SAT commands SEBI to probe Cairn UK Holdings dividend case

SAT commands SEBI to probe Cairn UK Holdings dividend case

The market regulator was chided for not considering the relevant documents

The Securities Appellate Tribunal (SAT) has set aside the Securities and Exchange Board of India (SEBI) order in a matter related to the non-payment of dividends by Cairn India Ltd to Cairn UK Holdings Ltd. It directed the market regulator to hold an enquiry and find a 'logical conclusion' within six months.

Cairn India merged with Vedanta Ltd in 2017 and the tribunal's order was the result of an appeal filed by Cairn UK against the SEBI order.

SAT stated, "A prima-facie case is made out by the appellant in its complaint. We consequently direct SEBI to initiate an enquiry under the Securities and Exchange Board of India Act. It should hold an enquiry in the prescribed manner, investigate the violations of the Companies Act and Listings Obligations and Disclosure Requirements (LODR) Regulations and take it to its logical conclusion."

In April 2017, the UK-based firm approached SEBI over the non-payment of dividends amounting to over Rs.340 crore by Cairn India. It appealed to the market regulator to direct Cairn India to pay the dividend along with an interest of 18 per cent per annum.

It demanded initiating proceedings under the Companies Act against the directors of Cairn India who were knowingly a party to the non-payment of the dividend.

However, the complaint was disposed of by SEBI on the pretext that the unpaid dividend was handed over by the company to the Income Tax authorities. Therefore, SEBI's intervention would not be appropriate.

In 2019, Cairn UK challenged SEBI's rejection of the complaint before SAT, which then asked the regulator to re-examine the matter.

On re-considering, SEBI again rejected the complaint mentioning that Cairn India did not violate the Companies Act and Listings Obligations and Disclosure Requirements (LODR) Regulations. The watchdog also stated that even though there was no categorical direction from the Income Tax Department to withhold the payment of dividend after the expiry of the provisional attachment, it was also not clear whether the dividend could be released to Cairn UK (appellant).

Under the mitigating circumstances, SEBI said it was difficult to assume that Cairn India committed any default upon failure to pay the dividend.

In its July order, SAT noted that the dividends had been declared by the board of directors of Cairn India during the financial years ending 31 March 2014, 2015, and 2016. But these were not paid to the appellant.

The fact was that the IT department initiated assessment proceedings for the financial year 2006-07 and in January 2014, passed a provisional attachment order, which was extended from time to time and expired on 31 March 2016.

In the order, SAT said that as a result, the dividend could not be released by Cairn India to the appellant. But after the expiry of the attachment order, there was no embargo upon Cairn India from not releasing the dividend.

The IT department also noted that the attachment order had expired and therefore, the payment of dividend to the appellant was an internal matter of Cairn India.

SAT ruled, "The finding that the documents available on record were not sufficient to establish mens rea for an offence to be established under the Companies Act is patently erroneous. We find that relevant documents have not been considered by SEBI."