Penalty Imposed Is Harsh & Disproportionate: Securities Appellate Tribunal Grants Interim Relief To Rana Kapoor Booked For Mis-Selling AT1 Bonds

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SEBI's investigation revealed that the bank had indeed mis-sold the bonds to institutional investors, and Kapoor was found personally responsible for this mis-selling

The Securities Appellate Tribunal (SAT) has granted interim relief to Rana Kapoor, the former Managing Director and Chief Executive Officer of Yes Bank.

The relief pertains to the penalty of Rs. 2 crore imposed on him by the Securities Exchange Board of India (SEBI) for allegedly engaging in the mis-selling of Additional Tier 1 (AT1) bonds issued by Yes Bank to institutional investors.

Rana Kapoor faced charges for violating the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations of 2003.

SEBI's investigation revealed that the bank had indeed mis-sold the bonds to institutional investors, and Kapoor was found personally responsible for this mis-selling.

The bench, comprising Justice Tarun Agarwala and Technical Member Meera Swarup, also referred to other appeals filed by the Private Wealth Management Team, granting them interim relief as well.

In the SEBI adjudicating officer's order against Kapoor, it was observed that the show cause notice did not specifically allege that Kapoor had designed the sales pitch.

However, Kapoor was found responsible for overseeing the entire process of down selling the AT-1 Bonds from institutional investors to individual investors. Allegedly, Kapoor gave instructions to officials at Yes Bank Limited in this regard.

The Securities Appellate Tribunal was of the opinion that whether Kapoor was directly or indirectly responsible could be considered at the final disposal stage of the proceedings.

“Considering the aforesaid, the question whether the appellant was responsible directly or indirectly is a question which will be considered at the stage of final disposal. At this this, prima facie we find that in view of the interim order passed in the connected appeals where an interim order was passed in favour of Yes Bank Limited, we are of the opinion that the appellant is also entitled for a similar relief,” the tribunal noted.

The SAT further noted that the penalty of Rs. 2 crore imposed on Rana Kapoor was above the minimum penalty, and no reasons were provided for the same. The tribunal found this penalty to be unduly harsh.

“Considering the fact that the factors mentioned in Section 15J of the SEBI Act has not been considered in its entirety and no reason has been given as to why a penalty of Rs. 2 crores which is above the minimum penalty has been imposed under Section 15HA of the SEBI Act, we are of the opinion that prima facie the imposition of penalty appears to be harsh and disproportionate,” the tribunal said.

In January 2023, a division bench of the Bombay High Court had quashed and set aside the decision of the Administrator, who was appointed by RBI for Yes Bank Pvt. Ltd. The said administrator had passed an order writing off the Additional Tier 1 Bonds worth Rs. 8300 crores.

The central government then moved the Supreme Court against the order of the Bombay High Court. The Apex Court had granted an interim stay against the order passed by the Bombay High Court.

Yes Bank was represented by Senior Advocate Pesi Modi, Ms. Kalpana Desai, Mr. Pulkit Sukhramani, Ms. Vidhi Jhawar and Mr. Deepank Anand and Mr. Shourya Tanay, Advocates i/b JSA, Advocates & Solicitors. 

SEBI was represented by Senior Advocate Gaurav Joshi, Mr. Sumit Rai, Mr. Mihir Mody, Mr. Arnav Misra and Ms. Shilpa Joshi, Advocates i/b K Ashar & Co

Case title: Yes Bank vs SEBI