It is no secret that the majority of Indian companies that begin as family-run enterprises never go beyond their roots. The controlling owners, their relatives, and their private businesses are often the first points of contact as suppliers, contractors, consultants, and purchasers, sometimes to the cost of minority investors, even when they become big and go public.
The nation has enacted, and regularly modified, a comprehensive set of rules on the disclosure of related-party transactions during the last eight years. But does corporate behaviour reflect the spirit of the law? Perhaps not. Although opinions in the financial and legal communities are divided, at least some of the professionals I spoke with think that Paridhi Adani, the chairman’s daughter-in-law and India’s top infrastructure player, should have been more open about working with a law firm.</p> <p>A separate family member was the target of a short seller assault on the Adani Group earlier this year. Vinod Adani, the elder brother of businessman Gautam Adani, was the target of New York-based Hindenburg Research, which questioned his connection to the group. The younger sibling’s Indian empire is supported by the Dubai-based businessman’s “labyrinthian network” of shell companies, according to Hindenburg, by “surreptitiously moving money.” Vinod Adani has no management positions in any Adani listed firms or their subsidiaries and has no involvement in their day-to-day operations, the group said in its reply, adding that all transactions with linked parties had been properly recognised and declared.</p> <p>But it could be necessary to take Paridhi Adani’s role differently. Paridhi is the head of the Ahmedabad office of Cyril Amarchand Mangaldas, or CAM, a prestigious Indian legal company. Karan Adani, the elder of Chairman Gautam Adani’s two sons and the head of the ports business, is married to Paridhi. The two authorised partners of Adani Infracon LLP are she and her husband. In response to my emails, a CAM representative said that the advocate is “not a director nor holds any position of any nature in the business of Adani Group,” and that Infracon is “a personal entity currently holding art objects.”</p> <p>However, maybe even more essential than that is the fact that she promotes her participation in M&A activities on the website of her law firm, which is, in my opinion, crucial to the financial stability and market value of Adani. The organisation hasn’t disclosed her or her law firm as a linked party, though, or labelled the transactions as involving related parties.</p> <p>Despite the conglomerate’s denials of all of Hindenburg’s allegations, the $150 billion market worth loss that followed over the course of just over a month prompted India’s Supreme Court to form an expert committee. It was tasked with determining if there had been any regulatory lapses in handling “the alleged contravention of laws pertaining to the securities market.” One of the topics the panel examined was related-party transactions. The short seller claims that six important Adani Group listed companies had a combined total of 578 subsidiaries and 6,025 such transactions in the fiscal year that ended in March 2022. Why are there so large numbers? In response to Hindenburg, Adani said that financiers and regulators in the infrastructure sector insist on housing distinct projects in multiple firms.
The Securities and Exchange Board of India has a limited amount of time to examine all the transactions detailed in the Hindenburg report since the court has ordered it to wrap up its investigation by August 14. However, there could be a quick and easy approach to get a sense of India Inc.’s possible disclosure shortfall: Look at someone who was not mentioned in either the group’s Jan. 29 reply or Hindenburg’s Jan. 24 report. Adani, Paridhi.</p> <p>Three prior transactions are shown under CAM’s professional experience on the website:<br /> The purchase of 75% of Krishnapatnam Ports by Adani Ports & Special Economic Zone Ltd. was finalised in October 2020, and the solar joint venture between Adani Green Energy Ltd. and TotalEnergies SE began operations in the same month. In February 2020, the massive French energy company acquired a 37.4% share in the company that is now known as Adani Total Gas Ltd.
But there is no indication of using a legal firm where a close relative is a partner in the annual reports of Adani Ports, Adani Green Energy, or Adani Total Gas (or its predecessor, Adani Gas). Paridhi does not appear in the section “Key managerial personnel and their relatives” in disclosures, unlike Gautam, Karan, Rajesh, Gautam’s younger brother, Sagar, and Vinod’s son Pranav.</p> <p>Although this omission could be problematic in and of itself, the fact that Paridhi Adani is Cyril Shroff, managing partner of CAM, raises further questions. The company, together with Paridhi Adani, also took part in the massive purchase of Holcim Ltd.’s Indian cement division by the Adani Group last year. To be clear, neither the attorney nor her business are required to inform the market regulator of their affiliation.</p> <p>The central question in the case is whether the in-laws were forthcoming about her (and her firm’s) involvement in their company. When I presented the subject to the legal and accounting experts I talked with as a hypothetical, they responded in various ways. One claims that Paridhi Adani ought to have been identified as a connected party. A second disagreed, stating that she didn’t engage with publicly listed firms directly, but added that since her daughter-in-law is a partner at her company, the firm is considered a connected party under Indian law. Until it can be shown that she had considerable influence over CAM, according to a third expert, neither party has that status. A fourth argued it would be sufficient if any Adani directors who were linked to her at the time they decided to issue the M&A mandates had recused themselves.
In response to my inquiries concerning the absence of disclosures, an Adani representative responded, “We strongly maintain that the presented results and conclusions are deceptive and do not demonstrate adequate knowledge of the Indian regulatory system and its disclosure obligations. It is significant to highlight that under all applicable rules and regulations, Ms. Paridhi Adani, Partner at Cyril Amarchand Mangaldas (CAM), does not meet the definition of a connected party. In accordance with regulatory obligations, CAM and all of its partners provide professional services to the Adani Group, and we have made all appropriate disclosures in this respect. The Adani portfolio of businesses engages and maintains professional connections with many international and Indian legal firms to satisfy our business needs. You’ve made baseless accusations and suppositions about CAM or any other law firm’s partners having possible conflicts of interest.</p> <p>The most recent full-year results were the inspiration for my inquiries to the group on possible conflicts of interest.</p> <p>The group had reviewed the transactions mentioned in the short seller’s report, according to a note that was attached to Adani Green Energy’s financial statement as of May 1. Additionally, the group had “obtained opinions from independent law firms in respect to evaluating relationships with parties having transactions” with the holding company and its subsidiaries. It was determined that everything complied with the law.</p> <p>However, the phrasing used in Adani Total Gas’s financial reports a day later was considerably different. The business said in the notes to the accounts that the Adani Group has reviewed the transactions mentioned by Hindenburg after an independent evaluation by a legal firm. The company’s compliance with all relevant rules and regulations is confirmed by the report.
Does this imply that Adani Total Gas received its legal opinion from a non-independent firm? Was it possible that came from CAM? I questioned Adani Group. Their response, which is quoted above, did not specifically answer this query. Again, there is no indication that CAM behaved improperly even if it did express an opinion.</p> <p>The auditor’s remark on Adani Total Gas’s performance reaffirmed the management’s stance but added that “we are unable to comment on the possible consequential effects thereof, if any, on this statement” until court cases and regulatory investigations are over. With that, Shah Dhandharia & Co. resigned their commission “due to increased professional preoccupation” rather than “an inability to obtain sufficient appropriate audit evidence,” it claimed. The business had just been given a second five-year auditing mandate last year.
My emails to the auditors asking which legal firm’s evaluation was used went unanswered. The Adani Group has already informed the news website The Morning Context that it is not required to divulge the specifics of the attorney’s report. However, the conclusion of the Hindenburg claims is still being awaited by investors, creditors, and partners. Following the short seller’s claim, France’s Total suspended its multibillion-dollar plan to manufacture green hydrogen with Adani.</p> <p>When Deloitte Haskins & Sells LLP expressed concerns over Adani Ports’ May 30 results, the related-party issue erupted once again. The auditor said that it was unable to determine that three businesses, with which the port unit had dealings, were indeed unconnected as the corporation claimed. Furthermore, it claimed that the legal assessment the organisation had requested about the validity of Hindenburg’s claims was inadequate for the audit. According to Bloomberg News, it provided a “qualified opinion” that approved the books.</p> <p>The stock market watchdog mandated publicly listed companies to disclose transfers of resources involving directors, senior management people, or their family, regardless of whether money had changed hands, under its listing responsibilities and disclosure rules from 2015. Both the regulations for deals that just needed disclosure and those that required shareholder approval were tightened by the SEBI last year.
All of this points to a governance arc that is improving. How would the SEBI ever learn the truth about the short seller’s allegations concerning Vinod Adani’s claimed (and purportedly more sophisticated) participation, however, if experts can’t even agree on whether straightforward transactions with Paridhi Adani’s legal firm should be declared and how? It is obvious that there is a problem with the rules. The solution does not lay in further entangling the spirit of the law in a sea of regulations. The regulator must establish the concept it intends to defend from scratch. The market will then judge whether or not a transaction is fair. The SEBI must pursue the failure to disclose them in its enforcement action.
A legal company whose partners Adani directors have links to offers a possibility for conflict, according to common sense. A company the magnitude of Adani does not care about the legal expenses paid to CAM. However, India Inc.’s disclosure culture, or lack thereof, should be.
