Tribunal sets aside Sebi bar on UBS

The Securities and Exchange Board of India suffered another setback today when the Securities Appellate Tribunal set aside the regulator's order passed in May this year, banning UBS Securities Asia (UBS) and its associates from issuing offshore derivative instruments (ODIs) with underlying Indian securities for one year.

"We set aside the impugned order and uphold the appeal....However, Sebi is free to take any action, if it so desires, and if there is a prima facie case under any of the provisions of the Sebi Act, 1992 and the FII Regulations thereunder," the SAT said in its order.

When asked whether the regulator would appeal to the Supreme Court or take action under certain other Sections of the Act, Sebi Chairman M Damodaran said, "We will study the matter and take a decision."

UBS, a foreign institutional investor registered with Sebi, said in a press statement, "UBS welcomes the Securities Appellate Tribunal's ruling and looks forward to once again delivering a full range of services to its clients investing in India." According to company sources, ODIs constitute about 60 per cent of UBS' business in Asia.

The verdict was delivered by a two-member SAT Bench, comprising RN Bhardwaj and Chandan Bhattacharya. It may be recalled that the presiding officer of the SAT, Kumar Rajaratnam, had recused himself following controversies surrounding his suggestion to Sebi that the matter be sorted out through plea-bargaining.

Explaining the reasons for setting aside Sebi's order, the SAT said the regulation was not clear on the "know-your-client" norms, which currently required only first-level information about registered FII clients.

Referring to the Sebi order invoking Sections 11B and 11(4), the tribunal said, "The impugned order only speaks of some delay and non-furnishing of information on the part of the appellant. Instead of invoking the provisions of Section 11B and Section 11(4), we find Section 15A could have handled the case more appropriately where there is an exact provision for handling delays in the submissions of information," the tribunal said. Under Section 15(A) of the Sebi Act, UBS could have been asked to pay a penalty for failing to furnish information.

Sebi barred UBS from issuing participatory notes (PNs) through its order passed in May 2005 for not furnishing information about its clients.

The information was sought for an investigation into the steep fall of stock prices on May 17, 2004. UBS was one of the biggest sellers on that day when the Sensex fell by 568 points, which was its highest ever loss.

This is one of a series of high profile cases where the SAT has set aside Sebi orders. In December 2004, the SAT set aside an order passed by Sebi against Shankar Sharma of First Global for market manipulation.

In September 2003, Sebi had barred the Alliance Capital's former chief investment officer Samir Arora for five years from the stock market on insider trading charges.

The SAT overruled the Sebi order, and absolved Arora of all charges in October 2004. In August 2004, the SAT had set aside an order passed by Sebi against Reliance Industries for alleged violation of the takeover code in the case of Larsen and Toubro.

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PAST REVERSALS

The cases in which SAT has reversed Sebi's orders:

Against Samir Arora on October 15, 2004. Arora was banned from dealing in capital market related activities on charges of insider trading

Against First Global (of Shankar Sharma) on December 3, 2004. First Global was banned from involvement in the capital market on charges market manipulation

Against Reliance Industries on August 31, 2004. Penalty of Rs 4.75 lakh imposed for violation of the Takeover Code in dealing with L&T stocks