On charges of alleged stock market fraud, regulatory violations, and corruption related to a company’s 1994 listing, a special court has ordered the Anti-Corruption Bureau (ACB) to file a first information report (FIR) against former SEBI chairperson Madhabi Puri Buch, the market regulator’s longtime employees, and two BSE officials.
The Securities and Exchange Board of India (SEBI) declared that it would contest the ruling in court. Two days after Ms. Buch’s term as SEBI chief ended, the order was issued.
In a detailed order dated March 1, special ACB court judge Shashikant Eknathrao Bangar observed: “The allegations disclose a cognizable offense, necessitating an investigation. There is prima facie evidence of regulatory lapses and collusion, requiring a fair and impartial probe. The inaction by law enforcement and SEBI necessitates judicial intervention under Section 156(3) CrPC.”
In accordance with the applicable sections of the Indian Penal Code, the Prevention of Corruption Act, the SEBI Act, and other legislation, the ACB of Worli in Mumbai was instructed to file a formal complaint. “The investigation shall be monitored by this Court. A status report shall be submitted within 30 days,” the order said.
Sapan Shrivastava, a 47-year-old legal reporter from Dombivali in the Thane district of Maharashtra, submitted the complaint in this case. Ms. Buch is named in the case together with Ashwani Bhatia, Ananth Narayan G., and Kamlesh Chandra Varshney, current full-time members of SEBI, and Pramod Agarwal and Sundararaman Ramamurthy, officers of the Bombay Stock Exchange (BSE). The complainant requested the filing of a formal complaint and an investigation into allegations of widespread financial fraud, corruption, and regulatory infractions.
The allegations concern the purportedly fraudulent 1994 stock exchange listing of Cals Refineries Ltd. with the active cooperation of regulatory bodies, including SEBI, in violation of the SEBI Act of 1992. The complainant contended that SEBI officials failed in their statutory duty, facilitated market manipulation, and enabled corporate fraud by allowing the listing of a company that did not meet the prescribed norms. Cals Refineries was suspended from trading on the stock exchange since 2019, according to data on the BSE website.
The officials identified in the order were not in their current roles when Cals Refineries was listed thirty years ago, according to a statement from SEBI, which also claimed that it had not been issued any notice and had not been given any chance to respond. “SEBI would be initiating appropriate legal steps to challenge this order and remains committed to ensuring due regulatory compliance in all matters,” the market regulator said in its statement.
The BSE said, in a separate statement, that the application was “frivolous and vexatious in nature”. It added that no notice had been issued, and neither time nor opportunity had been granted to respond to the charges. The BSE officials named in the order had not been holding positions at the exchange during the listing of Cals Refineries, it added. “As a responsible market institution, BSE remains committed to upholding regulatory compliance and ensuring transparency,” the statement said.
Mr. Shrivastava informed the court that nothing had been done in spite of his repeated attempts to contact the relevant police station and regulatory agencies. “SEBI permitted the listing of the accused company despite its failure to comply with essential regulatory norms, including disclosure requirements and due diligence procedures mandated under the SEBI Act, 1992, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018,” he submitted.
He further said that after the business was listed on the exchange, its promoters embezzled public cash, and he blamed SEBI for not acting to stop this despite several warning signs. According to Mr. Shrivastava, the defendants deceived investors into thinking the business was financially stable by engaging in round-tripping, insider trading, and price manipulation.
Regulatory filings and stock market reports indicating artificial inflation of share prices and market manipulation; written complaints filed with SEBI, the police, and other authorities, with their acknowledgments; documents exposing procedural lapses and non-compliance in the IPO process, which resulted in an irregular listing of the company; and correspondence from whistleblowers within SEBI, indicating undue favoritism towards the accused company, are just a few of the materials the complainant has placed on record to support the allegations, the court noted when directing the filing of a formal complaint.
According to the court’s evaluation of the available evidence, the accusations reveal a crime that can be prosecuted and call for an inquiry.
