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Mumbai: Declaring the act of freezing demat accounts illegal and invalid, the Bombay High Court ordered the Securities and Exchange Board of India (SEBI), National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) to pay a fine of Rs. 80 lakh. This act was considered a violation of constitutional rights.
The demat accounts of Dr Pradeep Mehta and his son Neel Mehta were illegally frozen. While ordering the freezing, the court said that there is no provision in the law which says that the respondents can freeze the demat account of the petitioner. In our opinion, the freezing of the demat account of the petitioner for the said reason is unfair, unjust and violative of natural justice and illegal.
Targeting the promoters of medical practitioner Dr. Srinuj & Company Limited, the demat accounts of Pradeep Mehta and his son Neel were frozen on the instructions of SEBI.
Mehta's demat accounts were frozen by the National Securities Depository Limited (NSDL) in March and April 2017. The move was based on SEBI's order to take compulsory action against promoters of companies not complying with the rules.
The move came after the company failed to submit financial results for the quarter ended December 2016 under Listing Obligations and Disclosure Requirements (LODR) regulations. BSE imposed a penalty and took further legal action.
Mehta challenged the move, saying he has no connection with the company's management and is a minority shareholder and has no role in the running of the company. Neil Mehta, who lives in Singapore, was a minor when his father bought the shares and he too has been affected.
The court said in the order that the demat account contained shares not only of Shrenuj but also of other companies. Such shares are the property of the applicant and any action depriving him of the benefit of property cannot be taken according to the law. The court said that the petitioner had taken shares as a retirement plan and he was seriously affected by it. The petitioner had to face such illegal activity for six years. Therefore, the court ordered a joint compensation of Rs. 50 lakh to Neel Pradeep Mehta and Rs. 30 lakh to Dr. Pradeep Mehta. The court ordered immediate confiscation of all the shares present in the demat accounts of the petitioners.