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Background

After closure of SEBI Settlement Scheme, 2020, many entities have appealed before Securities Appellate Tribunal (“SAT”), Mumbai. In one matter – Shubham Singhal v. SEBI, (SAT Appeal No. 191/2022, dated 13.05.2022- hereinafter referred to as “the said Order”), the Tribunal recently opined that the settlement scheme was not successful because of two reasons: the terms of settlement perhaps were onerous, stringent and unviable, and the scheme was issued during the peak of the Covid pandemic. In the aforesaid order, SAT directed that SEBI should reconsider coming out with a fresh scheme. Some of the relevant portions of the said Order are re-produced hereinunder for ready reference:

“8. In the past whn appeals against these kind or orders being passed, we had directed SEBI by our Order dated October 14, 209 that SEBI should explore and come out with some mechanism or a scheme such as a Lok Adalat so that parties could settle the matter. Based on the directions give by this Tribunal, SEBI came out with a Settlement Scheme in August 2020 which was framed under SEBI (settlement Proceddings) Regulations, 2018 (“Settlement Regulations, 2018). This Scheme came to an end in December, 2020. This Scheme was not successful for two resons, namely, that the terms of settlement perhaps were onerous, trigent and unviable and further the Scheme was issued during the peak of the Covid Pandemic….

14. The settlement scheme that was issued in August 2020 under Chapter VI of the aforesaid Settlement Regulations, 2018 did not generate interest to these small time noticess who had executed few trades for small gains as the proposed settlement terms were found to be strigent, onerous and unviable and that could be one of the reason why many noticeess did not opt under that scheme…

16. … These 14000 entities form a class of persons and are involved for similar defaults. Therefore, in our opinion, the Board can specify a procedure and terms of settlement for these classes of persons under clause 26 of the settlement Regulations, 2018. ..

17. We are, of the opinion that SEBI should reconsider and seriously give a thought in coming out with fresh scheme under Clause 26 of the Settlement Regulations, 2018, such scheme can be a onetime scheme for this class of person. The terms of settlement should be attractive so that it could attract the notices / Entities to come forward and settle the matter which will ameliorate the harassment of penalty proceedings to the noticees and at the same time would help to clear the backlog of these pending matters before various AOs.

18. While considering the Scheme SEBI should take into consideration the provisions of section 15HA of the SEBI Act prior to the amendment made by Act No. 27 of 2014 with effect from September 8, 2014, we find that various AOs have imposed a sum of Rs. 1 Lakh for similar trades which were executed prior to September 8, 2014 and Rs.5 Lakhs have been imposed for similar trades after the amendment of September 8, 2014.

19. SEBI should also take into consideration that only a few trades were executed for small gains and some of the AOs have exonerated these notices on the ground that such minuscule trades did not create any impact.

20. We also that while framing a scheme under the Settlement Regulations, 2018 it may also take into consideration the reduction of the quantum of penalty imposed in matters decided so far.”

Time Limit

Accordingly, a Public Notice has been issued on dated August 19, 2022 by the office of Securities and Exchange Board of Indian giving reference to the order of the Hon’ble Securities Appellate Tribunal (“SAT”) dated May 13, 2022, in the matter of illiquid stock options under which SEBI has framed a Settlement Scheme (“Scheme, 2022”) for the entities against whom proceedings have been initiated and are pending before any forum or authority, viz. Courts/SAT, Adjudicating Officer and Recovery Officer (provided an appeal has been filed and the same is pending before the SAT/Court). The entities may avail the Scheme, 2022 as per its terms and conditions. The Scheme commenced on August 22, 2022 and end on November 21, 2022 (both days inclusive) or such other date as approved by the Competent Authority.

Purpose of Scheme and Eligibility

The purpose of the Scheme is to provide an opportunity for settlement to the entities who have executed reversal trades in the illiquid stock options segment of BSE between April 1, 2014 to September 30, 2015, and against whom proceedings have been initiated and are pending before any forum or authority, viz. Courts/ Securities Appellate Tribunal (“SAT”), Adjudicating Officer and Recovery Officer (provided an appeal has been filed and the same is pending before the SAT/Court).

Application Fees

An entity desirous of availing settlement under the Scheme would be required to submit a settlement application along with an application registration fee of Rs. 25,000/- + GST @18% in case of body corporates and Rs. 15,000/- + GST @18% in case of individuals in the specified format, available on the respective websites of SEBI and BSE. The application form shall be uploaded and the payment of application fee and the settlement amount shall be made, using the online link provided for the purpose. There shall be no requirement for submitting any physical documents.

FAQs

Q. 1. What is the eligibility criteria for availing the Scheme?

A. The Scheme would be applicable in respect of the entities that have executed reversal trades in the illiquid stock options segment of BSE between April 1, 2014 and September 30, 2015 and against whom proceedings have been initiated and are pending before any forum or authority, viz. Courts/ SAT, Adjudicating Officer and Recovery Officer (provided an appeal has been filed and the same is pending before the SAT/Court). Entities against whom orders have been passed levying penalty that has not been paid and against whom recovery proceedings have been initiated, may be eligible for the scheme only if an appeal is filed and the same is pending before the Courts/ SAT.

Q. 2. In case a settlement application has already been filed in respect of the Show Cause Notice issued by the Adjudicating Officer before the Scheme was introduced and is pending, should another application be filed?

A. No. Such applicants may visit the link given below, enter their PAN and pay the specified settlement amount to settle the proceedings. They do not need to pay any application fee. Such applicants would however be required to upload the requisite documents as mentioned at Answer 4 below using the following link.

https://siportal.sebi.gov.in/intermediary/AOPaymentGateway.html

Q. 3. Where can one access the information regarding the Scheme?

A. Information regarding the Scheme is available at the website of SEBI (www.sebi.gov.in) and may also be accessed using the following link:

https://www.sebi.gov.in/media/public-notices/aug-2022/public-notice-in-respect-of-sebi-settlement- scheme-2022_62175.html

Q. 4. Which Documents are required for filing settlement application under the Scheme?

A. An entity desirous of filing a settlement application under the Scheme is required to keep ready the following Documents:

a) Online submission of the following scanned documents:

i) A copy of duly notarised and stamped undertakings and waivers in non- judicial stamp paper duly paid as per Annexure -2.

ii) A self-attested copy of the PAN Card of the applicant.

iii) A certified true copy of an application for settlement as per Annexure -1.

iv) A certified true copy of Last three years’ Income Tax Returns

b) Valid email Ids and mobile number

c) Certified Copy of the Order, if any, with relevant documents

d) Payment of the non-refundable settlement application registration fee of Rs. 25,000/- in case of body corporates and Rs. 15,000/- in case of individuals along with GST @ 18%.

e) Payment of the settlement amount as displayed in respect of the applicant.

Analysis of SEBI’s Settlement Scheme, 2022

Q. 5. What is the settlement amount applicable?

A. Under the Scheme, the settlement amount applicable, determined on the basis of number of contracts, may be accessed by using the following link:

https://siportal.sebi.gov.in/intermediary/AOPaymentGateway.html

Q. 6. What shall be the mode of payment of the application fee/settlement amount mentioned above?

A. Applicant shall make the online payment of the application fee/settlement amount using the following link:

https://siportal.sebi.gov.in/intermediary/AOPaymentGateway.html

Q. 7. When will the settlement order be passed under the Scheme?

A. Subsequent to the closure of the Scheme, a composite settlement order shall be passed by the competent authority after reconciliation of records.

Q. 8. Should one wait till the last day for filing the settlement application under the Scheme?

A. It is advisable to file a settlement application under the Scheme at the earliest in order to avoid last minute rush. The Scheme would be operational from August 22, 2022 till November 21, 2022.

Q. 9. What action would be taken, if the Scheme is not availed?

A. Upon conclusion of the Scheme, 2022, actions as per the relevant provisions of securities laws shall be continued against the entities.

===========

Annexure-1

Part-A – FORM

Application for settlement

Before the Securities and Exchange Board of India

In the matter of trading in the illiquid stock options at Bombay Stock Exchange (BSE) – in terms of the SEBI Settlement Scheme, 2022.

1. Name/Trade name of the applicant/co-applicants:

2. PAN of the applicant:

3. Address/correspondence address, contact number and email:

4. Name and contact details (including e-mail) of the contact person (s):

5. Stage at which pending (Show Cause Notice/Appeal before SAT or Court, whichever applicable):

6. Date of Show Cause Notice/Appeal before SAT or Court (including reference number, wherever applicable):

7. Documents to be uploaded:

(a) Undertakings and waivers (as per Format specified in Annexure 2).

(b) Copy of the PAN card.

(Signature of the applicant)
(Stamp and Seal of the applicant in case of body corporate along
with Signature of the authorised representative(s))

Annexure-2

Undertakings and Waivers

Format

Undertaking to be submitted by each applicant, along with the application with stamp duty duly paid and duly notarized at the time of execution.

I/We, , …………………………………….,  the applicant(s) herein, as a condition for making the enclosed application to the Board for examining and consideration of the application, hereby declare that I/we agree and undertake that:

(1) I/We admit the jurisdiction and right of the Securities and Exchange Board of India to initiate appropriate proceedings in respect of the alleged default.

(2) I/We further agree and undertake that the time spent during the settlement proceedings shall be excluded for computing the limitation period or laches, if any, for initiating or continuing or restoring any legal proceedings, if any, against me/us, and waive any objections in this regard.

(3) The Securities and Exchange Board of India may enforce any claims against me/us arising from or/in relation to any violation of the settlement order passed pursuant to this application.

(4) Nothing in the settlement order shall preclude any other person from pursuing any other legal remedy to which such person may be entitled against me/us as per law.

(5) The settlement proposed by me/us does not limit or create any private rights or remedies for any person who is not a party to these proceedings, against me/us.

(6) The settlement amount including legal costs, if any, shall be paid by me/us to the Board within the period stipulated by the Board.

(7) The settlement order shall be construed and enforced in accordance with the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018, as amended from time to time.

(8) I/We agree that subsequent to the passing of the settlement order, I/We shall not take any action or make or permit to be made any public statement denying, directly or indirectly, any finding of the Board including that recorded in the settlement order or creating impression that the settlement order is without factual basis.

(9) I/We hereby declare that nothing in the waiver and undertaking given by me/us shall affect my/our (i) testimonial obligations, or (ii) right to take legal or factual positions in defence of litigation or in defense of a claim or in any other legal proceeding in which the Board is not a party.

(10) I/We for the limited purpose of settlement under these regulations ‘admit the findings of fact and conclusions of law’ or ‘neither admit nor deny the findings of fact and conclusions of law’ (strike off whichever is not applicable), and agree to abide by the settlement order as may be passed in accordance with the Securities and Exchange Board of India  (Settlement Proceedings) Regulations, 2018 and guidelines and circulars issued by the Board in that regard:

Provided that, in relation to defaults related to disclosures other than relating to a prospectus or a letter of offer or a similar such document required to be made in relation to an issue of securities, I/we do not deny the alleged default.

(11) I/We waive my/our right of taking any legal proceedings against the Securities and Exchange Board of India concerning any of the issue covered in the settlement order that may be passed.

(12) I/We further waive the following:

(a) the findings of fact and conclusions of law;

(b) the proceedings before the Board or any officer of the Board;

(c) the right to all post-hearing procedures;

(d) appeal/review before the Tribunal/courts;

(e) any plea relating to such provisions of the regulations or other requirements of law, including conflict of interest, as may be construed to prevent any member or officer of the Securities and Exchange Board of India from participating in the proceedings, including settlement proceedings or assisting or advising the Internal Committee, High Powered Advisory Committee or Panel of Whole Time Members, as to, any order, opinion, finding of fact, or conclusion of law, etc.;

(f) any plea of bias or pre-judgment by the Securities and Exchange Board of India, the officers or the High Powered Advisory Committee, based on the consideration of or discussions concerning settlement of all or any part of the internal proceedings; and

(g) any plea of limitation or laches for initiating or restoring of the proceedings, if the applicant violates the settlement order.

(13) I/We undertake as a condition of settlement to not seek, directly or indirectly, any set-off, reimbursement by way of indemnification, insurance coverage or any other form of non-tax reimbursement.

(Signature of the applicant with stamp and seal of the body corporate)

Before me.

Notary.

Weblink and source of information

1. https://www.sebi.gov.in/media/public-notices/aug-2022/public-notice-in-respect-of-sebi-settlement-scheme-2022_62175.html

2. https://www.sebi.gov.in

The Author can be contacted at email id roopalcs2001p@gmail.com.

Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

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