SAT Reduces Penalty From Rs 25 to 10 Lakh where LODR Violations Were Not of Much Serious Nature

Case Details: SecureKloud Technologies Ltd. v. Securities and Exchange Board of India - [2023] 152 taxmann.com 538 (SAT-Mumbai)

Judiciary and Counsel Details

• • Justice Tarun Agarwala, Presiding Officer & Ms Meera Swarup, Technical Member
  • Ms Shruti Rajan, Adv., Anubhav Ghosh & Vivek Shah, Advs. for the Appellant.
  • Pradeep Sancheti, Sr. Adv., Mihir Mody, Arnav Misra & Harshvardhan Melanta, Advs. for the Respondent.

Facts of the Case

In the instant case, an investigation into the affairs of the appellant (i.e. the company) had revealed that the appellant was not following the due process of approving related party transactions.

It was also alleged that there was non-disclosure of a forensic audit being initiated against the appellant, which constituted a material event under regulation 30 of LODR regulations requiring disclosure. However, the company and company secretary failed to do so.

SEBI, after considering the replies and material evidence on record, found the appellant guilty of the said charges and consequently, imposed a penalty of Rs. 25 lakh under section 23E of the Securities Contracts (Regulation) Act, 1956 on the appellant.

It was noted that the appellant had committed violations of various provisions of LODR regulations. The said violations were, however, not that serious warranting the imposition of high penalties. Further, the appellant had been penalized under section 23E of the Securities Contracts (Regulation) Act, 1956.

It was noted that in the case of Suzlon Energy Ltd. v. SEBI [2021] 127 taxmann.com 333, it was held that section 23E is not a charging provision for the imposition of penalty for violation of the Listing Agreement. Instead, the correct provision is section 23A(a) of the SCRA and the penalty u/s 23A of SCRA ranges from a minimum of Rs. 1 lakh to a maximum of Rs. 1 crore.

SAT Held

The SAT held that, considering the aforesaid and violations committed by the appellant, the imposition of a penalty amounting to Rs. 25 lakh was excessive and arbitrary given in the facts and circumstances of the given case. Thus, the penalty of Rs. 25 lakhs was to be reduced to Rs. 10 lakh.

List of Cases Reviewed

• • Suzlon Energy Ltd. v. SEBI [2021] 127 taxmann.com 333 (Sat. – Mum.) (para 12) followed.

List of Cases Referred to

• • Suzlon Energy Ltd. v. SEBI [2021] 127 taxmann.com 333 (Sat. – Mum.) (para 12).