The Securities Appellate Tribunal has set aside the Securities and Exchange Board of India's (Sebi) order barring Sterlite Industries Ltd from accessing the capital market for two years and prosecution proceedings against its directors.
Reacting to the order, Tarun Jain, director (finance), Sterlite, said they had always been maintaining that they were not guilty of violations alleged against them. "We are happy that finally our stand has been vidicated and that justice has followed its natural happy course."
Sterlite had appealed against the order which Sebi passed on April 19 this year on the grounds that the company had indulged in price manipulations of its scrips during the payments crisis in June 1998. According to the order, Sterlite had manipulated the prices of its shares in connivance with the Damayanti group, which was fronting for broker Harshad Mehta.
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The SAT ruling said, "In the absence of sufficient material evidence to establish that the appellant (Sterlite Industries) had directly or indirectly indulged in market manipulation, the impugned order holding the appellant guilty of violating regulation 4(a) and 4(d) of the Fraudulent and Unfair Trade Practices relating to Securities market) Regulations 1995." The clauses referred to deal with speculative transactions in securities intended to artificially raise or depress the prices of securities.
In reference to the order prohibiting the company from raising money from the public, SAT observed, "That the charge against the appellant is of market manipulation." With the shares of the company being traded on the exchange preventing it from raising further capital "cannot serve as a preventive measure to debilitate the appellant from indulging in market manipulation."
Incidentally Sebi has taken the view that Section 11(B) under which the orders were issued was "not a penal provision, but preventive and remedial in its application," in order to protect the interests of investors.
The SAT ruling said, "By no stretch of the imagination the said direction (Sebi's order) can be considered even remedial as prospective barring of a public issue cannot remedy an act of market manipulation allegedly indulged for a specific purpose, 3 years ago." Finally, "the impugned order is neither remedial nor preventive but punitive in effect as it takes away the appellant's right to mobilise funds from the public to carry on its business."
In its observations on the details of the case, the tribunal also made the point that Sebi in its investigations and subsequent order had failed to establish Sterlite's involvement in any transaction linking price movements in the scrip. It also said that the Sebi had failed to show a nexus between Sterlite and the Damayanti group or that the group had acted on the behest of the company and as such Sterlite could not be held liable for the actions of the Damayanti group.
Further, Sebi had also failed to "reasonably prove its case that appellant had manipulated the market to keep the scrip price high."