SEBI’s Inconsistent Orders on Similar Securities Law Violations

[The following guest post is
contributed by Supreme Waskar,
who is a corporate lawyer]
By way of its order dated April 20, 2016 in the matter of
M/s. Krishna Enterprises & M/s. Rajesh Services Centre (“Appellants”), the
Securities Appellate Tribunal (SAT) observed that the Securities and Exchange
Board of India (SEBI) is inconsistent in levying penalties for similar
violations.
The Appellants were held guilty of
aiding and abetting Edserv Softsystems Ltd. in siphoning off its IPO proceeds,
whereby under section 15HA of the SEBI Act, 1992, the adjudicating officer (AO)
imposed penalty on each of the Appellants of Rs.10 lakhs for violating section
12A(b)&(c) of the SEBI Act and Rs.10 lakhs for violating Regulation
3(c)&(d) of the SEBI (Prevention of Fraudulent and Unfair Trade Practices
Relating to Securities Market) Regulations, 2003 (“PFUTP Regulations”).
The AO found that the violation of section
12A(b)&(c) of the SEBI Act and violation of regulation 3(c)&(d) of
PFUTP Regulations are two independent violations and accordingly imposed
penalty under Section 15HA for two violations separately whereas in the case of
 Kejas
Parmar vs. SEBI (2014)
,
[1] the AO had held that where there is
violation under section 12A(b)&(c) and also violation under regulation
3(c)&(d) of PFUTP Regulations, then both the provisions have to be read
together and in such a case common penalty ought to be imposed under Section
15HA of SEBI Act.
Accordingly, SAT has remanded the
matters to the file of AO for fresh decision on merits and in accordance with
law. The orders passed by the AOs promote the development of the securities
market and are in the interests of the securities market. If the orders passed
by the AO are not in public interest, then under Section 15I (3) of the SEBI
Act, SEBI is empowered to review the orders passed by the AO. Passing
conflicting orders does not promote the development of the securities market
and would not be in the interests of the securities market.
– Supreme Waskar

[1] (Appeal No.188 of 2014)

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

1 comment

  • In a quick (random) response:

    The SAT’s appellate Order , the wisdom or otherwise behind, in remanding the matter to AO “for fresh decision on merits and in accordance with law.” , to say in brief,calls for a closer look / review, having regard to the input below:
    On the subject of levy of penalty for violation of the rules of SEBI, some of the points of views and counter views , etc., covered in inter alia HERE

    http://www.mondaq.com/…/SEBI+Tightens+Rope+New+Insider+Trad…
    and HERE

    http://www.livemint.com/…/Sebi-plans-tame-penalties-for-tho…
    might be of relevance.

    One of the areas of concern of SEBI, not without substance /logic behind , relate to the desirability of not leaving any scope for “discretion and interpretation”. The other one that must be of no less concern is about the unintended but inevitable adverse impact and its duplication on the stakeholders’ interests; and in effect, not really or so much on the erring corporate.
    On the first said aspect, – ’discretion’, the incisive critique of an eminent tax lawyer on a like situation as arising under the income-tax law, as expounded in his last Budget speech, is worth a mindful consideration.
    Turn to: Post on FB of March 7 > http://www.itatonline.org/…/eminent-jurist-s-e-dastur-expl…/
    <http://live.abstream.tv/bcasonline_budget2016/…

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