is are Albula Investment Fund, Cresta Fund, MGC Fund, Asia Investment Corporation (Mauritius), APMS Investment Fund, Elara India Opportunities Fund, Vespera Fund, LTS Investment Fund, Emerging India Focus Funds, EM Resurgent Fund, Polus Global Fund, New Leaina Investments and Opal Investments.

The funds filed multiple settlement applications in April 2024 after Sebi issued show-cause notices under two separate tracks - one questioning why their FPI registrations should not be cancelled, and the other seeking fines for breaches of securities law. It could not be ascertained which applications were turned down. Sebi's original concern was whether these FP Is were genuine public shareholders, or fronts for the Adani Group's own promoters.

The probe gained global attention after a January 2023 report by Hindenburg Research accused the Adani Group of round-tripping and market manipulation, triggering a sharp sell-off in its stocks. The conglomerate denied the allegations. In its submissions to the Supreme Court in August 2023, Sebi disclosed it had reviewed trading in seven Adani stocks - Adani Enterprises, Adani Ports & SEZ, Adani Green Energy, Adani Energy Solutions, Adani Power, Adani Total Gas and Adani Wilmar - between March 2020 and December 2022, examining price-volume manipulation and breaches of minimum public shareholding, FPI investment limit and offshore derivative instrument norms.

The regulator identified 42 contributories to the FP Is' assets under management but hit a wall tracing their ultimate beneficial owners, hampered by a lack of cooperation from foreign counterparts. When the Supreme Court disposed of the PI Ls in January 2024, it directed Sebi to bring its investigations to a logical conclusion. With the rejection, the regulator will now continue legal proceedings against the FP Is. Sebi, Adani Group and the FP Is did not respond to emailed queries.