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TMI Blog2019 (4) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... arte interim order dated February 28, 2019 passed by the Whole Time Member (hereinafter referred to as, 'WTM') of Securities and Exchange Board of India (hereinafter referred to as, 'SEBI') exercising the powers conferred under Section 11(1), 11(4) and 11B read with Section 19 of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as, 'SEBI Act') restraining the appellants and other entities from buying, selling or dealing in the securities market either directly or indirectly or being associated with the securities market, in any manner, whatsoever, pending investigation. The operative portion of the ex-parte interim order is extracted hereunder:- "41. Therefore, in order to protect the interest of investors and the integrity of the securities market, I, in exercise of the powers conferred upon me section 11(1), 11(4) and 11B read with under Sections 19 of the SEBI Act, pending Investigation, by way of this ad-interim ex-parte order, restrain the following entities/ Noticees from buying, selling or dealing in the securities market, either directly or indirectly, or being associated with securities market, in any manner, whatsoever, till further directio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was found to be receiving funds from the appellant, i.e. North End Foods Marketing Pvt. Ltd. & Anr. (hereinafter referred to as NEFM). On perusal of the details submitted by MCX, it was observed that Group A entities acquired Mentha Oil through transactions in Mentha Oil futures contracts on the exchange platform as well as by way of "off-market" transfers. Further Group A entities acquired off-market transfers from Group B entities. These allegations were examined in detail and it was, prima-facie, found that Group A and Group B entities had taken large deliveries of Mentha Oil between December 2017 to August 2018 amounting to 1339.2 MT, and that Group B entities made off-market transfers of 490.74 MT of Mentha Oil to Group A entities during March 2018 to September 2018, which was in violation of position limits as prescribed by SEBI vide its circular dated September 27, 2016 and July 25, 2017. Further examination revealed that Group A and Group B entities received the funds from one common entity, namely, 'NEFM'. Investigation revealed that NEFM was found to have either directly transferred funds to Group A and Group B entities or through the accounts of proxy entities. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could dominate or dictate the price of Mentha Oil on future contracts on the exchange platform led the WTM to adopt urgent measures by passing an ex-parte interim order with a view to prevent the appellants from indulging in such activities or taking positions in Mentha Oil or for that matter in other commodities in violation of prescribed positions limits. 4. The appellant, NEFM, has filed Appeal No. 80 of 2019 contending that it is actively involved in the business of procurement of commodities and warehousing of commodities for which it receives orders from its clients and, in turn, placed orders for such commodities with its agents. These agents procure such commodities and delivered those commodities to the appellant who, in turn, delivered such commodities to its clients. It was contended that the appellant is not engaged in funding of loans to entities of Group A or Group B entities. It was further contended that all the trading on the exchange resulted in physical delivery of the commodities. It was denied that the appellant did not trade in other commodities on the exchange platform. Apart from Mentha Oil, the appellant had also placed orders on other commodities such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stockbrokers has not been violated and that MCX had issued an order dated November 30, 2018 restraining the appellant from trading in Mentha Oil and, therefore, there was no further occasion for the WTM to pass the impugned ex-parte interim order restraining it from dealing in all commodities on the exchange platform. 11. In the light of the aforesaid, we have heard at length Shri Janak Dwarkadas, learned senior counsel, Shri Gaurav Joshi, learned senior counsel, Shri Mustafa Doctor, learned senior counsel alongwith Shri Somasekhar Sundaresan, and Shri Prakash Shah, the learned counsel for the appellants and Shri J. P. Sen, the learned senior counsel for the respondent. The basic contention raised is, that the period of execution of the trades was 2017-2018. The delivery of the futures contracts had already been executed and if the appellants were dictating the prices of the future trades, some evidence to that effect could have been indicated in the impugned order, but no such evidence has come to light in the investigation. It was further urged that the finding that the appellants have dominated the market was based on surmises and conjectures in as much as the respondent has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me out after the enquiry. It was further contended that, admittedly, the securities market in trading of these commodities are small as compared to the trading in the open physical market, and, therefore, the restraint order was only confined to the trading on the exchange platform and, therefore, it was open for the appellants to continue dealing with the commodities in the open market. It was submitted that considering the gravity of the violations and the fraudulent intention under the PFUTP Regulations, SEBI with a view to act diligently has taken immediate preventive measures to prevent manipulation in the future price of Mentha Oil on the exchange platform. It was urged that urgent measures were required against the appellants from indulging in such activities by taking position not only in Mentha Oil contracts but in other commodities as well, as it was done with an intention to dominate futures trading. The learned senior counsel contended that by adopting a balancing act, the impugned order was passed which was reasonable and was done with a view to protect the interest of the investors and integrity of securities market. The learned senior counsel, thus, contended that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. 15. Thus, ex-parte interim order may be made when there is an urgency. As held in Liberty Oil Mills & Ors. vs. Union of India & Ors. [AIR (1984) SC 1271] decided on May 1, 1984, the urgency must be infused by a host of circumstances, viz. large scale misuse and attempts to monopolise or corner the market. In the said decision, the Supreme Court further held that the regulatory agency must move quickly in order to curb further mischief and to take action immediately in order to instill and restore confidence in the capital market. 16. In the light of the above, we find that on the basis of the enquiry, the rationale for taking urgent preventive actions is based on the fact that appellant, NEFM had accumulated/cornered stocks of Mentha Oil through entities in Group A and Group B by misusing the exchange platform. Such large accumulation of Mentha Oil was with the intention of acquiring a dominant position in the market in order to manipulate the future price of Mentha Oil during the lean season on the strength of the physical stock of Mentha Oil it held on the exchange platform. 17. In our opinion, the impugned order is harsh and unwarranted. We are of the opinion that there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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