Supreme Court sends Vedanta buyback case back to SAT, flags inconsistencies in SEBI data

Fresh updates from the financial markets indicate that The Supreme Court on Wednesday sent the Securities and Exchange Board of India’s (SEBI) case against Vedanta Ltd and three individuals back to the Securities Appellate Tribunal (SAT) for a fresh examination of whether the firm’s 2014 share buyback amounted to fraud under securities-market regulations.

A bench of Justices JB Pardiwala and KV Viswanathan partly allowed SEBI’s appeals and directed SAT to complete the fresh adjudication within six months.

The top court additionally made it clear that SEBI’s earlier release of Vedanta’s Rs 143.125-crore escrow deposit does not bar the regulator from separately examining alleged violations of the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations.

The Supreme Court order stated, “The fact that the conditions governing the forfeiture or release of an escrow have been satisfied, by itself, cannot be treated as a finding on whether the PFUTP Regulations have been violated or not”.

The court further stated, “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”. SEBI’s case against Vedanta

Vedanta, then known as Cairn India, announced in January 2014 a buyback of up to 17.09 crore shares at a maximum price of Rs 335 apiece, with a total outlay of Rs 5,725 crore.

It eventually bought back around 3.67 crore shares for Rs 1,225.45 crore, or 21.48 percent of the earmarked amount.

SEBI’s adjudicating officer in May 2021 imposed a Rs 5.25-crore penalty on Vedanta and Rs 15 lakh each on three individuals, alleging that the buyback announcement was misleading and made without a genuine intention to execute it.

SEBI cited Vedanta’s order-placement pattern and alleged failure to deploy sufficient funds when shares were available at or below Rs 335.

Supreme Court flags data mismatch

The Supreme Court did not decide whether Vedanta had committed fraud. Instead, it asked SAT to first examine discrepancies in the trading data relied upon by SEBI.

The court flagged discrepancies in SEBI’s trading data. For February 17, 2014, SEBI’s investigation report revealed more than 1.31 crore shares available for sale at or below the Rs 335 buyback price, while NSE data revealed only a little over 30 lakh shares.

The court additionally noted an inconsistency in SEBI’s records for BSE trades between May 20 and July 22, 2014. One investigation report revealed the lowest stock price was above Rs 335, while another part of the report and the show-cause notice stated sell orders were available at or below Rs 335.

The court stated these discrepancies needed to be examined by SAT. The top court stated in its order that neither the adjudicating officer nor SAT had addressed the internal contradiction within SEBI’s own investigative record.

The court noted, “We are of the view that SAT, rather than this Court, is better placed to call upon the appellant to explain this contradiction, and to examine whether the same detracts from the reliability of the case sought to be built against the respondents”.

SAT will now determine which trading data is reliable and whether sufficient shares were available for Vedanta to buy during the relevant sessions.

The tribunal may seek additional documents and examine whether independent evidence supports SEBI’s allegation that Vedanta lacked the intention to complete the buyback.

The Supreme Court directed SAT to make fresh findings uninfluenced by its observations on the merits and dispose of the matter within six months.