Setback Sebi: SAT overturns UBS Ban

In a major setback for capital market regulator Securities and Exchange Board of India (Sebi), the Securities Appellate Tribunal (SAT) set aside its order against UBS Securities Asia (UBS), a registered foreign institutional investor (FII). “From the impugned order, which is issued one year after the event, we do not find any findings which suggest that appellant (UBS) has done anything which endangers the investors’ interest or disruption of orderly development of the securities market,” SAT said adding, there was no emergency situation involved. Sebi had barred UBS from issuing participatory notes (PNs) and other offshore derivatives instruments (ODIs) for one year for its alleged involvement in the May 17, 2004 stock market crash. The Sebi order was issued exactly after one year after ‘Black Monday’ when the Sensex crashed by 565 points as the UPA assumed power. SAT said section 11(4) and 11B, which gives unrestricted power to Sebi to intervene for orderly functioning of the market, is for safeguarding the market and not for penalising persons for violations. “We do not find any reason to uphold the order under section 11B and section 11(4) of the Sebi Act, 1992. We set aside the impugned order and uphold the appeal on basis of the fact and circumstances of the case”, the tribunal ruled. The impugned order speaks of some delay and non-furnishing of information on part of UBS. “Instead of invoking the provisions of section 11B and section 11(4), we find section 15A could have handled the instant case more appropriately where there is an exact provision for handling delays in the submission of information,” SAT said. UBS welcomed the SAT ruling and said it looks forward to once again delivering a full range of services to its clients investing in India. However, SAT also said “Sebi is free to take any action if it so desires and if there is a prima facie case under any of the provisions of the Sebi act, 1992 and FII regulations thereunder.” Sebi officials refused to comment on the issue. The UBS case is yet another rebuff for Sebi in the last five years, as the tribunal had overruled its several orders, including the ones on Samir Arora and Shankar Sharma. Sebi has been beefing up its legal department since then. The two-member panel comprising R.N. Bhardwaj and Chandan Bhattacharya also refused to stay its own order — as sought by the Sebi counsel — saying there is no such provision in the law whereby SAT can stay its own order. The order was delivered by a two-member bench, as the presiding officer Kumar Rajaratnam had recused himself from the case in July after his suggestion to Sebi to consider a plea bargaining for UBS was rejected. Also, the regulator made its decision public without informing SAT first.