Supreme Court revives SEBI's fraud case against Vedanta over 2014 share buyback

The Supreme Court on Wednesday revived a Securities and Exchange Board of India (SEBI) fraud case against Vedanta Limited over its 2014 share buyback [SEBI Vs Vedanta].

A Bench of Justices JB Pardiwala and KV Viswanathan partly allowed SEBI’s appeals against an October 2023 SAT ruling that had set aside penalties imposed on Vedanta and three individuals.

The Court sent the matter back to the Securities Appellate Tribunal (SAT) for a fresh decision on the question of fraud.

The key issue before the Court was whether release of the escrow amount deposited for the buyback prevented SEBI from pursuing a separate fraud case.

The Court held that it did not.

It explained that Regulation 15B(8) of the erstwhile Buyback Regulations dealt only with forfeiture of the escrow.

That provision came into play when a company failed to utilise at least 50 percent of the amount earmarked for the buyback.

The escrow could still be released in certain situations. These included cases where the average market price remained above the buyback price or there were inadequate sell orders.

But release of the escrow did not amount to a finding that there was no fraud, the Court said.

"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," the Court said.

The Court said the two inquiries were distinct.

One concerned whether the escrow could be forfeited. The other was regarding whether the company’s overall conduct amounted to fraud or manipulation under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations (PFUTP Regulations).

The dispute arose from a buyback announced by Cairn India Limited, now Vedanta, in January 2014. The company proposed to buy back 17.09 crore shares at a maximum price of ₹335 per share, with a total investment of up to ₹5,725 crore.

It ultimately bought around 3.67 crore shares for about ₹1,225 crore and failed to meet the requirement of utilising at least 50 percent of the amount earmarked for the buyback.

SEBI’s Adjudicating Officer later held that the company had failed to place sufficient buy orders despite favourable market conditions and that the buyback announcement created a misleading impression that it genuinely intended to complete the exercise.

A penalty of ₹5.25 crore was imposed on the company and ₹15 lakh each on three other respondents. SAT set aside the penalties in 2023 after holding that the alleged violations and fraud had not been proved.

The Supreme Court, however, found that key factual issues remained unresolved.

It noted significant discrepancies between the trading figures in SEBI’s investigation report and data furnished by the NSE.

For February 17, 2014, SEBI’s report showed more than 1.31 crore shares available at or below ₹335, while NSE data showed only a little over 30 lakh shares.

It also flagged a contradiction between two SEBI investigation reports, one of which found no material impact on price or volume while a later report alleged fraud on materially the same facts.

The Court held that these factual disputes should be examined by SAT, which can summon witnesses, call for documents and scrutinise the trading record before returning a fresh finding on fraud.

Senior Advocate Navin Pahwa with advocate Abhishek Singh appeared for SEBI. They were instructed by K Ashar & Co.

Vedanta and the other respondents were represented by Senior Advocate Rajiv Shakdher with advocates Anuradha Dutt, Pawan Sharma, Rishabh Sharma, Vaishali Joshi, Karan Khetani, Jonathan Ivan Rajan and B Vijayalakshmi Menon from DMD Advocates.

Respondets were also represented by advocates Amit Agrawal, Advocates Sumit Agrawal, Sana Jain and Akanksha Chauhan.

[Read Judgment]