Escrow Release Is Not a Clean Chit: Supreme Court Rules That SEBI Can Independently Investigate Fraud in a Share Buyback
Case Name: Securities and Exchange Board of India v. Vedanta Limited & Others
Date of Judgment: 9 September 2026
Citation: 2026 INSC 978
Bench: Justice J.B. Pardiwala and Justice K.V. Viswanathan
Held: The Supreme Court held that the release of an escrow deposit under Regulation 15B(8) of the SEBI (Buyback of Securities) Regulations, 1998 does not grant immunity from an independent investigation or proceedings under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. An inquiry concerning the forfeiture or release of escrow is limited to determining whether the statutory circumstances justifying non-forfeiture exist. It does not decide whether the company’s conduct was fraudulent or manipulative.
The Court further held that fraud cannot be inferred merely from a suspicious trading pattern. The allegation must be established on the balance of probabilities through an objective assessment of the trading data, contemporaneous instructions, communications, internal records and other corroborative circumstances. Where inducement of investors is not demonstrated, the alleged conduct must be such that it reasonably admits of no explanation other than fraud.
Summary: Vedanta Limited, formerly Cairn India Limited, approved an open-market buyback of up to 17.09 crore equity shares at a maximum price of ₹335 per share, with ₹5,725 crore earmarked for the exercise. It deposited approximately ₹143.125 crore, representing 2.5% of the maximum buyback size, in an escrow account.
During the prescribed buyback period, the company purchased approximately 3.67 crore shares for ₹1,225.45 crore. It consequently failed to utilise at least 50% of the amount earmarked for the buyback, as required by Regulation 14(3) of the Buyback Regulations. Vedanta attributed the shortfall principally to the market price remaining above the stipulated price cap and sought the release of the escrow amount.
SEBI’s preliminary inquiry concluded that the conditions for exemption from forfeiture under Regulation 15B(8) were satisfied, and the escrow amount was released. SEBI, however, continued a separate investigation under the PFUTP Regulations. Its subsequent investigation alleged that Vedanta had not placed adequate buy orders even on favourable trading days and that the buyback announcement had been made without a genuine intention to complete it.
SEBI’s Adjudicating Officer found the company and its directors liable for fraudulent and misleading conduct and imposed monetary penalties. The Securities Appellate Tribunal set aside that order, relying, among other considerations, upon the bullish market conditions, the substantial amount actually spent on the buyback and SEBI’s earlier decision to release the escrow.
The Supreme Court found SAT’s reliance on the escrow-release inquiry to decide the allegation of fraud legally unsustainable. The Court explained that Regulation 15B(8) deals only with the consequence of failing to meet the minimum buyback requirement. Satisfaction of an exception under that provision means only that the escrow cannot be forfeited; it does not establish the absence of fraud under the PFUTP Regulations.
At the same time, the Court noticed material discrepancies between the historical NSE and BSE trading data relied upon by SEBI and the figures furnished by the stock exchanges. It also found an unresolved contradiction between SEBI’s earlier investigation report, which recorded no material effect of the buyback announcement on price or volume, and the subsequent report alleging fraud on substantially the same facts. Neither the Adjudicating Officer nor SAT had properly examined these matters.
Since resolving these disputed factual questions was beyond the Supreme Court’s limited appellate jurisdiction under Section 15Z of the SEBI Act, the matter was remanded to SAT. The Tribunal was directed to verify the trading data, examine the contradictions in SEBI’s reports, consider any corroborative evidence beyond the trading pattern and thereafter decide the allegation of fraud afresh.
Decision: The appeals filed by SEBI were partly allowed. The Supreme Court remanded the matter to the Securities Appellate Tribunal for fresh adjudication confined to the question of fraud under the PFUTP Regulations.SAT was directed to scrutinise the competing historical trading data, record specific findings regarding the identified discrepancies, examine relevant officers, merchant bankers or other persons if necessary, and consider whether corroborative circumstances supported the allegation of fraudulent intent.