𝐁𝐨𝐦𝐛𝐚𝐲 𝐇𝐢𝐠𝐡 𝐂𝐨𝐮𝐫𝐭 𝐈𝐦𝐩𝐨𝐬𝐞𝐬 𝐑𝐬 80 𝐋𝐚𝐤𝐡 𝐂𝐨𝐬𝐭 𝐨𝐧 𝐒𝐄𝐁𝐈, 𝐁𝐒𝐄 𝐚𝐧𝐝 𝐍𝐒𝐄 𝐟𝐨𝐫 𝐈𝐥𝐥𝐞𝐠𝐚𝐥 𝐅𝐫𝐞𝐞𝐳𝐢𝐧𝐠 𝐨𝐟 𝐃𝐞𝐦𝐚𝐭 𝐀𝐜𝐜𝐨𝐮𝐧𝐭𝐬 𝐚𝐧𝐝 𝐀𝐩𝐚𝐭𝐡𝐲

𝐁𝐚𝐜𝐤𝐠𝐫𝐨𝐮𝐧𝐝 𝐨𝐟 𝐭𝐡𝐞 𝐂𝐚𝐬𝐞:

In 2017, the BSEIndia and National Stock Exchange of India Limited (NSE India) (NSE) under the directions of SEBI froze the demat accounts of Dr. Pradeep Mehta, a gynecologist in Mumbai, and his son, a non-resident Indian (NRI) based in Singapore, as they were classified as promoter and part of promoter group of a company where the father-in-law was the chief promoter. It was contended that the Petitioner was never in control or a part of its management or ever acted in any advisory capacity.

𝐁𝐨𝐦𝐛𝐚𝐲 𝐇𝐢𝐠𝐡 𝐂𝐨𝐮𝐫𝐭’𝐬 𝐎𝐛𝐬𝐞𝐫𝐯𝐚𝐭𝐢𝐨𝐧:

The Bombay High Court ruled that the freezing of Dr. Pradeep Mehta and his son’s demat accounts by BSEIndia, NSE India, and SEBI was illegal, arbitrary, and unconstitutional. The court found that the Securities Contracts (Regulation) Act, which governs the actions of stock exchanges, does not authorize such a freezing of accounts based solely on a person’s status as a promoter. The court criticized the regulatory bodies for not adhering to the due process outlined in the Depositories Act, which requires a clear adjudicatory process before imposing penalties. This failure, according to the court, not only violated the petitioners’ rights but also threatened to undermine investor confidence, particularly among NRIs.

𝐁𝐨𝐦𝐛𝐚𝐲 𝐇𝐢𝐠𝐡 𝐂𝐨𝐮𝐫𝐭’𝐬 𝐅𝐢𝐧𝐝𝐢𝐧𝐠𝐬:

The court imposed a cumulative cost of Rs 80 lakh on BSEIndia, NSE India, and SEBI, directing them to pay Rs 30 lakh to Dr. Mehta and Rs 50 lakh to his son within two weeks. The judgment emphasized that the duty of regulatory bodies to protect investor interests and maintain market confidence was breached in this case, marking the actions of the authorities as grossly excessive and unjustified.

𝐍𝐨𝐭 𝐭𝐡𝐞 𝐟𝐢𝐫𝐬𝐭 𝐢𝐧𝐬𝐭𝐚𝐧𝐜𝐞:

Rather than improving the institution, regulatory authorities fights such matters tooth and nail in appellate courts. Regstreet Law Advisors has previously written a piece on cost imposed on SEBI available at https://lnkd.in/d5GFNvWy and SEBI is an obstinate regulator available at
https://lnkd.in/dPjZf3i7.

Readers are welcome to send their views at info@regstreetlaw.com. A copy of the order is enclosed.