2020 (12) TMI 36 - SC - SEBI

Power of SEBI to pass an ex parte interim order - allegation against the respondent was that being in possession of price sensitive information and being a connected person, he had sold the shares and had, thus, made a notional gain or averted a notional loss - appellant alleged that the reason for passing an ex-parte order was that there was a possibility of a diversion of the notional gain made by the respondent - HELD THAT - Tribunal, in our view, was correct in coming to the conclusion that since the investigation was pending since 2017 and information had been supplied on 28 November 2019, there was no urgency for passing an ex-parte interim order of the nature that was issued by the Whole Time Member. It was, in this background, that the Tribunal, while affirming the power of SEBI to pass an ex parte interim order in appropriate cases, observed that this should be exercised only in extreme urgent matters Since we have come to the conclusion that the Tribunal was on the facts of the case correct in setting aside the ex-parte order of the Whole Time Member on the ground that no urgency has been made out to sustain such an order, it is necessary for this Court to clarify that the interpretation which has been placed by the Tribunal on the powers of SEBI, particularly in paragraph 9 of the impugned order, which has been extracted above, shall not be cited as a precedent in any other case. The order passed by the SEBI must necessarily be in accord with Section 11(4) of the SEBI Act. We affirm the view of the Tribunal on the facts as they have emerged. The appeals are accordingly disposed of.

Summary

Issues:
1. Setting aside of an interim order by the Securities Appellate Tribunal.
2. Allegations of insider trading based on price sensitive information.
3. Urgency in passing an ex-parte order during a pandemic.
4. Interpretation of SEBI's statutory powers under Section 11(4) of the SEBI Act.

Analysis:
1. The Supreme Court dealt with statutory appeals initiated by SEBI against the Securities Appellate Tribunal's orders, which set aside an interim order by the Whole Time Member of SEBI under various sections of the SEBI Act and regulations related to insider trading. The Tribunal's decision was based on the lack of urgency in the matter, considering the timeline of investigations and information supplied, leading to the conclusion that the ex-parte order was not justified.

2. The case revolved around the Chief Executive Officer and Managing Director of a company accused of insider trading by selling company shares based on unaudited financial results before public disclosure. The Tribunal emphasized the need for extreme urgency to justify an ex-parte interim order, citing a previous case precedent. The Supreme Court agreed with the Tribunal's assessment, affirming that no urgency was demonstrated in this case.

3. The Court addressed the issue of urgency during the pandemic, with the respondent arguing against the ex-parte order's necessity three years after the alleged trade. SEBI defended its actions by highlighting the potential diversion of gains. The Tribunal's reliance on a previous case underscored the importance of extreme urgency for ex-parte orders, a principle upheld by the Supreme Court in this instance.

4. SEBI's statutory powers under Section 11(4) of the SEBI Act were scrutinized, particularly regarding the impounding of proceeds or securities during investigations. The Court clarified that while affirming the Tribunal's decision based on the facts of this case, the interpretation of SEBI's powers in the impugned order should not be considered a precedent in other cases. The order passed by SEBI must align with the provisions of Section 11(4) of the SEBI Act to maintain legal consistency and adherence to statutory requirements.