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Does a lower order official in SEBI have the right to issue a show-cause notice to market violators? According to the Securities Appellate Tribunal, the Officer on Special Duty (OSD) can issue show-cause notice only if the officer “had authority to issue notice, in writing, from the competent authority.”
Probe afresh In a case that relates to the infamous IPO scam of 2003-05, the tribunal while setting aside SEBI’s order against an individual has asked the regulator to look afresh at the matter, maintaining that the accused cannot be allowed to go scot-free.
While show-cause notice was issued by the OSD in the IPO scam case, directions were issued by a whole-time member. According to SAT, the same authority should have issued the notice, as well as directions under Section 11 and 11B.
The securities market regulator had in 2012 imposed a penalty of ₹1.50 crore on Purshottam Budhwani for fraudulent activities related to the IPOs of 13 companies, including IDFC, YES Bank, Suzlon and IL&FS, back in 2005.
Budhwani subsequently approached the tribunal challenging the SEBI ruling against him.
Sans legal sanctity SAT observed, among other things, that SEBI’s earlier show-cause notice to Budhwani contained frugal details and that the notice was issued “under the garb of supplementary material letter”, which had no legal sanction.
While quashing the SEBI order, the tribunal, however, noted that Budhwani had admitted to committing the violations and could not be allowed “to go scot-free” due to “technicalities and non-application of mind by (SEBI’s) adjudication officer.”
“The case is remanded back to respondent (SEBI) for issuing a fresh show-cause notice, incorporating all details of wrong doing and making allegations based on firm figures of shares obtained by appellant (Budhwani), shares sold and shares retained by appellant and that allegation should be based on violation of SEBI Act and Regulations...,” it said.
Earlier, a probe by SEBI had found Budhwani to be a “key operator” or “master account holder” in the IPO scam.
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