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Synopsis

The Bombay High Court recently pulled up the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and Securities Exchange Board of India (SEBI) for illegally freezing the demat accounts of a father and son.

The division bench of the High Court, comprising Justice Girish Kulkarni and Justice Firdosh Pooniwalla, was hearing a petition filed by the father-son duo, contending that their demat accounts were illegally frozen.

The National Securities Depository Limited (NSDL) froze the demat accounts on the directions of SEBI. Additionally, the BSE imposed fines and initiated other regulatory actions due to the non-submission of financial results under the SEBI (LODR) Regulations.

The father contended that the action was taken solely because he was named as a promoter in a company called Shrenuj & Company Limited, which was floated by his father-in-law.

He added that he had no role to play in the company and argued that no hearing was given to him before the demat accounts were frozen. A similar action was also taken against his son.

The bench noted that the BSE, NSE, and SEBI acted arbitrarily and, therefore, directed them to pay a joint cost of ₹30 lakhs to the father.

“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 order reads.

The bench also recorded that the the petitioner has certainly suffered such illegality and for a long period of six years, which has prevented him from operating his demat account and dealing with the shares held by him other than of Shrenuj and that it would not expect any person to suffer in such manner and that too in a high-handed and arbitrary manner as in the present case.

Therefore, the bench directed NSE, BSE, and SEBI to pay cost of Rs. 50 Lakhs to the son.

Case title: Dr Pradeep Mehta vs Union of India