2023 (1) TMI 1054 - HC - SEBI

SEBI settlement Scheme, 2022 - penalty imposed as petitioner alleging that he carried out non-genuine trades i.e. in liquid stock options at the Bombay Stock Exchange, whereby, he violated Regulations 3(a)(b)(c)(d), 4(1) and 4(2)(a) of SEBI (prohibition of Fraudulent and Unfair Trading Practices related to Securities Markets), Regulations 2003 - advantage of the scheme while accepting online payment - petition seeks for issuance of directions in the nature of mandamus directing the respondents to open/enable the link for payment of penalty in terms of the Scheme and accept the payment on behalf of the Petitioner on or before the closure of the Settlement Scheme of 2022 either physically or online - HELD THAT - SEBI settlement Scheme, 2022 with an object to settle enforcement proceedings approved/initiated and pending in respect of Illiquid stock Options. A perusal of the concerned Regulation and the eligibility Clause would clearly indicate that all the entities who had executed non-genuine trades/trade reversals on the stock option segment of BSE during the period April 01, 2014 to September 30, 2015 and against whom enforcement proceedings have been approved or initiated and are pending before any authority/forum, viz. Adjudicating Officer/Hon ble SAT/Hon ble Courts/Recovery Officer etc. shall be eligible to avail the one time settlement opportunity. It clearly indicates that the benefit of Scheme can only be extended where the enforcement proceedings have been approved or initiated and are pending before any authority/forum. In the instant case, the argument made by learned counsel for the petitioner cannot be accepted that the enforcement proceedings are still pending. After approval of the enforcement proceedings, the same are required to be formally initiated before the adjudicating authority and in the instant case, the stage of approval of initiation and of initiation is already over when the adjudicating officer had already passed an order. It is thus seen that as on date the money towards penalty is due under an order issued under Securities Laws, which is liable to be recovered under Securities Laws. Regulation 5 of SEBI Regulation, 2018 puts a specific bar for settlement of such cases. Pendency of recovery proceedings cases are distinct than the original proceedings. Hence, the case of the petitioner does not fall within Clause 6 of the said scheme for eligibility, accordingly, no mandamus can be issued. Petition stands dismissed.

Summary

Issues:
1. Petition seeking directions for payment of penalty under SEBI settlement Scheme of 2022.
2. Interpretation of the eligibility criteria under the SEBI settlement Scheme of 2022.

Analysis:

Issue 1: Petition seeking directions for payment of penalty under SEBI settlement Scheme of 2022
The petitioner sought directions to open the link for payment of penalty under the SEBI settlement Scheme of 2022. The petitioner was alleged to have carried out non-genuine trades in liquid stock options, leading to a penalty imposition of Rs.5,00,000. Despite attempts to settle through the Scheme, the respondent did not accept the payment, causing the petitioner to file a petition seeking mandamus for payment acceptance before the Scheme's closure. The petitioner argued that non-acceptance of payment was against the Scheme's mandate, affecting the petitioner's right to settle. However, the respondent contended that the case had reached finality, and the Scheme could not be applied retroactively to cases with concluded proceedings.

Issue 2: Interpretation of the eligibility criteria under the SEBI settlement Scheme of 2022
The eligibility criteria of the SEBI settlement Scheme of 2022 required entities involved in non-genuine trades/trade reversals on the stock option segment of BSE between April 01, 2014, and September 30, 2015, with pending enforcement proceedings to avail the settlement opportunity. The court analyzed the regulations and the eligibility clause, emphasizing that the Scheme's benefit was limited to cases where enforcement proceedings were approved or initiated and pending before relevant authorities. In this case, the enforcement proceedings had been approved, initiated, and concluded with a penalty order, making the petitioner ineligible for the Scheme's benefits. The court cited Regulation 5 of SEBI (Settlement Proceedings) Regulations 2018, which prohibits settlement where monies due under securities laws are recoverable, as a specific bar to the petitioner's case. Consequently, the court dismissed the petition and pending applications, as the petitioner did not meet the Scheme's eligibility requirements due to the finalized penalty order under securities laws.

In conclusion, the judgment clarified the limitations of the SEBI settlement Scheme of 2022 and upheld the regulatory framework's integrity by interpreting the eligibility criteria strictly in cases where enforcement proceedings had concluded with monetary penalties due under securities laws.