SAT imposes Rs 50,000 penalty on Sebi for lapses in probe

The Securities Appellate Tribunal (SAT) imposed a penalty on the Securities and Exchange Board of India (Sebi) in a rare instance of the capital market regulator having to pay up for alleged lapses in investigation proceedings. The tribunal, which hears appeals against orders by Sebi, imposed a penalty of Rs 50,000 on the regulator on Friday as compensation for “litigation and harassment” of a former compliance officer of BGIL Films.

The adjudication officer (AO) of Sebi had fined the compliance officer for not making disclosures under insider trading rules during a board meeting of BGIL held on February 23, 2010. The penalty was imposed even though there was evidence the compliance officer had resigned on February 19 and was serving her notice period. Hence, she was not required to make the said disclosures as per the law.

“There was ample evidence on record to show that the appellant was not involved as a compliance officer in the board meeting which was held on February 23, 2010, and was only serving the notice period pursuant to her resignation,” the tribunal said in its ruling on June 28. “The question of imposition of penalty for noncompliance of the regulation does not arise.”


Sebi has been getting rapped on the knuckles for investigation lapses by the tribunal of late. In another verdict last week, the tribunal said the penalty imposed by Sebi on an individual, Pawan Kumar, was “disproportionate and is not based on any cogent reason”.

Kumar had received 70,000 shares of IFL promoters through an offmarket transaction but didn’t pay for them. Sebi had imposed a penalty of Rs 12 lakh on him. SAT asked the Sebi AO how the amount had been calculated and said it was “disproportionate to the misconduct”.

SAT judgements in the past two months show at least half a dozen other instances of the tribunal criticising Sebi for alleged oversight in its probes.

The tribunal had pulled up Sebi in the NDTV matter for not serving official copies of orders to the broadcast company.

“We find that the whole world knows about the impugned order except the appellants,” the tribunal said on June 18. “Till date they have not been supplied a copy of the impugned order in spite of the oral direction given by this tribunal yesterday. We are constrained to observe that the system undertaken by Sebi needs a revisit.”

Legal experts said SAT has been proactive in providing relief to aggrieved parties of late.

“Although the quantum of penalty imposed on Sebi is minimum, the message from SAT seems to be very clear that the rationale and quality of Sebi orders need to improve,” said Vidisha Krishnan, partner at Mumbai-based law firm MVKivi. “A proactive approach from SAT will compel Sebi to improve the legal arguments and documents taken on record to stand a thorough legal scrutiny.”

Legal experts said having a strong appellate tribunal is a good sign. The role of SAT is significant since Sebi is a powerful regulator by law and even has powers to issue ex parte orders without giving the accused any notice. “It is essential that proper checks and balances are maintained to ensure that Sebi does not penalise market participants in a casual manner and carries out its responsibilities in an effective mannerafter giving due regard to principles of natural justice and fair play,” said Anil Choudhary, partner, Finsec Law Advisors.

The tribunal got two new judges earlier this year, including chief presiding officer Tarun Agarwala and judicial member justice MT Joshi. Before their appointments, the tribunal had not been able to take up any major appeals for over a year due to the lack of quorum. Hence, most of the companies seeking relief were forced to appeal to the Bombay High Court.