SAT sets aside Sebi orders on Ramalinga Raju in Satyam case

Tribunal says strictures imposed against former Satyam chairman B. Ramalinga Raju and his associates by Sebi were contradictory in nature


A file photo of Satyam Computers chairman Ramalinga Raju. Photo: HT
A file photo of Satyam Computers chairman Ramalinga Raju. Photo: HT

Mumbai: The Securities Appellate Tribunal (SAT) on Friday set aside orders passed by the Securities and Exchange Board of India (Sebi) against B. Ramalinga Raju and some of his associates in relation to the fraud at Satyam Computer Services Ltd.

SAT said the strictures imposed on Raju and others—which included barring them from the capital market and asking them to disgorge illegal gains—were based on “mutually contradictory positions”. It asked Sebi to pass a fresh order within four months

While SAT held that Raju and others were guilty of insider trading and fraudulent and unfair trade practices, it did not agree with Sebi’s order that imposed a uniform penalty on all of them without assigning reasons.

“The directions given by the WTM (whole time member) against the appellants for disgorgement of illegal gains are based on criteria that are wholly unsustainable in law and the said directions are given without application of mind,” SAT presiding member justice J.P. Devadhar wrote in his order.

SAT’s order comes eight years after Raju’s admission in 2009 that Satyam had inflated its earnings and assets for years and his subsequent arrest.

After investigation, Sebi had held five Satyam officials and nine connected entities guilty of engaging in insider trading and following fraudulent trade practices to make illegitimate gains from the firm’s shares, while allowing fudging of financial accounts to mislead investors and shareholders.

On 5 July 2014, Sebi had ordered Raju and four former executives of the firm to pay Rs1,848.93 crore because of unlawful gains made through the sale of shares and barred them from the securities market for a period of 14 years.

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Subsequently, on 16 September 2015, the market regulator passed an order against Raju and nine entities linked to him to return more than Rs1,800 crore in illegal gains made by them.

SAT ruled that on the one hand, the illegal gains made by the connected entities were considered to be those of Raju and his brother B. Rama Raju, and on the other, illegal gains made by the connected entities were considered to be gains made by each member of the connected entity group.

From these two rulings, it is “apparent that Sebi itself was not clear as to who had made illegal gains and who should be directed to disgorge the illegal gains arising on sale/transfer of Satyam shares by the connected entities”, said the tribunal’s order.

SAT also said that Sebi’s defence of both orders was rather “unfortunate” as the two had taken contradictory positions. It said that as a quasi-judicial authority, Sebi is duty-bound to pass “consistent” orders.

In its orders, Sebi had held the pledging of Satyam shares to avail loans for 10 group entities as illegal gains. SAT held that as unsustainable.

“I would tend to agree on the observation from the SAT on the two lacuna highlighted in the order—namely equal penalty and debarring the entities from the market, and contradictory position in the two orders of the WTM . It is hoped that Sebi will not further delay and pass a timely order rectifying the two issues that are technical,” said J.N. Gupta, former executive director of Sebi.

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