The Supreme Court on Wednesday revived a Securities and Exchange Board of India fraud case against Vedanta Limited over its 2014 share buyback, holding that the release of escrow funds did not prevent the market regulator from separately pursuing fraud allegations.
A Bench of Justices JB Pardiwala and KV Viswanathan partly allowed SEBI’s appeals against an October 2023 ruling by the Securities Appellate Tribunal , which had set aside penalties imposed on Vedanta and three individuals. The Court has sent the matter back to SAT for a fresh decision on whether the conduct in question amounted to fraud, according to a Bar & Bench report.
Escrow release does not rule out fraud caseThe key question before the Court was whether the release of the escrow amount deposited for the buyback prevented SEBI from pursuing a separate case under the SEBI Regulations, or PFUTP Regulations. The Court held that it did not.
It said Regulation 15B of the erstwhile Buyback Regulations dealt specifically with forfeiture of the escrow and did not determine whether fraud had occurred.“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 absence of fraud,” the Court said, as per the Bar & Bench report.
The Court distinguished between the two issues: whether the escrow was liable to be forfeited and whether the company’s broader conduct amounted to fraud or market manipulation. Dispute dates back to 2014 buybackThe case relates to a buyback announced by Cairn India Limited, now Vedanta, in January 2014.
The company proposed to buy back 17.09 crore shares at a maximum price of ₹335 apiece, with a total investment of up to ₹5,725 crore. It eventually bought around 3.67 crore shares for about ₹1,225 crore, using less than 50% of the amount earmarked for the buyback.
SEBI’s Adjudicating Officer subsequently held that the company had failed to place sufficient buy orders despite favourable market conditions and that the announcement created a misleading impression that it genuinely intended to complete the buyback.
A penalty of ₹5.25 crore was imposed on Vedanta, while three other respondents were each fined ₹15 lakh. SAT set aside the penalties in 2023, holding that the alleged violations and fraud had not been established. The Supreme Court, however, found that important factual questions remained unresolved.
According to Bar & Bench, the Court noted discrepancies between trading figures in SEBI’s investigation report and data furnished by the NSE. For February 17, 2014, SEBI’s report showed more than 1.31 crore shares available at or below ₹335, while NSE data showed only a little over 30 lakh shares.
The Court also flagged contradictions between two SEBI investigation reports. One found no material impact on price or volume, while a later report alleged fraud based on materially the same facts. Given these discrepancies, the Court said SAT should examine the evidence afresh.
The tribunal can summon witnesses, call for documents and scrutinise the trading records before reaching a fresh conclusion on the fraud allegations.