SAT Stays Sebi Trad­ing Re­stric­tions

Tri­bunal di­rects stock ex­changes to al­low trad­ing in shares of J Ku­mar In­frapro­jects, Prakash In­dus­tries

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Mumbai: The Se­cu­ri­ties Ap­pel­late Tri­bunal (SAT) on Thurs­day stayed re­stric­tion­sim­posed­bytheSe­cu­ri­ties and Ex­change Board of In­dia (Sebi) on shares of J Ku­mar In­frapro­jects and Prakash In­dus­tries, which were among the 331 com­pa­nies sus­pected to be ‘shell com­pa­nies’. The Tri­bunal, which hears ap­peals against or­ders is­sued by Sebi, also crit­i­cised the cap­i­tal mar­ket reg­u­la­tor for pass­ing or- ders against the com­pa­nies with­out in­ves­ti­ga­tions.

SAT has di­rected stock ex­changes to al­low trad­ing in shares of both the com­pa­nies.

On Au­gust 7, Sebi had di­rected stock ex­changes to move 331 com­pa­nies iden­ti­fied by the Min­istry of Cor­po­rate Af­fairs (MCA) as sus­pected shell com­pa­nies to the Graded Sur­veil­lance Mea­sure (GSM) list that had re­sulted in trad­ing get­ting sus­pended in many of them. Both these com­pa­nies moved SAT chal­leng­ing the Sebi de­ci­sion.

Lawyers ap­pear­ing for both these com­pa­nies said Sebi passed the di­rec­tions against them in “an ar­bi­trary and un­rea­son­able man­ner with­out ap­pli­ca­tion of mind”.

“It is sub­mit­ted that with­out in­ves­ti­gat­ing into the sus­pi­cion en­ter­tained by MCA that 331 com­pa­nies could be shell com­pa­nies, Sebi could not have is­suedtheim­pugned­com­mu­ni­ca­tion with­out giv­ing an op­por­tu­nity of hear­ing to the ap­pel­lants who are cov­ered un­der the list of 331 com­pa­nies. It is sub­mit­ted that by no stretch of imag­i­na­tion Sebi could con­sider the ap­pel­lants as sus­pected shell com­pa­nies es­pe­cially when the ap­pel­lants do not sat­isfy any one of the 10 cri­te­ria pre­scribed by the Min­istry of Fi­nance for con­sid­er­ing a com­pany to be a shell com­pany,” said the lawyer ap­pear­ing for the com­pa­nies.

The Sebi lawyer told the court that the reg­u­la­tor merely im­ple­mented the di­rec­tions con­tained in the let­ter dated June 9, 2017 from MCA and no in­de­pen­dent in­ves­ti­ga­tion was car­ried out by it.

Dur­ing the hear­ing, SAT said, “Sebi seems to have acted like a post of­fice. Taken a let­ter and put it out. No ma­te­rial to show that com­pa­nies en­gaged in money laun­der­ing.”

The Tri­bunal also said Sebi merely im­ple­mented the MCA let­ter with­out any in­ves­ti­ga­tion.

“Even if the let­ter of MCA dated June 9, was con­sid­ered by Sebi to be a direction given for im­ple­men­ta­tion with­out in­ves­ti­ga­tion, the very fact that Sebi took nearly two months to com­ply with the di­rec­tions given by theMCA­clearlyshow­sthatthere­was no ur­gency in is­su­ing the im­pugned com­mu­ni­ca­tion­with­outevenin­vesti- gat­ing the cre­den­tials/fun­da­men­tals of those com­pa­nies,” SAT said.

The coun­sel for the com­pa­nies said their an­nual turnover in last three years is in ex­cess of ₹ 1,000 crore and have paid more than ₹ 100 crore per year as in­come tax.

“A direction with­out delv­ing into facts and cir­cum­stances and im­pos­in­gre­stric­tions,oraf­fect­ingth­erights of oth­ers can­not be said to be ad­min­is­tra­tive or pol­icy de­ci­sion of a reg­u­la­tor. Sebi or­der on sus­pected Shell Com­pa­nies is not a cir­cu­lar which is leg­isla­tive or pol­icy. This is a direction in the na­ture of ‘quasi-ju­di­cial’ or­der where there is an obli­ga­tion to as­sume a ju­di­cial ap­proach and to com­ply with the ba­sic re­quire­ments of nat­u­ral jus­tice,” said Su­mit Agrawal, part­ner, Su­van Law Ad­vi­sors.

TheSe­bi­coun­se­lal­soin­formedSAT a whole time mem­ber of Sebi on Thurs­day heard both the com­pa­nies, which have been asked to sub­mit ad­di­tional in­for­ma­tion to Sebi.

Un­der­stand­ing Graded Sur­veil­lance Mea­sure On Money Mat­ters

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