SC upholds Sebi power

The Supreme Court has upheld the power of the Securities Exchange Board of India (Sebi) to bar executives of a company from accessing the security market and prohibiting them from buying, selling or dealing in securities.

The judgment was passed while setting aside the ruling of the Securities Appellate Tribunal (SAT) in the case of Ajay Agarwal, joint managing director of Trident Steel Ltd. SAT had quashed the Sebi’s order.

Sebi initiated investigations against Trident Steel on receipt of a complaint by a BSE member relating to public issue of the company. In the course of investigation, it appeared that the company’s directors had pledged their personal holding of 750,000 shares with Bank of Baroda, and a director and Dowell Leasing and Financing Ltd had given non-disposal undertaking to Bank of Baroda, lead manager to the issue.

This was not disclosed in the prospectus of the company. This appeared to be a violation of Sebi guidelines on disclosure for investor protection. Thus an important aspect of the capital structure of the company was not disclosed in the prospectus as a result of which investors were misguided.

After hearing the replies of persons concerned to the show cause notice, the Sebi chairman passed an order in 2004 restraining Agarwal “from associating with any corporate body in accessing the securities market and also prohibited him from buying, selling or dealing in securities for a period of five years.”

The order was contested in the appellate body. It quashed the Sebi’s order on the ground that the board had not followed the procedures existing at the time of the offence. The board applied new procedures to the old irregularities, it was contended.

The Supreme Court rejected this argument and asserted that amended procedures can be applied retrospectively.