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The Bombay High Court, in a landmark decision, has imposed a penalty of Rs 80 lakh on the Securities and Exchange Board of India (SEBI), the National Stock Exchange (NSE), and the Bombay Stock Exchange (BSE) for illegally freezing the demat accounts of a Mumbai resident and his non-resident son. This ruling marks a significant departure from the norm, as it is highly unusual for a court or tribunal to impose a penalty on a regulatory body. The case revolves around an order issued by SEBI in 2017, leading to the freezing of the demat accounts of Pradeep Mehta and his son, Neil Mehta. This action stemmed from alleged violations of SEBI norms by Shrenuj & Company, where Neil Mehta’s father-in-law was the chief promoter. However, the father-son duo maintained their innocence, arguing that they were not involved in the company's operations, nor did they hold any management positions, even in an advisory capacity. They sought relief from the Bombay High Court, challenging the legitimacy of the SEBI order.
The court, in its judgment, acknowledged the lack of any connection between the Mehtas and Shrenuj & Company, particularly in the capacity of promoters. The court declared that the Mehtas could not be held liable for any default by Shrenuj, and consequently, freezing their demat accounts for the company's alleged violation of SEBI norms was entirely unjustified. The court deemed the SEBI order illegal and invalid, granting the Mehtas the right to deal with their shares held in the frozen demat accounts. As a consequence of its findings, the court directed SEBI, NSE, and BSE to collectively pay a penalty of Rs 80 lakh, with Rs 50 lakh payable to Neil Mehta and Rs 30 lakh to Pradeep Mehta, within a timeframe of two weeks. The court further highlighted the egregious nature of the case, calling it a classic example of high-handed and reckless action by the regulatory bodies, which lacked any justification in resorting to such drastic measures.
The Bombay High Court's decision has far-reaching implications for the financial regulatory landscape in India. It sends a strong message that even regulatory bodies are not immune to accountability for their actions and must adhere to principles of fairness and due process. It serves as a reminder that the power entrusted to regulators should be exercised responsibly and with meticulous consideration for the rights of individuals. The case underscores the importance of a robust judicial system that can effectively hold even powerful entities accountable for their actions, ensuring the protection of individuals from arbitrary and unfair actions by regulatory authorities.
Source: In a rare instance, Bombay HC imposes Rs 80 lakh fine on Sebi, NSE, BSE