We had earlier this year discussed SEBI’s ad-interim ex parte order in the United Spirits Limited (USL) case by which several persons (including Mr. Vijay Mallya) were prohibited from buying, selling or otherwise dealing in any securities, with some of them being restrained from holding positions as directors or key managerial personnel of any listed company. Against this, some of the persons against whom the order was passed appealed to the Securities Appellate Tribunal (SAT) which, by an order passed on August 11, 2017, dismissed those appeals.
SAT first considered the argument whether SEBI had flouted the principles of natural justice in passing an order without giving an appropriate hearing to the affected parties. It found that in extraordinary circumstances (which the present situation satisfied), SEBI does have the power to invoke the power to pass ad interim ex parte orders. SAT noted:
… It is true that Section 11, 11(b) and 11(4) do confer wide discretion on SEBI to pass ad interim orders in order to protect the investors’ interest and for a healthy and orderly growth of the capital market. It is also equally true that by way of various judicial pronouncements this Tribunal has consistently held that the power conferred under 11, 11B and 11(4), particularly after introduction of Section 11(4), SEBI do empower it to issue ad interim ex-parte orders to achieve the twin objective enshrined in the SEBI Act, i.e, the protection of investors’ interest and orderly growth of capital market. If market abuses likely to occur, SEBI shall invoke such powers subject to the satisfaction of the Board/Members of SEBI. This discretion is a vital discretion conferred upon SEBI to be used sparingly and not in a routine manner. In normal, routine cases where investigation reveals some mischief or fraud being conceived or perpetrated in the market, SEBI should resort to adjudicating proceeding by appointing an Adjudicating Officer as per Chapter IV-A of the SEBI Act. But keeping in view the gravity of the matter, SEBI was not unjustified in invoking such extra-ordinary power. …
Second, SAT found that there was ample material available for SEBI to arrive at the conclusion that it did. Some of that was based on correspondence between the parties which pointed to diversion of funds from USL to other group companies.
Finally, SAT also noted that the parties ought to have put forward their case and made their submissions to SEBI rather than approach SAT by way of appeal.
Through a dismissal of the appeals, the matter is now back in SEBI’s court for a detailed investigation and consideration of submissions made by the parties.
