SAT Slams SEBI For 'Sleeping Over' Shree Global Tradefin Case, Sets Aside Penalties Against 7 Entities

The Securities Appellate Tribunal (SAT) has set aside SEBI's penalties against seven entities in a case concerning alleged manipulation in the shares of Shree Global Tradefin Limited. It held that the regulator's action was hit by inordinate delay and deprecated SEBI for issuing a third show cause notice despite an earlier SAT ruling on similar grounds.

The tribunal, comprising Presiding Officer Justice P.S. Dinesh Kumar and Technical Members Meera Swarup and Dr. Dheeraj Bhatnagar, observed that SEBI took nearly 10 years to issue the show cause notice.

It also criticised the regulator for conducting investigations into the same scrip in a piecemeal manner.

The ruling came in two appeals filed by seven of the nine entities challenging SEBI's adjudication order dated May 31, 2022.

SEBI had investigated trading in the scrip of Shree Global Tradefin Limited for the period between August 29, 2011 and March 30, 2012, based on SCORES complaints.

According to SEBI, six of the noticees were alleged to be buyers who repeatedly placed buy orders at prices higher than the last traded price, resulting in an increase in the scrip price.

Two other noticees were alleged to be sellers whose sell orders were frequently matched with those buy orders. The ninth noticee was the authorised person who placed orders on behalf of one of the buyer noticees.

SEBI found that the scrip price rose 66%, from ₹232.70 to ₹387.30, within 17 trading days. It later declined sharply to Rs. 105.90. Based on this, SEBI concluded that the noticees had manipulated the scrip price in violation of securities laws and imposed penalties on nine noticees.

The matter formed part of three separate SEBI proceedings concerning the same scrip across different periods between 2009 and 2012.

The first show cause notice was issued in April 2012 for the period between March and November 2009. An adjudicating officer imposed penalties of ₹30 lakh each on Sanjay Soni and Krupa Soni. On appeal, SAT reduced the penalty to ₹10 lakh each.

The second show cause notice was issued in July 2017 for the period between April 2010 and January 2011. Penalties imposed in that proceeding were later set aside by SAT on the ground of inordinate delay.

The present appeals arose from the third show cause notice issued on February 12, 2021, for the period between August 2011 and March 2012.

The appellants argued that there was a delay of nearly a decade in initiating proceedings. He submitted that although an adjudicating officer was appointed in 2015, no action was taken for years, and the show cause notice was issued only in 2021.

SEBI argued that the appellants had failed to show prejudice caused by the delay. He submitted that securities law violations affect innocent investors and that the regulator should therefore be given some latitude.

Rejecting the defence, the tribunal noted that the first adjudicating officer appointed in the matter “slept over the matter till his retirement.” It observed that another officer was later appointed and eventually passed the impugned order in 2022.

The tribunal also noted that it had already set aside SEBI's 2018 order arising from the second investigation period because proceedings had been initiated after a seven-year delay.

“The second adjudication order passed in 2018 has been set aside by this Tribunal in 2019 on the ground of inordinate delay. Yet, SEBI issued the third SCN in flagrant disrespect to the view expressed by this Tribunal in Sanjay Jethalal Soni and Ors. v. SEBI18 in respect of the second SCN. This conduct of SEBI is deprecated," the tribunal held.

Holding that the matter deserved to be decided solely on the ground of delay, the tribunal allowed the appeals and set aside the impugned adjudication order insofar as the appellants were concerned.

For Appellants: Advocate Kunal Katariya with Advocate Jyoti Pandey, Instructed By Lexkare Legal

For Respondent: Advocate Suraj Chaudhary with Advocates Khushbu Chhajed, Khushbu Trivedi and Pulkit Awasthi, Instructed By MDP Legal