The Securities and Appellate (SAT) has quashed SEBI’s order of penalty against several traders who the regulator said were indulging in creation of artificial trading volumes in a particular scrip. A seven-year delay in issuing show-cause notices (SCNs) to the alleged wrongdoers for violation of trading norms is the main reason for the tribunal's order.

SAT said since there was an inordinate delay by SEBI in issuing the SCNs, the penalty order cannot be sustained. SAT presiding officer Justice Tarun Agarwala and Member CKG Nair observed in their order that SEBI’s explanation for the delay was “patently farcical and appears to be an afterthought”.

“Even though there is no period of limitation prescribed in the (SEBI) Act and Regulations in the issuance of an SCN or for completion of the adjudication proceedings, the authority is required to exercise its powers within a reasonable period as held recently in Adjudicating Officer, Securities and Exchange Board of India vs. Bhavesh Pabari (2019) SCC OnLine SC 294. In the instant case, we are of the opinion that the power to adjudicate has not been exercised within a reasonable period and therefore, no penalty could be imposed,” the SAT order on January 31, said.

SAT found that SEBI issued an SCN against the alleged wrongdoers in 2017 for violation of PFUTP (Prevention of Fraudulent and Unfair Trade Practices) norms for the period January 2010 to January 2011. As per the SEBI investigation, the matter related to artificial and circular trading in Oregon Commercial also known as Saianand Commercial.

Defending its delay, SEBI told SAT that “on the basis of the investigation which started in September / October 2011, a preliminary report was prepared on April 2, 2012, but no action could be taken in 2013-14 as there were certain changes in the officers of the investigation department. The investigation report was subsequently approved in February 2016 based on which an SCN was issued on July 24, 2017.”

However, SAT said no urgency was shown by SEBI. “In our opinion, the grounds shown by the respondent (SEBI) in its additional affidavit only indicates the lackadaisical attitude in proceeding against the entities. It is quite clear that no urgency was shown by the respondent to culminate the proceedings and has moved at a leisurely pace. We find that after submission of the preliminary report on April 2, 2012 no further steps were taken in 2012 and the period of 2013-14 has been covered with a vague allegation that there were certain changes in the officers of the Investigation department. We also find that after the report was submitted on February 1, 2016 it took the respondent another 17 months to issue the show cause notice.”

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