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By Jayshree P Upadhyay
(Reuters) – An investigation of India’s Adani group by the market regulator has uncovered violations of rules on disclosures by listed entities and limits on the holdings of offshore funds, two sources with direct knowledge of the matter said.
The Securities and Exchange Board of India (SEBI) launched the inquiry after U.S.-based Hindenburg Research raised governance concerns around the Gautam Adani-led group, shaving more than $100 billion from the market value of its companies.
The ports-to-power conglomerate had denied wrongdoing in January.
The sources, who sought anonymity as they were not authorised to speak to the media, characterised the violations as being of a “technical” nature that would attract no more than a monetary penalty once the investigation is complete, however.
India’s Supreme Court, which is overseeing SEBI’s investigation of the Adani group, is set to hear the matter on Tuesday.
But SEBI has no plans to make the report public until the regulator has passed its orders on the Adani investigation, one of the sources said.
On Monday the group did not respond to a Reuters request for comment on the regulator’s findings.
SEBI also did not respond to an email on the matter.
On Friday, SEBI told the Supreme Court it had very nearly completed its investigation into the Adani group’s dealings.
One key finding had been violations in disclosing certain related-party transactions, the sources said.
“Transactions with a related party need to be identified and reported,” said one of them. “If not done, it could give an incorrect picture of the Indian listed company’s financials.”
In its court filing the regulator said it had examined 13 instances of related-party transactions.
The penalty could go up to a maximum of 10 million rupees ($121,000) for each violation by each entity, the sources added.
The inquiry also found that holdings of offshore funds in some Adani companies were not in line with the rules, they said.
Indian law allows an offshore investor to invest a maximum of 10% in an Indian company via the foreign portfolio investor route with any larger investment classed as a foreign direct investment.
“There are some inadvertent breaches of this limit by some offshore investors,” said the second of the two sources, but declined to give details.
It was not immediately clear how big a fine the company could face for such breaches.
Reuters could not determine the specific companies the regulator has investigated.
In its January response to Hindenburg’s accusations, the Adani group said all related party transactions had been fully identified and disclosed.
The group could not comment on the trading pattern of offshore investors as they were public shareholders, it added.
SEBI follows quasi-judicial processes before it publishes an order against an entity, which include giving it an opportunity to defend itself.
The regulator can recommend actions ranging from monetary penalties to a ban from stock markets, depending on the seriousness of the violations.
But it was not immediately clear what penalties the regulator will eventually recommend in the Adani investigation.
($1=82.6350 Indian rupees)
(Reporting by Jayshree P Upadhyay; Editing by Clarence Fernandez)
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