SAT sets aside order against 8 brokers in 'tax evasion' case

The Securities Appellate Tribunal has set aside an order passed by Sebi against eight of the 22 brokers that barred them from the capital market for executing reversal trades worth over Rs 8,100 crore.
Last week, Sebi barred 22 brokers from the capital markets for executing reversal trades to generate fictional profits or losses. They were allowed to function as stock brokers on behalf of their existing clients in cash segment but were restrained from signing new clients.
In August 2015, Sebi had passed an interim order that restrained 59 entities for their suspicious trades in stock options segment. At that time, there was no order against the brokers who were allegedly involved in executing such trades.

Related to the case, on February 17, Sebi barred 22 brokers and the tribunal's latest ruling has come on an appeal filed by eight of them.
The entities against whom the order was set aside are Guiness Securities, Achintya Securities, Basan Equity Broking, Abans Securities, R K StockHolding, Skung Tradelink, Sunstar Securities and MSB E-Trade Securities.
"If the prima facie view is that the trades of the 11,228 clients were not genuine, then to take action against 22 stock brokers but not against the 11,228 clients amounts to applying double standard i.E. One standard for the stock brokers and another standard for clients, which is not proper," SAT said.

According to the tribunal, permitting the brokers to trade in the cash segment and prohibiting them from accepting registration of any new client is also illogical as there is no basis to presume that the new clients would be indulging in non-genuine trades.

"... We dispose of the appeals by holding that the Whole Time Member of Sebi was not justified in passing the ex-parte ad-interim order against the appellants on the basis of the trades, the genuineness of which qua the 11,228 clients who had executed those trades are still under investigation," SAT noted.
Setting aside the order with respect to the eight brokers who filed the appeals, the tribunal made it clear that it has not expressed any opinion on the merits of the case.

"All contentions on both sides are kept open... Quashing the impugned order qua the appellants would not come in the way of Sebi to initiate proceedings against them in accordance with law and pass orders as it deems fit," the tribunal said.