The Supreme Court of India has reinstated a fraud case initiated by the Securities and Exchange Board of India (SEBI) against Vedanta Limited regarding its 2014 share buyback plan. The case, titled SEBI Vs Vedanta, finds new life following the Court’s decision on Wednesday to partially allow SEBI’s appeals against an October 2023 ruling by the Securities Appellate Tribunal (SAT). This ruling had previously set aside penalties imposed on Vedanta and three individuals.
A bench comprising Justices JB Pardiwala and KV Viswanathan remanded the issue back to SAT for a renewed assessment concerning the allegations of fraud. The central question before the Court was whether the release of the escrow funds, initially deposited for the buyback, barred SEBI from pursuing separate fraud allegations. The Court determined that it did not, clarifying that Regulation 15B(8) of the former Buyback Regulations only pertained to the forfeiture of escrow funds.
According to the Court, the forfeiture clause is activated when a company fails to utilize at least 50% of the funds allocated for the buyback. It noted that escrow funds could still be released under certain conditions, such as when the average market price exceeds the buyback price or if there are insufficient sell orders. However, the release of escrow did not imply the absence of fraudulent activity.
“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 the absence of fraud,” stated the Court.
The Bench emphasized that the inquiries into escrow forfeiture and allegations of fraud are distinct. While one deals with whether escrow can be forfeited, the other examines whether the company’s conduct constitutes fraud or manipulation under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, also known as PFUTP Regulations.
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The case originated from a buyback initiative announced by Cairn India Limited, now Vedanta, in January 2014. The company aimed to repurchase 17.09 crore shares at a maximum price of ₹335 per share, with a total investment of up to ₹5,725 crore. Ultimately, only about 3.67 crore shares were bought for approximately ₹1,225 crore, failing to meet the requirement of utilizing at least 50% of the designated funds.
SEBI’s Adjudicating Officer later concluded that the company had not placed adequate buy orders despite favorable market conditions, thus creating a misleading impression of its intention to complete the buyback. Consequently, a penalty of ₹5.25 crore was imposed on Vedanta, along with ₹15 lakh each on three other respondents. However, SAT overturned these penalties in 2023, citing unproven allegations of fraud.
The Supreme Court, however, identified unresolved factual issues, noting discrepancies between SEBI’s investigation report and data provided by the NSE. For instance, on February 17, 2014, SEBI’s report indicated over 1.31 crore shares available at or below ₹335, whereas NSE data showed only slightly more than 30 lakh shares. Additionally, contradictions between two SEBI investigation reports were highlighted.
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The Court concluded that SAT should further investigate these factual disputes, summoning witnesses, demanding documents, and scrutinizing trading records to reach a fresh determination on the alleged fraud.
The legal representation for SEBI included Senior Advocate Navin Pahwa, assisted by advocate Abhishek Singh, instructed by K Ashar & Co. Senior Advocate Rajiv Shakdher, along with a team from DMD Advocates, represented Vedanta and other respondents, including advocates Anuradha Dutt, Pawan Sharma, Rishabh Sharma, Vaishali Joshi, Karan Khetani, Jonathan Ivan Rajan, and B Vijayalakshmi Menon. Additional representation included advocates Amit Agrawal, Sumit Agrawal, Sana Jain, and Akanksha Chauhan.
