SAT imposes cost of Rs 50,000 on SEBI for 'ex-parte' order

The Securities and Appellate Tribunal (SAT) has imposed a cost of Rs 50,000 on SEBI for passing an ex-parte interim order and pulled up the market regulator for delay in disposal of the matter despite the party responding to SEBI's notice immediately. Also, SAT found that SEBI's case against the party lacked 'shred of evidence' that could prove manipulative intent. SEBI had passed an ex-parte order against Sanjay Gupta, a market trader from Punjab for indulging in manipulative and fraudulent trade practices. The prima-facie basis for passing the ex-parte ad-interim order by the SEBI Whole Time Member was that bulk SMSes were circulated on a particular stock, which started climbing. Prior to sending of SMSs, there were three fund transfers of Rs. 5000000 from the joint account of a company STML for booking this SMS service. SEBI from the bank statement observed that Gupta was the joint account holder in a bank where SMTL was the primary holder and saw that after the SMSes, Gupta sold his shares. SEBI held Gupta guilty of prevention of fraudulent and manipulative trade practices (PFUTP). But SEBI failed to take into account bank records that Gupta had resigned from SMTL and was no longer the joint account holder and had even initiated legal proceedings against his partners. SAT 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. Such facts should have been ascertained by the WTM instead of mechanically treating a bank statement as the gospel truth. Also, a casual link should have been established indicating manipulation”. In this case Madhabi Puri Buch was the whole time member of SEBI. SAT further observed that in the current case, ex-parte order was passed on November 1, 2017 and Gupta filed his replies on November 3, November 28 and December 23, the same year. SAT observed that even though SEBI was empowered to pass ex-parte orders, it cannot be done for every case without urgency. "Whenever an ex-parte order is granted, endevour should also be to dispose of the matter as expeditiously as possible no sooner when the party appears," SAT said. The SEBI counsel pleaded with SAT for waiver of the cost but SAT said it was justified.