US District Court’s indictment of Gautam Adani Raises concerns about the failure on the part of the Central Government, SEBI and other institutions

To

Smt Nirmala Sitharaman

Union Minister of Finance

Dear Smt Sitharaman,

I refer to the US District Court’s indictment of Gautam Adani and several others, that they committed acts of malfeasance both in India and USA, keeping investors in both countries in the dark about bribery and fraud (https://www.justice.gov/usao-edny/media/1377806/dl?inline) and US Security Exchange Commission (SEC)’s charges against Adani (https://www.sec.gov/newsroom/press-releases/2024-181).
Both the US District Court and the SEC being judicial authorities in the USA, the latter being the counterpart of SEBI in India, their charges and the indictment cannot be summarily brushed aside, as is usually done by you and your colleagues. The indictment is based on a painstaking evidence-based investigation carried out by the FBI both in the US and in India.

US SEC’s trigger for action against the Adani Group was to protect the interests of the US investors and deter corruption by its citizens in India. I wish the Ministry of Finance, SEBI, CBI, ED and other institutions in India had similarly acted to protect the interests of our own investors including the PSU banks over which you exercise administrative control and, more importantly, to protect the interests of the Indian tax-payer whose taxes fund the public exchequer.

Being in a state of constant denial and defence, your Ministry seems to have slipped into an inexplicable state of paralysis, hurting the interests of domestic investors and domestic tax-payers.

The Adani matter, unfortunately, raises serious concerns of a total breakdown of institutions, both at the Centre and in the States, that has had the cumulative effect of defrauding domestic taxpayers and hurting the interests of millions of unsuspecting electricity consumers across the country. 
Let me list out the concerns as I see them:

1. The Ministry of Power (MOP) has deliberately created scope for corruption in the solar sector by issuing illegal directives under Section 11 of the Electricity Act of 2003 to State power utilities to absorb a minimum of 10% of their power requirement, irrespective of cost, from centralised solar power plants set up by corporates like the Adani Group and the foreign-based Azure, both specifically arraigned in the indictment. It is ironic that MOP should encourage corporates setting up large centralised solar plants in preference to decentralised systems like rooftops and solar-driven irrigation pumpsets, despite the fact that the former are inherently uneconomical as they operate at low load factors, involve high investments and T&D losses, result in heavy delivery costs at the consumer-end and deprive consumers of the additional income they would have earned by selling surplus electricity to the grid. If one were to review the details of those corporate solar plants during the last decade, it would become clear how there was all round political corruption revolving around the setting up of most of those plants. MOP even tried to incorporate a regressive “Renewable Energy Obligation” clsuse in the ill-fated Electricity (Amendment) Act, 2022, with the obligation escalating year after year, imposing an unconscionably heavy cost burden on consumers. MOP’s sole objective seemed to help corporates at the cost of consumers.
2. Acting in tandem with MOP, the Ministry of New and Renewable Energy (MNRE) indiscriminately granted subsidies/ subventions to profit-earning corporates including Adani Green and Azure, by launching dubious schemes such as PLI/Viability Gap Funding (VGP), without insisting that those corporates should supply electricity at prices that ordinary electricity consumers can afford. From the websites of MNRE (https://mnre.gov.in/) and SECI (https://www.seci.co.in/), it is clear that the Adani Group was paid Rs 863 Crores of PLI subsidy and Azure was paid VGF of Rs186 Crores, all from the budget funded by taxpayers and approved by the Parliament. In other words, the tax-payer’s money is channeled into subsidies on one side and he along with other consumers is forced to buy expensive electricity on the other, amounting to a double whammy for him. MNRE did not care to ensure public accountability.
3. The Solar Energy Corporation of India (SECI), controlled by MNRE, became an unsavoury broker for buying expensive electricity from those very same corporates and forcibly selling it to State power utilities, which in turn created scope for some political leaders in the States to negotiate bribes with those corporates for imposing such expensive electricity on unwary and long-suffering consumers. 
4. It is surprising that the CERC and the State ERCs, expected to act as custodians of consumers’ interests, chose not to act against State utilities buying such expensive electricity. They became mute spectators to consumers being subject to open plunder by those corporates.
5. Reports that the SEC and other US agencies had undertaken investigations against the Adani Group appeared almost a year ago. Had SEBI, overseen by your Ministry, cared to act, in the interest of safeguarding our own stock market investors, it would have contacted its counterpart, SEC immediately and initiated action on time but, for evident reasons, it did not, nor did you ensure it did! Did the Adani Group and Azure make disclosures on this to SEBI as required under the Act? Has there been a breach on the part of SEBI of its own obligations? These are important questions that SEBI should answer.
6. There were accusations that the chairperson of SEBI had indirect links to the Adani Group but, once she gave herself a clean chit and chose to ignore the conflict-of-interest requirements under the SEBI Rules, you and your esteemed colleagues chose to adopt a sphinx-like stance, despite the fact that the public credibility of the domestic stock market would depend critically on the credibility of SEBI as an institution. It is ironic that SEBI should enforce rigorous corporate governance norms on everyone else other than itself and the Adani Group! I had written to you on this more than once but you chose not to act.
7. There were other investigations on hand with SEBI against the Adani Group but they are yet to see the light of the day. Is there an invisible hand influencing SEBI?
8. At the drop of a hat these days, CBI/ED/DRI/Income Tax authorities seem to swing into action whenever it comes to politicians in opposition but, in the instant case of Adani, they too chose not to act on allegations reported one year ago. There were ongoing investigations against the Adani Group on over invoicing of coal and over-invoicing of power equipment, import of solar panels, signing of Power PurchaseAgreements (PPAs) for solar plants and so on, which too have been put on the backburner. 
9. Electricity consumers in India are defrauded in many ways. Yet another example of this is the manner in which the Ministries of Coal and Railways created an artificial coal shortage across the country during the last few years and MOP once again jumped into the fray by invoking its non-existent authority to issue Section 11 directives to State power utilities to fill the gap by importing coal, knowing well that it is the same domestic corporates who owned overseas coal mines from which they would supply coal at astronomical prices to State power utilities, once again imposing a huge cost burden on electricity consumers. It has been a well orchestrated all-round scam in which both the Central and the State political leaders have had a role. The coal shortage continues to flourish and so does the scam. The loser in this sordid saga is the unwary electricity consumer.

Against this background, it appears to me that Gautam Adani has ensconced himself in a somewhat impenetrable fortress which the present government at the Centre and several institutions are guarding zealously, instead of protecting the public interest and the national interest. 

The cheerleaders of the political executive continue to defend and justify what Adani Group is doing, trivialising it to imply that the scam is confined to opposition-ruled States, as though the Centre had no role in it. They are also giving it a “nationalistic” colour, projecting the Adani Group as a symbol of India’s “sovereignty” and any “foreign” threat to it would amount to an onslaught on our sovereignty. By this, they are deliberately obfuscating facts and misleading the public.

When senior public functionaries at the Centre, during their overseas visits, often cite those very same big business conglomerates as representing the business strength of the country, any visible sign of corporate misgovernance on the part of those conglomerates would dent the nation’s credibility. Sooner we institute a meaningful investigation, the better it would be for maintaining India’s credibility abroad. 
Irrespective of whether big businesses do well or not, the ultimate test of good governance on the part of the government is to what extent it has enforced the rule of law and to what extent it has safeguarded the public interest.

The fact that the Ministry of Finance has chosen not to act on earlier accusations against SEBI and others gives me the feeling that even if the Ministry undertakes a belated enquiry now, it will lack public credibility. 

As soon as the US Court indictment against the Adani Group came into the public domain, some of us forming part of the People’s Commission on Public Sector and Public Services (PCPSPS), engaged in a continuing discourse on the role of the public sector and the efficacy of public services, have issued a widely circulated statement (https://reclaimtherepublicin.wordpress.com/2024/08/16/appoint-an-independent-commission-headed-by-a-member-of-judiciary-into-the-hindenburg-sebi-accusations-to-protect-the-integrity-of-domestic-capital-market/), denanding that, 

under independent judicial oversight, a comprehensive investigation be undertaken on the Adani matter by CBI/ED/DRI/ CBDT and other investigating agencies on the basis of evidence gathered from domestic and overseas sources, on the circumstances that led to MOP adopting such a people-unfriendly, pro-corporate policies and issuing such illegal directives to State power utilities, which facilitated corruption and fraud, quantify the cost burden imposed as a result on electricity consumers so that they could be adequately compensated, suggest the quantum of deterrent penalties to prevent occurrence of such scams in the future, also enquire into the role played by different Central Ministries, institutions such as SEBI and others and suggest deterrent action and corrective measures to be taken in the future. We have demanded that the enquiry findings be placed before the Parliament within six months.

In my view, the Ministry of Finance cannot afford to ignore our concerns. Obstinately continuing to defend the Adani Group and continuing to justify the roles played by SEBI, MOP and others would further eode the trust reposed by the people in the government.

I believe that the above cited concerns are of such a serious nature that it will generate a public debate and discussion. 

I am circulating this letter to the C&AG for conducting a comprehensive audit on the basis of the above concerns.

I am circulating this widely among the public for an informed discussion and debate. 

Regards,

Yours sincerely,

E A S Sarma

Former Secretary to the Government of India

Visakhapatnam