SAT imposes Rs.5 lakh fine on SEBI for non-compliance of order to de-freeze Kirloskar family demat accounts

SAT imposes Rs.5 lakh fine on SEBI for non-compliance of order to de-freeze Kirloskar family demat accounts

Reprimands the market regulator and the National Securities Depository Limited for indulging in blame-game

The Securities Appellate Tribunal (SAT) has reprimanded the Securities and Exchange Board of India (SEBI) for failing to de-freeze the demat accounts of five members of the Kirloskar family despite the orders issued in 2022.

A Coram of Justice Tarun Agarwala (Presiding Officer) and Meera Swarup (Technical Member) directed SEBI to deposit Rs.5 lakh with the SAT Registry for its lenient attitude.

The tribunal’s order stated, “This lackadaisical approach by SEBI is contrary to the spirit of the SEBI Act, which is to protect the interest of the investors. We find that the interest of the investors, namely, the appellants were least considered, and apathy was writ large.”

In October 2020, SEBI had passed an order barring the appellants Atul, Rahul, Alpana, Arti Kirloskar, and Jyotsna Kulkarni from accessing the securities market for six months.

The appellants appealed before the SAT, which stayed the order in December 2020, subject to an undertaking that they would not sell their shares in Kirloskar Industries Limited (KIL). Consequently, their demat accounts were de-freezed except for the shares held by them in the company.

However, in October 2022, SAT made its earlier interim order final by quashing the October 2020 SEBI order. But despite this, the appellants’ shares in KIL remained frozen.

The Kirloskars then wrote to the National Securities Depository Limited (NSDL) asking it to unfreeze their shares.

The NSDL asked SEBI for guidance on the issue but elicited no response. It prompted the Kirloskars to move the SAT again this year.

SEBI argued that it sent an email to NSDL asking it to de-freeze the accounts. However, NSDL contended that it could not do so as it was not provided with the appellants’ Permanent Account Numbers (PAN).

As SEBI and NSDL both claimed that the other had not complied with the SAT order, the tribunal saw through the ‘blame game.’

NCLT held, "SEBI should have been more diligent in ensuring compliance with the orders of the tribunal. By taking a lackadaisical approach the interest of the investors suffered. For more than a year, the appellants’ shares remained frozen despite their appeals. Consequently, we dispose of the miscellaneous applications directing SEBI to deposit Rs.5 lakhs before the registrar of the tribunal within two weeks. In the event the SEBI finds that the fault lies with the NSDL, it will be open to take appropriate remedial measures against it."

Advocates Kunal Katariya and Tushar Ajinkya appeared for the Kirloskars, whereas advocate Sukanya Sehgal represented another related applicant.

SEBI was advised by senior advocate Pradeep Sancheti, who was briefed by a team from K Ashar & Co comprising advocates Mihir Mody, Arnav Misra, and Harshvardhan Melanta.

Appearing for the NSDL was senior advocate Gaurav Joshi, briefed by advocates Abishek Venkataraman, Pulkit Sukhramani, Vidhi Jhawar, Deepank Anand, and Shourya Tanay of J Sagar Associates.