2026 INSC 978 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 25-26 OF 2024

SECURITIES AND EXCHANGE

BOARD OF INDIA

…APPELLANT

VERSUS

VEDANTA LIMITED & ORS.

…RESPONDENT S

J U D G M E N T

Civil Appeal Nos. 25-26 of 2024 Page 1 of 44

J.B. PARDIWALA, J.:

For the convenience of exposition, this judgment is divided into the

following parts:-

INDEX

A. FACTUAL MATRIX ................................................................ 2

B. SUBMISSIONS OF THE APPELLANT ....................................... 8

C. SUBMISSIONS OF THE RESPONDENTS ................................ 10

D. ISSUE FOR DETERMINATION .............................................. 13

E. ANALYSIS ........................................................................... 13

F. CONCLUSION ...................................................................... 42

Civil Appeal Nos. 25-26 of 2024 Page 2 of 44

1. The two captioned statutory appeals arise from the common

judgment and order dated 05.10.2023 passed by the Securities

Appellate Tribunal, Mumbai (“SAT”) in Appeal Nos. 420 of 2021 and

486 of 2021 respectively preferred by the respondents herein by

which the SAT allowed the appeals and consequently set aside the

order dated 19.05.2021 passed by the Adjudicating Officer (“AO”)

of Securities and Exchange Board of India (“Appellant No. 1 /

SEBI”) wherein the AO had imposed a penalty of Rs. 5.25 Crore on

respondent no.1 and of Rs. 15 Lakh each on respondent nos. 2, 3,

and 4 respectively under Sections 15HA and 15HB of the SEBI Act,

1992 respectively on account of making misleading announcement

of the buyback of shares without any intent to fulfil it, thereby

violating Regulations 3(a), (b), (c), (d), and 4(1), 4(2)(k), and 4(2)(r)

of (Prohibition of Fraudulent and Unfair Trade Practices relating to

Securities Market) Regulations, 2003 respectively (hereinafter

referred to as “PFUTP Regulations”) and Regulation 19(1)(a) of the

SEBI (Buyback of Securities) Regulations, 1998 (hereinafter

referred to as the “Buyback Regulations”).

A. FACTUAL MATRIX

2. The respondent no. 1, Vedanta Limited (Formerly, Cairn India

Limited, decided vide a special resolution dated 26.11.2013 to buy

back 17.09 Crore equity shares at a maximum price of Rs. 335/-

per share (“Price Cap”) with a total investment of Rs. 5725 Crore

via open market in accordance with the Buyback Regulations.

3. Thereafter, the respondent no. 1 made a public announcement for

the buyback of equity shares on 14.01.2014. By virtue of

Regulation 15(k) of the Buyback Regulations, the buyback offer was

Civil Appeal Nos. 25-26 of 2024 Page 3 of 44

scheduled to open on 23.01.2014 and close on 22.07.2014, i.e.,

upon completion of 6 months period from the opening of the

buyback offer (“Buyback Period”). On 21.01.2014, the respondent

no. 1 deposited an amount of Rs. 143.124 Crore, being 2.5% of the

maximum buyback size, in the Escrow Account maintained with

the Axis Bank, in compliance with Regulation15B(5) of the Buyback

Regulations.

4. By the time five months of the stipulated six-month period had

elapsed, the respondent no. 1, vide letter dated 30.06.2014,

approached the appellant/SEBI seeking an extension of the

buyback period on the ground that, as on 27.06.2014, it was

significantly falling short of achieving the targeted buyback. The

respondent no. 1 informed SEBI that it had been able to buy back

only 3.6 Crore shares, constituting 21.48% of the targeted number

of shares, by deploying a total sum of Rs. 1,225 Crore (i.e. 28.59%

of the maximum buyback size). SEBI, however, rejected the request

for extension of the buyback period on the ground that the SEBI

Buyback Regulations contained no provision permitting such an

extension.

5. Subsequently, vide letter dated 30.07.2014, the respondent no. 1

informed the appellant that it could not achieve the minimum

amount of 50% buyback size as required under Regulation 14(3) of

the Buyback Regulations. By the said letter, the respondent no. 1

further made an application to the appellant under Regulation

15B(8) of the Buyback Regulations, to release the Cash Escrow,

containing 2.5% of the buyback size amounting to Rs. 143.125

Crore.

Civil Appeal Nos. 25-26 of 2024 Page 4 of 44

6. Pursuant to the above, the investigation department (“IVD”) of SEBI

conducted a preliminary investigation for the purposes of

ascertaining whether the conditions laid down in Regulation 15B(8)

of the Buyback Regulations for release of escrow amount had been

met. Based on this preliminary investigation, the IVD, in its

investigation report dated 11.06.2015, concluded that the

respondent no. 1 had complied with the provisions of Regulation

15B (8) (a) & (b) of the Buyback Regulations and recommended that

the matter may not be pursued any further. This investigation

report dated 11.06.2015 was put up before the Committee of Inter-

Divisional Chiefs-II (“CIDC”) for its consideration.

7. The CIDC deliberated upon the draft Investigation Report in detail

in its meeting held on 26.11.2015 wherein it opined that in the

background of Regulation 14(3) of the Buyback Regulations, the

applicability of Regulation 15B(8) of the Buyback Regulations and

the PFUTP Regulations in the matter may be examined. Since this

required interpretation of the aforementioned Regulations in terms

of applicability of the same, the matter was referred to the LAD on

03.12.2015.

8. The LAD, vide its internal noting dated 29.12.2015, opined that

Regulation 15B(8)(a) of the Buyback Regulations appears to be

attracted in the present case and that accordingly, the escrow

forfeiture may not be applicable. Moreover, the LAD was also of the

opinion that since the law itself provided the consequence of a

failure to achieve the 50% mark, it would be doubtful and legally

difficult to sustain a case under PFUTP Regulations on the same

set of facts and circumstances. However, the LAD was of the view

that it would be appropriate for the CIDC to take a view in the

matter once again and make recommendations as it deemed fit.

Civil Appeal Nos. 25-26 of 2024 Page 5 of 44

Thus, the matter was once again sent back to the CIDC for

deliberation.

9. Meanwhile, on 03.02.2016, the IVD placed a fresh investigation

report before the CIDC and concluded:

(a) That the escrow amount is exempted from forfeiture under

Regulation 15B(8)(a) of the Buyback Regulations;

(b) That with respect to suspected violation of PFUTP Regulations

during the buyback period, the same is being investigated

separately.

Pursuant to the above, the escrow amount came to be released in

favour of the respondents. However, the investigation into a

possible violation of PFUTP Regulations was undertaken

separately.

10. On 17.03.2017, the IVD prepared the investigation report with

respect to a suspected violation of the PFUTP Regulations. The

focus of the investigation was to ascertain whether the respondents

had violated any provisions of the PFUTP Regulations. In this

report, the IVD noted that the respondent did not show intent

towards completion of the buyback as it failed to place sufficient

buy orders. Therefore, the IVD concluded that the announcement

of buyback of shares was a false announcement by the respondents

without any intent to fulfil it. In this manner, the respondents were

alleged to have violated Regulations 3 (a), (b), (c), (d), 4(1), 4(2)(k),

(r) of the PFUTP Regulations and Regulation 19(1)(a) of the Buyback

Regulations, respectively.

Civil Appeal Nos. 25-26 of 2024 Page 6 of 44

11. Thereafter, the appellant issued a Show Cause Notice dated

19.01.2018 (“SCN”) to the respondents alleging violation of

Regulations 3 and 4 of the PFUTP Regulations and Regulation

19(1)(a) of the Buyback Regulations, respectively. The respondents

filed their reply to the said SCN on 19.01.2018. The AO, after

affording an opportunity of personal hearing, passed an Order

dated 19.05.2021 (“AO Order”) holding that the respondent did not

place enough buy orders towards completion of the buyback and

had acted fraudulently. Penalties were imposed upon the

respondent and the individual directors for alleged violations of the

PFUTP Regulations and Buyback Regulations. The AO held inter

alia the following:

(a) the respondents failed to place sufficient buy orders towards

completion of the buyback despite favourable market

conditions existing on several days;

(b) out of 123 trading days, no buy orders were placed on NSE on

24 favourable days, and only negligible orders were placed on

several other favourable days;

(c) NSE historically had greater liquidity and therefore genuine

execution required aggressive participation on NSE;

(d) The respondents instead placed buy orders on BSE where the

sale side was significantly lower;

(e) the respondent’s conduct demonstrated lack of genuine

intention to complete the buyback;

(f) the public announcement created a misleading impression

that the Company seriously intended to execute the buyback;

(g) such misleading announcement influenced investor decision-

making and therefore constituted fraud under PFUTP

Regulations; and

Civil Appeal Nos. 25-26 of 2024 Page 7 of 44

(h) the directors/signatories who signed the Public

Announcement facilitated the misleading representation and

were therefore personally liable for penalties.

12. Aggrieved by the said AO Order, the respondents preferred Appeal

Nos. 420 of 2021 and 486 of 2021 respectively before the SAT. On

05.10.2023, the SAT allowed both the appeals and set aside the

AO’s Order dated 19.05.2021. In the impugned order, SAT held that

violations of the PFUTP Regulations and Buyback Regulations were

not proved against the respondents herein. Further, the SAT made

the following observations as well:

(i) the respondents could not have foreseen the substantial

bullish market trend when the buyback was approved and

announced;

(ii) the market price remained above the Price Cap for a

substantial part of the buyback period, thereby materially

constraining execution of the buyback;

(iii) the Buyback Regulations did not prescribe any mandatory

methodology, frequency or aggressiveness for placing buy

orders;

(iv) the respondent’s appointment of professional intermediaries

and deposit of Rs. 143.125 Crore in escrow demonstrated bona

fide intention;

(v) Rs. 1,225.45 Crore spent on the buyback was not a paltry sum

indicative of a sham transaction;

(vi) cautious placement of orders could not itself be termed

fraudulent because aggressive buying at the initial stage could

have artificially increased the market price further;

Civil Appeal Nos. 25-26 of 2024 Page 8 of 44

(vii) there was no material showing that the respondents instructed

intermediaries to favour one stock exchange over another;

(viii) SEBI’s own investigation had earlier found no major impact on

market price or volume due to the buyback announcement;

(ix) it could not be conclusively proved that the respondents lacked

intent to complete the buyback or acted fraudulently; and

consequently; and

(x) the public announcement was not misleading, and therefore

no liability survived against the directors/signatories who had

signed the announcement.

13. In such circumstances referred to above, the appellant is here

before us with the present appeal.

B. SUBMISSIONS OF THE APPELLANT

14. Mr. Navin Pahwa, the learned senior counsel appearing for the

appellant, submitted that the AO passed a reasoned and speaking

order and thus did not warrant any interference by SAT.

Pertinently, it was submitted that the AO recorded that the

respondent company made a public announcement to buyback

17.09 Crore shares at a maximum buyback price of Rs. 335/- per

share during a period of 6 months spread over 123 trading days,

and the public announcement for buyback by a listed company of

such a huge number of shares had a direct impact on the securities

market, which is sensitive to such information. The respondents

had 54 favourable days out of the 123 days, favourable days being

those days when the price of shares on the Exchange was less than

or equal to the buyback price of Rs. 335/- per share.

Civil Appeal Nos. 25-26 of 2024 Page 9 of 44

15. Pertinently, the respondent did not place a single buy order even

though the respondents had the option to place ‘Limit Orders’ on

24 days out of the 54 favourable days. Further, even during the

remaining 30 favourable days on the NSE, the respondents only

placed buy orders for 5000 shares or less on 14 days, when in fact,

on an average, the respondents ought to have placed buy orders for

13,89,390 shares. During the favourable 54 days on the NSE, 67

Crore shares were available for purchase, and the respondent was

required to buy only 17.09 Crore shares as per the public

announcement. The respondent, however, bought only 3,67,03,839

shares, which is merely about 5% of the total shares available for

sale. Similar was the case on the BSE, where the respondent

bought only 6.44% of the traded quantity on the favourable closing

price days.

16. It was further submitted that SAT only considered the opening price

on 23.01.2014, being the first day of the buyback period, and the

closing price on 22.07.2014, being the last day of the buyback

period, and recorded a finding that there was a bull period on the

NSE/BSE. In doing so, SAT completely ignored the analysis of AO

in his order, showing 54 favourable days on the NSE during which

67 Crore shares were available, as against the buyback

requirement of only 17.09 Crore shares. The respondents bought

only 5% of the total number of shares available for sale on the NSE,

and only 6.44% of the total number of shares available on the BSE,

which finding has not been dealt with by SAT at all.

17. It was submitted that SAT completely ignored the fact that the

merchant bankers and the brokers were appointed by the

respondent company, that the price of shares of every listed

Civil Appeal Nos. 25-26 of 2024 Page 10 of 44

company is available in the public domain during trading hours at

all times, and that a purchaser can also place "Limit Orders". As

such, the respondent company had complete data available in the

public domain, which aspect has been discussed in detail by the

AO in his order. The learned senior counsel submitted that SAT

completely ignored the fact that the respondent company had 54

days of favourable price on the NSE and 55 days of favourable price

on the BSE, on which more than 67 Crore shares were available for

sale at a price less than or equal to Rs. 335/-, and that the AO had

accordingly held that there was no intent on the part of the

respondent to complete the buyback. It was further submitted that

the finding of SAT based on the investigation report made for the

purpose of release of the escrow account under Regulation 15B, is

misconceived, inasmuch as the inquiry for the purpose of

Regulation 15B(8) is entirely different from an investigation under

the PFUTP Regulations. It was further submitted that the AO

reached to a conclusion that the misleading announcement had

induced the investors, which is reflected in the increased trading

volume after the buyback announcement, the price of the scrip

having registered an increase of 6.88% on the BSE and 6.67% on

the NSE during this period.

C. SUBMISSIONS OF THE RESPONDENTS

18. Mr. Rajiv Shakdher, the learned senior counsel appearing for the

respondents, at the outset submitted that the present appeal is not

maintainable as it does not raise any question of law and, thus,

liable to be dismissed. Further, it was submitted that the

respondents always had the intent to execute the buyback offer.

For this, the learned senior counsel pointed out that despite the

Civil Appeal Nos. 25-26 of 2024 Page 11 of 44

bullish trend, they placed buy orders on NSE for 82 days and on

BSE for 123 days. Further, during the buyback period, they bought

back 3,67,03,839 equity shares for a total consideration of Rs.

1,225.45 Crore, which was equivalent to 21.48 % of the of the

maximum amount set apart for this purpose.

19. It was submitted that the respondents had engaged two registered

merchant bankers, i.e., Morgan Stanley India Company Private

Limited and Standard Chartered Securities (India) Limited, through

which Respondent’s scrip could be bought. Unless the sell orders

would meet the price criteria at the given point in time, no trade

could have been concluded by the merchant bankers. In other

words, if the sell order on NSE/BSE was made before or after the

mandate was issued to the merchant banker, or did not align with

the price or the price band, no trade could go through. Thus, the

number of sell orders by itself cannot give the entire picture. The

demand has to be seen in light of viable sell orders which would

have met the price cap. It was further submitted that as per the

investigation reports of the appellants, Volume Weighted Average

Market Price (“VWAMP”) during the buyback period was Rs.

342.83/-per equity share on NSE and Rs. 348.48/ - per equity

share on BSE. Thus, out of a maximum of 123 trading days, the

price of Respondent’s scrip was above the price cap of Rs. 335 on

65 days.

20. It was further submitted that three weeks before the expiry of the

buyback period, the respondents had sought extension of time from

the appellant for continuing with the buyback exercise. However,

the same was declined by the appellant on the ground that there

was no provision available for granting such extension although

Civil Appeal Nos. 25-26 of 2024 Page 12 of 44

under Section 68(4) of the Companies Act, 2013, time could have

been extended till November 2014. Moreover, there was admittedly

no impact of the public announcement of buyback on the volume

or price of the respondent shares on the basis of the public

announcement made by the respondents during the investigation

period. Furthermore, the financial results would reveal that there

was no substantial variation either in profit or sales, both before

and after the buyback period. The shareholding of the promoters

also ranged between 58.76% to 59.9% inter se quarter ending

December 2013 and quarter ending June 2014, wh ile for the same

period, the non-promoter holding dipped from 41.24% to 40.10%.

The conclusion that could be drawn quite clearly is that neither the

company nor its promoters attempted to make any wrongful gains

from its buyback offer.

21. The learned senior counsel contended that the AO allegedly relied

on inaccurate data while comparing the NSE and BSE’s sell orders

and buy orders volume. It was submitted that the AO relied on

inflated sell order data on the NSE to come to the conclusion that

more than 67 Crore shares were available for sale on the NSE and

the respondents did not place sufficient buy orders. Since the data

contained discrepancies, CIL had made a request for being

permitted to cross-examine the officials of BSE and NSE

respectively, which was admittedly turned down by the AO. It is

relevant to mention that the price was favourable only in the initial

period of the buyback period. In the beginning, the respondents

were not aware and could not have foreseen that the price would

remain unfavourable for the entire period post 31.03.2014. It was

also submitted that post 09.05.2014 till 22.07.2014, the price of

the shares of CIL never came below Rs. 335/-.

Civil Appeal Nos. 25-26 of 2024 Page 13 of 44

D. ISSUE FOR DETERMINATION

22. Having heard the learned counsel appearing for the parties and

having gone through the materials on record, the sole question that

falls for our consideration is 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?

E. ANALYSIS

23. In the present case, the respondents have sought to place

considerable reliance upon the fact that the release of the escrow

amount under Regulation 15B(8)(a) is inconsistent with the

allegation of fraud under the PFUTP Regulations. It has been

vehemently argued by the respondents that once SEBI , in the

course of its investigation, had accepted that the conditions for

release of the escrow amount ha d been met, a subsequent

allegation of fraud based on the same incident cannot be sustained.

The respondents argued that if they had indeed violated the PFUTP

Regulations, then SEBI would not have released the cash escrow.

The submission proceeds on the pre mise that the conditions

governing forfeiture or release of the escrow under Regulation

15B(8) constitute a test for determining whether the conduct of the

company was fraudulent under the PFUTP Regulations.

24. The respondent no.1 submitted that vide Investigation Report

dated 03.02.2016, SEBI had given a categorical finding that the

respondent no. 1 had not violated the Buyback Regulations,

Civil Appeal Nos. 25-26 of 2024 Page 14 of 44

whereas the Investigation Report dated 17.03.2017 had alleged

that it had violated the PFUTP Regulations. It submitted that once

SEBI came to the conclusion that in the present case the condition

for exemption from forfeiture of the escrow deposit under

Regulation 15B (8) of the Buyback Regulations was satisfied, the

charge of fraud could never be made out because in that case, the

non-completion of the buyback cannot be attributed to any

fraudulent intent of the respondents.

25. The respondent’s submission, therefore, raises a question as to the

legal effect of the release of the escrow. The question is whether the

conditions under Regulation 15B(8), once fulfilled, operate as a

threshold for determining the existence of fraud, or whether

fulfilment of those conditions merely triggers release of the escrow

and is legally distinct from an inquiry into fraud under the PFUTP

Regulations. More particularly, the question is whether the

provision is limited to the question of forfeiture of the escrow

without foreclosing an independent enquiry into fraudulent

conduct under the PFUTP Regulations.

26. Before proceeding to answer the legal question in detail, at this

stage, it is also apposite to clarify the effect of certain

contemporaneous notings made by SEBI’s ED (LAD), which have

been relied upon by the respondents to amplify their submission.

We are aware that the respondents have placed reliance upon the

office note dated 03.12.2015 of the ED (LAD) which observes that

it would be doubtful and legally difficult to sustain a case under

the PFUTP Regulations against the company on the same set of

facts and circumstances which have been found to attract the

Civil Appeal Nos. 25-26 of 2024 Page 15 of 44

condition for release of escrow under Regulation 15B(8)(a). The ED

(LAD)’s observation in its office note dated 03.12.2015 reads thus:

“(i) It appears that clause (a) of Regulation 15B(8) of

Buyback Regulations is attracted in this case. If this is so,

escrow forfeiture may not be applicable.

(ii) Further, since law itself provided the consequence of a

failure to achieve 50% level, it would be doubtful and legally

difficult to sustain a case under PFUTP Regulations on the

same set of facts and circumstances.”

27. However, in our considered opinion, the aforesaid observations of

the ED (LAD) cannot be treated as a binding determination of the

legal effect of Regulation 15B(8) or as creating immunity from the

operation of the PFUTP Regulations. It is settled law that notings in

the departmental file do not have the sanction of law to be an

effective order and that a noting by an officer is essentially an

expression of his viewpoint for internal consideration. This Court

in M/s Sethi Auto Service Station & Anr. v. Delhi Development

Authority & Ors. (Civil Appeal No. 6143 of 2008) had succinctly

put the law in this regard, as follows:

“12. 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. It is no more than an opinion by an officer for

internal use and consideration of the other officials of the

department and for the benefit of the final decision-

making authority. Needless to add that internal notings

are not meant for outside exposure. Notings in the file

culminate into an executable order, affecting the rights of

the parties, only when it reaches the final decision-

making authority in the department; gets his approval

and the final order is communicated to the person

concerned.”

Civil Appeal Nos. 25-26 of 2024 Page 16 of 44

28. Thus, the opinion of ED (LAD) cannot be relied upon by the

respondents as an established finding of fact communicated to

them by SEBI. Moreover, the principle is attracted with greater

force as the noting by the ED (LAD) in question does not even

purport to be a final adjudication of the rights or liabilities of the

person concerned, but expressly leaves the matter for consideration

by the CIDC-II. The noting, therefore, was neither a final decision

nor an adjudication by the competent statutory authority and

hence cannot be relied upon by the respondents as a binding

determination of any factual finding. In fact, the conclusion and

recommendations stated in th e investigation report dated

03.02.2016 categorically note in its conclusion and

recommendations that the escrow amount is exempted from

forfeiture under clause 15B(8)(a) of the Buyback Regulations and

that as regards the suspected violations of the PFUTP Regulations,

the same was being investigated separately. Moreover, in its letter

dated 12.06.2016, SEBI informed the merchant bankers , i.e.,

Standard Chartered Securities (India) Ltd. and Morgan Stanley

India Company Pvt. Ltd., that “Upon examination of the submissions

made by the Company, it has been decided to accede to the request

of the Company for release of the Cash Escrow .” This clearly

indicates that even in SEBI’s communication to the respondents or

the third parties, there is no finding of fact regarding the factum of

fraud under the PFUTP Regulations, which has been established.

29. The question whether the release of the escrow amount operates as

a bar to proceedings under the PFUTP Regulation, must, therefore,

be answered on the basis of the statute and the legal consequences

expressly contemplated by it, and not by reference to an internal

administrative opinion.

Civil Appeal Nos. 25-26 of 2024 Page 17 of 44

30. Therefore, in order to test the veracity of this argument, we must

refer to the statutory scheme governing the escrow mechanism

under the Buyback Regulations. Regulation 15B (8) of the Buyback

Regulations, as applicable to the present matter, reads thus:

“15B. Escrow account

xxx xxx xxx

(8) In the event of non-compliance with sub-regulation (3) of

regulation 14, except in cases where,-

a. volume weighted average market price (VWAMP) of the

shares or other specified securities of the company during

the buy-back period was higher than the buy-back price as

certified by the Merchant banker based on the inputs

provided by the Stock Exchanges.

b. inadequate sell orders despite the buy orders placed by

the company as certified by the Merchant banker based on

the inputs provided by the Stock Exchanges.

c. such circumstances which were beyond the control of the

company and in the opinion of the Board merit

consideration,

the Board may direct the merchant banker to forfeit the

escrow account, subject to a maximum of 2.5 per cent of the

amount earmarked for buy -back as specified in the

resolutions referred to in regulations 5 or 5A.”

31. In order to appreciate the full scope and import of Regulation

15B(8), let us advert to Regulation 14(3) of the Buyback

Regulations, since the former is expressly attracted in the event of

non-compliance with the latter. Regulation 14 of the Buyback

Regulations, as applicable to the present case, reads thus:

“Buy-back from open market

Civil Appeal Nos. 25-26 of 2024 Page 18 of 44

14. (1) A company intending to buy-back its shares or other

specified securities from the open market shall do so in

accordance with the provisions of this Chapter.

(2) The buy-back of shares or other specified securities from

the open market may be in any one of the following

methods:

(a) through stock exchange,

(b) book-building process.

(3) The company shall ensure that at least fifty per

cent of the amount earmarked for buy -back, as

specified in resolutions referred to in regulation 5 or

regulation 5A, is utilized for buying-back shares or

other specified securities.”

(Emphasis Supplied)

32. A plain reading of the aforesaid provisions makes one aspect of the

statutory scheme clear. Regulation 14(3) of the Buyback

Regulations casts an obligation upon the company to utilise at least

fifty percent of the amount earmarked for the buyback, for

purchasing its shares or other specified securities. Regulation

15B(8) in turn, provides for the consequences of non-compliance

with Regulation 14(3), namely, the possibility of forfeiture of the

escrow subject to the exceptions expressly carved out therein. The

language used in Regulations 15B(8) makes it abundantly clear

that the provision neither defines nor determines the existence of

fraud.

33. This, in our considered opinion, clearly indicates that the scope of

the enquiry contemplated by Regulation 15B (8) is confined to

determining whether the escrow is liable to be forfeited in the

circumstances contemplated by the provision. 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.

Civil Appeal Nos. 25-26 of 2024 Page 19 of 44

34. In other words, where any of the circumstances contemplated

under clauses (a), (b) or (c) of Regulation 15B(8) are found to exist,

the consequence is simply that the escrow cannot be forfeited. But

it does not, by itself, answer the distinct question of whether the

conduct of the respondents, viewed in its entirety and in the light

of the material collected during investigation, involved any

fraudulent or manipulative conduct within the meaning of the

PFUTP Regulations. 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. One must bear in mind that the fulfilment of the

requirements for release of an escrow cannot, by itself, determine

whether the ingredients of fraud under the PFUTP Regulations are

made out. The fact that the escrow amount was released cannot be

treated as creating a statutory bar against the initiation or

continuation of proceedings under the PFUTP Regulations. In other

words, the release of escrow, by itself, cannot preclude a finding of

fraud if the material on record otherwise establishes the ingredients

of such fraud under the applicable provisions of the PFUTP

Regulations since the operation of the escrow mechanism is not an

adjudication upon allegations levelled under the PFUTP

Regulations.

Civil Appeal Nos. 25-26 of 2024 Page 20 of 44

36. Therefore, we are unable to accept the respondents’ submission

that the satisfaction of the conditions contemplated under

Regulation 15B(8) necessarily negatives allegations of fraud under

the PFUTP Regulations.

37. Having said so, we shall now proceed to deal with the aspect of

fraud as alleged against the respondents. We may indicate, at the

very outset, that our final conclusion on this fraud aspect is to

remand the matter to SAT, for reasons that we shall set out towards

the end of this discussion. However, before doing so, we consider it

necessary to first examine the law dealing with fraud under the

PFUTP Regulations, so as to lend context to the manner in which

SAT ought to approach the question on remand.

38. In the case of KSL Industries v. The Chairman, SEBI , reported

in 2003 SCC OnLine SAT 32 , the appellant therein was alleged to

have financed certain persons for subscribing to shares in a public

issue, which shares came to be irregularly allotted and were

subsequently used by such persons to manipulate the market. The

SAT, on the facts, found no material connecting the

appellant/financier with the actual act of market manipulation and

held that a charge of fraud could not be sustained merely on the

ground that the appellant had financed an irregular subscription,

in the absence of evidence establishing a real nexus between the

financier and the manipulation. It was also observed that fraud

cannot be established merely on conjectures and surmises. The

relevant observations are as under:

“41. I have carefully considered the Respondent's

submissions on the charge that the Appellant had violated

Civil Appeal Nos. 25-26 of 2024 Page 21 of 44

the provisions of regulation 4 and 6 in the light of the

provisions of FUTP Regulations. But I do not find any

material on record in support of the said charge. A wild

allegation of market manipulation, in particular the charge

of fraudulent action unsupported with convincing evidence

is not to be sustained. I fully agree with Shri Khambatta's

submission in this regard that allegation of 'fraud' cannot

survive on mere conjectures and surmises. "Financing

irregular subscriptions resulting in irregular allotment" by

itself cannot be considered as fraud and in violation of

regulation 4 or 6 of the FUTP Regulations. If somebody

unconnected with the financier, who had only borrowed

money from the financier to subscribe for the shares in a

public issue, subsequently makes use of the shares

received in an irregular allotment, to manipulate the market,

on that ground alone in the absence of any positive evidence

against the financier that he had intentionally made

available finances so as to enable the other person to

manipulate the market, the financier cannot be held guilty

of market manipulation. Real nexus of the financier - directly

or indirectly - with the market manipulation has to be

established to hold the financier guilty. In my view the

Respondent has failed to establish violation of the

provisions of FUTP Regulations as stated in the show cause

notice against the Appellant.”

(Emphasis Supplied)

39. The above principle can be illustrated through the SEBI-Mumbai

Order dated 18.05.2007, In the matter of irregularities in the

trading of the shares of MOH Ltd.,wherein the SEBI considered

the entire chain of events, commencing with (i) the preferential

allotment of 15 crore shares to a related party, followed by (ii) the

advertisement proposing a buyback at Rs. 3 per share against the

prevailing market price of Re.0.25, (iii) the absence of the financial

resources required to undertake the buyback, (iv) the subsequent

withdrawal of the proposal without publication of an

advertisement, (v) the unusual increase in the price and trading

volume of the scrip during the intervening period, and (vi)

particularly the subsequent offloading of shares by the preferential

Civil Appeal Nos. 25-26 of 2024 Page 22 of 44

allottees and promoters. On a cumulative assessment of these

circumstances SEBI had concluded that the sequence disclosed an

orchestrated ploy to create artificial demand for the shares and to

induce unsuspecting investors to purchase them, thereby

facilitating the absorption of shares offloaded by the promoters and

related entities. MOH Ltd. had acquired 100% of Saturn

Technologies Ltd. and, as consideration therefor, made a

preferential allotment of 15 Crore shares in favour of Saturn’s 20

shareholders despite Saturn possessing a paid up capital of merely

Rs. 1 Crore and a turnover of Rs. 16 lakh.Shortly thereafter, MOH

issued advertisements announcing a proposed buyback of its

shares at Rs. 3 per share at a time when the shares were trading

at approximately Rs. 0.25 and the company admittedly lacked the

free reserves or other eligible funds necessary to undertake such a

buyback. The announcement was followed by a substantial and

disproportionate increase in both the price and trading volume of

MOH’s shares, thereby creating an impression amongst investors

that Rs. 3 represented the true value of the company’s shares.

Within days, the Board withdrew the buyback proposal without

publicly advertising such withdrawal, and it was in this very

interregnum that the shares held by the promoters and the

preferential allottees came to be transferred through off-market

transactions and were thereafter offloaded in the secondary market

to unsuspecting investors. The Board also rejected the contention

of one of the promoters, Manubhai Shah, that he had ceased to be

a promoter, having regard to the fact that he continued to hold

substantial shares and continued to be shown as a promoter in the

shareholding pattern filed with the BSE.

Civil Appeal Nos. 25-26 of 2024 Page 23 of 44

40. From the above, it appears to us that when the entire sequence of

events is viewed in its totality, several proved facts corroborated the

finding that the company MOH had indeed engaged in fraud. The

misleading buyback announcement, made without free reser ves

and at a price far removed from the prevailing market price, was

followed by a consequent and disproportionate rise in both the

price and the trading volume of MOH ’s shares, an artificial

movement which bore no relation to the underlying fundamentals

or performance of the company. This was compounded by the

subsequent offloading of shares by the promoters and the

preferential allottees in the secondary market, an act which,

occurring as it did in such close proximity to the announcement

and its unpublicised withdrawal, could not be viewed as a matter

of mere coincidence. It was in these circumstances that the Board

came to hold that the sequence, taken as a whole, amounted to a

calculated scheme designed to create an artificial demand for

MOH’s shares, so as to induce innocent investors into purchasing

the same and thereby facilitate a smooth exit for the promoters.

The relevant observations are as under:

“6.15 The entire chain of events from making the

preferential allotment of shares to the shareholders of the

related entity - Saturn, the advertisement for buyback of

shares, reasons stated for the rejection of the buyback

proposal, impact on the price/volume of MOH shares

established an orchestrated ploy on part of the promoters to

create an artificial demand for the shares of the company

and induce innocent investors for purchasing shares so as

to absorb shares by the promoters and related entities.

xxx xxx xxx

6.17 Having considered all aspects of the matter, I find that

the Noticees had committed fraud on shareholders of MOH

Ltd by issuing misleading advertisement after the

Civil Appeal Nos. 25-26 of 2024 Page 24 of 44

preferential allotment and subsequently withdrawing the

promise given in the said advertisement. Further, they had

offloaded the shares in the secondary market to deceive the

innocent investors. The word "fraud" is defined under

Regulation 2(c) of PFUTP Regulations. Further, such

fraudulent dealings in securities are prohibited under

Regulation 3 of PFUTP Regulations. In this case, the actions

of the Noticee would come under the said definition of fraud

especially when they made statements/advertisements

after the said preferential allotment with a view to offload

the shares of their company at a price which was created

artificially by employing schemes/device/and/or

act/practice with an intent to defraud and to influence the

investment decision of the investors. In this matter they

violated the provisions of Regulations 4(a) to (c), 5(1)(a) & (b)

and 6(a) of PFUTP Regulations.”

(Emphasis Supplied)

41. In SEBI v. Kishore R. Ajmera, reported in (2016) 6 SCC 368, this

Court was confronted with connected appeals arising out of alleged

manipulative trading in illiquid scrips through synchronised and

matched trades. In one set of facts, two related clients, trading

through a common sub -broker, were found to have engaged in

mutual buy and sell transactions in an illiquid scrip in significant

volume, notwithstanding a note of caution issued by the stock

exchange requiring brokers to be alert to any unnatural or

voluminous trading in such scrips, and this Court found th at,

beyond the fact of the relationship between the two clients and the

volume of their trades, there was no other material on record to

establish either lack of vigilance or absence of bona fides on the

part of the broker, and the charge accordingly came to be answered

in the negative. In the connected set of facts, however, the position

was found to be materially different, inasmuch as the trading in

question was characterised by buy and sell orders being placed

within an extremely narrow window of time, in several instances

within mere seconds of each other, for identical quantities and at

Civil Appeal Nos. 25-26 of 2024 Page 25 of 44

identical rates. This pattern continued over a sustained period, and

the volume so traded constituted a substantial proportion of the

total traded volume in the scrip. An overwhelming majority of these

trades were found to be synchronised, apart from instances of self-

trades and reversed trades. Hence, this Court held that the

confluence of such circumstances, namely the illiquidity of the

scrip, the sheer volume and persistence of the trading, and the

precise timing and matching of the buy and sell orders, was

sufficient in itself to sustain an inference of manipulation, even in

the absence of any direct evidence of a meeting of minds between

the parties concerned. The relevant observations are as under:

“26. It is a fundamental principle of law that proof of an

allegation levelled against a person may be in the form of

direct substantive evidence or, as in many cases, such proof

may have to be inferred by a logical process of reasoning

from the totality of the attending facts and circumstances

surrounding the allegations/charges made and levelled.

While direct evidence is a more certain basis to come to a

conclusion, yet, in the absence thereof the Courts cannot be

helpless. It is the judicial duty to take note of the immediate

and proximate facts and circumstances surrounding the

events on which the charges/allegations are founded and

to reach what would appear to the Court to be a reasonable

conclusion therefrom. The test would always be that what

inferential process that a reasonable/prudent man would

adopt to arrive at a conclusion.

27. Let us apply the aforesaid test to the facts of the present

cases before us wherein admittedly there in no direct

evidence forthcoming. The first relevant fact that has to be

taken note of is that the scrips in which trading had been

done were of illiquid scrips meaning thereby that such

scrips though listed in the Bombay Stock Exchange were not

a matter of everyday buy and sell transactions. While it is

correct that trading in such illiquid scrips is per se not

Civil Appeal Nos. 25-26 of 2024 Page 26 of 44

impermissible, yet, voluminous trading over a period of time

in such scrips is a fact that should attract the attention of a

vigilant trader engaged/engaging in such trades. The above

would stand fortified by the note of caution issued by the

Bombay Stock Exchange in the form of a

notice/memorandum alerting its members with regard to

the necessity of exercising care and caution in case of high

volume of trading in illiquid scrips, as already noted.

28. Insofar as first case is concerned the proved facts are

as follows:

(i) Both the clients are known to each other and were related

entities.

(ii) This fact was also known to the sub-broker and the

respondent – broker.

(iii) The clients through the sub-broker had engaged in

mutual buy and sell trades in the scrip in question, volume

of which trade was significant, keeping in mind that the

scrip was an illiquid scrip.

Apart from the above there is no other material to hold either

lack of vigilance or bona fides on the part of the sub-broker

so as to make respondent-broker liable. An irresistible or

irreversible inference of negligence/lack of due care etc., in

our considered view, is not established even on proof of the

primary facts alleged so as to make respondent-broker

liable under the Conduct Regulations, 1992 as has been

held in the order of the Whole Time Member, SEBI which,

according to us, was rightly reversed in appeal by the

Securities Appellate Tribunal.

xxx xxx xxx

30. It has been vehemently argued before us that on a

screen based trading the identity of the 2nd party be it the

client or the broker is not known to the first party/client or

broker. According to us, knowledge of who the 2nd party/

client or the broker is, is not relevant at all. While the screen

based trading system keeps the identity of the parties

anonymous it will be too naive to rest the final conclusions

Civil Appeal Nos. 25-26 of 2024 Page 27 of 44

on said basis which overlooks a meeting of minds

elsewhere. Direct proof of such meeting of minds elsewhere

would rarely be forthcoming. The test, in our considered

view, is one of preponderance of probabilities so far as

adjudication of civil liability arising out of violation of the Act

or the provisions of the Regulations framed thereunder is

concerned. Prosecution under Section 24 of the Act for

violation of the provisions of any of the Regulations, of

course, has to be on the basis of proof beyond reasonable

doubt.

31. The conclusion has to be gathered from various

circumstances like that volume of the trade effected; the

period of persistence in trading in the particular scrip; the

particulars of the buy and sell orders, namely, the volume

thereof; the proximity of time between the two and such

other relevant factors. The fact that the broker himself has

initiated the sale of a particular quantity of the scrip on any

particular day and at the end of the day approximately

equal number of the same scrip has come back to him; that

trading has gone on without settlement of accounts i.e.

without any payment and the volume of trading in the

illiquid scrips, all, should raise a serious doubt in a

reasonable man as to whether the trades are genuine. The

failure of the brokers/sub-brokers to alert themselves to this

minimum requirement and their persistence in trading in the

particular scrip either over a long period of time or in respect

of huge volumes thereof, in our considered view, would not

only disclose negligence and lack of due care and caution

but would also demonstrate a deliberate intention to indulge

in trading beyond the forbidden limits thereby attracting the

provisions of the FUTP Regulations […]”

(Emphasis Supplied)

42. Thereafter, in SEBI v. Kanaiyalal Baldevbhai Patel, reported in

(2017) 15 SCC 1, one Dipak Patel, who held a position of trust and

confidence with M/s Passport India Investment, was privy to

confidential information that Passport India would be making

Civil Appeal Nos. 25-26 of 2024 Page 28 of 44

substantial investments in particular scrips through the stock

exchanges. Dipak Patel was alleged to have parted with the said

information to his cousin, Kanaiyalal Baldevbhai Patel, who on

various dates had placed orders for the purchase of scrips a few

minutes before the bulk orders in respect of the same scrips were

placed on behalf of Passport India by Dipak Patel. The bulk orders,

on account of their sheer volume, naturally had the effect of

pushing up the prices of the particular scrips, and no sooner had

the prices increased than Kanaiyalal Baldevbhai Patel and

Anandkumar Baldevbhai Patel traded the said scrips, thereby

earning substantial profits. The large volume of shares traded in

this manner, the number of days over which such trading had

taken place, and the close proximity in time between the sale and

purchase of shares before and after the bulk purchases, were

alleged by SEBI to amount to fraudulent or unfair trade practice.

43. This Court held that front running on the basis of information

received, with knowledge that such information was privileged,

constituted fraud within the meaning of the PFUTP Regulations,

and Kanaiyalal Patel was accordingly held guilty of violating

Regulation 3 thereof. It was observed that Regulation 3 prohibited

a person from committing fraud while dealing in securities, and

that the words employed therein were of wide amplitude, sufficient

to take within their sweep an inducement bringing about an

inequitable result, such as had occurred in that case. It was further

observed that unequal possession of information was not, by itself,

objectionable, and became fraudulent only when such information

had been acquired in bad faith and was used to induce an

inequitable result for others. This Court, having regard to the

fiduciary relationship between Dipak Patel and Passport India, the

Civil Appeal Nos. 25-26 of 2024 Page 29 of 44

parting of confidential information to a relative, the placement of

orders in near-immediate proximity to the bulk orders, and the

consequent profits earned, found the same to constitute

corroborative facts sufficient to establish fraud. This Court further

reiterated that charges under the PFUTP Regulations needed to be

established as per the applicable standards rather than on mere

conjectures and surmises. The relevant observation is as under:

“32. Regulation 3 prohibits a person from committing fraud

while dealing in securities. A reading of the aforesaid

provision describes the width of the power vested with the

SEBI to regulate the security market. In our view, the words

employed in the aforesaid provisions are of wide amplitude

and would therefore take within its sweep the inducement

to bring about an inequitable result which has happened in

this case instant.

xxx xxx xxx

38. A crucial aspect which needs to be observed at this point

is the element of causation which is embedded under

regulation 2(1)(c) read with regulations 3 and 4. In order to

establish the aforesaid charges in this case, it is required

by the SEBI to establish that the harm was induced by the

materialization of a risk that was not disclosed because of

the tippee's fraudulent practice. Further the charges under

the FUTP 2003 needs to be established as per the applicable

standards rather than on mere conjectures and surmises.

xxx xxx xxx

45. Now we come back to the regulations 3 and 4 (1) which

bars persons from dealing in securities in a fraudulent

manner or indulging in unfair trade practice. Fairness in

financial markets is often expressed in terms of level

playing field. A playing field may be uneven because of

varied reasons such as inequalities in information etc.

Possession of different information, which is a pervasive

feature of markets, may not always be objectionable.

Civil Appeal Nos. 25-26 of 2024 Page 30 of 44

Indeed, investors who invest resources in acquiring superior

information are entitled to exploit this advantage, thereby

making markets more efficient. The unequal possession of

information is fraudulent only when the information has

been acquired in bad faith and thereby inducing an

inequitable result for others.

xxx xxx xxx

47. Accordingly, non-intermediary front running may be

brought under the prohibition prescribed under regulations

3 and 4 (1), for being fraudulent or unfair trade practice,

provided that the ingredients under those heads are

satisfied as discussed above. From the above analysis, it is

clear that in order to establish charges against tippee, under

regulations 3 (a), (b), (c) and (d) and 4 (1) of FUTP 2003, one

needs to prove that a person who had provided the tip was

under a duty to keep the non-public information under

confidence, further such breach of duty was known to the

tippee and he still trades thereby defrauding the person,

whose orders were front-runned, by inducing him to deal at

the price he did.

48. Taking into consideration the facts and circumstances

of the case before us and the law laid down herein above

and SEBI v. Kishore R. Ajmera (Supra) can only lead to one

conclusion that concerned parties to the transaction were

involved in an apparent fraudulent practice violating market

integrity. The parting of information with regard to an

imminent bulk purchase and the subsequent transaction

thereto are so intrinsically connected that no other

conclusion but one of joint liability of both the initiator of the

fraudulent practice and the other party who had knowingly

aided in the same is possible."

(Emphasis Supplied)

44. In Deccan Chronicle Holdings Ltd. v. SEBI , reported in 2023

SCC OnLine SAT 939, the proceedings arose from allegations that

DCHL had materially misrepresented its financial position and

Civil Appeal Nos. 25-26 of 2024 Page 31 of 44

violated disclosure and buy-back requirements under law. The

show cause notice had alleged that DCHL had understated its

outstanding loans across successive financial years and had failed

to account for the interest liability incurred and paid during those

years in its profit and loss accounts. It was further alleged that a

related entity, owned and controlled by DCHL’s promoters, owed

the company a substantial sum, and that DCHL had falsely

represented that it had acquired certain brands despite already

owning them. The appellants therein were also alleged to have

failed to disclose various encumbrances created over their shares

in favour of certain financial institutions, as well as the subsequent

invocation of such encumbrances, and to have undertaken a buy-

back of shares beyond the prescribed statutory limit without

disclosing the resultant change in shareholding. The appellants

were further alleged to have been signatories to the public

announcement proposing the buy-back, despite the company not

having adequate free reserves to undertake the same. On these

facts, SAT held that the announcement of the buy-back without

adequate free reserves, coupled with the manipulation of the

company’s books of accounts, constituted fraud on the part of the

company so as to manipulate the price of its securities. The relevant

observation is as under:

“34. In this regard, we find that the buy -back

announcement was made by the company on May 6, 2011.

As per the accounts, maximum available limit available for

buy-back of shares is of Rs. 116.02 Crore whereas the

announcement for an amount aggregating up to Rs. 270

Crore from the open market at the price not exceeding Rs.

180/- per share was made. Thus, the company had carried

out buy-back of shares which were more than 25% of its

total paid up capital during the financial year 2011-12. We,

therefore, hold that without having adequate free reserves,

the company carried out buy back of its shares whi ch

Civil Appeal Nos. 25-26 of 2024 Page 32 of 44

misled the uninformed investors and shareholders about

the perceived valuation and adequate free reserves of the

company and which may have influenced the decision of the

investors especially when the price of shares was declining

since May 2010. We, therefore, find that the company had

manipulated its financials and that the announcement over

the buy- back of its securities was made in the absence of

adequate reserves and that the company carried out the

buy back of shares beyond the prescribed limit.

35. […] We are further of the opinion that the wrongful buy

back by the company as the result of the manipulation in

the books of accounts of the listed company which resulted

in misleading and mis-investing the investors at large and

the securities market was in contravention not only of the

provisions of the Companies Act but also the provisions of

the SEBI Act and PFUTP Regulations.”

(Emphasis Supplied)

45. Further, in SEBI v. Terrascope Ventures Ltd., reported in 2026

SCC OnLine SC 403, this Court was seized with facts wherein the

respondent no. 1-company, then known as Moryo Industries

Limited, had issued a notice for an Extraordinary General Meeting

and had disclosed to its shareholders and the public the purpose

and object of a proposed preferential allotment of equity shares to

certain non-promoter allottees. In the explanatory statement

appended pursuant to Section 173(2) of the Companies Act, 1956,

and as further required under Regulation 73(1) of the SEBI (ICDR)

Regulations, 2009, the object of the issue had been stated to be the

fulfilment of additional fund requirement s towards capital

expenditure, including acquisition of companies or business,

funding of long-term working capital requirements, marketing,

setting up of offices abroad, and other approved corporate

purposes. SEBI contended that soon after the proceeds began to be

received, the funds were, instead, diverted towards the purchase of

shares of other companies and towards the grant of loans and

Civil Appeal Nos. 25-26 of 2024 Page 33 of 44

advances, and that such diversion was indicative of an intention,

present from the very inception, not to apply the proceeds of the

preferential issue for the purpose for which it had been raised. This

Court held that the diversion of funds immediately upo n their

receipt, in violation of the object for which they had been raised,

disclosed an intent to act fraudulently within the meaning of the

PFUTP Regulations, and that such diversion for the purpose of

purchasing shares of other companies constituted fra ud

thereunder. What weighed with this Court was the sheer proximity

in time between the receipt of the funds and their diversion,

coupled with the fact that ratification of such diversion, when

sought, came only after the funds already stood fully diverted and

after an ex-parte order had been passed against the respondents,

as also the unconvincing nature of the explanation offered by the

respondents attributing the diversion to prevailing market

conditions. The relevant observation is as under:

“38. Applying this principle, we have no semblance of doubt

in our mind that the diversion of the funds raised for an

object not set out in the notice of EoGM was clearly in breach

of Regulation 3 as well as Regulations 4(2)(f), 4(2)(k) and

4(2)(r) of the PFUTP Regulations. Further, the very purpose

of notice of EoGM and the notice informing the objects of

preferential issue is also traceable to Regulation 73 of the

ICDR Regulations, 2009 which mandate that the objects for

the preferential issue have to be set out.

xxx xxx xxx

50. There is another significant aspect in the present case.

The EoGM was on 03.09.2012 for the stated objects therein

and the funds started coming in from 16.10.2012. From the

very next day, the funds were diverted towards advances

to companies and for investment in shares. The ratification

came after the WTM had passed an ex -parte order on

04.12.2014 only on 29.09.2017, at a point when the entire

funds already stood diverted. The explanation that the

market conditions prevailing prevented them from utilizing

Civil Appeal Nos. 25-26 of 2024 Page 34 of 44

was rightly not accepted. It is very clear from the facts that

the respondents had from the very inception had no

intention to use the funds for the stated objects and their

only object was to somehow raise the funds and divert it for

the purpose they ultimately did.

51. In Kishore R. Ajmera (supra), this Court held that proof

of violation of Regulations may have to be inferred by a

logical process of reasoning from the totality of attending

facts and circumstances. In this case, though there is

admission that there is diversion of purpose, the claim that

it was due to market conditions is false, is established from

the speed with which the amounts were diverted . The

reliance on newspaper articles about GDP rate hitting a new

low is to say the least not convincing at all and is too

general.”

(Emphasis Supplied)

46. Moreover, recently in Reliance Industries Ltd. v. SEBI, reported

in 2026 SCC OnLine SC 1005 , wherein one of us, J.B Pardiwala,

J. was the author, this Court was confronted with an allegation that

the appellant company, by trading through several entities acting

as its agents, had exceeded permissible position limits in the

futures segment so as to manipulate the settlement price of the

underlying scrip and thereby earn unlawful gains. This Court, upon

a detailed consideration of the record, found that although a breach

of position limits and non-disclosure of the identity of persons

acting in concert had indeed been established, the respondent

authority had failed to demonstrate that any third party had been

induced to deal in securities as a consequence thereof, nor had it

been shown that the device or arrangement resorted to by the

appellant admitted of no explanation other than that of fraud. It

was in this context that this Court held that where the respondent

authority is unable to show and prove inducement of third parties

to deal in securities as a result of the alleged fraud played on the

Civil Appeal Nos. 25-26 of 2024 Page 35 of 44

market, it becomes necessary that 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, thereby

elevating the standard of preponderance of probabilities to a

correspondingly higher degree in such cases.

“174. There is no gainsaying that the definition is so broad

and vague that there is a high possibility of false positives

i.e., an activity may be incorrectly classified as fraudulent

when it is actually legitimate […]

180. The aforesaid exposition of law is significant as

regards the test of preponderance of probabilities that is to

be employed by the respondent authority and the courts to

prove the factum of manipulation. In our considered view,

where the circumstances indicate that no inducement is

present yet fraudulent conduct may have been at play, the

standard of proof to be discharged is a higher degree of the

preponderance of probabilities.

196. The aforesaid is as clear as a noon day in its

implication that where the respondent authority is unable to

show and prove inducement of third parties to deal in

securities as a result of the alleged fraud played on the

market, it is necessary that 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.”

(Emphasis Supplied)

47. We further reiterate this Court’s observation in Alupro Building

Systems (P) Ltd. v. CCE, reported in (2026) SCC OnLine SC 986,

wherein one of us, J.B Pardiwala, J. was the author, that the degree

of probability should be proportionate to the subject matter. In

other words, 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

Civil Appeal Nos. 25-26 of 2024 Page 36 of 44

circumstances, act upon the supposition that it exists. The relevant

observation is as under:

“94. All that we are trying to convey is that the degree of

probability should be proportionate to the subject matter. In

other words, 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, to act [sic] upon the

supposition that it exists.”

(Emphasis Supplied)

48. From the aforesaid decisions, it is clear that fraud cannot be said

to be established on the basis of mere allegation, conjectures and

surmises. Fraud must be established on the touchstone of the

principle of balance of probabilities, which requires an objective

perusal of the evidence on record, whereupon the court must either

believe such evidence to exist, or consider its existence to be so

probable that a reasonable man ought, under the given

circumstances, to act upon the supposition that it exists. In

Reliance Industries Ltd. (supra), this Court, applying the

aforesaid principle to the peculiar facts of that case, further held

that where the respondent authority is unable to show and prove

inducement of third parties to deal in securities as a result of the

alleged fraud played on the market, it becomes necessary that 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”.

49. Further, it is imperative to note that in Kishore Ajmera (supra),

this Court held that the confluence of circumstances such as the

Civil Appeal Nos. 25-26 of 2024 Page 37 of 44

illiquidity of the scrip, the sheer volume and persistence of the

trading, and the precise timing and matching of the buy and sell

orders, was sufficient in itself to sustain an inference of

manipulation. Similarly, in Kanaiyalal (supra), it appears to us

that this Court, having regard to the cumulative effect of the facts

established, namely the fiduciary relationship between Dipak Patel

and Passport India, the parting of confidential information to a

relative, the placement of orders in near-immediate proximity to the

bulk orders, and the consequent profits earned, found the same to

constitute corroborative facts sufficient to establish fraud.

Additionally, what weighed with SAT in Deccan Chronicle (supra)

was that these were not matters resting on conjecture or surmise,

but were facts apparent on the record itself, i.e., the maximum

permissible limit for buy-back available to the company as per its

own accounts fell well short of the amount proposed in the public

announcement, and the company had in fact carried out a buy -

back exceeding the prescribed statutory limit. It was on this basis

that SAT concluded that the buy -back, undertaken without

adequate free reserves, had misled uninformed investors and

shareholders as to the true valuation and financial health of the

company, particularly at a time when the price of its shares was

declining, and had accordingly influenced investment decisions to

their detriment.

50. In our view, in Terrascope Ventures (supra), fraud could be

established because there was an apparent violation of the very

object for which the preferential issue had been made, along with

other surrounding corroborative circumstances. Fraudulent

disregard of the object with which the preferential shares were

issued was apparent from the diversion of the funds raised,

Civil Appeal Nos. 25-26 of 2024 Page 38 of 44

commencing from the very first day of their receipt, and further from

the fact that ratification of such diversion was sought only after the

interim orders of the WTM had already been passed against the

respondents. It may thus be said that it is this level of clarity

emerging from the surrounding circumstances, taken cumulatively,

which pointed towards proving the intent to manipulate.

51. As our discussion in the previous paragraphs indicates, it is not

sufficient to merely identify the existence of a trading pattern which

might give rise to a suspicion of fraud under the PFUTP Regulations.

Where the allegation is that the respondent compan y had no

intention of completing the buyback and had deliberately

structured its trading activity towards that end, the surrounding

circumstances must be examined to determine whether the

inference of such fraud is reasonably supported. The trading data

must, therefore, be considered alongside any contemporaneous

instructions, communications, internal records, or other conduct

attributable to the company or persons in control which may

corroborate the inference sought to be drawn from the pattern of

trades.

52. Adverting to the facts of the present case, we consider it necessary

to deal with one aspect of the impugned order that we find ourselves

unable to sustain. SAT, at paragraph 13 of the impugned order,

appears to have placed reliance upon the investigation conducted

for the purpose of release of the escrow account under Regulation

15B of the Buyback Regulations, so as to arrive at its conclusion on

the question of fraud. In our considered view, this approach is

misconceived, inasmuch as the inquiry undertaken for the purpose

of Regulation 15B(8) of the Buyback Regulations is entirely distinct

Civil Appeal Nos. 25-26 of 2024 Page 39 of 44

in scope and object from an investigation into an alleged violation

of the PFUTP Regulations, the former being confined to ascertaining

entitlement to release or forfeiture of the escrow amount, and the

latter being directed towards ascertaining whether fraud, within the

meaning of Regulation 2(1)(c) of the PFUTP Regulations, has been

committed. We have already held hereinabove that the satisfaction

of the conditions governing forfeiture or release of an escrow under

Regulation 15B(8) cannot, by itself, be treated as a finding on

whether the PFUTP Regulations have been violated or not, the two

inquiries operating in entirely different fields.

53. It is pertinent to mention that the very foundation of 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. These instances are as follows:

(i) In respect of the NSE entry dated 17.02.2014, the investigation

report records the quantity available for sale at or below Rs.

335 as being in excess of 1.31 Crore shares, whereas the

corresponding data furnished by the NSE for the very same

date reflects the sell quantity below Rs. 335 as being only

slightly in excess of 30 lakh shares, a difference of over four

times the actual figure.

Civil Appeal Nos. 25-26 of 2024 Page 40 of 44

(ii) In respect of the NSE entry dated 14.02.2014, the investigation

report records the quantity available for sale at or below Rs.

335 as being 1,24,82,361 shares, whereas the NSE’s own data

for the same date reflects the corresponding sell-side order

book as containing only 36,83,335 shares.

(iii) In respect of the BSE entries for the period 20.05.2014 to

22.07.2014, the Investigation Report dated 17.03.2017 (at page

780 of the Additional Diary) show that the lowest price of the

company's shares was much above Rs. 335, which means that

on those dates the price of the shares were never Rs. 335 or

below Rs. 335 at BSE. However, in the corresponding entry in

the Investigation Report dated 17.03.2017 (at pages 766-767

of the Additional Diary) and in the SCN (at pages 94-95 of the

Additional Diary), it is mentioned that during the said period

there were sell orders available at or below Rs. 335.

54. This, in our view, is a disputed question of fact that goes to the very

root of the finding of fraud. This Court, exercising jurisdiction under

Section 15Z of the SEBI Act, is not the appropriate forum for such

resolution. The scrutiny of such conflicting trading data, and the

determination of which of the two versions is to be accepted, or

whether the discrepancy admits of some explanation not presently

apparent to us, is an exercise that properly belongs to SAT. Having

perused the impugned order, we find that SAT does not appear to

have engaged with the discrepancy between the investigation report

and the NSE’s letter at all. Since this is a material infirmity going to

the evidentiary root of the AO’s order, one which SAT itself never

examined or adjudicated upon, we are of the view that the matter

Civil Appeal Nos. 25-26 of 2024 Page 41 of 44

ought to be remanded to SAT so as to enable it to render a

considered finding on this specific aspect, upon a proper

examination of the record.

55. Further, the appellant’s own investigation report dated 03.02.2016

had recorded a finding of no material impact on price or volume

attributable to the corporate announcements made by the

respondent company, whereas the subsequent investigation report

dated 17.03.2017 proceeded to record a finding of fraud on

materially the same set of facts. Neither the AO nor SAT has

addressed this internal contradiction within SEBI's own

investigative record. We are of the view that SAT, rather than this

Court, is better placed to call upon the appellant to explain this

contradiction, and to examine whether the same detracts from the

reliability of the case sought to be built against the respondents.

56. We may note that SAT, under Section 15U of the SEBI Act, is vested

with the same powers as are vested in a civil court while trying a

suit, including, inter alia, the power to summon and enforce the

attendance of any person and examine him on oath, to require the

discovery and production of documents, to receive evidence on

affidavits, and to issue commissions for the examination of

witnesses or documents. In this sense, SAT is considerably better

equipped than this Court, exercising a statutory appellate

jurisdiction under Section 15Z confined ordinarily to questions of

law, to address the contradiction between the two investigation

reports, and rendering findings on facts which have a direct bearing

on the question of fraud. Accordingly, we are of the opinion that the

present matter shall be remanded to SAT for proper adjudication of

the question of fraud alone.

Civil Appeal Nos. 25-26 of 2024 Page 42 of 44

F. CONCLUSION

57. In view of the foregoing and considering the totality of the

circumstances, we are of the view that the scope of the enquiry

contemplated by Regulation 15B(8) of Buyback Regulation is

confined to determining whether the escrow is liable to be forfeited

in the circumstances contemplated by the provision. 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. In other words,

where any of the circumstances contemplated under clauses (a), (b)

or (c) of Regulation 15B(8) are found to exist, the consequence is

simply that the escrow cannot be forfeited. But it does not, by itself,

answer the distinct question of whether the conduct of the

respondents, viewed in its entirety and in the light of the material

collected during investigation, involved any fraudulent or

manipulative conduct within the meaning of the PFUTP Regulation.

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. Therefore, we are unable to accept the respondents’

submission that the satisfaction of the conditions contemplated

under Regulation 15B(8) necessarily negatives allegations of fraud

under the PFUTP Regulations.

58. Moreover, for the reasons stated hereinabove, we remand the

matter to SAT for fresh adjudication on the question of fraud alone.

SAT shall adjudicate the matter while adhering to the following

instructions:

Civil Appeal Nos. 25-26 of 2024 Page 43 of 44

(i) SAT shall first determine, upon a proper scrutiny of the trading

data placed before it by both parties, including the data

furnished by the NSE vide letter dated 10.12.2014, as to which

version of the historical trading data is free from discrepancy

and accurately reflects the true position regarding the

availability of sell orders and prevailing prices during the buy-

back period. Upon doing so, SAT shall record specific findings

on each of the instances of discrepancy noted hereinabove, as

also any other such discrepancy that may be brought to its

notice;

(ii) In exercise of its powers under Section 15U(2) of the SEBI Act,

SAT may summon and examine on oath the officers of the

respondent company, the merchant bankers engaged by it

and/or any other person acquainted with the facts of the

matter, and require the discovery and production of relevant

documents, so as to enable it to ascertain the true and

complete facts concerning the placement of buy orders during

the buyback period;

(iii) SAT may examine whether, and to what extent, corroborating

circumstances beyond the historical trading data exist, or are

shown to exist, on the record, that may have a bearing on the

question of fraud; and

(iv) 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

Civil Appeal Nos. 25-26 of 2024 Page 44 of 44

matter expeditiously within a period of six months from this

judgment.

59. Accordingly, the appeals are partly allowed, and the matter is

remanded to SAT for fresh adjudication on the question of fraud, in

terms of the directions contained hereinabove.

60. Pending applications, if any, shall stand disposed of.

............................. J.

(J.B. Pardiwala)

............................. J.

(K.V. Viswanathan)

New Delhi;

9

th September, 2026.