2019 (6) TMI 1030 - AT - SEBI

Tribunal Quashes Orders, Emphasizes Procedural Fairness

Sanjay Gupta Versus Securities and Exchange Board of India

The tribunal quashed the ex-parte ad-interim order and the confirmatory order related to the appellant, citing lack of procedural fairness and ... Ex-parte ad-interim order - Appellant has been prohibited from buying, selling or dealing in securities, directly or indirectly - seeing vacation of the ex-parte order - HELD THAT:- When an ex-parte interim order is passed and a party approaches the authority for vacation of the ex-parte order, the authority is required to act prudently especially when the party approaches the authority immediately for its vacation which in the instant case was done within three days from the passing of the exparte order. The appellant filed its reply as early as on November 3, 2017. Ex-parte interim order continued till the confirmatory order was passed on October 30, 2018. In our opinion, apart from the delay in disposal of the matter, the ex-parte order was confirmed mechanically without any application of mind and without considering the relevant documents. In our opinion, there was no shred of evidence to come to a prima-facie conclusion that the appellant was indulging in unfair trade practices with a manipulative intent to manipulate the price. The appellant has stated on affidavit before SEBI on December 23, 2017 that he has no other source of income except trading in shares and that as a result of the ex-pate order, his broker prematurely closed his trading positions which the appellant had taken in F&O segment resulting in a loss of ₹ 50 lacs. This aspect has not been considered by the WTM. Whenever an ex-parte order is granted, an endevour should also be made to dispose of the matter as expeditiously as possible no sooner when the party appears. In the instant case, the ex-parte order was passed on November 1, 2017 and the appellant filed his replies on November 3, 2017, November 28, 2017 and December 23, 2017. WTM almost a year to dispose of the application. We find that at this late stage there was no real urgency to continue with the restraint order. Passing a confirmatory order virtually puts a stoppage on the appellant’s right to trade which in the instant case is based on non-consideration of evidence and, in our opinion, is harsh and unwarranted. In our opinion, for the aforesaid reasons, the appellant is, thus entitled to get costs from the respondent. Ex-parte ad-interim order as confirmed by the confirmatory order cannot be sustained and are quashed in so far as it relates to the appellant. It would be open to SEBI to pass a fresh order in accordance with the principles of natural justice if and when fresh evidence comes before it. In the circumstances of the case, the appellant is entitled to get costs and is computed at ₹ 50,000/- (Rupees Fifty Thousand Only) which shall be paid by the respondent to the appellant within four weeks from today. Proof of compliance will be intimated to the Registrar of this Tribunal. Issues Involved:1. Validity of the confirmatory order dated October 30, 2018.2. Prima-facie findings regarding manipulation and fraudulent practices.3. Appellant's involvement and connection with the alleged fraudulent activities.4. Procedural fairness and adherence to natural justice principles.5. Urgency and justification for ex-parte interim orders.6. Delay in the disposal of the matter and its impact on the appellant.Issue-wise Detailed Analysis:1. Validity of the Confirmatory Order:The appeal was filed against the confirmatory order dated October 30, 2018, which upheld the ex-parte ad-interim order dated November 1, 2017. The confirmatory order prohibited the appellant from buying, selling, or dealing in securities and directed the appellant to cease disseminating any messages related to the securities market. The tribunal found that the confirmatory order was passed mechanically without considering the evidence on record, including the appellant's resignation as a director in 2013 and the bank's letter stating that the appellant was not a joint account holder.2. Prima-facie Findings Regarding Manipulation and Fraudulent Practices:The WTM observed that there was a prima-facie finding of fund distribution from STML's account to various entities for sending bulk SMSs recommending the purchase of STML's scrips. This led to a price manipulation, which was deemed fraudulent under the PFUTP Regulations and SEBI Act. However, the tribunal noted that the appellant was linked to these transactions based on a bank statement that was later contradicted by a letter from UCO Bank.3. Appellant's Involvement and Connection with the Alleged Fraudulent Activities:The appellant contended that he resigned as a director in 2013, which was accepted by STML and filed with the ROC. He also provided evidence from UCO Bank that he was not a joint account holder. The tribunal found that the WTM did not adequately consider these facts and failed to establish a causal link between the appellant and the alleged price manipulation. The tribunal emphasized that the appellant's sale of shares during the price increase did not automatically imply involvement in manipulative practices.4. Procedural Fairness and Adherence to Natural Justice Principles:The tribunal highlighted the importance of procedural fairness and natural justice, noting that while ex-parte interim orders can be justified in urgent situations, the affected party must be given a post-decisional hearing. The appellant approached the authority immediately for vacation of the ex-parte order, but the WTM took almost a year to dispose of the application, which the tribunal found unreasonable.5. Urgency and Justification for Ex-parte Interim Orders:The tribunal acknowledged SEBI's power to pass interim orders to prevent market manipulation. However, it stressed that ex-parte interim orders should only be issued in cases of genuine urgency. The tribunal found that the confirmatory order was passed without sufficient urgency and without a thorough examination of the evidence, making it unjustified.6. Delay in the Disposal of the Matter and Its Impact on the Appellant:The tribunal criticized the delay in disposing of the appellant's application to vacate the ex-parte order. The appellant filed his replies promptly, but the WTM took almost a year to pass the confirmatory order. This delay had substantial consequences for the appellant, including financial losses and restrictions on his ability to trade. The tribunal found this delay and the confirmatory order's harshness unwarranted.Conclusion:The tribunal quashed the ex-parte ad-interim order and the confirmatory order in so far as they related to the appellant. It allowed SEBI to pass a fresh order if new evidence emerged, adhering to natural justice principles. The tribunal also awarded costs of Rs. 50,000 to the appellant, emphasizing the need for careful consideration and timely disposal of such matters. The respondent's request for waiver of costs was rejected.