Introduction
This compendium presents a curated collection of judgments rendered by the Hon'ble Securities Appellate Tribunal ("SAT") from 2019 to 2024. Established to hear and dispose of appeals against orders passed by the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA), SAT plays a pivotal role in shaping the regulatory landscape of the financial and securities markets in India. Over the past five years, SAT has adjudicated on a wide array of issues, ranging from market manipulation and insider trading to corporate governance and investor protection. This period has witnessed significant developments in securities law, influenced by evolving market practices and regulatory reforms aimed at enhancing transparency, accountability, and fairness in the financial sector.
A notable figure during this period has been Justice Tarun Agarwala, who served as the Presiding Officer of SAT. Justice Agarwala brought a wealth of experience and judicial acumen to the Tribunal, having previously served as a judge in various high courts across India. His tenure at SAT was marked by a commitment to delivering fair and well-reasoned judgments, which have significantly contributed to the development of securities jurisprudence in the country even in the midst of a pandemic crisis. Under his leadership, the Tribunal navigated complex legal issues with clarity and ensured that the principles of justice were upheld in the regulatory framework governing the securities markets.
The judgments included in this compendium not only reflect the Tribunal's interpretations and applications of the law but also provide critical insights into the regulatory priorities and enforcement strategies of SEBI and other associated authorities. By compiling some of these rulings, we aim to offer a comprehensive resource for legal practitioners, scholars, regulators, and market participants who seek to understand the nuances of securities regulation and its impact on the market.
Each judgment is accompanied by a succinct summary that highlights the key issues and conclusions. These summaries are designed to provide a quick reference and this ensures that readers can engage with the material as a high-level overview and can quickly refer to the full text of the judgments for a granular and detailed understanding of the law laid down by SAT. We hope this compendium serves as a valuable tool for fostering a deeper understanding of securities law and contributes to the ongoing discourse on market regulation in India. As the financial markets continue to evolve, the role of judicial oversight by bodies like SAT remains crucial in maintaining the integrity and stability of the financial system.
In order to prepare this Compendium, we have categorized the relevant judgments into topics and have included those judgments which, in our view, were relevant and interesting.
The present Compendium is the first volume of a three-volume series with each volume covering different topics.
SEBI COMPLAINT REDRESSAL SYSTEM (SCORES)
SCORES is an online platform designed to help complainants to lodge their complaints with SEBI against listed companies and SEBI registered intermediaries. On 1st April 2024, SEBI introduced SCORES 2.0 which assures a strengthened and more efficient complaint redressal mechanism in the securities market.
Certain interesting judgments on the topic are as follows:
Appeal No. 205 of 2018 – Ankit Mehta – Ex-Director of M/s. Janice Textiles Ltd. v. SEBI
Background
SAT dealt with an order of SEBI passed in respect of Janice Textiles Limited ("Janice"). The issue pertains to a penalty imposed on Janice Textiles Ltd. for not obtaining SCORES authentication.
Arguments
Appellant's contention: Janice stood dissolved, without winding up, pursuant to a scheme of amalgamation sanctioned by Bombay high Court and Gujarat High Court. It was further contended that they have complied with all necessary legal procedures and communicated the status change to the BSE and the ROC. SEBI's contention: Janice was listed on the BSE till 2015, hence, SEBI imposed penalty for non – compliance with SCORES.
Findings
SAT held that merely because the exchange continued to list and show Janice as a listed company, the fault cannot be attributed to Janice. SAT further concluded that upon amalgamation and subsequent dissolution, Janice ceased to exist as a corporate entity. Consequently, SEBI's circulars in relation to SCORES, issued in 2012, 2013 and 2015 (i.e. post dissolution) were not applicable to Janice. Hence, the Appeal was allowed.
Appeal No. 437 of 2018 – Kitex Garments Ltd. v. SEBI
Background
Kitex Garments Ltd. ("Kitex") appealed against an order by SEBI, which imposed penalties for failing to resolve a shareholder complaint registered on SCORES within the stipulated timeframe.
Arguments
Appellant's contention: The transactions leading to the complaint occurred in 2006. Kitex stated that it had issued certain post-split shares to previous shareholders, which has caused the issue. Kitex stated that despite the event occurring in 2006, the complaint was filed by the shareholder only in 2015. It also stated that the shareholder's grievance was ultimately resolved by transferring the required shares to his demat account after SEBI's impugned order. SEBI's contention: The Appellant had failed to act promptly. SEBI emphasized that the resolution only occurred after the order, showing that the appellant could have acted sooner.
Findings
SAT noted that the complaint had remained unresolved for a period of three years, until the passing of the impugned order by SEBI. SAT held that Kitex had erred in addressing the SCORES complaint. Hence, the Appeal was dismissed.
Appeal No. 550 of 2022 – Dalhousie Holdings Ltd. v SEBI and Ors.
Background
The case involves an appeal by Dalhousie Holdings Ltd. ("Dalhousie") against SEBI in relation to the disposal of a complaint made by it on SCORES. The complaint was in relation to alleged non-disclosures under SEBI regulations by the acquirers of Dalhousie.
Arguments
Appellant's contention: SEBI did not adequately address their complaint. They contended that SEBI's response, which had only attached the company's reply, without any reasoning, demonstrated a lack of due consideration and application of mind by SEBI.
SEBI's contention: The complaint primarily pertained to non-response from the company, hence, the response was provided. Additionally, SEBI stated that the Appellant was engaging in forum shopping since similar issues were pending before the NCLT.
Findings
SAT held that reasons, howsoever brief, must be given while disposing of the complaint on the SCORES platform. Merely attaching the company's reply tantamount to nonapplication of mind. Accordingly, the Appeal was allowed and the impugned order passed by SEBI was set aside.
Appeal No. 389 of 2020 – Rajen Kirtanlal Shah v SEBI and Ors.
Background
The Appellant had entered into a Portfolio Management Agreement with Piramal Fund Management Pvt. Ltd. ("Piramal") on 13th December 2017. The agreement was to manage Appellant's investments. Disputes arose between the parties. The Appellant inter alia alleged that the terms and conditions in the term sheet were unilaterally altered to his disadvantage by Piramal. Consequently, the Appellant lodged a complaint on the SCORES platform, seeking the cancellation of Piramal's registration as a Portfolio Manager due to an alleged breach of duty and lack of diligence.
Arguments
Appellant's contention: The alteration to the terms and conditions of the terms sheet was detrimental to the interests of the Appellant and Piramal's registration as a Portfolio Manager should be cancelled.
SEBI and Piramal's contention: The complaint was a private dispute concerning financial transactions, which is not within the purview of the SCORES platform for adjudication. Findings
The complaint of the Appellant was purely a private dispute and such private disputes relating to financial transactions cannot be adjudicated on the SCORES platform. Although, the reasoning provided was brief, it did not vitiate the order. Accordingly, the Appeal was dismissed.
PERSONS ACTING IN CONCERT
Persons acting in concert is defined in Section 2(q) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("SAST Regulations"). The definition includes persons whose common objective is substantial acquisition of shares, or voting rights or for exercising control over a target company. Key factors for persons acting in concert are that such persons must: (i) have a common objective or purpose; (ii) be acting pursuant to an agreement or understanding (be it formal or informal); (iii) must be cooperating with each other, either directly or indirectly. Regulation 2(q)(2) of SAST creates a deeming fiction for a category of persons who shall be deemed to be persons acting in concert. The onus, of proving otherwise, will be on such persons.
Certain interesting judgments on the topic are as follows:
Appeal No. 457 of 2020 – Trishla Jain and Ors. v. SEBI
Background
The Appellants challenged the decision of SEBI which imposed penalties and directed them to make a public announcement of an open offer for acquiring shares of Focus Industrial Resources Ltd. ("FIRL"). SEBI's decision was pursuant to Appellants' failure to comply with SAST despite acquiring more than 5% shares of FIRL without making a public offer.
Arguments
Appellant's contention: The appellants claimed they were not acting in concert with other promoters during the relevant period and were not promoters of FIRL. It was also submitted by the Appellants that their shareholdings in FIRL resulted from a merger and not from any concerted action to acquire shares.
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