Speed up investigations: SAT tells Sebi

However,”it goes without saying that this time has to be a reasonable one,more so when the entities are debarred from dealing in the market which adversely affects their business,” SAT said in an order dated August 14,2012.

The Tribunal observed that the investigations in this particular case is going on since May 2011 and Sebi “needs to act as expeditiously as possible”.

In a separate order as well,passed on the same day,SAT said it sees “no reason why the Board (Sebi) cannot pass an order expeditiously”,while hearing an appeal against an interim order of December 2011.

Both the investigations are related to irregularities in separate IPOs (Initial Public Offers) and SAT has dismissed both the appeals,while asking Sebi to expedite its probe in both the cases.

One of the two cases relates to Sebi’s investigation in the alleged manipulation of IPO issue of PG Electro Plast Ltd.

As per initial investigation report,a large number of entities including Nimbus Industries Ltd are alleged to be involved in the manipulation of the IPO issue.

An independent director of Nimbus Industries,Bharat Bachubhai Merchant,had approached SAT against Sebi’s exparte ad-interim order dated December 28,2011,prohibiting the appellant,amongst others,from buying,selling or dealing in the securities market,in any manner whatsoever,till further directions.

The said ex-parte ad-interim order also served as a show-cause notice as to why action may not be initiated against Merchant and others.

Merchant filed his reply to the show-cause notice on February 29,2012 and a personal hearing was granted to him by Sebi on May 3,2012.

“The grievance of the appellant is that although a period of three months has elapsed after grant of personal hearing,no final order has been passed and the appellant is not able to operate his demat accounts due to the said impugned order.

“The appellant has therefore prayed that the impugned order be set aside or in the alternative the Board may be directed to pass a final order within such time and on such terms as may be deemed proper,” SAT said.

“We have heard the learned counsel for the parties for some time. Since the matter is at the investigation stage and a personal hearing has already been granted,we are not inclined to interfere in the matter at this stage,” SAT said.

“However,keeping in view the fact that the process of personal hearing is already complete,we see no reason why the Board cannot pass an order expeditiously,” it observed.

Taking into account Sebi’s submission that it would be in a position to pass order in this regard within three weeks,SAT disposed of the appeal and asked the regulator to pass a final order within this time frame.

Hearing another appeal by Rikhav Securities Ltd against Sebi’s interim order dated January 11,2012 in a case involving irregularities in Vaswani Industries IPO,the Tribunal said that the interim order would be vacated if Sebi does not complete its investigations within three months and issues a show-cause notice within one month thereafter.

Rikhav Securities had approached SAT against the interim order passed by Sebi’s whole time member confirming the directions issued vide ad-interim ex-parte order dated July 11,2011 prohibiting the appellant,amongst others,from acting as a syndicate member/sub-syndicate member for all forthcoming issues until further directions.

The appellant had approached SAT earlier also with a similar prayer,which was disposed of on March 1,2012.

Sebi’s initial investigations had indicated towards role of the appellant in the unusual bidding and withdrawal in the IPO of Vaswani Industries Limited.

While SAT in its order dated March 1,2012 had refused to intervene at that time,as investigations were on,Sebi had submitted before it that it would complete the investigation as expeditiously as possible and take appropriate necessary action within a period of four months.

SAT has dismissed the second appeal as well,saying any relief in the present appeal would “amount to reviewing the order passed by the Tribunal as above”.

The matter is still at the investigation stage and Sebi has also received some complaints from investors regarding deliberate huge withdrawal/rejections after the closure of the IPO of Vaswani Industries Ltd,alleging that they were misled by the subscription levels.

Sebi has also said that “certain serious charges have been found against the appellant including the charges relating to placing large orders on behalf of the applicant during the first two days and then withdrawing/cancelling the bids; allowing a large number of non institutional investors to place high bids and then withdrawing/cancelling the bids.

While declining to intervene into the investigations,SAT observed that it had directed Sebi to complete the probe as expeditiously as possible and take appropriate necessary action within a period of four months qua the appellant.

“This has not been done and the Board has now filed another application seeking extension of time to complete the investigation qua the appellant for the reasons stated in the application seeking extension of time and for the reasons given in the affidavit in reply.

“While we are conscious of the fact that in an investigation involving a large number of parties,we cannot bind the Board by a timeframe within which investigation can be completed,it goes without saying that this time has to be a reasonable one,more so when the entities are debarred from dealing in the market which adversely affects their business.

“The time period of four months for completing the investigation qua the appellant was given by us on the basis of statement made by the Board,” SAT said.

The tribunal said Sebi has now sought extension of another six months for completion of the investigation.

“We have seen the grounds on the basis of which extension of time has been sought,” SAT said.

“However,keeping in view the fact that the investigation is going on since May,2011,the Board needs to act as expeditiously as possible,” it added.

“On instructions,learned counsel for the Board states that it will be in a position to complete the investigation within a period of three months from today and issue a show-cause notice to the appellant within one month thereafter.

“This request of the Board is not opposed on the condition that if the show-cause notice is not issued within the period mentioned above,the interim order qua the appellant shall stand vacated,” SAT said while disposing off the appeal.