In a rare instance, Bombay HC imposes Rs 80 lakh fine on Sebi, NSE, BSE

Mumbai, Aug 28, 2024 

Matter pertains to illegal freezing of demat accounts of a father-son duo

The Bombay High Court has imposed a penalty (cost) of Rs 80 lakh on the market regulator, the Securities and Exchange Board of India (Sebi), the National Stock Exchange (NSE), and the BSE for the illegal freezing of demat accounts of a Mumbai resident and their non-resident son, who were erroneously classified as promoters.

This is a rare instance of a court or a tribunal imposing a penalty on a regulator.

The matter pertains to an order by Sebi in 2017, following which the demat accounts of one Pradeep Mehta and his son Neil Mehta were frozen. The order was against Shrenuj & Company for alleged violations of Sebi norms, where Neil Mehta’s father-in-law was the chief promoter.

The father-son duo filed a petition for relief with the Bombay High Court. They submitted that they were not involved in the functioning of the company or ever a part of the management, even in an advisory capacity.

“It is evident that the petitioner in no manner whatsoever, less in the capacity as promoter, was concerned and connected with Shrenuj. Thus, he could not be held liable for any default of Shrenuj, much less that he could face any action of freezing of his demat account for the default of Shrenuj,” the High Court pointed out.

The court declared the Sebi order illegal and invalid, and allowed Mehta and his son to deal with all their shares held in the demat accounts.

The court directed Sebi and the exchanges, NSE and BSE, to cumulatively pay Rs 50 lakh to the son and Rs 30 lakh to the father within two weeks.

“The present case is more gross and is a classic example of high-handed action and a reckless action to freeze the demat account of the petitioner. There is patent non-application of mind by any of these authorities, who are statutorily governed in resorting to take such drastic action,” noted the court.

[The Business Standard]