Bombay High Court asks Sebi, NSE, BSE to pay Rs 80 lakh jointly as fine for illegal freezing of demat accounts of two 

The Bombay High Court has recently passed a order against capital markets regulator Sebi, BSE, NSE for reckless action to freeze demat account of the two petitioners. The HC ruled that the actions against the petitioners,  Dr. Pradeep Mehta and his son, Neil Pradeep Mehta, were "illegal and invalid".

A division bench of Justices GS Kulkarni and Firdosh P Pooniwalla stated that the freezing of the demat accounts was "unwarranted, unjustified, and brazenly illegal." It ordered the authorities to jointly pay Rs 30 lakh and 50 lakh (total Rs 80 lakhs) to petitioners within two weeks. 

Dr. Mehta, a medical practitioner, and his son had their demat accounts frozen following SEBI’s directives aimed at promoters of Shrenuj & Company Limited, a non-compliant company. On March 2, 2017, the BSE issued a letter to the company for non-submission of Financial Results under SEBI Listing Obligations and Disclosure Requirements- LODR) regulations.

The petitioners contested the suspension of their demat accounts by the National Securities Depository Limited (NSDL) in accordance with the regulations set forth by Sebi. The correspondence detailing their objections was transmitted in March and April of 2017, and again in August 2018.

Dr Mehta said that the account freeze was initiated due to his historical involvement as a promoter of Shrenuj & Company Limited, a venture established by his father-in-law in 1989. Mehta further contended that the NSDL's actions, purportedly instigated by BSE were carried out in compliance with pertinent legislative enactments.

Dr Mehta challenged the freezing of his accounts, arguing that he had no role in Shrenuj’s management and was a minority shareholder with no influence over the company. His son, Neil, who lives in Singapore now, was a minor at the time. Dr Mehta noted that he was also affected by the freeze.

The court noted the severe impact on the petitioners, particularly Dr. Mehta, who had invested in these shares as part of his retirement plan.