SEBI Tribunal Upholds Penalty Orders, Calls for New Settlement Scheme to Address Backlog and Reduce Penalties

The Tribunal dismissed all appeals against penalty orders imposed by SEBI for violations of PFUTP Regulations, finding the transactions manipulative and violative of regulations. It noted the overload of penalty proceedings and ineffectiveness of previous settlement schemes, recommending a new scheme under Settlement Regulations, 2018 to address the backlog of cases. Emphasizing the need for a more attractive settlement mechanism, the Tribunal suggested SEBI reconsideration and introduction of a fresh scheme to encourage settlement and reduce penalties for small trades with minimal impact.

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Issues:
- Appeals against penalty orders under SEBI Act for violation of PFUTP Regulations
- Applicability of Section 15HA of SEBI Act
- Controversy regarding reversal trades and penalty imposition
- Manipulative transactions and violation of PFUTP Regulations
- Overload of penalty proceedings and pendency before AOs
- Ineffectiveness of previous settlement scheme
- Anomalous penalty imposition under Section 15HA
- Settlement mechanism under Section 15JB of SEBI Act
- Need for a new settlement scheme under Settlement Regulations, 2018

Analysis:
1. The appeals were filed against penalty orders imposed by SEBI for violations of PFUTP Regulations. The controversy revolved around the applicability of Section 15HA of the SEBI Act and the nature of reversal trades executed by the appellants. Despite attempts to distinguish previous decisions, the Tribunal found the transactions manipulative and violative of regulations, leading to dismissal of all appeals.

2. The Tribunal noted the overload of penalty proceedings before AOs, with thousands of entities facing similar charges. Previous settlement schemes were deemed ineffective due to stringent terms and the timing of their introduction during the pandemic peak, resulting in low participation.

3. Anomalous penalty imposition under Section 15HA was highlighted, with varying penalties for similar violations based on the timing of transactions. The Tribunal suggested the need for a new settlement scheme to address the backlog of cases and reduce the burden on AOs.

4. The settlement mechanism under Section 15JB of the SEBI Act was discussed, emphasizing the need for a more attractive and viable scheme to encourage entities to settle. The Tribunal recommended SEBI to reconsider and introduce a fresh scheme under Clause 26 of the Settlement Regulations, 2018 for the class of persons involved in similar defaults.

5. SEBI was urged to consider reducing the quantum of penalties imposed in previous cases and to take into account the circumstances of small trades that had minimal impact. The Tribunal directed the Registrar to send a copy of the order to the SEBI Chairperson for necessary action.

6. Overall, the judgment highlighted the need for a comprehensive and practical settlement scheme to address the backlog of cases, streamline penalty proceedings, and provide a fair and efficient resolution mechanism for entities facing similar charges under the SEBI Act.

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