SAT raps Sebi for huge penalties

The Securities Appellate Tribunal (SAT) has taken a dim view of the Securities and Exchange Board of India (Sebi) levying penalties on market entities without regard to the offender's ability to pay or the alleged offence.

Business Standard has a copy of a recent SAT order in an appeal filed by Alkan Projects Pvt Ltd against Sebi, which sets out the basic principle that unless a penalty is pegged to the offender's ability to pay ("the impecuniosity of the market entity"), it will be merely a paper order, which can never be implemented in court.

The SAT said wilful disobedience of summons and failure to furnish information by market entities, as required under the specified rules and regulations, were liable to be penalised but "that does not mean that Sebi should impose sky-high penalties".

The SAT noted this while reducing the Rs 1 crore penalty slapped by Sebi on Alkan Projects for not furnishing information called for in a summons.

Sebi wanted names and addresses of the Alkan promoters, their group companies and details of their demat accounts. This information was required in the investigation of transactions in the shares of Roofit Industries Ltd.

The SAT reduced the penalty from Rs 1 crore to Rs 15,000, asking the company to immediately respond to the summons and co-operate with the Sebi investigations.

Jayant Thakur, a chartered accountant who specialises in securities law, said, "This decision was not so much on the merits of the case, which normally the SAT does not re-evaluate, but was more on the act of levying the maximum possible penalty without considering whether it is recoverable or the default is so extreme as to justify it."