The Securities Appellate Tribunal (SAT) has quashed market regulator SEBI’s order on JK Paper Employees’ Welfare Trust, rejecting a plea to exempt it from Regulation 29 of the SEBI (Share Based Employee Benefits) Regulations, 2014.

Grounds of rejection

In October 2019, JK Paper had submitted an application seeking exemption from the strict compliance of the regulation, which SEBI had rejected in February 2020. Later, in August that year, the company moved SAT which held that the order passed by SEBI was a non-speaking order and that the authority was required to give reasons while rejecting the application. SAT ordered SEBI to reconsider the application for passing a fresh order in three months.

In November 2020, SEBI rejected the application again and the company moved SAT, seeking exemption from the regulation based on the fact that the Trust had not acquired any shares after 2011 and it sold some of the shares to repay the loans. Further, if compliance of the Regulation 26(2) is made, the corpus of the Trust would be heavily diluted which would severely dent the income of the Trust, not benefitting employees. The Trust said it would not deal in the securities of the company henceforth.

In his order on Monday, Justice Tarun Agarwala said SEBI has considered the selling of the shares by the Trust as one of the mitigating factors for rejecting the application, without considering that the shares were sold in order to pay the loans. SEBI has also not considered the undertaking given by the appellant regarding not to buy or sell any shares in future.

Accordingly, the tribunal directed the regulator to reconsider the application and pass a fresh order in three months.