Share Market Scams: Study Shows Failure of SEBI & SAT to Create Credible Jurisprudence in Market-related Issues

India Crime

Mumbai, 18 November 2021

Moneylife Foundation’s Comprehensive analysis of orders passed by SEBI and SAT finds that while SAT appeals have increased, there is a perception that appeals ensure leniency and bring out long delays, inconsistencies, and lapses on SEBI’s part.

It is about 30 years now that the Securities and Exchange Board of India (SEBI) obtained statutory authority status with immense powers to crack down on market misconduct. Investors generally observe that despite these developments, the number of orders passed by SEBI keeps rising, showing scant regard for compliance by the market players.

These are the finding from an analytical report prepared by Moneylife Foundation on orders passed by the SEBI and the Securities Appellate Tribunal (SAT) between 2019-21. The objective of this study was to understand whether the wide variance in orders between SEBI and SAT and the reversal or partial modification of the orders of SEBI at the appellate level have had a demoralising impact on investors.

In a mature market, there should be enormous disincentives for committing violations; investors depend on the prompt and effective enforcement actions taken by SEBI for redressal of their issues. The effectiveness of SEBI also depends on its ability to take actions on violations by so-called bigger corporate entities and market institutions without fear or favour.

Apparently, over time, SEBI is seen to be cracking down on such market violations. However, many of the orders of SEBI are appealed, and SAT is seen to be taking a different view and either setting aside the SEBI orders or modifying the penalties.

In the analysis, Moneylife Foundation has attempted to analyse the reasons for the same, considering 30 of the orders passed from 2019 till 2021.

The study was conducted by Sidharth Pattnaik and Shivani Pattnaik from National Law University, Odisha, who interned with Moneylife Foundation, in close consultation and under the mentorship of Advocate PR Ramesh, who practices securities law at the Bombay High Court.

Here are the main findings from the Analysis and Recommendations:

From the analysis of 30 cases during the period of 2019-2021, we found that SAT had reduced the penalty imposed by the Adjudicating Officer (AO) in 17 of its orders and had completely set aside the orders passed by the AO in 9 cases either because the penalty imposed was disproportionate to the nature of the violation or the violation was technical in nature. Further, SAT has completely set aside the order passed by AO in 9 cases because there was a deficiency in the investigation conducted by the AO appointed by SEBI.

We further observed that,

> There has been an inordinate delay on the part of SEBI in taking enforcement actions in many cases, which resulted in wrongdoers getting away on technical grounds without any penalties.

> In several cases, the SAT, while upholding the findings of SEBI, has reduced the quantum of penalties.

> There is inconsistency in appreciating evidence amongst the Adjudicating Officers appointed by SEBI. This inconsistency was also observed while deciding the quantum of penalties.

> In some instances, while SEBI laudably endeavoured to take early actions, it eventually faltered in conducting follow on investigation, which led to delays and dilution of enforcement actions.

Summary of Recommendations:

Investigations: The investigating process of SEBI is bridled with uncertainty. With no clear time limitations on the cases, the investors or market stakeholders cannot anticipate a timeframe for the investigations to be initiated or concluded. There is no provision of limitation within the SEBI’s statutory framework. Therefore, investigations can be started whenever and can continue to be pending for quite a few years.

It is recommended that; a framework should be set up whereby any case or investigation that is initiated would automatically come up for review after the predefined period. This would guarantee that investigation are not continued pending unreasonably for years. This suggested measure does not require any amendment, as a policy decision could facilitate it.

Delays in the appointment of AO: There are no cadres of adjudicating/ enquiry officers (EO/AO). SEBI appoints EO/AO officers from the operational department. To avoid any delays in handing out appointments, establishing an assignment mechanism will benefit the department. These officers must be adept in securities law, administrative law, etc., to assess the case technicalities along with the determining aspect of the orders.

Inconsistency in SAT Orders and lack of technical members: Innumerable cases await to see the light of the day with SAT. The vacant position of the third member creates a huge pressure for the other two. They are forced to hear the matter only for interim relief. Furthermore, should SAT lay down guiding factors, these can be in turn followed consistently by the AOs of SEBI.

Technical up-gradation: In the NSE Co-location case, there was visibly a lapse in the technical adequacy, both on the part of NSE and SEBI. In other cases, the evidence was partial or inadequate. To prevent mistrials, technical upgrades encompassing cyber security, resilience, co-location facility, etc., is highly suggested.

Access entire report from link below:



Share Scams, SEBI, SAT, Moneylife Foundation, Securities and Exchange Board of India, Securities Appellate Tribunal, Violations, Investors, Bombay High Court,


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