Coming down heavily on the Securities and Exchange Board of India (SEBI) for its lackadaisical approach to complying with its order, the Securities Appellate Tribunal (SAT) has imposed a penalty of Rs5 lakh on the market regulator. The case is related to the unfreezing of demat accounts of the Pune-based Kirloskar family members, including Alpana R Kirloskar, Arti A Kirloskar, Jyotsna G Kulkarni, Rahul C Kirloskar and Atul C Kirloskar, as per an order passed by SAT in October 2022.
In
an order, the SAT bench, comprising Justice Tarun Agarwala and Meera Swarup, says, "SEBI should have been more diligent in ensuring compliance of the orders of this Tribunal and by taking a lackadaisical approach the interest of the investors suffered. For more than a year, the appellants' shares remained frozen in spite of their appeals have been allowed. Consequently, we dispose of the miscellaneous applications directing the SEBI to pay the cost of Rs5 lakh to be deposited before the registrar of this Tribunal within two weeks from today. In the event, SEBI finds that the fault lay with NSDL it will be open to them to take appropriate remedial measures against NSDL."
The bench also observed only when applications were filed before it on 1st November, "all hell broke loose, and the demat accounts and the shares of the appellants were defreezed on 3 November 2023. This by itself speaks volumes of the functioning of SEBI in reacting to matters at the last moment."
On 20 October 2020, while hearing the case of Kirloskar Brothers Ltd (KBL), SEBI restrained five members of the Kirloskar family from markets for six months. On 24 December 2020, SAT stayed the SEBI order through an interim order subject to an undertaking provided by the Kirloskar family members that they would not sell the shares of Kirloskar Industries Ltd (KIL). In terms of the interim order, the demat account was unfrozen except to the extent of the shares held by the Kirloskar family members in KIL, which remained frozen.
On 12 October 2022, SAT quashed SEBI's 20 October 2020 order. However, Kirloskar family members' shares in KIL remain frozen.
In an email on 22 February 2023, the Kirloskar family members requested SEBI that the National Securities Depository Ltd (NSDL), depository participant (DP) be directed to unfreeze their shares in KIL. They also sent an email to NSDL, which, on 24 February 2023, asked them to share further details from SEBI or statutory authority about the unfreezing of the securities frozen as per the SAT order. The Kirloskar family members shared the SAT order with NSDL and sent a reminder.
In an email on 13 March 2023, NSDL sought directions or guidance from SEBI on the unfreezing of the shares. However, NSDL alleged that there was no response from SEBI. Another email sent by the Kirloskar family members on 8 August 2023 remained unanswered by NSDL, which prompted them to file an application before SAT.
SEBI contended that, in an email on 13 December 2022, it has asked NSDL to comply with the SAT order. "There is no default on its (SEBI's) part, and NSDL is responsible for not defreezing the shares of the Kirloskar family members."
NSDL was not a party in the matter; however, SAT asked it to appear and reply to the application filed by the Kirloskar family members. In its reply, NSDL contended that it could not take any action on SEBI's email on 13 December 2022 as the market regulator did not provide the permanent account number (PAN) of the Kirloskar family members. It also contended that it sent an email to SEBI seeking guidance but received no response from the market regulator.
SEBI contended that the 13 March 2023 email of NSDL was sent to the wrong person (by NSDL) and, therefore, it remained unattended.
The bench of Justice Agarwala and Ms Swarup observed that both SEBI and NSDL are blaming each other for noncompliance with the SAT order. "The net result is, that there is apathy on the part of SEBI in not taking follow-up action. No doubt they had issued an email dated 13 December 2022 to NSDL to comply with the orders of SAT but when the appellants (Kirloskar family members) further sent an email dated 22 February 2023 requesting SEBI to use their offices and direct NSDL to defreeze their shares, we find that no action was taken by SEBI. We also find that when NSDL had issued an email on 13 March 2023 to SEBI seeking directions and guidance in the matter SEBI took no action."
"Considering the aforesaid, we are of the opinion that this lackadaisical approach by SEBI is contrary to the spirit of the SEBI Act which in our opinion, is to protect the interest of the investors. In the instant case, we find that the interest of the investors, namely, the appellants, were least considered and apathy was writ large," the bench says.
