The Supreme Court on Wednesday held that mere release of an escrow amount under the Buyback Regulations does not create an automatic statutory bar against proceedings under the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations).

It held that the escrow-release inquiry is confined to determining whether the amount is liable to forfeiture and does not, by itself, answer the separate question of whether the conduct involved fraud.

"In other words, where any of the circumstances contemplated under clauses (a), (b) or (c) of Regulation 15B(8) are found to exist, the consequence is simply that the escrow cannot be forfeited. But it does not, by itself, answer the distinct question of whether the conduct of the respondents, viewed in its entirety and in the light of the material collected during investigation, involved any fraudulent or manipulative conduct within the meaning of the PFUTP Regulations. If the respondent's erroneous manner of interpretation was to be adopted, it would mean that the release of the escrow would operate as an immunity from an altogether distinct prohibition contained in the PFUTP Regulations. There is, however, no warrant in the statutory scheme for such an interpretation", it ruled.

“Thus, 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 apex court added.

A Division Bench of Justices J.B. Pardiwala and K.V. Viswanathan held that the inquiry under Regulation 15B(8) of the Buyback Regulations is confined to determining whether the escrow is liable to forfeiture.

Satisfaction of the conditions governing release of the escrow, by itself, cannot be treated as a finding on whether the PFUTP Regulations have been violated.

The court therefore rejected the respondents' submission that release of the escrow necessarily negated allegations of fraud under the PFUTP Regulations. It held that whether the conduct involved fraudulent or manipulative conduct had to be considered separately.

The ruling arose from a ₹5,725 crore buyback announced by Cairn India, now part of Vedanta Limited. The company had proposed to buy back 17.09 crore shares at a maximum price of ₹335 per share. By June 27, 2014, it had bought about 3.6 crore shares.

SEBI's Adjudicating Officer subsequently held that the company had failed to place sufficient buy orders and had acted fraudulently, imposing a ₹5.25 crore penalty on Vedanta and ₹15 lakh each on three individuals.

The Securities Appellate Tribunal later set aside the penalties, holding that violations of the PFUTP Regulations and Buyback Regulations had not been proved.

Before the Supreme Court, SEBI argued that the escrow-release inquiry was distinct from its investigation into possible PFUTP violations. The Court accepted that the two inquiries addressed different questions.

However, the Court found unresolved discrepancies in the trading data relied upon in the fraud proceedings. It noted that conflicting data concerning the availability of sell orders had not been properly examined by the Adjudicating Officer or SAT.

“This, in our view, is a disputed question of fact that goes to the very root of the finding of fraud,” the court ruled.

The court also noted a contradiction within SEBI's investigative record: an earlier report had found no material impact on price or volume attributable to the company's corporate announcements, while a subsequent report found fraud on materially the same facts.

The top court therefore remanded the matter to SAT for fresh adjudication on the “question of fraud alone.”

SAT has been directed to scrutinise the conflicting trading data, examine relevant persons and documents if necessary, consider any corroborating circumstances, and then record fresh findings on fraud under the PFUTP Regulations.

It must dispose of the matter within six months.

For Appellant: Navin Pahwa, Sr. Advocate, Advocate Abhishek Singh, .K Ashar & Co., AOR

For Respondent: Rajiv Shakdher, Sr. Advocate, Advocates Anuradha Dutt, Pawan Sharma, Rishabh Sharma, Vaishali Joshi, Karan Khetani, Jonathan Ivan Rajan, B.Vijayalakshmi Menon, AOR, Amit Agrawal, AOR Sumit Agrawal, Sana Jain, Akanksha Chauhan

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Case Title :  SECURITIES AND EXCHANGE BOARD OF INDIA VS. VEDANTA LIMITEDCase Number :  C.A. No. 25/ 2024CITATION :  2026 LLBiz SC 303
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