The Bombay High Court has levied an Rs 80 lakh penalty on the Securities and Exchange Board of India (SEBI), the National Stock Exchange (NSE), and the Bombay Stock Exchange (BSE) for unlawfully freezing the demat accounts of a Mumbai resident and his non-resident son, who were mistakenly identified as promoters. This is an unusual instance of a court or tribunal imposing a fine on a market regulator.
The issue stems from a 2017 SEBI order, which led to the freezing of the demat accounts belonging to Pradeep Mehta and his son Neil Mehta. The order was related to allegations against Shrenuj & Company, where Neil’s father-in-law was the chief promoter, for supposed breaches of SEBI regulations.
The father-son duo had petitioned the Bombay High Court seeking relief, asserting that they were not involved in the company’s operations or management, not even in an advisory role.
“It is evident that the petitioner in no manner whatsoever less in the capacity as a promoter was concerned and connected with Shrenuj. Thus, he could not be held liable for any default of Shrenuj, much less that he could face any action of freezing his Demat account for the default of Shrenuj,” said the court order dated August 26.
The court ruled the SEBI order illegal and invalid, granting Mehta and his son the freedom to manage and trade all shares held in their demat accounts.
“The present case is more gross and is a classic example of high-handed action and a reckless action to freeze the demat account of the petitioner. There is patent non-application of mind by any of these authorities, who are statutorily governed in resorting to taking such drastic action,” the court noted.
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