8-year procedural delay hurts SEBI’s case against ICICI Bank

An eight-year delay in issuing a show-cause notice (SCN) by SEBI has resulted in its penalty of ₹10 lakh falling apart against ICICI Bank and another. The Securities and Appellate Tribunal criticised SEBI for “failure in effectively performing the function of a market regulator.”

Inadequate disclosure

SAT observed that SEBI had a case on merit, but it failed on procedural grounds. SAT converted SEBI’s penalty into just a warning to the bank “to meet the ends of justice.”

SEBI had noticed violation of insider trading norms due to inadequate disclosure by ICICI Bank in 2010 when it entered into a deal to acquire Bank of Rajasthan (BOR). The disclosure of the deal agreement, a price sensitive information, which was signed between ICICI Bank and dominant shareholders of BOR was delayed by a day. But on SEBI's part, there was a delay of 2,955 days in issuing SCN from the date of the event and 2,130 days from the date of preliminary investigation report, too wide a gap to be ignored, SAT said. SEBI, under its two previous chairmen, failed in issuing its SCN. The case actually moved ahead when SCN was issued in 2018 under the incumbent chairman Ajay Tyagi.

“We are of the considered view that issuance of a penalty order against the appellant in September 2019 for certain disclosure violations in mid-May 2010, by issuing a SCN on June 26, 2018, has caused prejudice to the appellant and the order suffers from laches (inordinate delays). It is a failure in effectively performing the behaviour modification function of a market regulator,” SAT said in its order.

Delay: routine procedures?

SAT further observed that SEBI’s undue delay in proceedings causes prejudice to the company and would ultimately attach a stigma if any adverse order was passed.

It is not the first set-back to SEBI for such procedural lapse. Earlier this year, SAT issued similar observations against SEBI in a case of artificial trading in Oregon Commercial also known as Saianand Commercial. The SCN in that case was issued after a gap of 7 years, SAT found.

“SEBI penalty of ₹10 lakhs has been substituted for a warning in light of procedural delay, but the disclosure tenets enumerated in the order will stand listed companies in good stead. SAT effectively also reaffirms that the binding implementation agreement between ICICI and BOR was material information requiring immediate dissemination,” said Abhiroop Lahiri, Partner, IndusLaw.