Suit challenges Sebi order in SC

Judges direct petition to be tagged with appeal by BoR promoters

A public interest suit has been filed in the Supreme Court against an order by the capital markets regulator in the matter of irregularities by the promoters of the erstwhile Bank of Rajasthan (BoJ).

The bench headed by the chief justice, before which the matter came up on Monday, tagged it with the appeal by the promoters against the Securities Appellate Tribunal (SAT) order in the matter, being heard by another SC bench.
Apart from the Securities and Exchange Board of India (Sebi), the petition also names the Central Bureau of Investigation, the chief vigilance commissioner and the Union government as respondents.

In 2010, the Reserve Bank of India (RBI) had found some irregularities with the BoR shareholding and referred the matter to Sebi. On investigation by Sebi, the promoters of the erstwhile bank, led by Pravin Kumar Tayal, were found in breach of various regulations. The promoters were held to have surrogately increased their holding in the bank, ignoring an RBI directive to reduce their holding. About 34.5 per cent stake was found to be held through various entities, over and above the permissible limits.

KEY DATES

• March 3, 2010: Interim Sebi order finds BoR promoters had made false declaration on the promoter holding. Shares frozen
• March 18, 2010: ICICI Bank announces BoR buyout through share swap
• March 26, 2012: Sebi interim order allows sale of ICICI Bank shares by BoR promoters
• Feb 14, 2013: Adjudication officer imposes fine of Rs 30 crore
• Sept 26, 2014: CBI registers complaint

Source: PIL

The petition argued, "The profit made by the promoters/entities on the excess holding of 34.54% was over Rs 500 crore. Under the law, this profit was to be disgorged and fine levied on it." According to the petitioner, Arun Agrawal, a Bengaluru-based lawyer, by not quantifying the gain, Sebi took the gain as zero and not as over Rs 500 crore that it should have done. By taking the gain as zero, Sebi was able to put only a token fine of Rs 30 crore, which in appeal was reduced to Rs 20 crore by SAT.

"It is difficult, in cases of such nature, to quantify exactly the disproportionate gains or unfair advantage enjoyed by an entity and the consequent losses suffered by the investors. I have noted that the investigation report also does not dwell on the extent of specific gains made by the noticees. However, the manipulations as elaborated above are a threat to the safety and integrity of the market and, thus, loss to the investors to that extent. I observe that the game plan of the noticees continued for over a period of more than two years and, hence, was of a repetitive nature," the Sebi order said.

Agrawal argued in the petition that the gains could have been easily quantified from three different sources -- the brokers who did the deal, the stock exchange on which this was done and the depositories which delivered the shares. "All these three intermediaries are fully regulated by Sebi and are bound to provide the information to Sebi," he said.