Sebi cannot withhold recovered penalty if its order is set aside: SAT

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Published: June 22, 2020 4:56 PM

The appellant was further informed by Sebi that there is no specific order for refund of the amount by the tribunal.

The appellant was further informed by Sebi that there is no specific order for refund of the amount by the tribunal.

The Securities Appellate Tribunal (SAT) has said Sebi cannot retain penalty amount recovered from an entity after the capital markets watchdog’s order has been set aside. If Sebi has recovered any amount, it has to immediately refund such money, the tribunal added. “We are of the opinion that once the order of the AO (Adjudicating Officer) imposing a penalty was set aside, there was no justification for Sebi to withhold any amount which was recovered pursuant to the order of the AO. Such retention of the amount after the order of the AO has been set aside, is without any authority of law,” SAT recently said in a ruling related to an individual.

“Once the order has been set aside, there is no amount to be recovered and consequently any amount so recovered has to be refunded immediately,” it added. In the ruling dated May 15, the tribunal directed Sebi to refund Rs 6.35 lakh to an individual after it set aside the markets regulator order.

It further said that Sebi would be liable to pay an interest of 12 per cent per annum if it fails to pay the amount.
The matter was heard through video conferencing due to the COVID-19 pandemic. In June 2019, the regulator had levied a fine of Rs 6 lakh on the individual for violation of Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) norms.

Following this, the individual moved SAT against the order. However, during the pendency of the appeal, Sebi’s recovery officer recovered an amount of Rs 6.35 lakh on December 17, 2019.
In February, the tribunal set aside Sebi’s order. Pursuant to this, the individual filed an application with Sebi for refund of amount.

However, instead of refunding the amount, the regulator, through an e-mail in March, informed the individual that Sebi intends to file an appeal before the Supreme Court against the order of the tribunal and, therefore, the refund of the amount would be subject to the outcome of the appeal before the Supreme Court.

The appellant was further informed by Sebi that there is no specific order for refund of the amount by the tribunal.
The appellant filed an urgency application before the tribunal, seeking a direction to be issued to Sebi to refund the amount, along with interest.

In addition, the appellant said he was in dire need of the money for medical purposes and submitted medical certificates. He also gave an undertaking that he would again place the penal amount with Sebi, in case the Supreme Court stayed the order passed by the tribunal.

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