SAT pulls up SEBI for 'lackadaisical' approach in Kirloskar matter, imposes fine of Rs 5 lakh

On October 12, 2022, SAT had quashed a Sebi order that had restrained Alpana Kirloskar, Arti Kirloskar, Jyotsna Kulkarni, Rahul Kirloskar and Atil Kirloskar from selling their shares in KIL. (Representative image)

The Securities Appellate Tribunal (SAT) has come down hard on the market regulator, even imposing a Rs 5 lakh fine, for not de-freezing the shares held by the Kirloskar family in Kirloskar Industries Limited (KIL) despite the tribunal's order.

The tribunal called the Securities and Exchange Board of India's (SEBI's) approach in this particular matter "lackadaisical", which caused suffering to the investors.

On October 12, 2022, SAT had quashed a SEBI order that had restrained Alpana Kirloskar, Arti Kirloskar, Jyotsna Kulkarni, Rahul Kirloskar and Atil Kirloskar from selling their shares in KIL.

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On October 20, 2020, the regulator had restrained the appellants from accessing the securities market for six months, for not disclosing price-sensitive information on KIL on time. The appellants challenged this order before the tribunal, which passed an interim order on December 24, 2020, staying the SEBI order partially--"subject to an undertaking to be provided by the appellants to the effect that they would not sell the shares of Kirloskar Industries Limited".

On October 12, 2022, the tribunal's order removed this restriction too. Despite that, as the SAT order noted, the appellants shares in KIL remained frozen.

The Kirloskars had emailed SEBI on February 22, 2023, asking them to direct the depository participant National Security Depository Limited (NSDL) to unfreeze their KIL shares.

A day later, they also wrote to NSDL asking them to unfreeze the shares.
The next day, on February 24, 2023, the NSDL via an email requested the Kirloskars to share further details from SEBI regarding the directions given by SAT.

On February 25, the Kirloskars intimated NSDL about the final order passed by SAT and repeated their request. They sent a reminder again on March 2, 2023. Again, on March 13, 2023, NSDL asked for directions from SEBI and the depository alleged that the regulator had given no response to its query.
On August 8, 2023, the Kirloskars again reached out to the NSDL with the same request.

Then they filed an application with SAT. Then SEBI responded saying that they had instructed NSDL in an email dated December 13, 2022, to comply with the SAT order and added that the default was not on SEBI's part and that the responsibility lay with NSDL.

When SAT asked NSDL for a response, the depository said that they could not act on SEBI's email because the Permanent Account Number (PAN) of the appellants were not provided.

NSDL also submitted that it had reached out to the regulator for instruction, in an email dated March 13, 2023, and that the regulator had not responded to that query.

The market regulator contended that the depository had sent this letter to the wrong email ID and therefore the query went unattended.

"Having heard the learned senior counsel for SEBI and NSDL, we find that a blame game has started between SEBI and NSDL," noted the SAT order.
"The net result is that there is apathy on the part of SEBI in not taking follow up action," it added.

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The tribunal called SEBI's approach lackadaisical and contrary to the spirit of the SEBI Act, which is meant to protect investors.

"In the instant case, we find that the interest of the investors, namely, the appellants were least considered and apathy was writ large," stated the order.

The tribunal said that once the current application was filed on November 1, 2023, "all hell broke loose" and the demat accounts were unfrozen.
"This by itself speaks volumes of the functioning of SEBI in reacting to matters at the last moment," read the order.