The Adani affair: Collapse of regulatory structures People's Commission on Public Sector and Public Service - Statement 10.02.2023
Extracts: SEBI’s own “investigations” into the use of shell companies has been going on for almost two years without any tangible progress. This is indeed serious because it reflects at best either lethargy, carelessness and dereliction of basic regulatory duties, or, at worst, a permissive regulatory regime that encourages cronyism.
Recent media reports reveal that the authorities in Mauritius have been in touch with SEBI, indicating that SEBI may well know or may have already been in the know about the true identities of “beneficial owners” in entities that own shares of the Adani companies.
Answering a Rajya Sabha Question on shell companies on February 6, 2018, the Corporate Affairs Minister stated “The Companies Act, 2013 does not define the term Shell Company. In effect, the Union Government, by conceding that it has no laws to check the abuse of shell companies, has accepted that it has no interest in establishing structures that promote transparency in markets that ensure that the identities of the true beneficial owners of companies are visible to all instead of hiding behind opaque walls.
To make matter worse, the Government’s decision of August 2022, deciding to allow Indian corporate entities to invest in foreign locations, provides ample scope for Indian entities to use shell companies located in tax havens to indulge in round tripping, a mechanism that enables the rerouting of black money into the Indian economy. The decision also permitted domestic entities to make overseas investments, even if they were under investigation by any investigative agency or regulatory authority, a provision that opened the overseas doors for tainted individuals and companies to continue with round tripping. This raises concerns about the motives underlying the decision
The Adani fiasco highlights the futility of the government’s reliance on private global champions to power the Indian economy. Moreover, such a misplaced reliance necessarily rests on a culture of “cronyism”, while holding back the potential of publicly-owned Central Public Sector Enterprises (CPSE).
There is widespread apprehension that many corporate entities appear to be operating through a multi-layered and complex web of shell companies set up in tax haven jurisdictions. This has the effect of creating a shadow economy, which enables them to not only evade taxes in India, but to manipulate markets, pass on funds to political parties through opaque vehicles such as Electoral Bonds, and mock at regulatory norms. The power to influence the political executive to adopt policies and laws that promote their own interests, and to the overall detriment of the public interest, is simply unacceptable to a functioning democracy.