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In a rare instance, the Securities and Appellate Tribunal (SAT) has imposed costs of ₹50,000 on SEBI in a case wherein the regulator had passed an ex-parte interim order restraining a trader from markets for indulging in fraudulent and manipulative trading. The Tribunal observed that despite there being ‘no shred of evidence’ to conclude that there was manipulative intent on the part of Sanjay Gupta, a trader, SEBI let its ex-parte order continue for a year without application of mind.
SEBI counsel pleaded with SAT for waiver of the costs and contended that “such imposition of costs would send a ripple down the throat of respondent (SEBI).” But SAT, which on earlier occasions too has reprimanded SEBI for its high-handedness in ex-parte orders, was in no mood to relent. “Be that as it may. We find that in given circumstances of the case, cost is justified.”
On March 12, BusinessLine reported that SAT had directed SEBI to use its powers to pass “ex-parte interim order” sparingly and only in “extreme urgent cases.”
Ex-parte injunction
An ex-parte injunction is mainly a direction/command to restrain, granted after hearing only one party in matters of ‘urgency’, without a notice to the other parties involved. A full hearing is held at a later date.
SAT’s view is that although SEBI is empowered to pass ex-parte orders, it cannot be done in every case and there has to be urgency. SAT said: “Whenever an ex-parte order is granted, endeavour should also be to dispose of the matter as expeditiously as possible no sooner when the party appears.” In the current case, an ex-parte order was passed on November 1, 2017, and the appellant (Gupta) filed his replies on November 3, November 28 and December 23, the same year. It took SEBI almost a year to dispose of the application.
“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 is harsh and unwarranted’. The appellant is, thus entitled to get costs,” SAT said. The tribunal said it was “unable to accept the manner and approach of whole-time member of SEBI in the matter in such a casual manner without considering the evidence on record.”
SEBI found Gupta had sold shares of a company about which bulk (buy) SMSes were circulated. Based on an account statement, SEBI found money for the bulk SMSes went from an account where Gupta was a joint holder. But the bank later informed that Gupta was not a joint account holder and had even initiated legal dispute with his partners. Such facts should have been ascertained by the WTM (whole-time member) instead of mechanically treating a bank statement as the gospel truth. Also, a casual link should have been established indicating manipulation, SAT said.
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