Case at a glance: The Supreme Court has held that SEBI’s release of a buyback escrow under Regulation 15B(8) of the Buyback Regulations does not by itself bar a finding of fraud under the PFUTP Regulations. Partly allowing SEBI’s appeals against a Securities Appellate Tribunal order in Vedanta’s favour, it remanded the matter to SAT to decide the fraud question afresh within six months.
In November 2013 Vedanta resolved to buy back up to 17.09 crore shares at a maximum price of Rs 335, a total of Rs 5,725 crore, through the stock exchanges between January and July 2014. It had bought about 3.6 crore shares for about Rs 1,225 crore when SEBI refused an extension; the company then said it could not reach the 50% minimum utilisation and sought release of its escrow, which SEBI accepted in 2016.
A later investigation report of 2017 alleged PFUTP violations. On 19 May 2021 the adjudicating officer imposed Rs 5.25 crore on the company and Rs 15 lakh each on three others under Sections 15HA and 15HB of the SEBI Act. SAT set that order aside on 5 October 2023.
The Key Question Before the Court
Does SEBI’s release of buyback escrow, after examining non-fulfilment of the minimum buyback, preclude an independent finding of fraud under the PFUTP Regulations?
Escrow Release Is Not a Clean Chit
The Court held that the escrow enquiry under Regulation 15B(8) “is confined to determining whether the escrow is liable to be forfeited”. It does not define or decide fraud, and “the release of escrow, by itself, cannot preclude a finding of fraud”. An internal file noting of SEBI’s legal department was held not binding, relying on Sethi Auto Service Station v. DDA.
Reviewing the law on proof of market fraud, including Kishore R. Ajmera and Kanaiyalal Baldevbhai Patel, and the principle that fraud cannot rest on conjecture, the Court found that SAT wrongly relied on the escrow-release investigation. Discrepancies in the trading data and conflicting SEBI investigation reports of 2016 and 2017 raised disputed facts, which SAT, with civil-court powers under Section 15U, was better placed to resolve than the Supreme Court in an appeal under Section 15Z.
What the Court Actually Held
- Release of escrow under Regulation 15B(8) creates no automatic statutory bar to PFUTP proceedings.
- SAT erred in treating the escrow-release investigation as decisive.
- The appeals were partly allowed and the matter remanded to SAT on the question of fraud alone.
- SAT must decide which trading data is accurate, may summon witnesses and documents under Section 15U(2), and must decide within six months.
Why This Judgment Matters
- It separates regulatory compliance outcomes from fraud liability in buybacks.
- It confirms that internal SEBI notings do not bind the regulator.
- It shows the Court remanding disputed fact questions to SAT rather than deciding them itself.
What Should Advocates Take Away From the Judgment?
For Listed Companies
- Do not treat escrow release as immunity from PFUTP action.
- Keep complete trading and order records for buyback periods.
For Practitioners Before SAT
- Use SAT’s Section 15U(2) powers to call witnesses where data is disputed.
- Address discrepancies between investigation reports specifically.
Key Takeaways
- Escrow release decides forfeiture, not fraud.
- Internal notings are not orders.
- Fraud must be proved on evidence, not conjecture.
- Fraud question goes back to SAT for six months.
Frequently Asked Questions
No. It made no finding on fraud and remanded the question to SAT.
No. The matter was remanded for fresh adjudication on fraud alone.
Because disputed trading data and conflicting reports needed fact-finding, which SAT is equipped to do.
Conclusion
The judgment keeps the PFUTP route open even after a regulator has released a buyback escrow.
Practical takeaway: A favourable escrow decision under the Buyback Regulations is not a defence to fraud allegations; the fraud question must be met on the evidence.