The special anti-corruption court in Mumbai, on Saturday, ordered the registration of an FIR against top officials of the Bombay Stock Exchange (BSE) and the markets regulator, including former chairperson Madhabhi Puri Buch, in a case of alleged stock market fraud and regulatory violations.

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This was in response to a criminal case petition filed against the officials in the listing of a stock.

After reviewing the material presented, the court said a probe was needed, that it would monitor the progress of the investigation, and ordered a status report of the case within 30 days.

The SEBI, in response, said it will challenge the court order.

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What is the case?

The complainant, a journalist, alleges that officials at the SEBI and the BSE were involved in a large-scale financial fraud by allowing a firm to list on the stock exchange.

The accusations claim that the officials facilitated the listing despite the firm not meeting the norms of an IPO.

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The complainant said that by doing that, the officials, in turn, facilitated 'market manipulation' by allowing the firm to list, resulting in 'artificial inflation of stock prices' and misleading investors about the firm's health.

The complainant added that despite approaching the police and officials repeatedly, no action was taken.

The petitioners presented material, including 'written complaints' and 'documents revealing the procedural lapses' in the IPO norms.'

The complainant said, 'The accused persons engaged in round-tripping, insider trading, and price manipulation, misleading investors into believing the company was financially sound.'

What is the special court's take?

After reviewing the petitioners' material on record, the special court noted that the 'allegations disclosed a cognizable offence that necessitated an investigation.'

The court added that law enforcement agencies' and SEBI's inaction necessitated judicial intervention under the provisions of the criminal procedure code.

The complainant in the case sought an investigation into the alleged offences committed by the accused, which involved large-scale financial fraud, regulatory violations, and corruption.

The allegations concern the fraudulent listing of a company on the stock exchange with the active connivance of regulatory authorities, particularly the SEBI, without compliance under the rules and regulations of the SEBI Act, 1992.

The complaint claims that SEBI officials failed in their 'statutory duty', 'facilitated market manipulation', and enabled 'corporate fraud' by allowing the listing of a company that did not meet the prescribed norms.

The special court order said, 'Upon reviewing the material on record, this court finds the allegations disclose a cognizable offense, necessitating an investigation.'

The order added, 'There is prima facie evidence of regulatory lapses and collusion, requiring a fair and impartial probe. The inaction by law enforcement and SEBI necessitates judicial intervention...'

What is SEBI's response?

Reacting to the court order, the SEBI stated that it would challenge it. The regulator also claimed that the case dates back to 1994 when the officers named in the order were not with the SEBI.

The regulator further called the petitioner a habitual complainant and stated that courts have imposed costs on the complainant in the past.

The SEBI also stated that it was not given any opportunity to present its side.

The statement read, 'Even though these officials were not holding their respective positions at the relevant point of time, the court allowed the application without issuing any notice or granting any opportunity to SEBI to place the facts on record.'

The SEBI said, 'The applicant is known to be a frivolous and habitual litigant, with previous applications being dismissed by the Court, with imposition of costs in some cases.'

The regulator added, 'SEBI would be initiating appropriate legal steps to challenge this order and remains committed to ensuring due regulatory compliance in all matters.'