SAT raps Sebi for failing to de-freeze Kirloskar family shares

The Securities Appellate Tribunal (SAT) has pulled up markets regulator Sebi for failing to de-freeze the shares held by members of the Kirloskar family in Kirloskar Industries Ltd (KIL) despite the tribunal's directive.

The SAT asked Sebi to deposit costs of Rs 5 lakh before the tribunal's registry for its lackadaisical approach in the case.

SAT's observations

The SAT bench, comprising Presiding Officer Justice Tarun Agarwala and Technical Member Meera Swarup, said in the order, "We are of the opinion that this lackadaisical approach by Sebi is contrary to the spirit of the Sebi Act, which in our opinion is to protect the interest of the investors. In the instant case, we find that the interest of the investors, namely, the appellants was least considered and apathy was writ large."

Background of the case

In October 2020, Sebi prohibited Atul Kirloskar, Rahul Kirloskar, Alpana Kirloskar, Arti Kirloskar, and Jyotsna Kulkarni from accessing the securities market for six months. This order was challenged in the appellate tribunal, which passed an interim order in December 2020 and stayed Sebi's order subject to an undertaking to the effect that they would not sell their shares in KIL.

Accordingly, the demat accounts of these five appellants were de-freezed except to the extent of the shares held by them in KIL.

SAT's final order

In October last year, SAT passed a final order and set aside Sebi's order in October 2020. Despite this, the appellants' shares in KIL remained frozen, SAT noted.

Appellants' efforts to unfreeze shares

The appellants wrote an email in February this year to Sebi asking the National Securities Depository Limited (NSDL) to be directed to unfreeze the shares held by them in KIL. Also, they wrote to NSDL requesting NSDL to unfreeze the shares.

In the succeeding month, NSDL asked for directions from Sebi and the depository alleged that it did not receive any response from the regulator on its query.

On August 8, 2023, the appellants again wrote to the NSDL with the same request, which allegedly remained unanswered.

Sebi's response

In its reply, Sebi responded by saying that they had instructed NSDL in an email dated December 13, 2022, to comply with the SAT order.

It further said the default was not on Sebi's part and that the NSDL was responsible for refreezing the shares.

NSDL's response

NSDL, in its response to SAT, said they could not take any action on Sebi's email because the Permanent Account Number (PAN) of the appellants was not provided.

Also, NSDL submitted that it had approached Sebi for guidance, through an email on March 13, 2023, and that the regulator had not responded to that query.

Sebi contended that the NSDL had sent this letter to the wrong person and therefore the query went unattended.

SAT's observations

The SAT noted, "We find that a blame game has started between Sebi and NSDL. Both entities are blaming each other for non-compliance of SAT order."

The tribunal added, "The net result is that there is apathy on the part of Sebi in not taking follow-up action."

The SAT's order highlights the need for Sebi to be more responsive and efficient in implementing its orders. The tribunal's decision to impose costs on Sebi is a reminder that regulators must take their responsibilities seriously and act in the best interests of investors.