The Supreme Court on Wednesday remanded to the Securities Appellate Tribunal (SAT) a dispute between market regulator Securities and Exchange Board of India (Sebi) and Vedanta Limited over allegations that the company made a misleading announcement about a share buyback without a genuine intention to complete it.
A bench of Justices JB Pardiwala and K Viswanathan held that release of the escrow amount deposited for buyback does not by itself preclude Sebi from separately examining whether the company has committed fraud under the Sebi (Prohibition of Fraud and Unfair Trade Practices) Regulations.
The case relates to a share buyback announced in 2014 by Vedanta, then known as Cairn India Limited. The company has proposed to buy back 17.09 crore shares at a maximum price of Rs 335 crore per share for a total investment of Rs 5,725 crore.
It placed Rs 143,124 crore in escrow and completed the buyback within six months. However, by the end of the period, the company had acquired only about 3.67 crore shares worth Rs 1,225.45 crore.
A Sebi judge subsequently imposed a fine of Rs 5.25 crore on Vedanta and Rs 15 lakh on each of the three individuals, saying the company did not place sufficient purchase orders despite several opportunities when its share price was at or below the buyback ceiling. The official noted that on 24 out of 54 favorable trading days, no buy order was placed on the NSE.
SAT waived the penalties in October 2023. The court held, among other things, that the company could not foresee a sustained bullish trend in its shares, that the market price remained above the ceiling of Rs 335 for a significant part of the buyback period and that the rules did not mandate a specific frequency or aggressiveness in placing buy orders.
The Supreme Court, however, rejected Vedanta’s argument that the subsequent release of the escrow amount effectively cleared him of any fraud charges. It said that Ordinance 15B(8) deals only with the question of whether an escrow is liable to forfeiture and does not determine whether the conduct constitutes fraud under the Sebi Regulation.
At the same time, the Court found significant factual problems in the Sebi case which required reconsideration by the SAT. The court noted discrepancies between Sebi’s investigation data and the data provided by NSE.
For example, as of February 17, 2014, a Sebi report showed that there were over 1.31 crore shares available for sale at Rs 335 or below, while NSE data showed just over 30 lakh shares. Similar discrepancies were found for February 14 and for some BSE data for the period May 20 to July 22, 2014.
The court also noted the apparent contradiction in Sebi’s own investigation. A February 2016 report found no material impact on stock price or trading volume associated with the company’s announcement, and a subsequent March 2017 report found the same conduct to constitute fraud.
In ordering the SAT to carry out a fresh review, the court said the tribunal must scrutinize the competing trading data, question relevant company officials and merchant bankers if necessary, and consider whether there were other circumstances to support the allegations of fraud.
The SAT was directed to decide the fraud issue afresh, regardless of the Supreme Court’s observations on the merits, within six months.