Bombay court ruling raises questions on Sebi's power to punish company promoters
₹80 lakh on Sebi, the National Stock Exchange of India (NSE), and the BSE on August 26 for illegally freezing the demat accounts of two people erroneously classified as promoters. The powers of the exchanges stem from Sebi circulars dated 30 November 2015 and 26 October 2016, which prescribe the standard operating procedures for how to deal with non-compliance of norms by listed companies. Legal experts said the promoters of a company might not necessarily be the people making decisions.
Amarpal Singh Dua, an independent advocate, said the Bombay high court’s judgement highlighted the need to shift from the concept of promoters to people in control while fixing responsibility for compliance. The case pertains to a Mumbai resident who was made the promoter of a company without his knowledge and consent. In July 2018, the National Securities Depository Ltd (NSDL) froze the demat accounts of Pradeep Mehta and his non-resident Indian son.
Mehta told the court that the action against him was taken because he was one of the promoters of a company called Shrenuj & Co. Ltd, floated by his father-in-law in 1989. Mehta claimed to have discovered himself as the promoter of the company only after his demat account was frozen.
He held shares of other companies including ITC Ltd in the account. Shrenuj was delisted in 2018 over non-payment of penalties for failing to comply with Sebi’s Listing Obligations and Disclosure Requirements. When the company was delisted, all connected demat accounts were frozen, including Mehta’s.
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