2015 (7) TMI 702 - AT - Companies Law

Request for Interim order / relief - SEBI order to restrain from dealing in securities in the Indian Securities Market (including through Offshore Derivative Instruments) - To restrain from accessing the Indian Securities market directly or indirectly - As SEBI needs off shore assistance, needs 4 to 5 months for completing the investigation - Held that - There can be no dispute that the appellant has suffered serious prejudice on account of restraint order which is operation for nearly one year. No doubt that under Section 11(4)/11B of SEBI Act, SEBI is empowered to restrain a person from entering the securities market, pending investigation, provided, there is a prima facie evidence to suggest that such person has violated any of the provisions of SEBI Act or the Rules/Regulations made thereunder. In the present case, the prima facie view taken by SEBI that before entering into trades on March 13, 2014, the appellant was privy to UPSI that L&T has fixed the floor price for selling the shares of LTFH at ₹ 70/- per share is based on mere presumption and without any sustainable basis. In these circumstances, continuation of the restraint order is unjustified. However, since the restraint order passed against the appellant has already operated for nearly a year and since SEBI claims that the investigation is at a crucial stage, in the facts of present case, pending further investigation it would be just and proper to pass the following interim order - complete the investigation within a period of two months from today - SEBI deems it fit to proceed further in the matter, then SEBI shall issue show cause notice and pass appropriate order thereon after giving an opportunity of hearing to the appellant, within a period of one month from the date of issuing show cause notice - If SEBI fails to issue show cause notice to the appellant within two months from today and if issued, fails to pass an order as stated above within a period of one month from the date of issuing show cause notice, then and in that event the impugned confirmatory order dated October 16, 2014 continuing the restraint order passed under the exparte ad-interim order dated June 05, 2014 shall come to an end and the appellant would be entitled to access the Indian Securities Market.

Summary

Issues Involved:
1. Legitimacy of SEBI's confirmatory order restraining the appellant from dealing in securities.
2. Appellant's alleged possession of Unpublished Price Sensitive Information (UPSI).
3. SEBI's investigation process and timeline.
4. Impact of the restraint order on the appellant's business.

Issue-wise Detailed Analysis:

1. Legitimacy of SEBI's Confirmatory Order:
The appellant challenged the confirmatory order by SEBI's Whole Time Member (WTM) dated October 16, 2014, which continued the ex-parte ad interim order from June 5, 2014. This order restrained the appellant from dealing in securities in the Indian market. The appellant argued that the prolonged restraint without conclusive evidence was prejudicial and adversely affected their business.

2. Appellant's Alleged Possession of UPSI:
SEBI's case hinged on the suspicion that the appellant had UPSI regarding the floor price of LTFH shares before entering into derivative contracts on March 13, 2014. SEBI pointed to the aggressive short position taken by the appellant and a Bloomberg chat between two employees of Credit Suisse (CS) suggesting a steep discount for LTFH shares. However, the appellant argued that their trades were based on market analysis and negative sentiment towards LTFH shares, not on any UPSI. The Tribunal found SEBI's presumption that the appellant had UPSI to be without a rational basis, noting that SEBI had not provided concrete evidence linking the appellant to the alleged UPSI.

3. SEBI's Investigation Process and Timeline:
SEBI stated that the investigation involved cross-border elements and had sought assistance from the U.S. Securities and Exchange Commission due to non-cooperation from Bloomberg. Despite more than a year of investigation, SEBI had not found conclusive evidence against the appellant. The Tribunal criticized the delay and lack of substantial findings, directing SEBI to complete the investigation within two months and issue a show cause notice if further action was deemed necessary. If SEBI failed to do so, the restraint order would lapse, allowing the appellant to access the securities market.

4. Impact of the Restraint Order on the Appellant's Business:
The appellant highlighted the severe prejudice caused by the restraint order, including damage to their reputation and business operations. The Tribunal acknowledged this impact, noting that the appellant's ecosystem of counterparties, banks, and investors had been disrupted. The Tribunal found that the continuation of the restraint order without substantial evidence was unjustified, especially given the significant time that had elapsed since the initial order.

Conclusion:
The Tribunal directed SEBI to complete its investigation within two months and issue a show cause notice if necessary. If SEBI failed to do so, the restraint order would be lifted, allowing the appellant to resume accessing the Indian securities market. The appeal was disposed of in these terms, with no order as to costs.