A recent column by Bloomberg Opinon’s Andy Mukherjee focussed attention on potential issues of conflict of interest arising out of the position held by Adani Group Chairman Gautam Adani’s daughter-in-law Paridhi Adani in a top Indian law firm that frequently advises companies in the Adani Group. In this article, AdaniWatch asks why the group appears not to have disclosed potential conflicts of interest in certain major deals.
The absence of disclosure could impact the interests of minority shareholders in Adani Group companies. Potential conflicts of interest are of national concern in India because the Adani Group manages large assets in the country, including more than a dozen seaports and airports.
Paridhi Adani is married to Gautam Adani’s son Karan Adani, the Chief Executive Officer (CEO) of Adani Ports and Special Economic Zones (‘Adani Ports’). She is the daughter of Cyril Shroff, the managing partner of Cyril Amarchand Mangaldas (CAM) – a top Indian legal-services firm specialising in corporate law that frequently advises companies in the Adani Group. She is a partner in the firm.
The Companies Act and ‘related parties’
The Companies Act of 2013 provides a broad definition of the term ‘related party’. For any particular company, the definition of ‘related party’ includes other companies that may be part of the same corporate structure, including holding companies, subsidiaries, associate companies, other companies that are subsidiaries of the same holding company, and investing companies. It includes the company’s directors and key managerial personnel, as well as their relatives, and other companies or firms in which a director, manager or their relatives are partners, members (or shareholders) or directors.
Further, the Act’s sections on ‘related parties’ pertain to public companies in which any of the company’s directors or managers are a director or hold, with their relatives, more than 2% of its paid-up share capital. The definition includes any other company whose board of directors or management are ‘accustomed to act in accordance with the advice, directions, or instructions of’ the company’s managers or directors, and any person on whose advice, directions, or instructions a director or manager is accustomed to act. A caveat to the clauses on ‘advice, directions and instructions’ clarifies that they exclude advice, directions or instructions given in a ‘professional capacity’.
The Act specifies the meaning of the term ‘relative’ to include spouses, parents, step-parents, siblings (including step-parents and step-siblings), children and children’s spouses.
Simply put, the definition of ‘related party’ is expansive, and intended to capture all connections to a company. The significance of the concept of the ‘related party’ is that various disclosure requirements are fixed to the definition and mandate the extent of disclosure to the various regulators. The various disclosure requirements are explained below.
First, companies must disclose related-party transactions in their financial statements, which are audited and submitted annually to the Ministry of Corporate Affairs (MCA) in the government of India. Publicly-listed companies or companies whose shares are listed on stock exchanges must obtain consent from their shareholders and from their audit committees constituted by their boards of directors for every related-party transaction. Such companies must provide six-monthly statements to relevant stock exchanges of all ‘related party’ transactions they have engaged in.
Second, this arises in the financial statements of companies. Section 133 of the Companies Act specifies that the government can notify Accounting Standards as recommended by the Institute Chartered Accountants of India (ICAI). The Indian Accounting Standards notified by the ICAI under this section specify how ‘related party’ transactions are to be dealt with in a company’s financial statements. The MCA’s detailed guidance on Accounting Standard 18, that explains which related party transactions are to be disclosed and how, can be accessed here.
Next, there are requirements for disclosures to stock exchanges and shareholders. There is a set of guidelines issued by the regulatory authority, the Securities and Exchange Board of India (SEBI). The SEBI (Listing Obligations and Disclosures Regulations) specifies the obligations of listed companies with regards to related party transactions.
The regulations state: ‘… listed entities must submit to the stock exchanges disclosures of Related Party Transactions’ and require the ‘information to be placed before the (company’s) audit committee and the shareholders for consideration of Related Party Transactions.’ The regulations prescribe the format of six-monthly disclosures of information before the audit committee and the shareholders for their consideration and approval of all ‘related party’ transactions.
The last version of the rules on ‘related parties’ in the regulations issued by SEBI in November 2021 was amended in March 2022. All of these rules draw on the definition of ‘related party’ provided in the Companies Act.
Consequently, virtually every major public disclosure by every company – in annual reports, profit and loss statements, filings to stock exchanges – contains a section addressing ‘related party’ transactions. The point to note is that several companies in the Adani Group, as will be detailed later in this article, did not disclose any of their ‘related party’ transactions (fees paid for services rendered, which is classified as a related-party transaction in the accounting standards) with the firm in which Paridhi Adani's is a partner. Nor did the firms themselves disclose these transactions in the sections that disclosed other such transactions. We have the relevant documentation from each company but this is not being reported here as it would be a voluminous exercise.
The first question is whether Paridhi Adani qualifies as a ‘related party’ to relevant companies of the Adani Group under the provisions of the Companies Act. The next question is whether her status should have been disclosed in relation to deals involving Adani Group companies that she and/or CAM were involved in.
Connections involving Paridhi’s company and Adani companies
Questions have been raised about whether the Adani Group has carried out sufficient disclosure of possible ‘related party’ dealings and potential conflicts of interest involving Paridhi and her influential law firm. We have compiled from public sources a list of deals related to the Adani Group that involved Cyril Amarchand Mangaldas (CAM) as an advisor, either of the Group, or of another party in the deal, as well as instances where Paridhi Adani has been reported to have been a part of the team working on a particular deal.
As the chart indicates, Paridhi Adani and CAM, the firm in which she is a partner, were involved in providing advice for at least 12 deals related to the Adani Group, and she herself worked on at least five of them. In 10 of the deals CAM advised the Adani Group entity concerned. In one instance it advised the lenders to the group, and in another it advised both the Adani Group company and the Resolution Professional handling the sale of a bankrupt company that the Adani Group company then went on to acquire.
Paridhi Adani is not just a partner at CAM; she heads the firm’s office in Ahmedabad, Gujarat’s most populous city. It is where the Adani Group is based and where all the group’s listed companies are located. Her profile on LinkedIn states that she has been a partner of CAM since July 2019. Her profile on CAM’s website lists three Adani deals she worked on in the section on her ‘professional experience’.
Has there been sufficient disclosure of ‘related party’ transactions?
Was the involvement of Paridhi Adani’s, and/or the law firm of which she is a partner, in the above deals sufficiently disclosed to shareholders and other entities such as the ministry and stock exchange via the means stipulated in the Companies Act?
In most of the above cases concerning Paridhi Adani, the question is whether there has been sufficient disclosure. In two cases, however, there is the perception of a conflict of interest. One is the transaction where Paridhi’s firm, CAM, advised a consortium of lenders of US $1.35 billion to Adani Green. This prompts a question about the independence of that advice, given that the borrower was a major company in the Group run by the family into which Paridhi had married.
Another questionable case is the transaction where CAM advised both the Adani Group as well as the insolvency professional who was in charge of the sale of Ruchi Soya to Adani Wilmar.
The Insolvency and Bankruptcy Code (IBC) governs the sale of a bankrupt company. When a company’s owners declare bankruptcy, a Resolution Professional is appointed to take over management of the firm from its bankrupt owners, and this professional is responsible for its sale. The professional consults with the company’s Committee of Creditors (usually banks, representatives of other lenders and creditors, usually other companies, and representatives of employees), conducts an auction, receives bids and then selects the buyer, to whom management and ownership of the company are handed over.
In this case, an entity in the Adani Group was seeking to acquire Ruchi Soya, a major manufacturer and seller of edible oils, from its previous owners. In the process, Adani outbid a rival in the Patanjali Group. Patanjali raised questions about the fact that CAM was advising both Adani as well as the resolution professional, raising the possibility of a conflict of interest.
In the chart, most of the information about who worked on a specific deal comes from press releases issued by one or the other parties in the deal, or by the law firms involved in the deal on their own websites or on various legal or public-relations trade publications. Where we say ‘no mention’, it means that the source of the information, including the press releases, either do not name any specific person or persons who worked on the deal, or names some persons but not Paridhi.
Was there a conflict of interest in the involvement of Paridhi and CAM in these deals? Would she, or her firm, qualify as a ‘related party’ to the Adani Group, and/or the companies concerned, under the definition in the Companies Act?
Paridhi Adani’s potential conflict was also raised by Nathan Anderson, who heads Hindenburg Research, the US-based short-selling firm that released a bombshell report on the Adani Group on 24 January 2023. In a Tweet, Anderson asked why the Adani Group had failed to clarify whether the ‘independent’ law firm that investigated it for alleged violations of related-party disclosure rules and gave it the all clear was CAM, the firm in which the daughter-in-law of the Group founder is a partner.
It has also been reported that the auditor of Adani Ports, Deloitte Haskins & Sells LLP, was about to resign due to alleged concerns over transactions between Adani Ports and three entities that Adani Ports said were ‘unrelated’ parties. (Deloitte Haskins & Sells subsequently did resign as auditor of Adani Ports.)
We don’t know if CAM has any kind of ‘Chinese Wall’ arrangement that prevents a partner, in this instance, Paridhi Adani, from being associated with deals that the firm is working on that pertain to the company of her husband – Adani Ports. Our emailed questionnaires to Paridhi, Cyril Shroff (who heads CAM) and Madhumita Paul, Deputy Chief Marketing handling marketing and communications, had not been answered at the time of publication. This article will be updated with their responses if and when these are received.
Comments from Experts
AdaniWatch consulted three financial experts to seek their views on whether issues of conflicts of interest arise in the case of Paridhi Adani. Two of the people we spoke to requested anonymity so that they could speak freely.
The one expert who agreed to go on the record was Hemindra Hazari, an independent research analyst based in Mumbai who is registered with the Securities and Exchange Board of India (SEBI), the regulatory authority that oversees the country’s financial markets. He said: ‘As the (Adani) Group operates in the strategic infrastructure sector and is a large industrial house in terms of stock market valuation, from a corporate governance perspective it would have been better to have disclosed the parties as ‘related’.’
Another analyst who spoke off the record said that ‘such conflicts of interests and pecuniary relationships exist across corporate India’. He added that many multinational corporations operating in India (such as Colgate) have independent directors who are partners of law firms that provide services to the company.
‘There is also the issue of ‘materiality’ in these conflicts since the amounts involved (in making payments to the so-called independent directors or legal advisors) are relatively small given the size of the companies,’ the analyst remarked, adding that Paridhi Adani has apparently complied with extant regulations.
The third person who spoke to us said the Adani Group companies could have gained in a ‘perverse manner’ because ‘legal advisors charge huge amounts as fees but in this instance, since the advisors are known to the company’s bosses and owners, they would have been ‘persuaded’ to lower their remuneration’, this corporate analyst remarked.
Andy Mukherjee’s Comments
Bloomberg columnist Andy Mukherjee wrote that the ‘related party question’ in connection with the Adani Group had ‘flared up again’ when the audit firm Deloitte Haskins & Sells LLP raised concerns about the 30 May 2023 results of Adani Ports Limited. He said: ‘The auditor said it couldn’t confirm that three entities, with which the port unit had transactions, were indeed unrelated as claimed by the company. Further, it said that the legal evaluation sought by the group on the veracity of Hindenburg’s allegations was insufficient for the audit. It signed off on the books with what’s called a ‘qualified opinion’…’
Mukherjee pointed out that in SEBI’s listing obligations and disclosure regulations of 2015, the regulator ordered publicly traded firms to report transfer of resources with directors or key management personnel, or their relatives, regardless of whether money had changed hands. Last year, the SEBI tightened the rules — both for transactions that only had to be disclosed and ones that required shareholder approval.
He wrote that while there are suggestions of ‘an improving arc of (corporate) governance’ in India, if experts cannot ‘agree on whether simple dealings with Paridhi Adani's law firm should be disclosed and how, then how will the SEBI ever get to the bottom of the short seller’s insinuations about the alleged involvement of (Gautam Adani’s older brother) Vinod Adani’s alleged (and allegedly more complex) involvement?’
Mukherjee was clear: ‘Something is clearly amiss with the regulations’. He concluded that the ‘fix does not lie in burying the spirit of the law further in a bottomless pit of rules’ and added that SEBI ‘needs to start afresh by clearly laying out the principle it wants to uphold’.
The columnist concluded: ‘Common sense suggests that a law firm with whose partners Adani directors have family ties presents a potential for conflict. The legal fees paid to CAM are not important to a group of Adani’s size. But India Inc’s culture of disclosure — or its absence — ought to be’.
Appendix - the Companies Act (2013)
The full definition of ‘related party’ in the Companies Act with the relevant parts (for the purpose of this article) in bold:
(76) ‘related party’, with reference to a company, means:
(i) a director or his relative;
(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager [or his relative] is a member or director;
(v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital;
(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;
(viii) any company which is—
(A) a holding, subsidiary or an associate company of such company; or
(B) a subsidiary of a holding company to which it is also a subsidiary;
(C) an investing company or the venturer of the company;
Explanation.—For the purpose of this clause, “the investing company or the venturer of a company” means a body corporate whose investment in the company would result in the company becoming an associate company of the body corporate.]
(ix) such other person as may be prescribed;
(77) “relative’’, with reference to any person, means any one who is related to another, if—
(i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed;
4 List of Relatives in Terms of Clause (77) of section 2
A person shall be deemed to be the relative of another, if he or she is related to another in the following manner, namely: -
(1) Father: Provided that the term “Father” includes step-father.
(2) Mother: Provided that the term “Mother” includes the step-mother.
(3) Son: Provided that the term “Son” includes the step-son.
(4) Son’s wife.
(6) Daughter’s husband.
(7) Brother: Provided that the term “Brother” includes the step-brother.
(8) Sister: Provided that the term “Sister” includes the step-sister.