The Hindu Business Line : SAT sets aside SEBI order, allows First Global to trade

THE Securities Appellate Tribunal (SAT) has set aside SEBI's order that cancelled the registration of First Global Stockbroking Ltd, the securities trading firm owned by Mr Shankar Sharma.

The Securities and Exchange Board of India had passed an order on September 12, 2002 cancelling the registration of First Global Stockbroking as a broker and portfolio manager and Vruddhi Confinvest India Ltd as a sub-broker.

The point of argument of the case was the validity of SEBI's order, as it was not passed within the regulated 30 days' time after considering the reply to a show-cause notice. The regulation that governs these orders originally said that the SEBI Board is "mandated to pass orders as soon as possible but not later than 30 days from the receipt of the reply to show-cause notice." Coincidentally, in 2002, this regulation was modified with the words "as soon as possible" without a specific time limit.

First Global was being investigated in connection with the fall in the stock markets on March 2, 2001. On March 13, 2001 an exposure of the scandal involving a defence deal was unearthed by Tehelka.com. First Global held 14.5 per cent stake in Buffalo Networks Pvt. Ltd, the company that owned Tehelka.com.

Mr Shankar Sharma, Director of First Global, was arrested on April 19, 2001 and on the same day SEBI passed an order debarring the company from undertaking any fresh business as stockbroker, merchant banker or portfolio manager, pending inquiry.

The tribunal took note of the fact that the SEBI Chairman persistently refused First Global's requests for an oral hearing along with their written submissions. Also, instead of dealing with the matter in accordance with the law, SEBI took an unusual step of engaging a solicitor to send a lawyer's notice to First Global's written replies.

"This we find a little unusual in view of the fact that the enquiry was pending before SEBI. A regulator does not send lawyers' notice when the matter is pending in enquiry," noted the order.

In a previous case involving SEBI and Mr Atul Kanodia, SAT had upheld that the old regulation (of order within 30 days) would continue to be valid as if the regulations have not been amended, but only if the enquiry in the case is pending.

The order noted that since SEBI had not challenged the earlier order, the judgment in the Kanodia case is final and binding and the Tribunal does not think it appropriate to reconsider this pronouncement.

SEBI's counsel had sought a stay on the order to enable them to file an appeal in the Supreme Court. "We do not think there is any substantial question of law that arises for consideration in this appeal to enable us to stay the order, nor is there any provision in the SEBI Act to stay the order," said the Tribunal.

SAT also said that since SEBI's order has been set aside, the market regulator must revive the BOLT system and switch on the terminals of First Global.

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