SC Orders Fresh Review of Penalty Imposed on Market Regulators for Unlawful Demat Account Freeze
The Supreme Court on Monday set aside the ₹80 lakh penalty imposed by the Bombay High Court on the Securities and Exchange Board of India (SEBI), the National Stock Exchange (NSE), and the Bombay Stock Exchange (BSE) for unlawfully freezing demat accounts. The decision was made by a bench comprising Chief Justice of India (CJI) DY Chandrachud, along with Justices JB Pardiwala and Manoj Misra, who directed the Bombay High Court to reconsider the matter.
The dispute began when Dr. Pradeep Mehta and his son, Neil Pradeep Mehta, had their demat accounts frozen by the National Securities Depository Limited (NSDL) in March and April 2017. The freeze was a result of SEBI’s directives targeting promoters of Shrenuj & Company Limited, a non-compliant entity. The company had failed to submit financial results for the quarter ending December 2016, as required under SEBI’s Listing Obligations and Disclosure Requirements (LODR) regulations. The freeze was based on SEBI circulars that mandated action against promoters of non-compliant companies.
Dr. Mehta, who claimed to be a minority shareholder with no role in the company’s management, challenged the freezing of his accounts, asserting he had no influence over Shrenuj’s operations. His son, Neil, a minor at the time, also had his accounts frozen despite residing in Singapore.
The Bombay High Court had earlier ruled in favor of Dr. Mehta and his son, declaring the freezing of their accounts “illegal and invalid” due to procedural flaws and violations of their constitutional rights. The court also imposed a ₹80 lakh penalty on SEBI, BSE, and NSE.
In response, SEBI and BSE appealed the ruling to the Supreme Court. Law firms KJ John and Co. and Expletus Legal represented SEBI and BSE, respectively, in their appeals. The Supreme Court’s latest decision overturns the financial penalty and instructs the Bombay High Court to reassess the case.
(With inputs from agency)
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