SC notice to Indiabulls over Sebi plea

The Supreme Court has issued a notice to Indiabulls Securities after Sebi challenged a Securities Appellate Tribunal order setting aside the penalty imposed against the firm by the market regulator for alleged manipulative and fraudulent practices in the F&O segment.

Issuing the notice to the Indiabulls on the plea by market regulator, a three-judge bench headed by Chief Justice S H Kapadia asked the brokerage firm to file its reply.

Market regulator Securities and Exchange Board of India had on February 25, 2009, imposed a fine of Rs 15 lakh on Indiabulls Securities after finding that the firm indulged in manipulative and fraudulent practices in the Futures and Options (F&O) during January-March 2007.

Indiabulls Securities, however, had challenged Sebi's order before appellate tribunal SAT, which on October 26, 2010, had set aside Sebi's order after observing there was no fraudulent practice.

In its order, the capital market regulator had said Indiabulls was engaged in reversal trade in 23 F&O contracts and violated various provision of the Sebi Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market (FUTP) and code of conduct prescribed under the Stock Brokers Regulations.

According to Sebi, its probe into transactions in the derivatives segment of the NSE between January and March, 2007, revealed that some brokers were buying and selling almost equal quantities of contracts within the day.

After the preliminary examination, the market regulator found that certain entities, including Indiabulls, had executed irregular and non-genuine trades.

Sebi found Indiabulls had executed 23 non-genuine and reverse trades on behalf of 15 clients in 21 futures and two options contracts on 22 different underlying scrips and one bank Nifty futures.

It also found that in several cases, the same stockbroker was appearing on the buy side as well as the sell side. Some of these transactions, which included stocks like Bajaj Auto, PNB and GE Shipping, constituted over 50% of the market volume.

Sebi held Indiabulls guilty of violating Regulations 3 and 4 of the FUTP Regulations.

This was challenged by Indiabulls before SAT, which held, "The trades in this case were only for tax planning and do not manipulate the market and nor are they fictitious or non-genuine. All the appeals are allowed and the impugned orders set aside with no order as to costs."