India: SEBI Revokes Ex‐Parte Order

Last Updated: 5 February 2018
Article by S.S. Rana & Co. Advocates

Introduction –

The Securities and Exchange Board of India (hereinafter referred to as 'SEBI'), in a recent order, has revoked its directions against seven former officials of Multi Commodity Exchange Ltd (hereinafter referred to as 'MCX'), for alleged involvement in insider trading.

SEBI found no merit in an ex parte order passed in the previous hearing, thereby undoing the damage and revoked the directions passed in that order.

On August 2, 2017, by an ex-parte order, SEBI had earlier held that 8 persons, who were promoters or directors or management personnel of MCX, had committed insider trading in the shares of MCX. Through this order, SEBI not only prohibited these 8 persons from dealing with their assets but also impounded what he called losses avoided by these persons.

This SEBI order was then appealed before the Securities Appellate Tribunal (hereinafter referred to as 'SAT'), where the SAT directed SEBI to pass a final order as expeditiously as possible.

Brief facts of the case –

  • The Department of Consumer Affair granted exemption to National Spot Exchange Limited (hereinafter referred to as 'NSEL'), a subsidiary of Financial Technologies India Limited (FTIL) and a group company of MCX, from the operation of Forward Contracts (Regulation) Act, 1952, for all forward contracts of one day duration for the sale and purchase of commodities traded on its platform subject to certain conditions. Thereafter, the Forward Markets Commission (FMC) (now merged with SEBI) was notified as the designated agency for submission of all information.
  • Upon analysis of returns and information filed by NSEL, the FMC prima facie was of the view that NSEL has failed to fulfil the conditions stipulated for exemption and informed the same to the DCA.
  • On April 27, 2012, the DCA issued a Show Cause Notice (SCN) to NSEL as to why action shouldn't be taken against it for violation of the conditions.
  • The contents of this show cause notice, however, become public only later through an article published in Economic Times on October 3, 2012.
  • On July 31, 2013, NSEL suspended trading in all contracts and deferred settlement of all pending contracts.

Allegations of insider trading, however, were made in respect of MCX, which was an associate company of NSEL, since, both shared the same parent entity, FTIL, and to a great extent, shared the same management.

SEBI's interim order –

SEBI in its order dated August 2, 2017, had found that 8 persons, all directors or senior officials of MCX at the relevant time, had:

  1. known about the SCN issued by the DCA to NSEL on April 27, 2012; and that
  2. they sold the shares, on the basis of Unpublished Price Sensitive Information (UPSI) held by them in MCX before the Government of India withdrew the exemption granted to NSEL from application of the FCRA, to avoid losses.

According to SEBI, the information relating to the implication of the SCN, that the exemption may be withdrawn was UPSI in respect of shares of MCX.

SEBI found that the UPSI became public when on the directions of the Government, NSEL suspended all trading on July 31, 2013. Thus, all trades during the period April 27, 2012 to July 31, 2013 were considered by him as being 'Insider Trading', fulfilling the conditions laid under SEBI (Prohibition of Insider Trading) Regulations, 1992 (PIT Regulations).

SEBI's final order –

The questions that arose before SEBI were:

  1. Whether the implication of the SCN dated April 27, 2012, issued by DCA to NSEL, was price sensitive information in respect of MCX?
    On this point, SEBI agreed with the previous order, that since FTIL was the holding company of both MCX and NSEL, the knowledge of the implication of the SCN was in fact, price sensitive.
  2. Whether the price sensitive information was unpublished and if so, when did it get published?
    This is where SEBI differed from its earlier findings and noted that the article published in the ET on October 3, 2012 had mentioned about the said SCN and the possibility that the Government could have withdrawn the exemption granted to NSEL. Therefore, the UPSI became public knowledge on October 3, 2012 and not on July 31, 2013. As a result, the period during which trades by an insider could be prohibited was reduced to April 27, 2012 to October 3, 2012 instead of Raman's calculation which extended to 31 July, 2013.
  3. Which of the Noticees traded in the scrip of MCX during the period when the price sensitive information remained unpublished?
    Basis the new time period for committing insider trading, out of the 8 persons in Raman's order, only 1 – Mr. Massey traded in that period.
  4. Which of the Noticees violated the provisions of Regulation 3(i) and Regulation 4 of the SEBI (PIT) Regulations and Section 12A (d) of the SEBI Act when they traded when in possession of UPSI?
    SEBI accepted Massey's submission that his trades were done with prior approval of and after disclosure to MCX and to the world at large (disclosed upfront in the Prospectus dated February 28, 2012 that he would be selling 10,000 shares post IPO within 3 months of the IPO) and therefore, could not have been based on the UPSI.

Thus, the directions against 7 out of the 8 persons have been revoked.

SEBI said it will pass a separate order in respect of Hariharan Vaidyalingam, who was the eighth person to face SEBI's interim action in MCX matter.

For further information please contact at S.S Rana & Co. email: info@ssrana.in or call at (+91- 11 4012 3000). Our website can be accessed at www.ssrana.in

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
S.S. Rana & Co. Advocates
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions