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Role of Banks and DRI in the Hidenburg-Adani Tussle - PART II

Updated: Feb 9

by Aditi Singh *

The previous part detailed the failure of SEBI in preventing the Hindenburg-Adani tussle, this part details the role of Banking Institutes and DRI in the tussle. Further, the suggestive framework highlights how the system can be improved and provide a better space for investors and research institutes.


The Hindenburg-Adani feud has shaken up the banking institutions. The failure to notice the over-debtness, questions the vigilance of the banks before granting loans to multi-millionaires. The heightened drawing and leverage of the Adani group were previously highlighted by research groups like CreditSights. It called the Group “deeply over-leveraged” and suggested it could “unravel Adani’s vast business empire”. The Indian banking system contributes to 38% of the borrowings of the business.

The effect on the banking system is not only limited to lending and borrowing but also to the extent of the falling of Adani shares. The public banks invested heavily in the Adani group, thus owing to the volatility of the market and the sudden fall of shares, the investments of the banks, have been severely affected. The cash flow has not yet been stopped but the stock price has been shot down. In any case, if the Adani Group fails, it will lead to a Non-Performing Asset crisis in the Indian banking system. Though RBI has re-confirmed the stability of the public sector banks like Punjab National Bank (PNB) and State Bank of India (SBI), the dependency of the institutes on a private entity that hangs by the thread is a concern for India’s economic position.

The speculation against the loan given by SBI to an Australian subsidiary of Adani Group, questions the mechanism of lending and borrowing followed by the SBI. The Memorandum of Understanding (MoU) has been put under public scrutiny to ensure the activities of Adani are investigated in a proper manner. Though the banks are insulated from any repercussions of the failure of the crisis, the fact, that the banks failed to enquire properly into the accounts of Adani, clearly portrays a failure of the regulatory function of the banks. Besides the primary functions of borrowing and lending the banks need to upwork their regulatory mechanism to successfully assist India’s economy.


The Department of Revenue Intelligence (“DRI”) was also not spared the wrath of the Hindenburg-Adani feud. The involvement and previous decisions of the DRI put forth the loopholes in the executive functions of the system. The Managing Directorate of Adani Exports was involved in the Diamond scam of 2004-2005. The same was upheld by the DRI. Usually, when an executive is accused of being the brains behind a plot to cheat the government and is repeatedly detained on suspicion of various fraud-related offences, that executive is fired. In certain nations, they are imprisoned. Even after being involved in a scam, the directorate continued to operate as the Managing Director.

The involvement in fraudulent exports was not an unknown fact. The same was recognized by Parliamentary Ombudsman in 2011 through the Karnataka-issued report, detailing the various methods used by the people involved in the mining industry to illegally lift, transport and export iron ore. Adani’s involvement was not only reported but also, asked to be investigated by DRI. The investigation and the result of the same were never disclosed, making the Department suspicious of fulfilling its duties towards an impartial mechanism of preventing corruption. Further 2014, DRI conducted a full-fledged investigation against the conglomerate for “grossly over-valued imports”. However, the charges and evidence were dropped in an appeal in July 2022. The actions of the Adani group being either side-lined or ignored consistently by several authorities suggests a significant lapse and ignorance.



The Hindenburg-Adani feud has developed a sense of suspicion over the regulatory bodies in the country. The countrymen and the investors need their trust to be restored in the regulatory bodies. To uphold the transparency and efficiency of the regulatory bodies, the Hindenburg-Adani feud was referred to the Supreme Court by way of Public Interest Litigation (“PIL”).

The Supreme Court while listening to PIL, filed for the sudden loss of money by investors, and put forth a committee to ensure a “robust framework” for the protection of the rights of the Indian investors. A bench consisting of the Chief Justice of India, DY Chandrachud, Justices PS Narasimha and JB Pardiwala had expressed the court’s concerns towards “examining, strengthening of the regulatory mechanisms to ensure that Indian investors are protected against the volatility, the kind of which was witnessed in the recent few weeks”. The Supreme Court suggested formation of a committee, to allow a fair and transparent probe into the tussle.

The Committee, ideally should serve a four-fold purpose. First, the committee should look into the factors that led to the current failure, and the reasons and viability of the “market volatility”. Second, the participation and contribution of the regulatory bodies need to be examined by the committee. Third, owing to technological advancements, the Supreme Court requested reform in the regulatory vigilance and efficiency of bodies like SEBI. Lastly, it should come up with ideas that improve investor awareness in the country. The four-fold objective of the Committee, once fulfilled properly, will ensure an efficient working mechanism and investor protection in India.

Additionally, SEBI needs to improve its working mechanism. The time taken for resolving issues and completing investigations should be effectively reduced. With businesses entering into a globalized system, the extra-territorial effect of SEBI’s powers should be examined. The powers of SEBI to curb an international organization in case of violation of the guidelines and rules should have a single-handed framework of resolution. The case of Pan Asia Advisor v. SEBI, allows SEBI to proceed against entities that do not have a corporeal presence in 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.

International enforcement of domestic orders should be put in place. India being a party to International Organisation for Securities Commission (“IOSCO”), an international body that brings together all the securities regulators and sets standards for the securities sector, makes the job easier for courts. An effective implementation of the guidelines of IOSCO would help develop international relations to securities regulatory bodies. Mutual assistance between countries would ensure adherence to international standards of transparency.

The current mechanism of regulation in India is theoretically in place. The same needs to be brought into effective use properly. An efficient executive mechanism would allow the bodies to function and help regulators to identify the practical impact that technological developments have had and the regulatory issues to which they may give rise



The Hindenburg-Adani dispute has flagged several disputes and questions on India’s regulatory framework. The allegations against any of the parties are yet to be proved, but the incident has sparked a need of strengthening the executive mechanism. Administrative efficiency has to be maintained in the country. The legislative, executive and judicial powers of the arms of the Government must be separately maintained. An excellent example of how the judiciary checks the powers of the executive and legislative branches of government is the Supreme Court's request for a thorough examination and regulation of the Indian stock market situation, which has lost the trust of Indian investors over the past week. The Supreme Court also recommended the formation of an expert panel to evaluate the situation.

The court and the authorities have realized the graveness of the situation and have been working on restructuring the Indian regulatory system. Adani Enterprises, Adani Ports and Special Economic Zone, and Ambuja Cements are three Adani group firms that have been subject to the BSE and NSE's short-term additional monitoring measure (ASM). This practically indicates that a 100% advance margin would be needed for intraday trading in these equities.

The report has triggered a larger debate about Indian corporations’ business practices and the requirement for greater accountability and transparency. In the words of Union Finance Secretary TV Somanathan, India has a sound financial market infrastructure with strong regulators, and it is the safe trading place that will not be affected by one individual company. The Court stated that it did not want to “cast doubt on any regulatory system” or “get into policy issues”, but rather to safeguard Indian investors. The Adani-Hindenburg tussle is the beginning of a structured regulatory framework in India.

The problem in India is not about the lack of legislative framework, it is about the regularized implementation of the same. Requiring that markets have adequate levels of trading transparency is key to the efficiency of the price formation process and the maintenance of confidence on the part of participants. The article not only highlighted the failure of various regulatory bodies, but also laid down a prospective framework that could assist India in strengthening its financial regulation

*Aditi Singh is a fourth year student at National Law University Visakhapatnam at the time of publication of this blog.

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