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The Securities Appellate Tribunal (SAT) has asked the Securities and Exchange Board of India (Sebi) to reconsider an earlier decision to bar promoters of Zenith Infotech (ZIL) from trading in capital markets. Six promoters of the technology firm had been barred from accessing the capital markets by an ad-interim ex-parte Sebi order dated March 25, 2013. The SAT has asked Sebi to respond with fresh considerations within six weeks of receiving the order.
SAT has set aside this order on the grounds it is ‘unsustainable in the eyes of the law’. “We are of the considered opinion that the impugned ad-interim ex-parte order dated March 25, 2013 is not sustainable in the eyes of law as it has been passed in gross violation of the principles of natural justice,” said the SAT order passed on Tuesday.
The six promoters of ZIL —Devita Rajkumar Saraf, Vijayrani Rajkumar Saraf, Zenith Technologies, Vu Technologies, Rajkumar Saraf and Akash Rajkumar Saraf — had been barred from accessing the capital market, directly or indirectly, for allegedly misusing the proceeds of the sale of a subsidiary. The proceeds from the sale were to be used for redeeming foreign currency convertible bonds (FCCB) investors of the company.
ZIL had issued FCCBs worth $83 million between 2006 and 2007 which were to mature in 2011 and 2012. However, the company was unable to honour the payments as the cost of redemption rose due to rupee depreciation. ZIL then sold off its subsidiary Zenith RMM, later renamed CMS, for the purpose of meeting the redemption demands.
The SAT order also reprimanded the regulator for not giving the company an opportunity of hearing in the matter. The tribunal also said that there was no timely intervention by the regulator in the matter.
The tribunal said that Sebi had passed the ex-parte order 15 months after the stock of ZIL fell from Rs 190 per share on September 23, 2011 to Rs 45 per share on November 30, 2011. The decline was based on fear of a probable default on the FCCB payments by the company.
On SEBI’s contention that ZIL had been given three weeks to reply to the order, the tribunal said that the opportunity was given after the decision was taken and was merely ‘an eyewash’.
