securities appellate tribunal, mumbai

Securities Appellate Tribunal: Two miscellaneous applications were filed in an appeal by Kirloskars (applicants) seeking directions for defreezing of their shares in KIL. Justice Tarun Agarwala, Presiding Officer, and Ms. Meera Swarup, Technical Member disposed of the miscellaneous applications and directed SEBI to pay cost of Rs. 5 lakhs to be deposited before the Registrar of this Tribunal within two weeks from the date of order and held that SEBI should be more diligent in ensuring compliance of the orders of the Tribunal and by taking a lackadaisical approach the interest of the investors suffered.

The Securities and Exchange Board of India (“SEBI”) passed an order dated 20-10-2020 restraining the appellants/ applicants from accessing the securities market for a period of six months which was challenged by the appellants before this Tribunal. An interim order was passed staying the effect and operation of the SEBI’s order subject to an undertaking to be provided by the appellants to the effect that they would not sell the shares of Kirloskar Industries Limited (‘KIL’). Thus, in terms of the interim order the demat account was defreezed except to the extent of the shares held by the appellants in KIL which remained frozen pursuant to the Tribunal’s order dated 24-12-2020.

The Tribunal vide order dated 12-10-2022 quashed SEBI’s order dated 20-10-2020. Inspite of the appeal of the appellants being allowed, the appellants shares in KIL remained frozen. In this regard, the appellants addressed an email dated 22-02-2023 to SEBI requesting that the Depository Participant, namely, National Securities Depository Limited (‘NSDL”) be directed to unfreeze the shares held by the appellants in KIL. NSDL vide email dated 24-02-2023 requested the appellants to share further details from SEBI / Statutory Authority regarding defreezing of the securities frozen in terms of Securities Appellate Tribunal’s (‘SAT’s) order. In response to the said email, the appellants vide email dated 25-02-2023 intimated NSDL about the final order passed by the Tribunal and requested defreezing of their shares.

Later, NSDL issued an email dated 13-03-2023 seeking directions/guidance from SEBI regarding the defreezing of the shares. It is alleged by NSDL that no response was received from SEBI. Thus, miscellaneous applications were filed seeking directions for defreezing of their shares in KIL. SEBI in their reply responded that they had issued instructions to NSDL vide email dated 13-12-2022 to comply with the order of SAT and, therefore, contended that there is no default on their part and that NSDL is responsible for not defreezing the shares of the appellants.

The Tribunal noted that a blame game has started between SEBI and NSDL. Both entities are blaming each other for noncompliance with SAT order. According to SEBI, they had addressed an email dated 13-12-2022 directing NSDL to comply with the final order of SAT. NSDL admits receiving this email but contends that they were unable to comply as the PAN Nos. of the applicants were not given.

The Tribunal further noted that there is apathy on the part of SEBI in not taking follow-up action. No doubt they had issued an email dated 13-12-2022 to NSDL to comply with the orders of SAT but when the appellants further sent an email dated 22-02-2023 requesting SEBI to use their offices and directed NSDL to defreeze their shares, no action was taken by SEBI.

The Tribunal concluded that the lackadaisical approach by SEBI is contrary to the spirit of the SEBI Act i.e., to protect the interest of the investors. Thus, the interest of the investors, namely, the appellants was least considered, and apathy was writ large. SEBI should have been more diligent in ensuring compliance of the orders of the Tribunal and by taking a lackadaisical approach the interest of the investors suffered. Thus, for more than a year the appellants shares remained frozen inspite of their appeals were allowed.

The Tribunal directed SEBI to pay cost of Rs. 5 lakhs in exercise of the powers conferred under Rule 21 of SAT (Procedure) Rules, 2000 and held that if SEBI finds that the fault lay with NSDL it will be open to them to take appropriate remedial measures against NSDL.

[Alpana R. Kirloskar v SEBI, 2023 SCC OnLine SAT 1074, decided on 04-12-2023]

Advocates who appeared in this case :

Mr. Kunal Katariya, Advocate with Mr. Tushar Ajinkya, Advocate for the Applicants.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Mihir Mody, Mr. Arnav Misra and Mr. Harshvardhan Melanta, Advocates i/b. M/s. K. Ashar & Co. for the Respondent No. 1.

Mr. Gaurav Joshi, Senior Advocate with Mr. Abishek Venkataraman, Mr. Pulkit Sukhramani, Ms. Vidhi Jhawar, Mr. Deepank Anand and Mr. Shourya Tanay, Advocates, i/b JSA, Advocates & Solicitors for the Respondent No. 2 NSDL.

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