SAT raps Sebi for ‘blind’ support to adjudicating officers

Sebi has got a rap on the knuckles from Securities Appellate Tribunal (SAT), which has termed the regulator's conduct as "disgraceful" in "blindly supporting" certain penalty orders passed by its adjudicating officers.

Remanding the case back to the market regulator for "fresh decision on merits and in accordance with law", SAT said it hopes the adjudicating officers of Sebi would ensure that "the fresh order to be passed is in the interest of the securities market".

The sharp criticism by the three-member SAT bench, headed by the Tribunal's Presiding Officer Justice J P Devadhar, has been made in an order disposing of appeals filed by certain Krishna Enterprises and Rajesh Service Centre against an order passed by a Sebi Adjudicating Officer in November, 2013.

The two appellants were fined Rs 10 lakh each for allegedly "aiding and abetting Edserv Softsystems Ltd (ESL) in siphoning off its IPO proceeds and thereby cause loss to the investors who were already the shareholders of ESL or who applied and were allotted shares under the IPO".

SAT, however, said in its order dated April 20 that the "impugned order records that it is not established that the appellants were the actual beneficiary of the siphoned off amount.

"However, penalty is imposed on ground that the appellants in collusion, acted as channel to transfer the siphoned off IPO proceeds to other layers." 

Setting aside the penalty imposed on the two entities and remanding the matter back to Sebi for a fresh hearing, SAT said there was "nothing on record to suggest that ESL has been held to be guilty of siphoning off the IPO proceeds, because, it is only if ESL is held guilty of siphoning off IPO proceeds, the question of considering the question as to whether the appellants had colluded with ESL arises".