The Supreme Court on Wednesday revived a Securities and Exchange Board of India (SEBI) fraud case against Vedanta Limited over its 2014 share buyback, ruling that the release of escrow funds did not bar separate fraud proceedings. According to CNBC TV18, a bench led by **Justices J.B. Pardiwala and K.V. Viswanathan partly allowed SEBI's appeals against an October 2023 ruling by the Securities Appellate Tribunal (SAT), which had set aside penalties imposed on Vedanta and three individuals. The court has sent the matter back to SAT for a fresh decision on whether the conduct in question amounted to fraud, according to Bar & Bench reports. The key question before the Court was whether the release of the escrow amount deposited for the buyback prevented SEBI from separately examining whether the company committed fraud under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations.
Following its investigation, SEBI alleged that Vedanta had failed to place sufficient purchase orders despite adequate liquidity in the market and that its buyback announcement had misled investors. As reported by CNBC TV18, the regulator imposed the ₹5.25 crore penalty on the company in 2021. SEBI's adjudicating officer subsequently imposed ₹15 lakh each on three individuals, holding that the company had failed to place sufficient buy orders despite several opportunities when its share price was at or below the buyback ceiling. The officer noted that on 24 of 54 favourable trading days on the NSE, no buy orders were placed. The case relates to a buyback announced by Cairn India Limited, now Vedanta, in January 2014, where the company proposed to buy back 17.09 crore shares at a maximum price of ₹335 apiece, with a total investment of up to ₹5,725 crore. However, the company ultimately repurchased only 3.67 crore shares for ₹1,225.45 crore—about 28.59% of the announced buyback size.
In October 2023, SAT set aside SEBI's order, observing that the circumstances did not conclusively establish that Vedanta had lacked the intention to complete the buyback. According to CNBC TV18, SAT stated that "the company could not have foreseen or predicted that the stock markets would witness this bullish trend at the time when the decision for going for a buyback was taken nor could the company be aware at the time of making the public announcement that the traded price of the scrip would be above the maximum buyback price on 68 days out of 123 trading days." The tribunal also quashed the ₹15 lakh penalties imposed on the three former officials and held that the material before it did not conclusively establish that Vedanta had no intention of successfully completing the buyback. The buyback was scheduled to run from 23 January to 22 July 2014, with the company depositing ₹143.124 crore in an escrow account and conducting the buyback over six months.
The Supreme Court rejected Vedanta's argument that the subsequent release of the escrow amount effectively cleared it of fraud allegations, noting that Regulation 15B(8) deals only with whether the escrow is liable to be forfeited and does not determine whether the conduct amounts to fraud under the SEBI Regulations. As reported by CNBC TV18, the court found significant factual issues in SEBI's case that required reconsideration by SAT. The court noted discrepancies between SEBI's investigation data and data supplied by the NSE. For instance, for February 17, 2014, SEBI's report showed more than 1.31 crore shares available for sale at or below ₹335, while NSE data showed slightly over 30 lakh shares. Similar discrepancies were found for February 14 and for certain BSE data between May 20 and July 22, 2014. The court also flagged an apparent contradiction in SEBI's own investigation, noting that a February 2016 report found no material impact on the share price or trading volume attributable to the company's announcement, while a subsequent March 2017 report proceeded on the basis that the same conduct constituted fraud.
The Supreme Court distinguished between the release of escrow funds and fraud proceedings, holding that "the mere release of the escrow does not create an automatic statutory bar to proceedings under the PFUTP Regulations because the release of the escrow is not necessarily equivalent to absence of fraud." As reported by CNBC TV18, the court said it distinguished between the two issues: whether the escrow was liable to be forfeited and whether the company's broader conduct amounted to fraud or market manipulation. The court noted that Regulation 15B(8) of the erstwhile Buyback Regulations dealt specifically with forfeiture of the escrow and did not determine whether fraud had occurred. Given these discrepancies, the court said SAT should examine the evidence afresh, the tribunal can summon witnesses, call for documents and scrutinise the trading records before reaching a fresh conclusion on the fraud allegations.
