The Securities Appellate Tribunal on Thursday set aside a SEBI order levying a penalty against Vedanta-led Cairn India Ltd. for an alleged buyback fraud of 2021.
According to the regulator, there is no conclusive proof that the company had no intention to complete the buyback and thereby acted fraudulently.
The Company could not have foreseen or predicted that the stock markets would witness this bullish trend at the time when the decision for going for a buyback was taken nor could the Company be aware at the time of making the public announcement that the traded price of the scrip would be above the maximum buyback price on 68 days out of 123 trading days.SAT Order
Further, it cannot be faulted for adopting a prudent and cautious approach in the initial days of buyback, as it could have affected the price of scrip, according to the tribunal. Moreover, it could not have been perceived that in the last 2–3 months of the buyback period, the price would not be favourable, the tribunal said.
Also, considering the fact that Rs 1225 crore is not a 'paltry sum' invested for a non-serious effort to buyback the shares, the tribunal set aside the SEBI order.
In 2021, the regulator levied a penalty of Rs 5.25 crore on Cairn for allegedly making a misleading public announcement about the buyback of shares on Jan. 14, 2014. It also levied a penalty of Rs 15 lakh on the then Chief Executive Officer, P. Elango, and two other directors for the violation.
During the investigation, the Securities and Exchange Board of India found that the company failed to place adequate buy orders, even when there were adequate sell orders at NSE, within the buyback period. It further failed to fulfill the 50% minimum buy-back, despite sufficient sell orders.
Thus, by not placing adequate buy orders, Cairn "perpetrated fraud by making a misleading announcement regarding the buyback of shares, designed to influence the decision of investors and to induce the sale or purchase of securities", SEBI said. This is in violation of SEBI's unfair trading practises regulations, as the company had no intention to fulfill them.
Cairn made a public announcement for the buyback of nearly 17 crore equity shares of Rs 10 each at a maximum price of Rs 335 apiece for Rs 5,725 crore from the open market on Jan. 14, 2014.
The buyback period commenced on Jan. 23, 2014, and closed on July 22, 2014. During the period, it was able to buy 21.48% of the shares, when regulations required the company to purchase at least 50% back for the buyback to be successful.
It also failed to place any buy orders on NSE in 24 days and placed orders for less than 5,000 shares in 14 days out of a total of 54 days, on which the price was favourable for buyback.
SEBI refused to entertain Cairn's extension application for buyback, resulting in it being unsuccessful. Cairn subsequently merged with Vedanta Ltd. in 2017.
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