SEBI Settlement Does Not Bar Stock Exchange From Imposing Separate Fine For Same Violation: SAT

The Securities Appellate Tribunal (SAT) at Mumbai has recently reiterated that a listed company's settlement with the Securities and Exchange Board of India (SEBI) does not prevent a stock exchange from imposing a separate fine for the same violation.

A bench of Presiding Officer Justice P.S. Dinesh Kumar and Technical Members Meera Swarup and Dr. Dheeraj Bhatnagar made the observation while dismissing Hindustan Foods Limited's appeal against a ₹52.21 lakh fine imposed by BSE Limited for violating the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

The dispute arose after Hindustan Foods failed to maintain the required number of independent directors on its Board. Under Regulation 17(1)(b) of the LODR Regulations, four of its eight directors had to be independent. The company did not meet this requirement during different periods between August 27, 2018, and November 8, 2022.

Hindustan Foods approached SEBI for settlement in January 2023. SEBI accepted the settlement and passed an order on October 10, 2023, after which the company paid ₹24.32 lakh.

BSE had, meanwhile, started separate proceedings over the same violation. It imposed a ₹52.21 lakh fine on December 10, 2023, which the company paid under protest.

The company then challenged the BSE fine before the SAT. It argued that BSE could not impose another fine after it had already settled the violation with SEBI, relying on the principles of res judicata and double jeopardy..

The court rejected this argument, pointing to Regulation 98 of the LODR Regulations. The provision makes a listed entity liable, “in addition to the liability” under securities laws, to action by the respective stock exchange, including imposition of fines.

The court also noted that the SEBI settlement order itself preserved the stock exchange's power to take action. It recorded that the settlement was “without prejudice to action, if any, that may be initiated by the recognized stock exchanges” under the SEBI circular dated January 22, 2020.

Against this background, the court observed that Hindustan Foods had accepted the settlement despite the express clause preserving such action.

“Being a listed Company, appellant is bound by the SEBI Act, the LODR Regulations and Circulars issued by the SEBI and stock exchanges. Appellant Company has accepted the settlement which contains an express clause that settlement is without prejudice to any action by the stock exchange.”, it notes.

The court also relied on its earlier decision in Alien Developers Private Limited v. BSE & Another. In that case, it had rejected a similar plea of double jeopardy and held that “regulatory compliances qua BSE and SEBI operate in different spheres.”

The court therefore found that the company's plea of res judicata and double jeopardy could not succeed. It dismissed the appeal, leaving the ₹52.21 lakh BSE fine in place.

For Appellant: Advocates Joby Mathew, Aditya Joby and Uttam Jaiswal

For Respondents: Advocates Manish Chhangani, Sumit Yadav, Abhay Chauhan and Devya Shah