Parties accepting securities as void cannot subsequently transfer or transact them with third parties.

SEBI’s Quasi-Judicial Authority directed Katalyst Software Services Ltd. (“Katalyst”) to refund amounts collected from investors through non-convertible debentures (“NCDs”) issued during FY 2017–18, together with interest at 15% per annum.

Katalyst and its directors filed an appeal under Section 15T of the SEBI Act, 1992.

At the admission stage, they expressly stated that they would not challenge the impugned order on merits and sought only an extension of time for repayment and reduction of the interest rate to 12% per annum.

Subsequently, Katalyst disclosed that Lakshdeep Investments and Finance Pvt. Ltd. and Mackinon Enterprises Pvt. Ltd. had acquired the outstanding NCDs and paid approximately ₹22 crore to the portfolio management service provider for onward distribution to debenture holders.

SEBI objected that the NCDs had become void upon acceptance of the impugned order and could not lawfully be transferred or purchased by third parties.

Katalyst relied on another SEBI order, Bengal Artisans Craft Company Ltd. & Ors., contending that a similar repayment arrangement had been permitted.

Whether, after representing that it would not challenge the impugned SEBI order on merits, Katalyst could deal with or transfer the NCDs to Lakshdeep and Mackinon?

Whether the Securities Appellate Tribunal was bound by the order passed by SEBI’s Quasi-Judicial Authority in Bengal Artisans Craft Company Ltd. & Ors.?

The Tribunal exercised appellate jurisdiction under Section 15T of the SEBI Act, 1992.

The impugned SEBI order had found the issuance of NCDs to be contrary to the applicable provisions of the Companies Act, 2013, the SEBI (Issue and Listing of Debt Securities) Regulations, 2008, and the SEBI Act.

Once the appellants accepted the impugned order and abandoned a challenge on merits, the NCDs stood rendered void and could not thereafter be dealt with or transacted.

The Tribunal also applied the principles that a party cannot approbate and reprobate, and that an order passed by a SEBI adjudicating officer or Whole-Time Member is not binding precedent on the Tribunal.

The Tribunal held that Katalyst’s admission that it was not pressing the appeal on merits resulted in acceptance of the finding that the NCDs were void.

Consequently, Katalyst’s only permissible course was to comply with the refund direction by repaying investors from its own resources and cancelling the NCDs.

The subsequent arrangement under which Lakshdeep and Mackinon acquired or dealt with the NCDs was therefore inconsistent with the legal effect of the impugned order and with Katalyst’s position before the Tribunal.

The Tribunal rejected reliance on Bengal Artisans, observing that an order of a SEBI officer or Whole-Time Member could not be cited as binding authority before it; in any event, the factual circumstance that Katalyst had accepted the impugned order made the alleged comparison immaterial.

Katalyst could not accept the order for the purpose of seeking reduced interest and additional time, while simultaneously acting inconsistently with its consequences by transferring the void NCDs.

The appeal was dismissed.

The intervention application was disposed of as superfluous, all other pending interlocutory applications were disposed of, and no order as to costs was made.