A share buyback is a corporate action through which a company repurchases its own shares from investors.
A Bench of Justices J.B. Pardiwala and K.V. Viswanathan held that the release of money kept in escrow for the proposed buyback did not, by itself, prevent SEBI from separately examining whether the company had committed fraud under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (PFUTP Regulations).
The Bench accordingly directed SAT to undertake a fresh scrutiny of the trading data produced by both sides, including the NSE records, and ascertain which version reliably reflected the transactions in question. The top court, however, clarified that its observations should not influence the tribunal’s findings and gave it six months to complete the exercise. Elango, then CEO and director of Cairn; Aman Mehta, a director on the company’s board; and Neerja Sharma, then director (risk assurance) and company secretary.
It further said that SAT could exercise its powers under Section 15U(2) of the SEBI Act to summon and examine company officials, merchant bankers and others connected with the transactions, as well as call for documents necessary to establish the circumstances in which buy orders were placed during the buyback period. SEBI had imposed a penalty of ₹5.25 crore on Cairn India for making a misleading announcement regarding the buyback of shares in 2014. It had also levied a fine of ₹15 lakh each on P.
The top court, however, found that SAT had not examined an apparent discrepancy between SEBI’s investigation report and a letter issued by the National Stock Exchange (NSE), describing the omission as a “material infirmity” that went to the root of the adjudicating officer’s order. “Since this is a material infirmity going to the evidentiary root of the AO’s order, one which SAT itself never examined or adjudicated upon, we are of the view that the matter ought to be remanded to SAT so as to enable it to render a considered finding on this specific aspect, upon a proper examination of the record,” the Bench said in its 41-page ruling. “Upon doing so, SAT shall record specific findings on each of the instances of discrepancy noted hereinabove, as also any other such discrepancy that may be brought to its notice,” the Bench said. “SAT may thereafter render fresh findings on the question of fraud under the PFUTP Regulations, uninfluenced by any observations made by this Court in the course of the present judgment on the merits of the controversy, save and except the principles of law discussed herein, and shall dispose of the matter expeditiously within a period of six months from this judgment,” the Bench 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 Bench said.
Following a detailed investigation, SEBI found that Cairn had failed to place adequate buy orders despite the availability of sufficient sell orders on the NSE.
“Cairn, by not placing adequate buy orders despite the availability of adequate sell orders at NSE, had perpetrated a fraud by making a misleading announcement regarding buyback of shares designed to influence the decision of investors and to induce sale or purchase of securities,” the regulator had said in its order.
