"Classic Example Of High-Handed & Reckless Action": Bombay HC Slaps ₹80 Lakh Costs On SEBI, BSE & NSE for Illegally Freezing Demat Accounts

The Bombay High Court has imposed ₹80 Lakhs costs on the Securities and Exchange Board of India (SEBI), the Bombay Stock Exchange (BSE), and the National Stock Exchange (NSE) for 'illegally' freezing the demat accounts of Dr. Pradeep Mehta and his son, Neil Pradeep Mehta.

In that context, the Bench of Justice GS Kulkarni and Justice Firdosh P Pooniwalla observed that, "The petitioner has suffered at the hands of respondents for these many years. He has lost valuable trading opportunities and to deal with his property as entitled to him under Article 300A of the Constitution of India. It is not only painful but extremely shocking that such actions can nonetheless be defended by the respondents considering the gross facts and circumstances of the case which would stare at them. There is not a semblance of reason for such action to be taken against the petitioner. We may also observe that the actions and cundect of the BSE / NSE and SEBI as the law mandates is to protect the interest of the investors. In the present case these statutory bodies have totally acted contratry to such norms. In fact the impugned actions of these respondents when taken against a person like the petitioner is also likely to shake the confidence of investors who are non residents Indian. This is certainly not what can be expected from the conduct of these entities. The duty to safeguard the investor’s sentiments and confidence is paramount which stand breached in every possible manner in the present case."

In early 2017, the National Securities Depository Limited (NSDL) froze the demat accounts of Pradeep Mehta and his son Neil Mehta following directives from SEBI. This action was part of SEBI’s crackdown on the promoters of Shrenuj & Company, which had failed to comply with financial reporting regulations.

Shrenuj & Company had been penalized by the Bombay Stock Exchange (BSE) for not submitting its financial results for December 2016, prompting further regulatory measures. Dr. Mehta, a medical practitioner and minority shareholder with no operational involvement in Shrenuj, challenged the freeze, arguing that it was unjustified. Neil Pradeep Mehta, who lived in Singapore and was a minor at the time, was also affected despite his limited connection to the company.

The High Court observed that the case was a gross and classic example of high-handed and reckless action. In that context, it was further said that, "There is patent non-application of mind by any of these authorities, who are statutorily governed in resorting to take such drastic action. This apart, even the elementary principles of natural justice of a fair opportunity of calling upon the petitioner to show cause, a hearing and appropriate order to be passed have been thrown to the winds. This is certainly not the manner or method in which the rule of law would mandate these respondents to act."

Cause Title: Dr. Pradeep Mehta vs Union of India & Ors. (Neutral Citation: 2024:BHC-OS:13006-DB)

Click here to read/download the Judgment