Bombay High Court to Hear SEBI, BSE Appeals Against FIR Order on March 4

High Court Stays FIR Registration in Cals Refineries Case

The Bombay High Court (HC) has scheduled a crucial hearing on March 4 to address the appeals filed by Securities and Exchange Board of India (SEBI) and the Bombay Stock Exchange (BSE) against a special Anti-Corruption Bureau (ACB) court’s directive ordering the registration of a First Information Report (FIR) against former SEBI Chairperson Madhabi Puri Buch and five other senior officials.

On March 3, the HC issued oral directions preventing the registration of the FIR until the next hearing, offering temporary relief to the regulatory officials. The case has sparked intense discussions within financial and regulatory circles, as it involves allegations of market manipulation, regulatory failures, and collusion in the listing of Cals Refineries Ltd on the BSE.

ACB Court’s Directive: Prima Facie Evidence of Market Manipulation

A special ACB court in Mumbai on March 1 instructed the Anti-Corruption Bureau to file an FIR against:

• Madhabi Puri Buch (Former Chairperson, SEBI)
• Sundararaman Ramamurthy (Managing Director & CEO, BSE)
• Pramod Agarwal (Former Chairman & Public Interest Director, BSE)
• Ashwani Bhatia (Whole-Time Member, SEBI)
• Ananth Narayan G (Whole-Time Member, SEBI)
• Kamlesh Chandra Varshney (Whole-Time Member, SEBI)

According to the court, there is prima facie evidence suggesting regulatory lapses and misconduct, warranting a comprehensive investigation. The court also emphasized that it would monitor the probe and demanded a status report within 30 days.

The ruling has put India’s financial regulatory framework under scrutiny, raising concerns about oversight failures in stock market operations.

Allegations: Stock Market Fraud and Regulatory Negligence

The complaint that led to the court’s ruling was filed by Sapan Shrivastava, a 47-year-old media professional, who alleged that:

• Cals Refineries Ltd was fraudulently listed on the BSE with the complicity of regulatory authorities, particularly SEBI.
• The listing violated SEBI regulations, as the company failed to meet the prescribed eligibility criteria under the SEBI Act, 1992.
• Regulatory officials failed in their statutory responsibilities, allowing market manipulation and corporate fraud to occur.
• The alleged fraud resulted in financial irregularities and unjust enrichment for certain market participants.

Shrivastava argued that SEBI officials, by permitting the listing despite evident violations, had facilitated a significant financial scam affecting investors and the broader stock market.

Legal Arguments: SEBI and BSE Challenge FIR Directive

Representation in Court

• Solicitor General Tushar Mehta represented SEBI officials.
• Senior Advocate Amit Desai argued on behalf of BSE officials.

Both SEBI and BSE strongly opposed the FIR directive, arguing that:

1. The alleged irregularities pertain to a listing that occurred in 1994, when the named officials were not holding their respective positions.
2. The FIR order is based on claims that lack legal merit, as the current officials had no direct involvement in the matter.
3. The listing of Cals Refineries Ltd followed existing market procedures at the time, and any alleged violations should be evaluated within that historical regulatory context.

SEBI and BSE Respond to Allegations

BSE’s Official Statement:

The Bombay Stock Exchange released a formal statement denying any wrongdoing, emphasizing:

• The officials named in the FIR order were not in their current positions at the time of Cals Refineries’ listing.
• The matter relates to a 30-year-old listing, and no direct evidence has been presented to prove their involvement.

SEBI’s Stand:

SEBI also rejected the accusations, stating:

• The application for the FIR was allowed despite a lack of substantive evidence.
• The officials had no role in the 1994 listing, making the FIR order procedurally unjustified.

Implications for India’s Regulatory Framework

The case has triggered concerns about governance, transparency, and accountability in India’s capital markets. Analysts note that:

• If the FIR proceeds, it could set a precedent for retrospective legal actions against regulators for historical decisions.
• The controversy might impact investor confidence, particularly regarding SEBI’s role as a market watchdog.
• It underscores the need for greater clarity in regulatory accountability, ensuring that enforcement actions remain fair and justified.

Madhabi Puri Buch’s Tenure Ends Amid Controversy

This case coincides with the completion of Madhabi Puri Buch’s tenure as SEBI Chairperson on March 1, 2024.

• Buch, India’s first woman to lead SEBI, was known for introducing reforms in market surveillance and regulatory oversight.
• Her term saw major regulatory advancements, but the current controversy has overshadowed her exit, raising questions about SEBI’s past decisions.

What’s Next? Bombay High Court’s Crucial Hearing on March 4

The March 4 hearing at the Bombay High Court will determine whether:

• The FIR directive is upheld, leading to further investigation and legal scrutiny.
• The FIR is quashed, relieving SEBI and BSE officials of the charges.

As India’s financial regulators brace for this high-stakes legal battle, the case has far-reaching implications for market governance, investor confidence, and regulatory credibility.