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Regstreet Law Advisors successfully represented the Director (Risk Assurance) and Company Secretary, of a Listed Entity against SEBI’s Fraudulent Buyback Accusations

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The Regstreet Law Advisors Team has successfully represented a key executive of Vedanta Limtied – Aluminium Business (formerly Cairn India Limited) against a SEBI Adjudication Order imposing penalties on the company and its directors on the allegation of making fraudulent announcement of buyback of securities without any intent to fulfil it.

The allegations against Vedanta Group / Cairn India (“the Company”) were twofold. One for making misleading announcement regarding buyback of shares designed to influence the decision of the investors and to induce sale or purchase of securities. Secondly, the Company failed to put in enough buy orders at appropriate time towards the aim of completing the buyback and hence failed to show intent and acted fraudulently. On the other hand, the allegations against the individuals pertained to ‘signing the public announcement’ of buyback and accordingly ‘facilitating the company in making misleading announcement’ in respect of buyback of securities.

SEBI’s analysis of sell orders on NSE India and BSE Ltd. revealed that the company fell short in its buyback efforts. Out of 123 trading days, they placed buy orders for just 82 days on NSE India and all 123 days on BSE Ltd. Despite ample sell orders at lower market prices on NSE, the company failed to reach even 1/2 of its buyback target, as per SEBI. Even on favorable closing price days at BSE, they only bought 6.44% of the traded quantity, indicating a lack of commitment to achieving the buyback target.

However, after careful representation, the Hon’ble Securities Appellate Tribunal allowed the appeal and set aside the SEBI AO order. SAT observed that the Company had appointed professional merchant bankers and brokers for the buyback transaction and deposited Rs. 143.12 crores in an Escrow account and hence cannot be faulted for adopting a prudent and cautious approach by placing few buy orders at the initial stage of the buyback period. SAT found nothing on record to indicate that the Company instructed the intermediaries to prefer one Stock Exchange over another. The Company utilized Rs. 1225.45 crores in the buyback process and in SAT’s view this is not a paltry sum to invest for a non-serious effort to buyback the shares.

Accordingly, the SAT held that the public announcement was not misleading, consequently, the allegations pertaining to the individuals were also set aside.

For those interested, a copy of the SAT judgement as available on its website, is enclosed. This is rarest of rare case in securities law history regarding enforcement of buyback regulations. Readers are encouraged to share their views with Regstreet Law Advisors at info@regstreetlaw.com

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