SAT to SEBI: Ensure that your credibility as efficient market regulator is not eroded

Serious errors by SEBI in a couple of its recent orders and adjudication proceedings have irked the Securities Appellate Tribunal (SAT).

In one of the cases, the tribunal stopped short of imposing heavy costs on SEBI and said, “The regulator (should) take appropriate remedial measures in the matter to ensure that its credibility as an efficient market regulator is not eroded.”

SAT has come down hard on SEBI on its ruling for non-disclosure by Reliance Industries in the acquisition of Network18 (NW18) group and in the matter related to fraudulent share-sale involving Somani Cement (SCCL). In the RIL matter, wherein the company was deemed to have gained indirect control of NW18, SEBI had ruled that no disclosure was required since Independent Media Trust (IMT), through which the control was gained, was not a subsidiary of RIL but was a ‘trust’.

In the SCCL case, SAT observed that SEBI had dropped adjudication proceedings against a few entities by recording certain findings that were contrary to facts. The tribunal has asked SEBI to take a fresh look at both cases.

Need for disclosure

“In our opinion, Clause 36 of the listing agreement mandates that when a listed company acquires indirect control over another listed company, either through a trust or through any other entity, then, such acquisition has to be disclosed to the stock exchanges,” SAT said. “In the ordinary course, we would have set aside the impugned decision which is not only erroneous and detrimental to the interests of investors in the securities market but also, in effect, defeats the object with which the disclosure obligations were mandated under Clause 36 of the listing agreement.”

Contrary to facts on record

SAT said sustaining “such patently erroneous decision of SEBI would be detrimental to the interests of investors in the securities market and would encourage listed companies to acquire indirect control over other companies through a trust or some other entity without making disclosures under Clause 36 of the listing agreement”.

In the SCCL matter, SAT said, “It is further shocking to note that in respect of some of the entities involved in the present case, the adjudication proceedings have been dropped by recording a specific finding that they had not received shares of SCCL in the off-market... In fact, the investigation report specifically records that those two persons (such as the appellant) had also received shares of SCCL in the off-market... Thus, it is apparent that some of the violators have been let off by recording a finding contrary to the facts on record. It is difficult to believe that dropping of the adjudication proceedings in case of some of the violators by recording the findings which are contrary to the facts on record was an inadvertent error.”

COMMENT NOW