 Hello and welcome to NewsClick. Today we have Paranjay Guhatakurtha with us. We are going to discuss a rather tricky issue, the Supreme Court's expert committee's 173 page report on the Adani issue. Essentially it was supposed to look at SEBI, did it do its due diligence properly about such transactions and therefore give us a view whether there were any regulatory failures and if regulatory failures took place, what can be done about it. So if we look at the report like most of you might have read, it's very difficult to understand what the report really says. So we'll have to decipher the report with Paranjay Guhatakurtha. But before that, I would say that one observation of the report I think is very important that what is the letter of the law and what is the spirit of the law. And I think those two elements I think is something that we need to discuss. And if this investigation of SEBI is going nowhere, do we need to look at the letter of the law, the spirit of the law, or do we need to look at what other measures we need to have in order to really address the basic question, where Adani shares in play by essentially what are called Adani group and related parties playing on the stock market to raise their shares, use their shares to raise capital. And this is the Hindenburg attack that these were related parties, they were really playing the stock market in order to raise their share value and use that for further financing. Paranjay, TLDR version, too long, don't read 173 pages. So give us what is the short version, what do you think is the core of the report? That's not easy to summarize. The 173 plus page report is not easy to summarize. Before that, thank you very much for calling me here. It's been really a long, long time, several years since we've sat here and discussed India's best known oligarch, the Adani, Mr. Gautam Adani. Now, what had happened is after the 24th of January, when the Hindenburg research came out, the market prices of the Adani group shares collapsed. It was a precipitous decline. And even as we talk from the prices that prevailed before the 24th of January till now, as we talk the middle of May, it's still around half, roughly half. It's gone down to that. Within a few weeks, barely less than a month and a half, the Supreme Court appointed a committee of experts to examine what was its remit. This committee is supposed to determine whether or not there had been regulatory failure on the part of SEBI. What is SEBI? The Securities and Exchange Board of India, which is the regulator of the country's financial markets. It was also said you recommend ways in which its conduct, its regulatory oversight can be improved. Now, on various occasions, this report of experts headed by a retired judge of the Supreme Court, it pays lip service to the limitations of its remit. But as our discussion will progress, I will argue, and this is on the basis of analyses done by the Bloomberg columnist, Andy Mukherjee and my colleague, Abhirdhas Gupta, they point out that this particular, you know, that this committee has exceeded its remit. It's in a sense trying to tell the Supreme Court of India how it should interpret precisely what you said, the letter of the law and the spirit of the law. I will say that since I've also looked at the report, though not as detailed as you have, that that's an interpretation because the expert committee is only supposed to help the Supreme Court reach a judgment. It is not in lieu of Supreme Court's judgment, okay? So it's only supposed to therefore give a basis. What it has said, and again the question that comes up, is on the issue of what is a related party and how does SEBI determine the related parties? Now, why is it important? The first thing is it's important because if your friends and relations hold 75% or more of the shares of a company, by SEBI's definition, it's therefore not a public limited company. It's not a publicly listed company. That means a minimum of the 25% of the shares has to be held in the hands of the public and like. And that is supposed to ensure that you don't play with your own shares and therefore these kinds of regulations are there. To use SEBI's language, fair price discovery. Fair price discovery. Okay, that's a good one. Fair price discovery. That means you play with your shares. The prices are not good to be fair. If fair price discovery, fair price discovery therefore means that there should be a certain number of shares in public hands for the trading and the price determination to be fair. Now, what is the problem in determining who are the, what would be called the related parties? Because obviously a number of companies hold stocks and the number I think is 12 or 13 which are the funds which hold the stocks and there are 42 investors who have invested in these funds. So the question is 42, 13, 12 plus 1 I think. So what does these numbers indicate and what is the SEBI investigating before we come to the committee? All right. So at the heart of the allegations that have been leveled by Hindenburg research are a clutch of 13 entities. 12 of them are what are essentially called fund managers. I mean by and large they are funds and there is also a financial company, an offshore financial company. 12 funds and one overseas financial. Now these firms have invested heavily in Adani group companies. Also there are 42 names and they are called contributeries to the assets under management and it's interesting their names are also known. I mean all of this has been given by SEBI to the committee. Their names are there in that report in that 176 page report. They include for instance and my pronunciation may be all wrong. So the viewers may please excuse me. Alistair Guggenbuhil even Switzerland, Jean Sheelings Netherlands, Raj Bhatt United Kingdom, Yajjadeo Lotun Mauritius, Adel Hassan Ahmed Alali United Arab Emirates. So they are there. The question is are these entities proxies for the Adani group? This is the heart of the debate and the discussion. Now what we find is to understand that we have two there are three two key terms. One is related party. Who is a related party? And then as we as you already mentioned the minimum public shareholding. What we find is that what the committee points out is SEBI itself has changed its own definition of who or what is a related party and eventually bring it. When did they change this definition? There have been several changes including in 2019 and to bring them in line with the Prevention of Money Laundering Act PMLA. Now the crucial point is that the disclosure requirements under the Prevention of Money Laundering Act are less strict than those that were earlier prescribed by SEBI in its rules governing foreign portfolio investors or FBI's. I'll summarize this. The rules governing foreign portfolio investors they were structured in such a way that every controlling interest in a particular entity a foreign portfolio investor had to be captured in a declaration of beneficial ownership. So it was the fund manager all the way to those who have stakes in the fund and who are these owners? Who are the beneficial owners? Now instead of going that way what happens is the definition of a beneficial owner under the PMLA the Prevention of Money Laundering Act does not require such a detailed disclosure. That means the funds can get away by saying just naming their fund managers. So this is essentially the crux of the issue. And you know just to barge in at this point the purpose of Money Laundering Act is different from the purpose of regulating the market. Therefore to have changed this seems to be a dilution because what you're trying to see is that the average share those who play in the share market they should have protection and the protection is related parties do not control 75 percent or more. So therefore to put a criminal law requirement which obviously has to be much more strict because you don't want anybody to go into because of these reasons there must be real money laundering to take place. So this seems to be a weakening of same as remit of being able to look into related parties. In fact the whole issue is here of related parties. Here let me quote what my colleague Abir Dasgupta has pointed out. The committee holds that since these funds were compliant on paper the SEBI's investigations into whether these funds ultimately acted as proxies of the Adani group is a matter of whether the spirit of the law has been violated or the letter of the law. Now the question is while the committee this committee declines to comment on the findings of the ongoing investigations that are going on it seems to have formulated a legal opinion that could end up invalidating whatever findings. So the question is even if SEBI succeeds in unearthing a money trail which shows or indicates that the Adani group's money was that this money came back to India essentially what we call round tripping since these funds were compliant with the PMLA's definition of beneficial ownership. No so the question is is the committee expressing an opinion on the law should this not be the remit of the Supreme Court of India. Yeah I think that again those who are interpreting it this way I could give an alternate interpretation that essentially they have said that this is the state of affairs that given SEBI's restriction which this put on itself therefore it has a problem. Now that problem can be resolved in various ways and we'll go into that little later but the point here the purpose of SEBI is to protect the investor to protect the person who's going to buy and trade on the share market Adani shares. Therefore the PMLA requirement is actually just a convenience which they used for their purpose and why they did that and went away from the much more stricter requirements that means telling us the chain of the money till the last step which would have laid where. And what SEBI earlier itself used to call the UBO or the ultimate beneficent owner. The ultimate beneficent owner so why did they give that up that is an explanation SEBI owes to all of us. Absolutely and I believe seriously that the Supreme Court has to ask these questions and I'll go a step further there is nothing preventing the government of India there's nothing preventing the parliament to take these issues up and say we want to know who the ultimate beneficent owner is in this particular case and I will say even further that given this controversy has risen Adani owes it to its shareholders to tell us absolutely who the ultimate beneficent owners are. This is in the public interest it can be very convincingly argued let me take two steps back when this report which was presented on the second of you know sorry the report is dated 6th of May but it entered the public domain on the 19th of May and it's like widely circulated. The reactions were predictably enough two lines take the question say NDTV New Delhi Television which is now part of the Adani group it says Supreme Court committee gives clean shit several people in the social media said now it's as if the Adani group has been given a clean shit by this report but on the other hand you say take the congress party the congress party the spokesperson of the congress party Supriya Srinate on the 19th she pointed out that the report does not provide any answer to the question where did this 20,000 crore rupees of funds come in that the entities are what are called opaque is acknowledged so the question is it's the half full and half empty story we are seeing the beginning and the question that would arise has the committee overstepped its remit is it trying to formulate some sort as my colleague Abhidhas Gupta argues a legal theory whereas it should be focused more on the facts and that in a sense undermines. Say 173 pages let's not take a paragraph of here and there and go into that interpretation question here is very clearly the committee has stated we do not know who the ultimate beneficent owners are we do not know how sebi can find it because this is the nature of the beast at the moment this is what the sebi itself has done it has not passed an opinion why did sebi do it what should it have done it at all in the interest of what this would be called the shareholders none of these things have been a clear answer has come from the committee those answers are what supreme court has to do these are not answers the committee has to give it's the answer to the supreme court absolutely correct and larger issue the public interest which you have rightly pointed out the public interest is there are 42 fund managers there are 13 entities okay who are they who do they represent and if the hiddenbergs reports conjectures evidence whatever you might like to call it if that has to be gone into then the question is there is a huge question mark okay yeah let me here point out this is what Andy Mukherjee a columnist for Bloomberg has written in his column on the which is published on the 21st of May and it's a very very significant part of this report the committee had asked series of these big international fund managers i'll name them jp morgan chase and company goldman sacks group incorporated city group incorporated bank of america morgan stanley asked them to come and present their views before the committee obviously there were some questions they had but to quote the report of the committee none of the international securities funds sorry none of the international securities firms and banks were desirous of engaging in the matter it stated in its own submission this is the report now the question is why should a bank or a fund manager who's operating out of wall street you know and this is the question that Andy Mukherjee is with an important sort of emerging market franchise to protect go anywhere this is the exact words why should a wall street bank with an important emerging market franchise to protect go anywhere near a political hot potato you know i'm telling you i'll go a step further yes we know the business of these banks is precisely to bypass regulatory requirements their whole game how can we in fact let's put it the other way around how can we gain the regulatory requirements and all these companies have been tax avoidance not tax evasion that thin dividing yeah you know tax evasion and tax avoidance are two sides of the same coin but more than that we know goldman sacks and the one mdb stuff that happened in malaysia in malaysia correct you know and this is not isolated there have been n number of these cases involving all these banks in one case or the other so it would be very much in against their interest to come and educate the regulator how they should be controlled so it's like asking the lion or the tiger to say how can we have avoidance of your eating our sheep okay so i'll leave that out for the time being last question to you what are the other possibilities if savey is toothless as it seems to be the expert committee seems to be saying well then doesn't it increase the demand increase the importance that it should be a parliamentary joint parliamentary committee should be formed to see how the indian shareholders are protected from round tripping as well as on share precisely market manipulation absolutely correct and let me explain why because this committee which was set up by the supreme court was looking into whether there had been regulatory failure on the part of savey what about the other agencies of the government what about the dri the directorate of revenue intelligence which is part of the ministry of finance is the intelligence wing which looked at allegations of evasion or tax evasion or you know money laundering and customs duty what about the income tax department did have they been cooperating what about the cbi the central bureau of investigation have they been coordinating their efforts have they been now certain suggestions which already come out but there is a lot of information already into in the public domain on allegations of over invoicing now some of these cases have been given have been settled in courts but again there is appeal process there is an appellate process but at this point the question I'm making is these have to be considered and these can only be considered by a joint parliament I would be more restricted and say just if this is the statement of the committee savey does not have the powers given to it and as of now to be able to investigate the issue of the ultimate beneficial owner then it therefore means it strengthens the argument to have a joint parliamentary committee which it has more past to do it at the moment I'm not going into other issues of Adani empire because we have as you know maybe we'll have another discussion not only that we are into litigation with them anyway as you know you know okay you and I both are okay let's stop there no no no let me mention on the record I'm the only citizen of India against whom Mr Adani's lawyers have currently have been engaged with us in in six defamation cases you are involved in three of them yes so I was not naming them but I was just leaving it open so we don't want to come out as anti Adani and going after them all we are committing come to attempt of court all all we are saying is that this report seems to strengthen the argument for a joint parliamentary committee to examine the allegations that have been made by the Hindenburg report that these are parties which are related parties and therefore the Indian stock market needs to know whether this is true or not and joint parliamentary committee will help if it is not true it'll help the Adani empire if it is true well then whatever decisions have to be taken that have to be taken with this I'm going to finish today's discussion thank you for thank you very much yes this is a certainly an important topic to talk about not only Sabi's powers but the way Sabi investigates such issues as you know these are the issues which have also led and changes its rules and also led in the past to the reformation of Sabi's case Arshad Mehta case all of these are cases which actually have made a change in the way Indians talk about the JPC committees improve the working of the system made it more transparent that's all we have time we have today for discussing such issues we'll promise that we'll come back to you as these issues progress and we get further information further discussions can take place on this and this is something that Varun Jai will probably be with you again