Mumbai: The Bombay High Court, recently imposed a collective collective cost of Rs 80 lakh on the Securities and Exchange Board of India (SEBI), the Bombay Stock Exchange (BSE), and the National Stock Exchange (NSE) for the unlawful freezing of demat accounts of a city gynaecologist and his NRI son.
The court held that action against Dr Pradeep Mehta and his son, Neil Mehta, is "illegal and invalid" on grounds of severe procedural flaws and violations of constitutional rights.
“In our opinion, the freezing of the petitioner’s demat account qua all the shares held by him was unwarranted, unjustified and in patent defiance of the principles of natural justice and brazenly illegal,” a bench of Justices Girish Kulkarni and Firdosh Pooniwalla said on August 26.
Mehtas Accounts Frozen Following SEBI's Directives
Mehtas had their demat accounts frozen following SEBI’s directives aimed at promoters of Shrenuj & Company Limited, a company that had been declared non-compliant.
Dr. Mehta’s demat accounts were frozen by the National Securities Depository Limited (NSDL) in March and April 2017 and August 2018. The freezing was based on SEBI Circulars mandating such actions against promoters of companies that failed to comply with regulatory requirements.
Mehta’s advocate Yeshwant Shenoy submitted that the action was taken merely because he happened to be one of the promoters of a company called Shrenuj & Company Limited at one point, floated by his father-in-law in 1989. He further contended that no notice or hearing was given to him before freezing his shares.
HC Bench's Observation In The Case
“We would not expect any person to suffer in such a manner and that too in a high-handed and arbitrary manner as in the present case. We are of the clear opinion that BSE/NSE as also SEBI has clearly failed to discharge their duties and to act in accordance with law so as to deprive the petitioner of his shares in the demat account held by him which certainly, in our opinion, is an infringement of petitioner’s right guaranteed under Articles 14, 21 and 300A of the Constitution,” the bench said.
The court emphasised that no action could have been taken against Mehta’s son as he was in no manner concerned with the firm. Coming down heavily on the NSE, BSE and market regulator, the HC said: “In our opinion, the present case is more gross and is a classic example of high-handed action and a reckless action to freeze the demat account of the petitioner.” The court underlined that even the principle of natural justice of fair opportunity to hear the petitioner was not followed by the authorities and same was against the mandate of the law.
The son suffered at the hands of respondent authorities for many years and lost valuable trading opportunities as entitled to him under the Constitution, the judges said.
