International Tax Panorama

Markets regulator Securities and Exchange Board of India (Sebi) is reportedly looking into possible violation of ‘related party’ transaction rules in the Adani Group’s dealings with at least three offshore entities, which are said to have links to Adani group founder Gautam Adani’s elder brother, Vinod Adani.

The three entities allegedly entered into several investment transactions with unlisted units of the Adani Group over the last 13 years.

Vinod Adani is either a beneficial owner, director or has links with these three offshore entities. Sebi is now probing whether lack of that disclosure violated ‘related party transaction’ rules.

The three offshore entities with alleged links to Vinod Adani being probed for ‘related party’ transactions are Mauritius-based Krunal Trade and Investments Ltd and Gardenia Trade and Investments Ltd, and Electrogen Infra in Dubai.

What are “related party transaction” rules?

As per Indian laws, direct relatives, promoter groups, and subsidiaries of listed companies are considered related parties. A promoter group is defined as “an entity that has a large shareholding in a listed company and can influence company policy”.

Transactions between such entities have to be disclosed in regulatory and public filings at the bourses and require shareholder approval above a specified threshold. If such norms are violated, the involved companies can be asked to pay monetary fines.

Vinod Adani is a member of the Adani family and is part of the promoter group, but he does not hold any managerial position in any of the listed Adani entities or their subsidiaries.

This fact, like all other material information required to be reported, has been disclosed to the regulatory authorities in the past and also as and when required.

Background: The Hindenburg Report

The probe comes after U.S. short-seller Hindenburg Research’s Jan. 24 report alleging improper use of tax havens and stock manipulation by Adani Group, among other things – charges it has denied.

Hindenburg’s report eroded more than $100 billion in the value of shares in Adani group of companies.

India’s Supreme Court asked SEBI in March to investigate the Adani Group for any lapses related to public shareholding, related party rules or regulatory disclosures.