Why SEBI Imposed Penalty Of Rs 5.25 Crore On Cairn India?

The market regulator SEBI has found Cairn India, the leading oil and gas player that was merged with Vedanta Ltd, guilty of stock market fraud.

Cairn India was fined Rs 5.25 crore by market regulator Sebi on Wednesday for making a false announcement about a share buyback in 2014. In addition, the regulator fined P Elango, CEO and director of Cairn, Aman Mehta, director on the company's board, and Neerja Sharma, director (risk assurance) and company secretary, Rs 15 lakh each, according to a Sebi order.

Cairn India: Quotes, News

BSE 285.40 (0.00%)

NSE 285.350 (0.00%)

Share Buy Back case

According to SEBI, Cairn and its directors made a public announcement of a buyback with no intention of carrying it out, and thus behaved fraudulently, violating various provisions of SEBI's Prevention of Fraudulent and Unfair Trading Practices (PFUTP) law and Buyback Regulations.

A thorough review of sell orders issued at the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) during the buyback period revealed that the company did not position any buy orders on the stock exchanges when the price was favorable for buyback, but only on the days when it was not, it added.

"Thus, Cairn had failed to achieve even the minimum buyback size as it could not buy back even half the number of shares announced by it, despite available of sufficient sell orders on NSE, when the market price was lesser than the maximum buyback price," the SEBI order said.

The public announcement and subsequent actions of Cairn show that the announcement of buyback by Cairn was a misleading announcement designed to influence the decision of the investors and induce them to trade in the shares of Cairn which is reflected in the increased trading volume after the buyback announcement as brought out in price-volume analysis," SEBI said.

The investigation discovered that Cairn did not put any buy orders on NSE for 24 days and placed orders for less than 5,000 shares on 14 of the total 54 days when the price was favorable for buyback, instead of placing orders on BSE where sell orders were much lower.