TaxTMI 
TaxTMI 
2026 (9) TMI 663
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....dgment and order dated 05.10.2023 passed by the Securities Appellate Tribunal, Mumbai ("SAT") in Appeal Nos. 420 of 2021 and 486 of 2021 respectively preferred by the respondents herein by which the SAT allowed the appeals and consequently set aside the order dated 19.05.2021 passed by the Adjudicating Officer ("AO") of Securities and Exchange Board of India ("Appellant No. 1 / SEBI") wherein the AO had imposed a penalty of Rs. 5.25 Crore on respondent no.1 and of Rs. 15 Lakh each on respondent nos. 2, 3, and 4 respectively under Sections 15HA and 15HB of the SEBI Act, 1992 respectively on account of making misleading announcement of the buyback of shares without any intent to fulfil it, thereby violating Regulations 3(a), (b), (c), (d), and 4(1), 4(2)(k), and 4(2)(r) of (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 respectively (hereinafter referred to as "PFUTP Regulations") and Regulation 19(1)(a) of the SEBI (Buyback of Securities) Regulations, 1998 (hereinafter referred to as the "Buyback Regulations"). A. FACTUAL MATRIX 2. The respondent no. 1, Vedanta Limited (Formerly, Cairn India Limited, decided vide a special....
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.... the provisions of Regulation 15B(8) (a) & (b) of the Buyback Regulations and recommended that the matter may not be pursued any further. This investigation report dated 11.06.2015 was put up before the Committee of Inter-Divisional Chiefs-II ("CIDC") for its consideration. 7. The CIDC deliberated upon the draft Investigation Report in detail in its meeting held on 26.11.2015 wherein it opined that in the background of Regulation 14(3) of the Buyback Regulations, the applicability of Regulation 15B(8) of the Buyback Regulations and the PFUTP Regulations in the matter may be examined. Since this required interpretation of the aforementioned Regulations in terms of applicability of the same, the matter was referred to the LAD on 03.12.2015. 8. The LAD, vide its internal noting dated 29.12.2015, opined that Regulation 15B(8)(a) of the Buyback Regulations appears to be attracted in the present case and that accordingly, the escrow forfeiture may not be applicable. Moreover, the LAD was also of the opinion that since the law itself provided the consequence of a failure to achieve the 50% mark, it would be doubtful and legally difficult to sustain a case under PFUTP Regulations on ....
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....the buyback despite favourable market conditions existing on several days; (b) out of 123 trading days, no buy orders were placed on NSE on 24 favourable days, and only negligible orders were placed on several other favourable days; (c) NSE historically had greater liquidity and therefore genuine execution required aggressive participation on NSE; (d) The respondents instead placed buy orders on BSE where the sale side was significantly lower; (e) the respondent's conduct demonstrated lack of genuine intention to complete the buyback; (f) the public announcement created a misleading impression that the Company seriously intended to execute the buyback; (g) such misleading announcement influenced investor decision-making and therefore constituted fraud under PFUTP Regulations; and (h) the directors/signatories who signed the Public Announcement facilitated the misleading representation and were therefore personally liable for penalties. 12. Aggrieved by the said AO Order, the respondents preferred Appeal Nos. 420 of 2021 and 486 of 2021 respectively before the SAT. On 05.10.2023, the SAT allowed both the appeals and s....
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....e securities market, which is sensitive to such information. The respondents had 54 favourable days out of the 123 days, favourable days being those days when the price of shares on the Exchange was less than or equal to the buyback price of Rs. 335/- per share. 15. Pertinently, the respondent did not place a single buy order even though the respondents had the option to place 'Limit Orders' on 24 days out of the 54 favourable days. Further, even during the remaining 30 favourable days on the NSE, the respondents only placed buy orders for 5000 shares or less on 14 days, when in fact, on an average, the respondents ought to have placed buy orders for 13,89,390 shares. During the favourable 54 days on the NSE, 67 Crore shares were available for purchase, and the respondent was required to buy only 17.09 Crore shares as per the public announcement. The respondent, however, bought only 3,67,03,839 shares, which is merely about 5% of the total shares available for sale. Similar was the case on the BSE, where the respondent bought only 6.44% of the traded quantity on the favourable closing price days. 16. It was further submitted that SAT only considered the opening price on 23.01....
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....t was submitted that the respondents always had the intent to execute the buyback offer. For this, the learned senior counsel pointed out that despite the bullish trend, they placed buy orders on NSE for 82 days and on BSE for 123 days. Further, during the buyback period, they bought back 3,67,03,839 equity shares for a total consideration of Rs. 1,225.45 Crore, which was equivalent to 21.48 % of the of the maximum amount set apart for this purpose. 19. It was submitted that the respondents had engaged two registered merchant bankers, i.e., Morgan Stanley India Company Private Limited and Standard Chartered Securities (India) Limited, through which Respondent's scrip could be bought. Unless the sell orders would meet the price criteria at the given point in time, no trade could have been concluded by the merchant bankers. In other words, if the sell order on NSE/BSE was made before or after the mandate was issued to the merchant banker, or did not align with the price or the price band, no trade could go through. Thus, the number of sell orders by itself cannot give the entire picture. The demand has to be seen in light of viable sell orders which would have met the price cap. I....
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....ted that post 09.05.2014 till 22.07.2014, the price of the shares of CIL never came below Rs. 335/-. D. ISSUE FOR DETERMINATION 22. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the sole question that falls for our consideration is whether the release of the escrow amount pursuant to the exceptions listed under Regulation 15B(8) of the Buyback Regulations precludes or otherwise bars an independent allegation, inquiry or finding of fraud under the PFUTP Regulations? E. ANALYSIS 23. In the present case, the respondents have sought to place considerable reliance upon the fact that the release of the escrow amount under Regulation 15B(8)(a) is inconsistent with the allegation of fraud under the PFUTP Regulations. It has been vehemently argued by the respondents that once SEBI, in the course of its investigation, had accepted that the conditions for release of the escrow amount had been met, a subsequent allegation of fraud based on the same incident cannot be sustained. The respondents argued that if they had indeed violated the PFUTP Regulations, then SEBI would not have released the cash escrow. The submission ....
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....able. (ii) Further, since law itself provided the consequence of a failure to achieve 50% level, it would be doubtful and legally difficult to sustain a case under PFUTP Regulations on the same set of facts and circumstances." 27. However, in our considered opinion, the aforesaid observations of the ED (LAD) cannot be treated as a binding determination of the legal effect of Regulation 15B(8) or as creating immunity from the operation of the PFUTP Regulations. It is settled law that notings in the departmental file do not have the sanction of law to be an effective order and that a noting by an officer is essentially an expression of his viewpoint for internal consideration. This Court in M/s Sethi Auto Service Station & Anr. v. Delhi Development Authority & Ors. (Civil Appeal No. 6143 of 2008) had succinctly put the law in this regard, as follows: "12. It is trite to state that notings in a departmental file do not have the sanction of law to be an effective order. A noting by an officer is an expression of his viewpoint on the subject. It is no more than an opinion by an officer for internal use and consideration of the other officials of the department and f....
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....k Regulations, as applicable to the present matter, reads thus: "15B. Escrow account xxx xxx xxx (8) In the event of non-compliance with sub-regulation (3) of regulation 14, except in cases where,- a. volume weighted average market price (VWAMP) of the shares or other specified securities of the company during the buy-back period was higher than the buy-back price as certified by the Merchant banker based on the inputs provided by the Stock Exchanges. b. inadequate sell orders despite the buy orders placed by the company as certified by the Merchant banker based on the inputs provided by the Stock Exchanges. c. such circumstances which were beyond the control of the company and in the opinion of the Board merit consideration, the Board may direct the merchant banker to forfeit the escrow account, subject to a maximum of 2.5 per cent of the amount earmarked for buy-back as specified in the resolutions referred to in regulations 5 or 5A." 31. In order to appreciate the full scope and import of Regulation 15B(8), let us advert to Regulation 14(3) of the Buyback Regulations, since the former is expressly attracted in the....
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....tions. If the respondent's erroneous manner of interpretation was to be adopted, it would mean that the release of the escrow would operate as an immunity from an altogether distinct prohibition contained in the PFUTP Regulations. There is, however, no warrant in the statutory scheme for such an interpretation. 35. Thus, the mere release of the escrow does not create an automatic statutory bar to proceedings under the PFUTP Regulations because the release of the escrow is not necessarily equivalent to absence of fraud. One must bear in mind that the fulfilment of the requirements for release of an escrow cannot, by itself, determine whether the ingredients of fraud under the PFUTP Regulations are made out. The fact that the escrow amount was released cannot be treated as creating a statutory bar against the initiation or continuation of proceedings under the PFUTP Regulations. In other words, the release of escrow, by itself, cannot preclude a finding of fraud if the material on record otherwise establishes the ingredients of such fraud under the applicable provisions of the PFUTP Regulations since the operation of the escrow mechanism is not an adjudication upon allegations lev....
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....o subscribe for the shares in a public issue, subsequently makes use of the shares received in an irregular allotment, to manipulate the market, on that ground alone in the absence of any positive evidence against the financier that he had intentionally made available finances so as to enable the other person to manipulate the market, the financier cannot be held guilty of market manipulation. Real nexus of the financier - directly or indirectly - with the market manipulation has to be established to hold the financier guilty. In my view the Respondent has failed to establish violation of the provisions of FUTP Regulations as stated in the show cause notice against the Appellant." (Emphasis Supplied) 39. The above principle can be illustrated through the SEBI-Mumbai Order dated 18.05.2007, In the matter of irregularities in the trading of the shares of MOH Ltd., wherein the SEBI considered the entire chain of events, commencing with (i) the preferential allotment of 15 crore shares to a related party, followed by (ii) the advertisement proposing a buyback at Rs. 3 per share against the prevailing market price of Re. 0.25, (iii) the absence of ....
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....ved from the prevailing market price, was followed by a consequent and disproportionate rise in both the price and the trading volume of MOH's shares, an artificial movement which bore no relation to the underlying fundamentals or performance of the company. This was compounded by the subsequent offloading of shares by the promoters and the preferential allottees in the secondary market, an act which, occurring as it did in such close proximity to the announcement and its unpublicised withdrawal, could not be viewed as a matter of mere coincidence. It was in these circumstances that the Board came to hold that the sequence, taken as a whole, amounted to a calculated scheme designed to create an artificial demand for MOH's shares, so as to induce innocent investors into purchasing the same and thereby facilitate a smooth exit for the promoters. The relevant observations are as under: "6.15 The entire chain of events from making the preferential allotment of shares to the shareholders of the related entity - Saturn, the advertisement for buyback of shares, reasons stated for the rejection of the buyback proposal, impact on the price/volume of MOH shares established an orches....
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....row window of time, in several instances within mere seconds of each other, for identical quantities and at identical rates. This pattern continued over a sustained period, and the volume so traded constituted a substantial proportion of the total traded volume in the scrip. An overwhelming majority of these trades were found to be synchronised, apart from instances of self-trades and reversed trades. Hence, this Court held that the confluence of such circumstances, namely the illiquidity of the scrip, the sheer volume and persistence of the trading, and the precise timing and matching of the buy and sell orders, was sufficient in itself to sustain an inference of manipulation, even in the absence of any direct evidence of a meeting of minds between the parties concerned. The relevant observations are as under: "26. It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled. While direct evid....
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....eal by the Securities Appellate Tribunal. xxx xxx xxx 30. It has been vehemently argued before us that on a screen based trading the identity of the 2nd party be it the client or the broker is not known to the first party/client or broker. According to us, knowledge of who the 2nd party/ client or the broker is, is not relevant at all. While the screen based trading system keeps the identity of the parties anonymous it will be too naive to rest the final conclusions on said basis which overlooks a meeting of minds elsewhere. Direct proof of such meeting of minds elsewhere would rarely be forthcoming. The test, in our considered view, is one of preponderance of probabilities so far as adjudication of civil liability arising out of violation of the Act or the provisions of the Regulations framed thereunder is concerned. Prosecution under Section 24 of the Act for violation of the provisions of any of the Regulations, of course, has to be on the basis of proof beyond reasonable doubt. 31. The conclusion has to be gathered from various circumstances like that volume of the trade effected; the period of persistence in trading in the particular scrip; the parti....
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....as privileged, constituted fraud within the meaning of the PFUTP Regulations, and Kanaiyalal Patel was accordingly held guilty of violating Regulation 3 thereof. It was observed that Regulation 3 prohibited a person from committing fraud while dealing in securities, and that the words employed therein were of wide amplitude, sufficient to take within their sweep an inducement bringing about an inequitable result, such as had occurred in that case. It was further observed that unequal possession of information was not, by itself, objectionable, and became fraudulent only when such information had been acquired in bad faith and was used to induce an inequitable result for others. This Court, having regard to the fiduciary relationship between Dipak Patel and Passport India, the parting of confidential information to a relative, the placement of orders in near-immediate proximity to the bulk orders, and the consequent profits earned, found the same to constitute corroborative facts sufficient to establish fraud. This Court further reiterated that charges under the PFUTP Regulations needed to be established as per the applicable standards rather than on mere conjectures and surmises. T....
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....fidence, further such breach of duty was known to the tippee and he still trades thereby defrauding the person, whose orders were front-runned, by inducing him to deal at the price he did. 48. Taking into consideration the facts and circumstances of the case before us and the law laid down herein above and SEBI v. Kishore R. Ajmera (Supra) can only lead to one conclusion that concerned parties to the transaction were involved in an apparent fraudulent practice violating market integrity. The parting of information with regard to an imminent bulk purchase and the subsequent transaction thereto are so intrinsically connected that no other conclusion but one of joint liability of both the initiator of the fraudulent practice and the other party who had knowingly aided in the same is possible." (Emphasis Supplied) 44. In Deccan Chronicle Holdings Ltd. v. SEBI, reported in 2023 SCC OnLine SAT 939, the proceedings arose from allegations that DCHL had materially misrepresented its financial position and violated disclosure and buy-back requirements under law. The show cause notice had alleged that DCHL had understated its outstanding loans across successive financial ....
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....the company as the result of the manipulation in the books of accounts of the listed company which resulted in misleading and mis-investing the investors at large and the securities market was in contravention not only of the provisions of the Companies Act but also the provisions of the SEBI Act and PFUTP Regulations." (Emphasis Supplied) 45. Further, in SEBI v. Terrascope Ventures Ltd., reported in 2026 SCC OnLine SC 403, this Court was seized with facts wherein the respondent no. 1-company, then known as Moryo Industries Limited, had issued a notice for an Extraordinary General Meeting and had disclosed to its shareholders and the public the purpose and object of a proposed preferential allotment of equity shares to certain non-promoter allottees. In the explanatory statement appended pursuant to Section 173(2) of the Companies Act, 1956, and as further required under Regulation 73(1) of the SEBI (ICDR) Regulations, 2009, the object of the issue had been stated to be the fulfilment of additional fund requirements towards capital expenditure, including acquisition of companies or business, funding of long-term working capital requirements, marketing, setting up of off....
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....ents had from the very inception had no intention to use the funds for the stated objects and their only object was to somehow raise the funds and divert it for the purpose they ultimately did. 51. In Kishore R. Ajmera (supra), this Court held that proof of violation of Regulations may have to be inferred by a logical process of reasoning from the totality of attending facts and circumstances. In this case, though there is admission that there is diversion of purpose, the claim that it was due to market conditions is false, is established from the speed with which the amounts were diverted. The reliance on newspaper articles about GDP rate hitting a new low is to say the least not convincing at all and is too general." (Emphasis Supplied) 46. Moreover, recently in Reliance Industries Ltd. v. SEBI, reported in 2026 SCC OnLine SC 1005, wherein one of us, J.B Pardiwala, J. was the author, this Court was confronted with an allegation that the appellant company, by trading through several entities acting as its agents, had exceeded permissible position limits in the futures segment so as to manipulate the settlement price of the underlying scrip and thereby earn unl....
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....ective perusal of the evidence so produced, the courts must either believe it to exist or consider its existence so probable that a reasonable man ought, under the given circumstances, act upon the supposition that it exists. The relevant observation is as under: "94. All that we are trying to convey is that the degree of probability should be proportionate to the subject matter. In other words, on an objective perusal of the evidence so produced, the courts must either believe it to exist or consider its existence so probable that a reasonable man ought, under the given circumstances, to act [sic] upon the supposition that it exists." (Emphasis Supplied) 48. From the aforesaid decisions, it is clear that fraud cannot be said to be established on the basis of mere allegation, conjectures and surmises. Fraud must be established on the touchstone of the principle of balance of probabilities, which requires an objective perusal of the evidence on record, whereupon the court must either believe such evidence to exist, or consider its existence to be so probable that a reasonable man ought, under the given circumstances, to act upon the supposition that it exists. I....
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....he diversion of the funds raised, commencing from the very first day of their receipt, and further from the fact that ratification of such diversion was sought only after the interim orders of the WTM had already been passed against the respondents. It may thus be said that it is this level of clarity emerging from the surrounding circumstances, taken cumulatively, which pointed towards proving the intent to manipulate. 51. As our discussion in the previous paragraphs indicates, it is not sufficient to merely identify the existence of a trading pattern which might give rise to a suspicion of fraud under the PFUTP Regulations. Where the allegation is that the respondent company had no intention of completing the buyback and had deliberately structured its trading activity towards that end, the surrounding circumstances must be examined to determine whether the inference of such fraud is reasonably supported. The trading data must, therefore, be considered alongside any contemporaneous instructions, communications, internal records, or other conduct attributable to the company or persons in control which may corroborate the inference sought to be drawn from the pattern of trades. ....
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....pect of the NSE entry dated 14.02.2014, the investigation report records the quantity available for sale at or below Rs. 335 as being 1,24,82,361 shares, whereas the NSE's own data for the same date reflects the corresponding sell-side order book as containing only 36,83,335 shares. (iii) In respect of the BSE entries for the period 20.05.2014 to 22.07.2014, the Investigation Report dated 17.03.2017 (at page 780 of the Additional Diary) show that the lowest price of the company's shares was much above Rs. 335, which means that on those dates the price of the shares were never Rs. 335 or below Rs. 335 at BSE. However, in the corresponding entry in the Investigation Report dated 17.03.2017 (at pages 766-767 of the Additional Diary) and in the SCN (at pages 94-95 of the Additional Diary), it is mentioned that during the said period there were sell orders available at or below Rs. 335. 54. This, in our view, is a disputed question of fact that goes to the very root of the finding of fraud. This Court, exercising jurisdiction under Section 15Z of the SEBI Act, is not the appropriate forum for such resolution. The scrutiny of such conflicting trading data, and the determinati....
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....y contemplated by Regulation 15B(8) of Buyback Regulation is confined to determining whether the escrow is liable to be forfeited in the circumstances contemplated by the provision. The fact that the conditions governing the forfeiture or release of an escrow have been satisfied, by itself, cannot be treated as a finding on whether the PFUTP Regulations have been violated or not. In other words, where any of the circumstances contemplated under clauses (a), (b) or (c) of Regulation 15B(8) are found to exist, the consequence is simply that the escrow cannot be forfeited. But it does not, by itself, answer the distinct question of whether the conduct of the respondents, viewed in its entirety and in the light of the material collected during investigation, involved any fraudulent or manipulative conduct within the meaning of the PFUTP Regulation. Thus, the mere release of the escrow does not create an automatic statutory bar to proceedings under the PFUTP Regulations because the release of the escrow is not necessarily equivalent to absence of fraud. Therefore, we are unable to accept the respondents' submission that the satisfaction of the conditions contemplated under Regulation 15....