HINDENBURG REPORT

Hindenburg describes itself as a forensic financial research company and ‘activist short seller’.
Focuses on analyzing accounting irregularities, undisclosed transactions, illegal/unethical business or
financial reporting practices, among other issues. Founded by Nathan Anderson in 2017, it is based
in New York City.

HINDENBURG REPORT ON ADANI

Hindenburg published a damaging report "Adani Group: How the World's Third Richest Man Is
Pulling the Largest Con in Corporate History.", on January 24 2023, alleging the Ahmedabad- based
conglomerate’s involvement in “brazen stock manipulation and accounting fraud” over the decades,
also flagging its ‘substantial debt’. Following which, the chain of events is as such

 January 25th 2023 – The share price of the groups’s flagship company Adani Enterprise
closed at ₹3,389.85, down from ₹3,442.75 on the Bombay Stock Exchange on January 24.
 January 27th 2023 - Adani Enterprises shares tanked 18.52% on BSE. Adani Ports plunged by
16%, Adani Power by 5%, Adani Green Energy by 19.99%, and Adani Total Gas was worst hit
by a 20% plunge. This was also the day bidding began for the now-scrapped Adani
Enterprises FPO. The firm had set a floor price of ₹3,112 ($38.22) a share and a cap of ₹3,276
for the share sale but on the opening day of the offer, the stock had slumped to as low as
₹2,721.65, well below the lower end of the price offering.
 January 29th 2023 - Adani published a detailed response to Hindenburg’s accusations
 January 29th 2023 – Hindenburg published a rejoinder to Adani’s response.
 January 30th 2023 - Adani Enterprises saw sharp gains of upto 10 per cent before settling
with modest gains of 4.8 per cent on Monday, January 30, while other Group stocks
continued their slide. Despite the recovery from the pre-weekend stock rout, Adani
Enterprises ended at ₹2892.8 on NSE, while other Adani portfolio companies- Adani Power,
Adani Green Energy, Adani Willmar, Adani Total Gas, and NDTV only saw sellers flocking
their counters on Monday. The Group’s gas and clean energy arms both plunged by 20%,
while Adani Transmission fell by 15 per. The above-mentioned remaining companies hit 5%
lower circuit.
 January 31st 2023 – The USD 2.5 billion FPO by Adani Enterprises was fully subscribed, which
helped it recover to close at ₹2,975 on the BSE, compared to Monday’s ₹2878.50, but it still
remained below the floor share price offered by the FPO. On the NSE, Adani Enterprises
gained 2.8 per cent to end at ₹2,973.90, while some others also made gains- Adani
Transmission (3.85%), Adani Green Energy (2.94), ACC Cements (3.37%), and NDTV (1.87%).
Meanwhile three other arms, Adani Power (down 4.99%), Adani Wilmar (down 5%), and
Adani Total Gas (down 10%) remained under selling pressure.
 February 1st 2023: -
o Shares in Adani Enterprise plunged 28%,
o Adani Ports and Special Economic Zone (APSE.NS) dropped 19%.
o Shares in Adani Power (ADAN>NS) and Adani Wilmar (ADAW.NS) fell 5% each,
o Adani Total Gas (ADAG.NS) slumped 10%,
o Adani Transmission (ADAI.NS) was down 3% and
o Adani Green Energy (ADNA.NS) was down by 5.6%.
o Adani Total Gas (a joint venture with France’s Total (TTEF.PA)) lost about USD 27
Billion
 o Shares in ACC (ACC.NS) which Adani bought from Switzerland’s Holcim (HOLN.S), fell
6.2%.
o Ambuja Cement (ABUJ.NS), also purchased from Holcim, fell 16.7%.
o The US Dollar dominated Adani Ports maturing in February 2031 fell 3.59 cents to
67.58 cents.
 February 1st 2023 – Gautam Adani slipped out of the top 10 Forbes rich list to number 15 th,
with an estimated net worth of USD 75.1 billion, and Credit Suisse (CSGN.S) (a financial
services company) stopped accepting bonds of Adani Group as collateral for margin loans to
it private banking clients.
 February 1st 2023 – Adani Group in a statement, called off its INR 20,000 crore rupees
follow-on public offer (FPO) (announced on 27th January 2023) and said investors’ money will
be returned. In their statement they stated that given the unprecedented situation and the
current market volatility, the company aimed to protect their investors by this move.
 Nifty fell 2.7% since the report. Foreign investors sold a net USD 1.5 billion worth of Indian
equities after the report. Adani conglomerate’s market losses exceeded USD 100 billion since
January 24.
 2nd February 2023 – Reserve Bank of India directed local banks to update details of their
exposures in the Adani group of companies.
 3rd February 2023 – Public Interest Litigation filed by serial litigant Advocate ML Sharma,
seeking to declare ‘short-selling’ as an offence of fraud and investigation into Nathan
Anderson. Further asked that the turnover for short selling with penalty must be recovered
from Anderson to compensate investors.
 February 10th 2023 - Supreme Court bench (Chief Justice of India DY Chandrachud, Justice PS
Narasimha and JB Pardiwala) proposed the constitution of an expert committee to give
suggestions on strengthening the regulatory framework, while hearing two petitions which
sought investigation in the Hindenburg report. (Vishal Tiwari vs Union of India W.P.(C) No.
162/2023, Manohar Lal Sharma vs Union of India W.P.(Crl.) No. 39/2023)
 February 10th 2023 – Adani group hires Wall Street defense law firm New York’s Wachtell,
Lipton, Rosen & Katz for a solution to tackle the crisis it is facing after the report.
 February 13th 2023 – Solicitor General Tushar Mehta, expressed that the Union government
wishes to form a committee to determine whether modifications were required in the Indian
regulatory framework. He warned however, of unintentional messages to the international
investors or domestic investors that the Indian regulatory authorities need monitoring, may
have an adverse impact on money flow.
 February 14th 2023 – Writ petition filed in Supreme Court, seeking investigation against the
Adani Group in light of the Hindenburg report. The petition also seeks probe into LIC and SBI
for allegedly investing huge amounts of public money in the FPO of Adani Enterprises.
 February 15th 2023 – Petition filed by Dr. Jaya Thakur, General Secretary, Mahila Congress,
Madhya Pradesh, seeking investigation against the Adani group. Petition also seeks probe
into the role of Life Insurance Corporation and the State Bank of India for allegedly investing
huge amounts of public money in the FPO at a rate that is twice the market rate for those
shares in the secondary market.
 February 17th 2023 – Supreme Court bench (Chief Justice of India DY Chandrachud, Justice
PS Narasimha and JB Pardiwala) said that it will pass orders to constitute an expert
committee to review the regulatory mechanism in light of the Adani-Hindenburg issue.
Further they refused to accept the names proposed by the Central Government in a sealed
cover by the Solicitor General of India, Tushar Mehta, to maintain transparency.
  February 20th 2023 - Supreme Court refused to take on record a report published by Forbes
about share dealings of the Gautam Adani group.
 February 22nd 2023 – Serious Fraud Investigations Office sought circulation of a case
involving Adani Enterprises (AEL), its Chairman Gautam Adani and Managing Director Rajesh
Adani. The chargesheet alleges providing funds and shares to Ketan Parekh for running
illegal activities in the capital. Accused of cheating and criminal conspiracy. An unlawful gain
by the Adani group promoters and Ketan Parekh was made out of about 388 crores and 151
crores respectively. Matter has been fixed for final hearing on April 18th, 2023.
 February 24th 2023 – Supreme Court rejected a plea made by advocate ML Sharma to gag
the media from reporting on Adani-Hindenburg issue till the court pronounces the order.

DETAILS OF THE ALLEGATIONS MADE AGAINST ADANI

 Elara Capital (investment banking firm), which owned 1.7% of Adani Enterprises, was
accused of being part of Adani group’s plan to manipulate the share prices of companies via
Elara’s Mauritius based funds. Elara has since then disposed of 72% of their shares in the
company.
 Adani family members allegedly operate offshore shell entities in tax havens such as
Mauritius, UAE and the Caribbean Islands. Report further claimed that it had identified 38
Mauritius-based shell companies that are allegedly controlled by Vinod Adani or close
associates, and more that are “surreptitiously controlled” by him in Cyprus, UAE, Singapore
and several Caribbean Islands. Many of these companies have no “obvious” signs of
operations, Hindenburg alleged, with no reported employees, independent addresses,
phone numbers of online presence. “Despite this, they have collectively moved billions of
dollars into Indian Adani publicly listed and private entities, often without required
disclosure of the related party nature of the deals,” it alleged. Vinod Adani shells, according
to Hindenburg, serve a few functions including stock parking and manipulation, and money
laundering “through Adani’s private companies onto the listed companies’ balance sheets in
order to maintain the appearance of financial health and solvency”.
 Generate false import, export documentation to generate fake, illegitimate turnover and
siphon money off the listed companies.
 Also alleged that Adani Group chairman Gautam Adani’s younger brother Rajesh Adani and
brother-in-law Samir Vora played key roles in the diamond trading import, export scheme
around 2004-05 that involved the use of offshore entities to generate artificial turnover.
 Certain offshore entities held concentration position in Adani stock accounted for up to 10-
47% of the yearly delivery volume in Adani stocks. Citing their analysis, it termed it a massive
irregularity, and sought an explanation from Adani on the trading volume from this
concentrated group of offshore funds. It also said that the nature of trading suggests that
these entities are involved in manipulative wash trading and sought Adani’s response.
 The Hindenburg report raised questions on Adani’s close association with Amicorp despite
its proximity to the 1MDB international fraud scandal. It said Amicorp established seven of
Adani’s promoter entities, at least 17 offshore shells and entities associated with Vinod
Adani and at least 3 Mauritius-based offshore shareholders of Adani stock.
 Hindenburg alleged that Trustlink CEO, who has been alleged by the Department of Revenue
Intelligence (DRI) for involvement in a fraud using shell companies with Adani often touts its
 close relationship with Adani. It asked for the full details of the CEO’s dealings with Adani
Group.
 Hindenburg Research questioned the role of Vinod Adani, Gautam Adani’s elder brother,
who it accused of running a network of shell entities. It asked the company to give details of
the extent of Vinod Adani’s role in the company, deals and entities. It further asked the
company to reveal the number of Adani entities that Vinod Adani is a either a director,
shareholder or beneficial owner, and sought the details of Vinod Adani-associated entities’
dealings with private and listed entities in the Adani empire. It further asked the company to
elaborate the functions of the 13 websites that were formed on the same day with the same
set of “nonsensical services”. It also said, “One of the websites for a Vinod Adani-associated
entity claimed “we trade in Services such as sale and delivery of an intangible product, like a
Service, between a producer and consumer.” What does that even mean?”
 Hindenburg questioned the portion of Adani Green Energy that were sold to offshore
entities including Mauritius and Cypriot entities named in its report. It sought the details of
the full list of offshore entities that participated in the OFS deals. It also questioned Group
CFO Robbie Singh’s statements on June 16, 2021, when he said that the funds like the
Mauritius shareholders had not made fresh investments and had come to own shares of
other Adani stocks through vertical demergers. It said that evidence showed otherwise.
 Hindenburg's report also said five of seven key listed Adani companies have reported
current ratios, a measure of liquid assets minus near-term liabilities, of below 1 which it said
suggested "a heightened short-term liquidity risk". This means that the total amount of
current assets is less than the total amount of current liabilities in those companies. This is
not a healthy financial practice as this means that the companies are unlikely to have
adequate assets to pay off their liabilities in the short run.
 It said key listed Adani companies had "substantial debt" which has put the entire group on a
"precarious financial footing" and that shares in seven Adani listed companies have an 85%
downside due to what it called "sky-high valuations".
 Report also hinted at the deliberate pumping of Adani stock prices through excessive buying
pressure from companies that seem to be biased towards (or perhaps connected with) the
Adani group itself. Claimed that the delivery volume of Adani stocks may have been high
because of possible wash trading (ie. buying/selling of a share by the same or related entities
to pump up the trading volume numbers). Rumours regarding the involvement of the noted
stock manipulator Ketan Parekh have also been raised in the Hindenburg report.
 The report claims that one of the firms hired to book run the Adani Green Energy has had
past problems with the SEBI. Moreover, one of the independent auditors hired to audit
Adani Enterprise and Adani Total gas seems to be too small a company and comprising
professionals too young to be able to handle the auditing of such a large array of
companies.

ADANI’S RESPONSE TO THE REPORT

 Adani response included more than 350 pages of annexes that included snippets from
annual reports, public disclosures and earlier court rulings.
 Said that the report sought answers to 88 questions in its report but 65 of them were related
to matters that have been disclosed by Adani portfolio companies in annual reports.
 It denied any fraud or artificial pumping of prices.
 Regarding the issue of over-leverage, it claimed that its companies are highly rated and are
subject to scrutiny and monitoring by the government anyway, so there is not much scope
for irregularities here – overall, promoter leverage is less than 4% of promoter holdings.
 Of its 9 publicly listed entities, 8 are audited by the Big 6, except Adani Total Gas, which is
also set to follow the same route in auditing.
 Addressing the irregularity mentioned in the trading volume from the concentrated group of
offshore funds, the response said that the entities references are public shareholders in the
listed companies. Further stated that it has no control over who buys, sells or owns the
publicly-traded shares or how much volume is traded. It said that it has no control over the
source of funds for such public shareholders and is not required to have such information.
The conglomerate refrained from commenting on trading patterns or behaviour of public
shareholders.
 Further responded that Amicorp is a recognised firm that provides secretarial services to
various companies, including Adani. It said that it is not concerned with the “unrelated
scandals”, and accused Hindenburg of building a false narrative. It asked Hindenburg to
write to Amicorp for a response if it wishes to seek clarification about the scandal they
believe Amicorp is involved in.
 Adani group further defended Trustlink saying Trustlink provides secretarial services to
various entities and not just Adani. It further added that the Trustlink CEO is not a director in
any of the Adani entities. The company also took a jibe at Hindenburg and said that it took
an individual’s job listing on LinkedIn as “touts" a "close relationship”. It said that
Hindenburg lacks an understanding of laws in relevant jurisdictions.
 On the subject of Vinod Adani’s role in the company, the conglomerate had a common
response. It said that Vinod Adani does not hold any managerial position in any of the Adani
listed entities or subsidiaries. It said that Vinod Adani has no role in the day-to-day affairs of
the company, and hence these questions bear no relevance. The Adani Group added that it
is not in a position to comment on Hindenburg’s allegations on Vinod Adani’s business
dealings or transactions. It further added that all transactions by the Adani portfolio
companies have been duly identified and disclosed as related party transactions in
compliance with Indian laws.
 On the subject of offshore entities, the Adani group claimed that the allegations emerged
from a lack of understanding of Indian laws. Under Indian laws, all listed entities are required
to have a public shareholding of minimum 25 per cent. Shares of AGEL were listed after the
demerger from AEL in June 2018, and the company was required to comply with the
regulations within 12 months from the date of listing. “The process for OFS is a regulated
process implemented through an automated order book matching process on the platform
of the stock exchange. This is not a process which is controlled by any entity and the
purchasers are not visible to anyone on the platform,” it said, further adding that this
process is not controlled by the seller or the buyer. The purchaser of securities is also not
visible to the seller on the stock exchange platform, it said. The company said that the
shareholding pattern of AGEL, both pre- and post-completion of offerings for sale are
already disclosed to the exchanges.
PREVIOUS INVESTIGATIONS AGAINST ADANI

 August 2019 - Appeals before electricity regulatory authorities against a hike in tariffs by
Adani Power’s plant in Mundra, Gujarat, that had been granted in December 2018, have
reopened an issue that was presumed to have been settled by the Supreme Court.
 December 2019 – India’s National Anti-Profiteering Authority alleged that a joint venture by
Adani Realty and the M2K Group earned illegal profits by not passing on tax benefits to over
400 apartment-owners in Gurugram in Haryana.
 December 2019 – Reported that the provincial government of Kerala was seeking damages
over Adani’s failure to meet its deadline for completion of a new International Multi-Purpose
Deepwater port on west coast of India.
 January 2020 – CBI registered a case of cheating and corruption against Adani Enterprises
and a former chairman and an ex-managing director of multi-state cooperative National
Cooperative Consumers’ Federation for alleged irregularities in selecting a company for a
tender to supply coal to power stations in Andhra Pradesh. They were arrested under IPC
provisions relating to criminal conspiracy and cheating and provisions of Prevention of
Corruption Act.
 January 2020 - CBI filed a criminal case against Adani Enterprises Ltd for colluding with
officials of the National Cooperative Consumers’ Federation (NCCF) to unfairly win a contract
for supplying coal to an Andhra Pradesh government-owned company.
 January 2020 - Mumbai sessions court overturned a 2014 order of a lower court which had
discharged Adani Enterprises Ltd (AEL), its chairman Gautam Adani and managing director
Rajesh Adani for alleged cheating and manipulation of share prices of AEL through entities
controlled by Ketan Parekh, the stockbroker and main accused in India’s biggest stock
market scandal dating back to 1999-2000.
 January 2020 – Reported that top Indian coal-fired power generators Adani Power and NTPC
Ltd had sought two-to-three-year extensions of deadlines to install emissions-cutting
equipment at some plants, according to documents reviewed by Reuters, even as the
country battles rampant pollution. Highlighted in correspondences over the past year
reviewed by Reuters, the requests hadn’t previously been made public. They could set battle
lines between the power industry and the environment ministry ahead of a key Supreme
Court case on power plant emissions due in February 2020.
 January 2020 - The Opposition alleged that Modi overruled a Navy committee and broke
procurement rules to favour an Adani company’s bid in a $6-billion submarine project.
 February 2020 – Adani to plead guilty to giving false or misleading documents to an
administering authority. Fined USD 20,000 under the Environmental Protection Act
(Australia).
 March 2020 - CBI booked 25 companies including Adani group, on corruption charges
relating to supply of coal from Mahanadi Coalfields Limited. The investigating agency alleged
that the corruption caused the public sector unit a loss to the tune of INR 97 crore.

SEBI REGULATIONS and OTHER PROVISIONS

 SEBI Research Analyst Regulations 2014, provides that any person who wants to publish a
research report or act as a research analyst shall do so by obtaining a prior certificate of
registration from SEBI. The regulations further provide that in case any foreign person wants
to publish a report concerning securities listed on a stock exchange in India, it can only do so
by entering into an agreement with a research analyst in India registered with SEBI. The
regulations also define ‘research report’ as ‘any written or electronic communication that
 includes research analysis, a research recommendation, or an opinion concerning securities
or public offer, providing a basis for investment decisions.’ After taking into account that
Adani company stocks plunged after the publication of the report, it can be concluded that
the report acted as a basis for investors’ investment decisions. Since Hindenburg did not
enter into any such agreement with a research analyst registered with SEBI, Hindenburg is in
violation of the abovementioned regulations.
 Section 12A of the SEBI Act, prohibits manipulative and deceptive devices for issuing,
purchasing, or selling securities listed or proposed to be listed on any recognized stock
exchange in India. The section has to read along with Regulation 4 of SEBI Prohibition of
Unfair and Fraudulent (“PFTUP”) Regulations, 2003, which states that “dealing in securities
shall be deemed to be manipulative, fraudulent, and unfair if it involves disseminating
information or advice through any media, whether physical or digital which the disseminator
know to be false or misleading recklessly or carelessly and which is designed to, or likely to
influence the decision of the investor dealing in securities.” In the case of N Narayan v. SEBI,
SC held that the objective of the above provision was to curb market manipulation. The term
market manipulation means unwarranted interference in the operation of ordinary market
forces of supply and demand that undermines the integrity and efficiency of the market.
Further, the SC in the case of Pooja Menghani v. SEBI held that even though the term unfair
has not been defined in the Regulations. However, trade dealing is “unfair” if the conduct
undermines ethical standards and good faith dealing in business transactions. Hindenburg
released the report on its website, which influenced the decision of the investors dealing in
the securities of Adani. The report's release, moreover, led to interference in the ordinary
market forces. The short positions by Hindenburg in listed companies of Adani portfolio
indicates bad faith in business dealings. Therefore, Hindenburg has violated PFUTP
Regulations.
 In Pan Asia Advisor v. SEBI, Supreme Court held that SEBI has the mandate to proceed
against persons who are not corporally present within India. In case, the acts committed by
them affect the interest of Indian investors. This indicates that the protection of Indian
investors amounts to sufficient nexus for SEBI to initiate proceedings even when the
underlying act takes place outside India.
 In Haridas Exports v. All India Float Glass Manufacturers Association, the Supreme Court held
that the MRTP commission would have jurisdiction to pass orders if the transaction was
executed outside India if the effect of the transaction resulted in a restrictive trade practice
in India. Thus, SEBI has jurisdiction to initiate proceedings against Hindenburg, even if it is
based in the U.S., if the allegations against Adani are found to be misleading.
 India and US both are members of the International Organization for Securities Commission,
an international body that brings together all the securities regulators and sets standards for
the securities sector. In May, 2002, the signatories of this Commission entered into a
multilateral MOU for mutual assistance and exchange of information of their respective laws
and regulations of the jurisdiction of authorities.
 The SEBI Act, under Section 24B, prescribes the power of the Central Government to grant
immunity to entities which make a full and true disclosure in respect of the alleged violation,
subject to such conditions as it may think fit to impose. The provision provides that such
power must be exercised in consultation with SEBI. For this to apply Hindenburg must make
an application to such an effect and prove their allegations with solid evidence to enable
SEBI to arrive at reasoned findings. The SEBI must arrive at a conclusion that the report was
in the form of a market intelligence and was thereafter used for orderly development of
Indian Securities Market. The Supreme Court has held that fraud vitiates all past acts which
 are a consequent of such fraud. Hence, if a case of fraud is established against Adani,
Hidenburg gets off the regulatory hook.
 Suit for defamation under Section 499 of the Indian Penal Code.
o Edelweiss Financial Services filed a lawsuit against Moody’s Corporation, a global
rating agency, in Bombay High Court in 2020, seeking USD 100 Million in damages
for misreporting some of the company’s data in one of the investor reports the
company had produced. Moody’s produced research in May 2020 (Economic
Slowdown Worsened by Coronavirus will Exacerbate Liquidity Stress), that analysed
and compared the asset quality and liquidity of a variety of non-banking financial
entities. Edelweiss argued that Moody’s had malicious intent when it published an
inaccurate report with the goal of inciting panic among shareholders and causing
damage to their brand and share prices.
o In Union Bank Guarantee Company v. Thakorlal Thakor (1935) 37 Bom LR 1033, a
defamation suit was filed by the company against the defendant for libel action
claiming that injury to its credit and reputation as well as in the way of its business
has been caused by way of certain statements which according to the plaintiff were
false and malicious and it was further claimed that the said false were published or
caused to be published by the defendant. Claim was allowed by the Bombay High
Court, held that, the words used in a manner to negatively reflect upon a company
in relation to its trade and business, with the intent to cause harm to the company,
are actionable without proof of special damage. In case the defamatory statements
refer to the character or reputation of its officers, special damage must be proved.