SEBI-SAT Stalemate Over Provision 23(E) of SCRA

The Securities and Exchange Board of India (Sebi) and the Securities Appellate Tribunal (SAT) are currently embroiled in a stalemate over the interpretation of a specific provision in the securities law.

Understanding Provision 23(E)

At the heart of the impasse lies Provision 23(E) of the Securities Contracts (Regulations) Act (SCRA). This provision states that any company violating listing conditions could face a penalty of up to ₹25 crore. However, there is a disagreement between Sebi and SAT regarding the interpretation of “listing conditions.”

Divergent Views on Listing Conditions

Sebi has taken the stance that “listing conditions” specified in the Act refer to violations of listing rules. On the other hand, SAT rejects this interpretation and argues that the provision only applies if listing conditions are not met. Consequently, SAT has overturned more than half a dozen Sebi orders related to listing-agreement violations.

The Stalemate Reaches the Supreme Court

With the stalemate unresolved, the matter has now reached the Supreme Court. A two-judge bench comprising Justice K.M. Joseph and Justice B.V. Nagarathna will hear the appeals related to the issue. This development has attracted significant attention from legal experts and market participants awaiting a resolution.

Differentiating ‘Listing Conditions’ and ‘Conditions of Listing Agreement’

Legal experts highlight the distinction between “listing conditions” and “conditions of listing agreement” under the SCRA. They argue that the violation of “conditions of listing agreement” falls under a separate provision, Section 23(2) of the SCRA. Consequently, they assert that the penalties imposed under Provision 23(E) should only apply to violations of “listing conditions.”

Sebi’s Use of Section 23(E)

Sebi has utilized Section 23(E) in multiple cases involving listing-agreement violations. Apart from the well-known Suzlon Energy Ltd case, Sebi has imposed penalties under this provision in cases concerning Man Industries (India) Ltd, IFGL Refractories Ltd, and Winsome Yarns Ltd. SAT has expressed dissatisfaction with Sebi’s repeated use of Section 23(E) despite its ruling in the Suzlon matter.

The Maximum Penalty and Listing-Agreement Violations

Notably, Section 23(E) imposes a maximum penalty of ₹25 crore, while the specific section for listing-agreement violations stipulates a maximum penalty of ₹1 crore. This discrepancy has led to concerns about proportional penalties based on the scale and nature of violations.



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