Release Of Escrow Under SEBI Buyback Regulations Does Not Bar Separate Fraud Inquiry : Supreme Court In Vedanta Case
The Supreme Court on Wednesday (09.09.2026) has held that release of the cash escrow deposited by a company under Regulation 15B(8) of the Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998 (Buyback Regulations), does not operate as a bar to a separate and independent inquiry into fraud under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations).
A bench of Justice JB Pardiwala and Justice KV Viswanathan, however, remanded the matter back to the Securities Appellate Tribunal (SAT) for fresh adjudication on the limited question of fraud, after finding that neither the Adjudicating Officer (AO) nor SAT had dealt with disputed discrepancies in the trading data on the basis of which the fraud was discovered.
The appeals arise out of a 2023 judgment by which SAT had set aside a penalty order passed by the AO (SEBI). The AO had imposed a penalty of Rs 5.25 crore on Vedanta Limited (respondent, formerly as Cairn India Limited) and Rs 15 lakh each on three other individuals (other respondents). It was alleged that the respondents had made a misleading buyback announcement without any real intention of fulfilling it, in violation of the PFUTP Regulations and Regulation 19(1)(a) of the Buyback Regulations.
Vedanta had announced a buyback of 17.09 crore shares at a price cap of Rs 335 per share in 2014, for a scheduled six-month period. By the time the buyback period ended in July 2014, the company had bought back only about 21.48% of the targeted shares, deploying roughly 28.59% of the earmarked amount. SEBI declined the company's request to extend the buyback period, and the company subsequently sought release of the 2.5% cash escrow deposited under Regulation 15(B), citing exemptions under Regulation 15(B)(8).
While SEBI released the escrow in 2016 after finding the conditions for exemption from forfeiture were met, a separate investigation into possible fraud under the PFUTP Regulations continued, leading to the show-cause notice and the AO's penalty order in 2021. However, SAT set aside the order, holding that fraud had not been proved and that the company had shown bona fide intent despite adverse market conditions. Subsequently, SEBI approached the Supreme Court.
Before the Supreme Court, Senior Advocate Navin Pahwa, argued for SEBI that the AO had passed a reasoned order which did not warrant interference, pointing out that despite 54 “favourable” trading days when the market price was at or below the buyback price, the company placed no buy orders at all on 24 of those days, and negligible orders on several others. It was also contended that the company bought only about 5% of the shares available for sale on National Stock Exchange (NSE) on favourable days. It was further argued that SAT had erred by looking only at the opening and closing prices of the buyback period while ignoring this granular data.
On the contrary, Senior Advocate Rajiv Shakdher, on behalf of the respondents contended that the appeal did not raise any question of law and that the company had genuinely intended to complete the buyback, having engaged merchant bankers and placed buy orders on 82 days on the NSE and all 123 days on the Bombay Stock Exchange (BSE). It was also argued that the raw number of sell orders did not reflect actual viable demand at the price cap and that SEBI's own data was internally inconsistent. It was also pointed out that the request to cross-examine NSE and BSE officials on this inconsistency had been declined by the AO.
Perusing the arguments, the Supreme Court framed the central question as, “whether the release of the escrow amount pursuant to the exceptions listed under Regulation 15B(8) of the Buyback Regulations precludes or otherwise bars an independent allegation, inquiry or finding of fraud under the PFUTP Regulations?
Rejecting the respondents' reliance on an internal noting of SEBI's Legal Affairs Department (LAD) suggesting it would be “doubtful and legally difficult” to sustain a PFUTP case once the escrow-exemption conditions were met, the Court held that such internal file notings do not have binding legal effect. For this, the bench placed reliance on M/s Sethi Auto Service Station v Delhi Development Authority to reiterate that, “it is trite to state that notings in a departmental file do not have the sanction of law to be an effective order. A noting by an officer is an expression of his viewpoint on the subject.”
With regards to the question, the Court held that Regulation 15B(8) is concerned only with whether the escrow is liable to forfeiture, and does not adjudicate the separate question of fraud. “The fact that the conditions governing the forfeiture or release of an escrow have been satisfied, by itself, cannot be treated as a finding on whether the PFUTP Regulations have been violated or not,” it was held.
The bench also added that accepting the respondents' interpretation would effectively convert release of escrow into “an immunity from an altogether distinct prohibition contained in the PFUTP Regulation,” for which there was no statutory warrant.
Accordingly, it held that, “if the respondent's erroneous manner of interpretation was to be adopted, it would mean that the release of the escrow would operate as an immunity from an altogether distinct prohibition contained in the PFUTP Regulations. There is, however, no warrant in the statutory scheme for such an interpretation. 35. Thus, the mere release of the escrow does not create an automatic statutory bar to proceedings under the PFUTP Regulations because the release of the escrow is not necessarily equivalent to absence of fraud.”
The bench also traced precedents on how fraud is established under the PFUTP Regulations, with cases including SEBI v Kishore R Ajmera, SEBI v Kanaiyalal Baldevbhai Patel, Deccan Chronicle Holdings Ltd v SEBI, SEBI v Terrascope Ventures Ltd, and the recently decided Reliance Industries Ltd v SEBI. Summarising the principle, the Court observed that fraud cannot rest on “mere allegations, conjectures and surmises,” but must be established on a preponderance of probabilities based on the totality of circumstances. “On an objective perusal of the evidence so produced, the courts must either believe it to exist or consider its existence so probable that a reasonable man ought, under the given circumstances, act upon the supposition that it exists,” the bench observed.
Applying Reliance Industries, the Court also noted that where inducement of third parties cannot be shown, “the device or tactic which the respondent authority deems to be manipulative must be such that there could be no other explanation but that of fraud.”
Applying the aforesaid, the Court found fault with SAT's approach of relying on the earlier investigation conducted for the purpose of releasing the escrow to conclude that fraud was not made out, holding that this conflated two legally distinct inquiries. One is confined to entitlement over the escrow, the other is directed at whether fraud within the meaning of Regulation 2(1)(c) of the PFUTP Regulations had occurred.
The Court also observed that, “the AO's finding of fraud rests upon historical NSE/BSE trading data. The counsel for the respondents has questioned the accuracy of this trading data relied upon by the AO. The respondents also raised this ground before the AO (at Para 34 of the Reply to SCN) as well as before the SAT (at Ground G of the appeal before SAT), however, both the AO and the SAT failed to adjudicate on this aspect at all. The counsel for the respondents raised the same ground before us as well and has put forth this submission with reference to at least 3 instances whereby the trading data relied upon by the AO appears to be inconsistent.”
Since this went to the very root of the finding of fraud, the Court held that it was not the appropriate forum to resolve such a disputed question of fact. It also flagged an unaddressed internal contradiction between SEBI's own 2016 investigation report which found no material impact on price or volume and the 2017 report which found fraud, on substantially the same facts.
Noting that SAT possesses civil court powers under Section 15U of the SEBI Act, the Court held that SAT was better placed to resolve these factual disputes. Accordingly, the matter was remanded back to SAT for adjudication afresh.
The Court also directed to scrutinise trading data, including NSE's letter and record specific findings on each discrepancy pointed out. SAT is also directed to exercise its powers under Section 15U(2) of the SEBI Act to summon company officials, merchant bankers and other relevant persons to call for documents. It further directed to examine whether corroborating circumstances beyond the trading data exist bearing on fraud.
Clarifying that its observations must bear no influence on SAT's findings, the Supreme Court directed it to complete the exercise within six months.
“SAT may thereafter render fresh findings on the question of fraud under the PFUTP Regulations, uninfluenced by any observations made by this Court in the course of the present judgment on the merits of the controversy, save and except the principles of law discussed herein, and shall dispose of the matter expeditiously within a period of six months from this judgment,” the Court held.
Case: Securities and Exchange Board of India v Vedanta Limited & Ors.
Citation : 2026 LiveLaw (SC) 919
Appearance:
For Appellant: Mr Navin Pahwa, Sr. Adv.; K Ashar & Co., AOR; Mr Abhishek Singh, Adv.
For Respondent: Mr Rajiv Shakdher, Sr. Adv.; Ms B Vijayalakshmi Menon, AOR; Mr Amit Agrawal, AOR; Ms Anuradha Dutt, Adv.; Mr Pawan Sharma, Adv.; Mr Rishabh Sharma, Adv.; Ms Vaishali Joshi, Adv.; Mr Karan Khetani, Adv.; Mr Jonathan Ivan Rajan, Adv.; Mr Sumit Agrawal, Adv.; Ms Sana Jain, Adv.; Ms Akanksha Chauhan, Adv.