Supreme Court Revives SEBI Proceedings Against Vedanta Over 2014 Share Buyback Case
Appeal Allows: Release of buyback escrow to Vedanta doesn’t bar SEBI probe into fraud allegations
Release of buyback escrow amount to Vedanta does not bar SEBI from pursuing separate fraud proceedings against the company: SC
Supreme Court revives SEBI’s fraud case against Vedanta over share buyback scheme
The Supreme Court on Wednesday revived a Securities and Exchange Board of India (SEBI) fraud case against Vedanta Limited over its buyback scheme in 2014. A Bench of Justices JB Pardiwala and KV Viswanathan partly allowed SEBI’s appeals against the order of SAT dated October 20, 2023 which set aside penalties imposed on Vedanta Limited and three others in relation to the buyback scheme.
The Bench directed SAT to return the matter to SEBI for fresh orders only on the question of fraud. The main question considered by the Court was whether the release of the escrow amount deposited by Vedanta towards the buyback scheme barred SEBI from pursuing a separate fraud case.
The Court held that release of the escrow amount did not prevent SEBI from examining the allegations of fraud separately. The Court explained that regulation 15B(8) of the erstwhile Buyback Regulations only dealt with the issue of forfeiture of escrow amount. The said provision could be triggered if a company did not utilise at least 50 percent of the amount kept aside for the buyback. However, even in such situations, the escrow could still be released if the average market price was above the buyback price or if sell orders were not enough.
The Court reasoned that even if the escrow was released, it did not imply that there was no fraud. The Bench said:
“The mere release of the escrow does not create an automatic statutory bar to proceedings under the PFUTP Regulations because the release of the escrow is not necessarily equivalent to absence of fraud.”
“SEBI has two separate inquiries. One inquiry relates to whether escrow can be forfeited under Regulation 15B. The other inquiry relates to whether the conduct of the company as a whole amounts to fraud or manipulation under the PFUTP Regulations.”
The case arises out of a buyback announced by Cairn India Limited (now known as Vedanta Limited) in January 2014. The company made an offer to the public to buy back up to 17.09 crore shares at a maximum price of ₹335 per share for a total amount of up to ₹5,725 crore. Vedanta bought around 3.67 crore shares for approximately ₹1,225 crore and was unable to utilise at least 50 percent of the allotted amount for the buyback.
The Adjudicating Officer appointed by SEBI concluded that the company failed to place enough buy orders in spite of favourable market conditions. It was noted that the announcement created an impression in the minds of investors that the buyback was genuinely intended to be completed.
A penalty of ₹5.25 crore was imposed Vedanta and ₹15 lakh each was imposed on three other respondents. SAT set aside SEBI’s decision imposing penalties on the respondents in October 2023 by observing that violations and fraud had not been established.
Rejecting SAT’s decision, the Supreme Court observed that several factual issues were left unresolved.
The Court pointed out that the trading figures recorded in paragraph 23 of SEBI’s investigation report were completely different from the figures furnished by National Stock Exchange of India Limited (NSEIL).
It was noted that for February 17, 2014, SEBI’s investigation report recorded that more than 1.31 crore shares were available to be bought at a price of ₹335 or less whereas NSE’s own data showed that only slightly more than 30 lakh shares were available at that price.
The Court also relied on another contradiction in SEBI’s investigation reports. While one report did not find any material change in price or volume, a subsequent investigation report mentioned fraud against materially the same set of facts.
Observing that SEBI cannot order deposits to be forfeited but is competent to initiate proceedings for the alleged violations, the Court held that these factual issues can be examined by SAT. SAT can call witnesses, ask for documents, and look into the trading record and return with a fresh finding on the allegation of fraud.
Appearing for SEBI were Senior Advocate Navin Pahwa and advocate Abhishek Singh. They were instructed by Siddharth K Ashar of K Ashar & Co.
Vedanta Limited and the other respondents were represented by Senior Advocate Rajiv Shakdher and advocates Anuradha Dutt, Pawan Sharma, Rishabh Sharma, Vaishali Joshi, Karan Khetani, Jonathan Ivan Rajan and B Vijayalakshmi Menon of DMD Advocates. Respondents were also represented by advocates Amit Agrawal, Advocates Sumit Agrawal, Sana Jain and Akanksha Chauhan.
