Supreme Court: releasing a buyback escrow does not clear a company of fraud under SEBI's PFUTP rules

The Supreme Court partly allowed appeals by the Securities and Exchange Board of India against a Securities Appellate Tribunal ruling in favour of Vedanta Limited and three individuals. A SEBI adjudicating officer had imposed penalties of ₹5.25 crore on the company and ₹15 lakh on each of the others under Sections 15HA and 15HB of the SEBI Act, 1992. The finding was that the company announced a buyback of shares without intending to fulfil it, violating the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations and the Buyback Regulations.

SAT set the penalties aside, holding that the violations were not proved. The respondents argued that because the conditions for releasing the buyback escrow under Regulation 15B(8) of the Buyback Regulations were met, fraud could not be alleged. The Court rejected this.

It held that the Regulation 15B(8) inquiry is limited to whether the escrow can be forfeited: if its conditions are satisfied, the escrow is simply not forfeited, but that does not answer whether the conduct as a whole was fraudulent or manipulative. Release of the escrow therefore creates no statutory bar to PFUTP proceedings. Noting contradictions between two of SEBI's own investigation reports on the trading data, the Court sent the question of fraud back to SAT, which has civil-court powers, to decide within six months.