SC admits Sebi appeal in UBS case

The Supreme Court today admitted the appeal of the Securities & Exchange Board of India (Sebi) against the order of the Securities Appellate Tribunal (SAT) absolving UBS Securities Asia of the charge of manipulating the share market during the political changes in May 2004. The court stayed the SAT ruling on the legal interpretation of the regulations. However, the company may operate in the market.

Sebi had launched an investigation into the steep fall in the stock market on May 17 last year when the Sensex fell by 567.74 points and Nifty fell by 196.90 points. It resulted in temporary stoppage of trade twice on major stock exchanges.

Sebi's preliminary enquiries showed that UBS Securities was a major seller in the cash market segment, having sold Rs 188.35 crore worth of shares. Investigations further revealed that most of the trading was on behalf of one major client of UBI AG, London, namely Caxton International Ltd.

Sebi pressed for the details of the investors but the replies were vague, according to it. Then it passed an order, among other things, prohibiting UBS Securities, its affiliates and agents from issuing offshore derivative instruments with underlying Indian securities for one year.

The company then appealed to SAT. It set aside the Sebi order on technical grounds, holding that there was no violation of the regulations, especially 15A, 20 and 20A and Clauses 1,2,5 and 7 of the Code of Conduct.

Sebi moved the Supreme Court against that order and submitted that it would adversely affect its ability to regulate the securities market.

The approach of SAT is "not only contrary to common sense and logic but also flies in the face of well-established international practices," it said, and added: "In effect it legitimises the setting up of a maze of corporate shells, the ultimate beneficiary of which may be a tainted man." After hearing Solicitor General G E Vahanvati, the bench headed by justice Ruma Pal admitted the appeal.