SEBI Erred in Imposition of Penalty u/s 23E for Violating SEBI Circular: SAT

Case Details: IFGL Refractories Ltd. v. Securities and Exchange Board of India - [2023] 150 taxmann.com 154 (SAT-Mumbai)

Judiciary and Counsel Details

• • Justice Tarun Agarwala, Presiding Officer & Ms Meera Swarup, Technical Member
  • Nitin Jain, S.K. Singhi & Ankur Singhi Advs. for the Appellant.
  • Sumit Rai, Ravishekhar Pandey, Nishit Dhruva & Ms Shefali Shankar Advs. for the Respondent.

Facts of the Case

In the instant case, investigation by the Securities and Exchange Board of India (SEBI) revealed that the appellant Company had violated provisions of SEBI Circular dated 18.10.2019 and SEBI imposed a penalty of Rs. 5 lakhs for violation of section 23E of the Securities Contract (Regulation) Act, 1956.

Section 23E of the Securities Contract (Regulation) Act, 1956 is read as under:

23E. Penalty for failure to comply with provision of listing conditions or delisting conditions or grounds.

If a company or any person managing collective investment scheme or mutual fund, fails to comply with the listing conditions or delisting conditions or grounds or commits a breach thereof, it or he shall be liable to a penalty not exceeding twenty-five crore rupees.

Pursuant to the order of SEBI imposing the penalty of Rs. 5 lakhs for violation of section 23E of the Securities Contract (Regulation) Act, 1956, an appeal was preferred with the Appellate Tribunal i.e., Securities Appellate Tribunal (SAT).

SAT Held

The SAT observed that since in instant case, violation, if any, committed by appellant was of circular and had nothing to do with violation of listing agreement or listing conditions under section 23E, imposition of penalty under section 23E was patently erroneous, perverse and had been passed without any application of mind.

The Securities Appellate Tribunal (SAT) held that the impugned order of SEBI was to be quashed on payment of cost of Rs. 50 thousand to be deposited by SEBI before Registrar.

For the reasons stated aforesaid, the SAT further held that the impugned order cannot be sustained and was quashed on payment of cost of Rs. 50,000/- to be deposited by the Respondent before the Registrar of this Tribunal.

List of Cases Reviewed

• • Suzlon Energy Ltd. v. SEBI [2021] 127 taxmann.com 333 (SAT – Mum.) (para 11) followed.

List of Cases Referred to

• • Suzlon Energy Ltd. v. SEBI [2021] 127 taxmann.com 333 (SAT – Mum.) (para 8)
  • Union Of India v. Kamlakshi Finance Corporation Ltd. [1992] taxmann.com 16 (SC) (para 11).