Kairosoft disputes SEBI, BSE’s legislation for imposing GSM Stage 4 in Delhi HC

The Delhi High Court on Wednesday heard Kairosoft AI Solutions’ appeal against the Securities and Exchange Board of India (SEBI) and BSE over their decision to impose graded surveillance measure (GSM) Stage 4 on the company’s shares.

Senior Advocate Kapil Sibal, appearing for Kairosoft, led the defense by arguing that it was unfair to restrict trading in the company’s stock based on YouTube videos whose viewership and subscriber numbers were insufficient to justify such a regulatory action.

He contended that the videos could not have benefitted the promoters as they only hold 5 per cent stake in the company, with the rest being public shareholding. Further, the videos were taken down as of April 9 following a cyber complaint filed by the company, and a disclosure has also been put on its website.

Administrative circulars

Sibal also raised the question of the constitutionality of exchange circulars, arguing that these are administrative circulars with no statutory backing or legislation. He also argued against SEBI’s objections about the territorial jurisdiction of the Delhi High Court in the matter stating that the company is based in Delhi irrespective of BSE and SEBI being in Mumbai.

SEBI’s representative said trading has not been stopped or prohibited, but a cap has been put. The regulator plans to explain the GSM mechanism, its statutory backing, and show how it is not a hindrance to the company at the next hearing on Monday.

The outcome of this case, set against a backdrop of increased market vigilance by SEBI following pump-and-dump schemes by promoters, could prompt a re-examination of how regulatory surveillance measures are applied on stocks.

The legal battle started when BSE’s April 3 circular placed Kairosoft under GSM Stage 4, which is a surveillance measure to curb excessive speculation among investors. This limits trading in the stock to only Mondays, moves it to trade-for-trade segment, with a 5 per cent price band and an additional surveillance deposit (ASD) of 100 per cent of the trade value.

Kairosoft has challenged SEBI and BSE to set aside the exchange notice on the grounds of no prior notice and no fault or association of the company with individuals behind the videos.

Published on April 16, 2025