SAT disposes appeals of five FPIs named in Hindenburg Report, after SEBI agrees to share file noting

As per the latest business developments, The Securities Appellate Tribunal (SAT) on Monday disposed of appeals filed by five foreign portfolio market participants (FPIs) which were named in Hindenburg Report after the market regulator Securities and Exchange Board of India (SEBI) agreed to provide them a true copy of the file noting made by its adjudicating officer. The file noting is under Rule 4(3) of the SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995.

The five FPIs are Albula Investment Fund, Asia Investment Corporation (Mauritius), LTS Investment Fund, Cresta Fund and APMS Investment Fund. The appeals relate to the opinion formed by SEBI’s adjudicating officer and the FPIs’ demand for the complete document rather than the paraphrased version supplied by the regulator.

During today’s hearing, SEBI’s counsel submitted that the regulator was prepared to provide a true copy of the file noting made by the officer under Rule 4(3), without prejudice to SEBI’s rights and contentions and the position it may take on the offering. SAT order noted, “In these appeals, SEBI is prepared to provide a true copy of the file noting made by the officer under regulation 4 (3).” SAT further noted, “in view of the above, nothing further survives in these appeals”.

FPI’s counsel subsequently told the tribunal that they were satisfied with SEBI’s submission. The tribunal recorded the submission and disposed of the appeals.

Dispute over Rule 4(3) opinion

The dispute arises from Rule 4(3), which requires the adjudicating officer, after considering the response of a Noticee to a show-cause notice, to form an opinion on whether an inquiry should be held.

The FPIs had approached SAT contending that they had not been provided the complete opinion and the reasons underlying the decision to proceed against them. SEBI had maintained that a paraphrased extract of the opinion had already been provided.

In earlier hearing, SEBI had boosted a preliminary objection to the maintainability of the appeals, arguing that the regulator had furnished the FPIs with a paraphrased extract of the opinion. SEBI had additionally argued that an opinion formed under Rule 4(3) was not an order and, as a result, could not itself be challenged in the manner sought by the FPIs. Later, the five FPIs withdrew those appeals with liberty to file fresh appeals incorporating the necessary amendments.

Five  FPIs under regulatory sruitny

The five funds have figured in the wider regulatory scrutiny surrounding foreign portfolio market participants that held substantial positions in Adani Group firms.  The funds had additionally been among offshore market participants whose holdings in Adani Group firms had attracted regulatory scrutiny. In 2021, SEBI sought information on the ultimate beneficial owners of FPIs holding shares in six Adani Group firms, including Albula, Cresta and APMS. Separately, a group of Adani-linked FPIs had sought to settle regulatory proceedings with SEBI. No ruling on  allegations

Today’s proceedings, were confined only to the offering surrounding the Rule 4(3) opinion and disclosure of the file noting. The tribunal did not, in the hearing adjudicate on the underlying allegations involving the FPIs or make any finding on their conduct in relation to Adani Group firms.