The Securities Appellate Tribunal (SAT) has ruled that settling a case with SEBI does not prevent stock exchanges from imposing separate fines for the same compliance failure. This decision follows a case involving Hindustan Foods Limited, which faced a ₹52.21 lakh penalty from the BSE despite a prior settlement with SEBI. This sets a precedent that listed companies could face dual penalties for regulatory lapses.
The Securities Appellate Tribunal (SAT) has clarified a critical point for listed companies: settling a case with the Securities and Exchange Board of India (SEBI) does not grant immunity from penalties imposed by stock exchanges for the same violation. In a recent judgment, the tribunal dismissed an appeal by Hindustan Foods Limited, upholding a fine of ₹52.21 lakh levied by the Bombay Stock Exchange (BSE).
The dispute centered on the company's failure to meet the required proportion of independent directors on its board, a violation observed during several periods between August 2018 and November 2022. Hindustan Foods had previously settled this matter with SEBI in October 2023 by paying ₹24.32 lakh. The company argued that the BSE's subsequent fine amounted to paying twice for the same mistake, a concept often referred to in law as double jeopardy. However, the SAT rejected this argument, stating that the company remained liable under the separate regulatory framework governed by stock exchanges.
Understanding the Regulatory Logic
The tribunal pointed to Regulation 98 of the Listing Obligations and Disclosure Requirements (LODR) Regulations, which gives stock exchanges the independent power to enforce compliance. The judgment highlighted that when companies settle with SEBI, the settlement orders usually include a specific clause stating the agreement is without prejudice to any action that might be taken by recognized stock exchanges. This means the settlement only covers SEBI’s side of the enforcement action and does not necessarily close the door on penalties from the exchange.
Impact on Listed Entities
For investors, this ruling underscores the importance of corporate governance and compliance. While Hindustan Foods has publicly stated that this specific order is not expected to have a material impact on its overall financial health or operations, the precedent serves as a reminder of the cumulative risk listed firms face. It confirms that regulatory breaches can lead to multiple rounds of penalties from different authorities—SEBI and the stock exchanges—rather than just one.
Investors may keep a close watch on how companies manage their compliance requirements, especially regarding board composition and timely disclosures. Moving forward, the key monitorable for shareholders is not just the initial resolution of a regulatory dispute, but also any subsequent or ongoing action taken by stock exchanges, which may continue even after a SEBI settlement is finalized.