The Securities Appellate Tribunal (SAT) has once again censured the Securities and Exchange Board of India (SEBI) for its rigid enforcement actions, marking a continued conflict. These critiques include the imposition of unjust penalties, disregard for judicial advisories, and a series of rigid interpretations that often overlook the nuances of each case.

In a notable instance, SRBC, a well-established CA firm and auditor for the publicly listed company Infibeam Avenues, faced a ₹10 lakh penalty from SEBI for inadvertently sending confidential financial information to an unintended recipient. Despite SRBC’s swift corrective measures, SEBI pursued penalties under the SEBI (Prohibition of Insider Trading) Regulations, 2015, arguing that SRBC failed to prevent such breaches.

However, SAT overturned this penalty, rebuking SEBI for its lack of holistic fact examination and for imposing penalties mechanically without considering the inadvertence of the error. SAT also imposed a ₹1 lakh cost against SEBI, underscoring the need for more reasoned and restrained decision-making.

This case echoes earlier issues, such as the Piramal Enterprises Limited case, where SAT had to step in to mitigate SEBI’s stringent actions, which lacked substantial evidence of insider trading. The tribunal emphasized the role of SEBI as a regulator, not as an overzealous enforcer, advising a focus on remedial actions over punitive measures.

SEBI’s historical reliance on the Supreme Court judgment in SEBI v. Shri Ram Mutual Fund, which stipulates that penalties are warranted upon the mere establishment of a contravention, has been criticized for encouraging an overly rigid enforcement policy devoid of contextual understanding.

Moreover, SAT has frequently noted SEBI’s disregard for judicial guidance, highlighting instances of negligence and urging SEBI to assign matters to more conscientious officers. Such critiques underline systemic issues within SEBI’s operational ethos, suggesting a pattern of harsh and sometimes arbitrary enforcement.

The industry now looks forward to the introduction of the Uniform Securities Code, as proposed by the Finance Minister of India. Expected reforms include setting definitive investigative timelines, limiting powers delegation within SEBI, ensuring conflict of interest disclosures, increasing transparency, and segregating SEBI’s adjudicatory functions from its executive branches.

These anticipated changes aim to enhance the accountability and fairness of the securities regulatory framework, addressing both the power imbalances within SEBI and the broader enforcement challenges that have been recurrent themes in SAT’s criticisms.