Regstreet Law Advisors is pleased to share a recent SEBI adjudication order where our team successfully defended one of Indiaโs leading RTAs.
The case involved two key allegations:
(a) Delay in addressing vulnerabilities identified during the VAPT process.
(b) Lapses in cybersecurity oversight by the Technology Committee.
A Show Cause Notice (SCN) was initially issued to the RTA in question. However, after its amalgamation under an NCLT-approved scheme, SEBI issued a Supplementary SCN (SSCN) to the successor entity, holding it accountable for the predecessorโs alleged lapsesโdespite the violations occurring before the merger.
๐
๐ข๐ง๐๐ฅ ๐๐ซ๐๐๐ซ: Exonerated the RTA from one allegation on merits.
Imposed only the minimum penalty under Section 15HB of the SEBI Act, 1992, for the other.
๐๐๐ฒ ๐๐๐ ๐๐ฅ ๐๐ฌ๐ฌ๐ฎ๐๐ฌ:
(a) Can SEBI penalize an entity for violations committed by an amalgamated entity before the merger? SEBI justified this by citing the Scheme of Amalgamation, which transferred all debts, liabilities, and obligations to the successor entity.
(b) Does . have the authority to issue a Supplementary SCN (SSCN)? SEBI reasoned that since there is no provision prohibiting SSCNs under securities laws, it retains the power to issue them.
๐๐ก๐ฒ ๐๐ก๐ข๐ฌ ๐๐๐ญ๐ญ๐๐ซ๐ฌ:
If the legislature intended to grant SEBI the power to issue SSCNs, it would have done so explicitly – just as it did under the Customs Act, 1962 (via the Finance Act, 2018). Notably, the same Finance Act also amended the . Act and SCRA but did not confer this power on .. Regulatory authorities cannot assume powers. SEBIโs stance therefore raises significant concerns about regulatory overreach.
This order emphasises the evolving complexities in securities regulation and the critical role of judicial scrutiny over regulatory actions.
A copy of the order is attached.
Regstreet Law Advisors Sumit Agrawal Kavish Garach Anushka Fuke