BackSAT fines Sebi for 2017 order, calls its approach ‘casual’
Sebi had issued an interim order against Supreme Tex Mart Ltd on charges that it sent out bulk messages to buy its sharesSAT says it was unable to accept the approach of the Sebi whole-time member in deciding the matter
PremiumMUMBAI : Markets regulators routinely impose penalties on the regulated, but it’s rare when a regulator finds itself at the receiving end.
In one such case, the Securities Appellate Tribunal (SAT) on Tuesday imposed a penalty of ₹50,000 on Securities and Exchange Board of India (Sebi), after a person aggrieved by a Sebi order convinced the tribunal that the market regulator was in the wrong.
In November 2017, Sebi’s whole-time member Madhabi Puri Buch had issued an interim order against a little-known company, Supreme Tex Mart Ltd, on charges that it sent out bulk messages to buy its shares. The order barred the company’s directors from accessing capital markets pending further investigations. A final order in March 2019 asked these directors and the company to disgorge ₹18 crore to investors which, Sebi said, were ill-gotten gains.
Sanjay Gupta, one of the individuals affected by the order, petitioned SAT that he had resigned from the Supreme Tex Mart board in 2013 before the alleged lapses occurred. He claimed he was no longer a director and that he was not involved in any fraudulent activity.
In its order, SAT said it was unable to accept the manner and approach of the Sebi whole-time member in deciding the matter in such a casual manner without considering the evidence on record. The tribunal held that the inordinate delay and a bad order entitled Gupta to seek damages from Sebi.
An email sent to Sebi seeking response was not answered.
The SAT order also made observations on the practice of passing interim orders. Sebi has powers to pass interim orders and these are passed in order to prevent further possible mischief of tampering with the securities market.
“However, it does not mean that in every case, an ex-parte interim order should be passed on the pretext that it was imminent to pass such interim order in order to protect the interest of the investor or the securities market," the SAT order said.
“An interim order, however, temporary it may be, restraining an entity/person from pursuing his profession/trade may have substantial and serious consequences which cannot be compensated in terms of money," SAT added. According to SAT, the final Sebi order was also passed ‘mechanically without any application of mind and without considering relevant documents’.
SAT was also critical on the inordinate delay in passing final orders. The interim order was passed in November 2017, which was confirmed a year later, before the final order was issued in March 2019.
“We are further of the opinion that whenever an ex-parte order is granted, an endeavour should also be made to dispose of the matter as expeditiously as possible,’ said SAT.
“We find that at this late stage, there was no real urgency to continue with the restraint order," SAT added.
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