SEBI revokes ex-parte orders in NSEL-MCX case

General Legal / Team Legistify / 08 Jan 2018

Image courtesy- Barandbench

The Securities and Exchange Board of India (SEBI), in a recent order, has revoked its directions against seven former officials of Multi Commodity Exchange Ltd (MCX), for alleged involvement in insider trading.

Madhabi Puri Buch, who was appointed as a whole time member of SEBI in April 2017, found no merit in an ex parte order passed by her predecessor, S. Raman and sought to undo the damage by revoking the directions passed in that order.

On August 2, 2017, by an ex-parte order, S Raman, had held that 8 persons, who were promoters or directors or management personnel of MCX, had done insider trading in the shares of MCX. Through this order, S Raman not only prohibited these 8 persons from dealing with their assets but also impounded what he called losses avoided by these persons.

This SEBI order was then appealed before the SAT, where the SAT directed SEBI to pass a final order as expeditiously as possible.

Brief facts

The Department of Consumer Affair (DCA) granted exemption to NSEL, a subsidiary of Financial Technologies India Limited (FTIL) and a group company of MCX, from the operation of Forward Contracts (Regulation) Act, 1952 (FCRA) for all forward contracts of one day duration for the sale and purchase of commodities traded on its platform subject to certain conditions. Thereafter, the Forward Markets Commission (FMC) (now merged with SEBI) was notified as the designated agency for submission of all information.
Upon analysis of returns and information filed by NSEL, the FMC prima facie was of the view that NSEL has failed to fulfil the conditions stipulated for exemption and informed the same to the DCA.
On 27 April 2012, the DCA issued a Show Cause Notice (SCN) to NSEL as to why action shouldn’t be taken against it for violation of the conditions.
The contents of this show cause notice, however, become public only later through an article published in Economic Times on 3 October 2012.
On 31 July, 2013, NSEL suspended trading in all contracts and deferred settlement of all pending contracts.

Allegations of insider trading, however, were made in respect of MCX, which was an associate company of NSEL, since both shared the same parent entity, FTIL, and to a great extent, shared the same management.

SEBI’s interim order

S Raman, in his order of August 2, 2017, had found that 8 persons, all directors or senior officials of MCX at the relevant time, had:

(a) known about the SCN issued by the DCA to NSEL on 27 April, 2012; and that

(b) they sold the shares, on the basis of this Unpublished Price Sensitive Information (UPSI) held by them in MCX before the Government of India withdrew the exemption granted to NSEL from application of the FCRA, to avoid losses.

According to SEBI, the information relating to the implication of the SCN, that the exemption may be withdrawn was UPSI in respect of shares of MCX.

Raman found that the UPSI became public when on the directions of the Government, NSEL suspended all trading on July 31, 2013. Thus, all trades during the period April 27, 2012 to July 31, 2013 were considered by him as being ‘Insider Trading’, fulfilling the conditions laid under SEBI (Prohibition of Insider Trading) Regulations, 1992 (PIT Regulations).

SEBI’s final order

The questions that arose before Buch were:

a) Whether the implication of the SCN dated April 27, 2012, issued by DCA to NSEL, was price sensitive information in respect of MCX?

On this point, Buch has agreed with Raman that since FTIL was the holding company of both MCX and NSEL, the knowledge of the implication of the SCN was in fact, price sensitive.

b) Whether the price sensitive information was unpublished and if so, when did it get published?

This is where Buch differed from Raman in her findings and noted that the article published in the ET on October 3, 2012 had mentioned about the said SCN and the possibility that the Government could have withdrawn the exemption granted to NSEL.

Therefore, the UPSI became public knowledge on October 3, 2012 and not on July 31, 2013.

As a result, the period during which trades by an insider could be prohibited was reduced to April 27, 2012 to October 3, 2012 instead of Raman’s calculation which extended to 31 July, 2013.

c) Which of the Noticees traded in the scrip of MCX during the period when the price sensitive information remained unpublished?

Basis the new time period for committing insider trading, out of the 8 persons in Raman’s order, only 1 – Mr. Massey traded in that period

d) Which of the Noticees violated the provisions of regulation 3(i) and regulation 4 of the SEBI (PIT) Regulations and section 12A (d) of the SEBI Act when they traded when in possession of UPSI?

Buch accepted Massey’s submission that his trades were done with prior approval of and after disclosure to MCX and to the world at large (disclosed upfront in the Prospectus dated February 28, 2012 that he would be selling 10,000 shares post IPO within 3 months of the IPO) and therefore, could not have been based on the UPSI.

Thus, the directions against 7 out of the 8 persons have been revoked.

SEBI said it will pass a separate order in respect of Hariharan Vaidyalingam, who was the eighth person to face SEBI’s interim action in MCX matter.

Paras Ajmera was represented by Somasekhar Sundaresan and Abhishek Venkataraman instructed by Joby Mathew & Associates.

Shreekant Javalgekar and Joseph Massey were represented by Pradeep Sancheti, instructed by Corporate Law Chambers. Tejal Shah was represented by J J Bhatt, instructed by Cyril Amarchand Mangaldas.

Asha Javalgekar was represented by Nityesh Natraj and instructed by Corporate Law Chambers. Anjani Sinha appeared in person. Mehmood Vaid was represented by Crawford Bayley and Co.

Source-Barandbench

Have a Legal Issue?

Get connected to the Best Lawyers and Chartered Accountants Near You!

Most Consulted General Legal Advocates

Choose from our most consulted lawyers across India and get instant legal advice.

Advocate Nakul Kapoor

Puda Pocket, Jalandhar
5+ Years Of Exprience
User Rating N/A

Advocate Nakul Kapoor is an experienced and talented lawyer and has been gaining quite a solid reputation for his work in the legal fraternity. He deals with PMLA & FEMA , Family Dispute, GST and Immigration matters. He often makes appearances at the Supreme Court as well. Advocate Nakul Kapoor got himslef enrolled with Bar Council in 2013.

View Lawyer Profile

Advocate J.P Rinwa

Sodala, Jaipur
17+ Years Of Exprience
User Rating N/A

Advocate J.P Rinwa has been practicing and handling cases independently with a result oriented approach, both professionally and ethically and has now acquired more than a decade of professional experience in providing legal consultancy and advisory services. He is a competent and expereinced lawyer and has been practicing for over 16 years now. J.P's legal services span from Criminal law, Property law, Family Law, Motor accident Law, wills, trusts, Property/Real Estate and RERA. Along with the above mentioned litigation areas, he is very well acquainted with research and drafting work and provides legal help in documentation and vetting of legal documents. Advocate J.P Rinwa practices in Rajasthan High Court, Sessions Court Jaipur and Supreme Court of India. He got himself enrolled with the Bar Council in 2001.

View Lawyer Profile

Advocate Ashish Desai

Satellite Road, Ahmedabad
14+ Years Of Exprience
User Rating N/A

Advocate Ashish Desai has been practicing judiciously and serving the legal fraternity in District Court of Ahmedabad,Family Court Ahmedabad,Gujarat High Court for more than 12 years. i am a law graduate of Gujarat University. I Practice in the field of Regular Bil, AnticipatoryBail, Constitutional Matters, Criminal Defence, Child Custody, Maintenance, Divorce , Alimony, Family Law, Property matters, Real estate matters, Land Disputes, Criminal Matters, Company Matters and in the field of Corporate. Advocate Ashish Desai has been practicing and handling cases independently with a result oriented approach, both professionally and ethically and has now acquired many years of professional experience in providing legal consultancy and advisory services. He focuses on comprehending the needs of the client and providing with efficient quality work and legal information. He believes that a proper legal advice to a client and litigant can be given after considering the entire matter. He is consistent and precise in identifying strength and weakness of the matter. His analytical, logical and client-friendly approach makes him a well-founded advocate for assistance.

View Lawyer Profile

Advocate Asha S Anand

Krishna Residency, Bengaluru
6+ Years Of Exprience
User Rating 5.0

She is practising before various judicial forums in the State of Karnataka, including the High Court of Karnataka at Bengaluru and its circuit benches at Kalaburagi and Dharwad; the Karnataka Administrative Tribunal, Karnataka Appellate Tribunal, Central Administrative Tribunals and other Commissions and Authorities. She completed her graduation from Symbiosis Law School, Pune and masters in law from Boston University, USA. She enrolled with the Bar Council of Maharashtra & Goa in 2011. She is a member of the Mumbai Bar Association. Her practice areas are contract review, drafting, employment agreements, recovery of money, matrimonial, education law, labour, service, Human Resources related issues, Registration of Deeds, Advisory – for setting up of legal entities like Partnership, LLPs; Mediation, Counselling, and drafting of opinions (on varied legal matters) and legal notices. She has experience of 5+ years in the legal profession and providing services. She provides services in fair and transparent manner with result oriented approach. She is very supportive and friendly to her clients both professionally and ethically. She is consistent and precise in identifying strength and weakness of the matter.

View Lawyer Profile

Advocate Mohammed Shahnoor

Khairtabad Road, Hyderabad
12+ Years Of Exprience
User Rating N/A

Advocate Mohammed Shahnoor is a Hyderabad based lawyer and has been practising law since 2006. He has been providing legal and advisory services as an independent lawyer. Advocate Mohammed Shahnoor enrolled with the Bar Council in the year 2006. He has acquired his legal education at Osmania University and holds extensive experience in working in the most complex areas of Bail/Anticipatory Bail, Cheque Bounce, Civil Litigation and Consumer Protection. He holds experience in efficiently handling varied cases and often makes appearances across City Civil Court Hyderabad, Debts Recovery Tribunal (DRT) Hyderabad and High Court of Judicature at Hyderabad. He avidly believes in achieving the objectives of his client with compassion and accurate advocacy. Advocate Mohammed Shahnoor is known for providing timely and responsive legal services for his clients by providing them with the most expeditious legal course of action.

View Lawyer Profile

Advocate Pankaj Mehta

Rohini, Delhi
11+ Years Of Exprience
User Rating N/A

Advocate Pankaj Mehta has been practicing judiciously and serving the legal fraternity in Supreme Court Of India, Delhi High Court and Central Administrative Tribunal (CAT) Delhi for more than 10 years. He is a member of the Delhi High Court Bar Association. He is professionally dealing with cases in the field of law pertaining to Bail/Anticipatory Bail, Corporate Law, Criminal Defense, Debt Recovery matters. He is also involve in drafting and presentation of Matrimonial Disputes, Property Disputes, Intellectual Property Rights related to civil and criminal cases before the Lower Courts, Advocate Pankaj Mehta focuses on comprehending the needs of the client and providing with efficient quality work and legal information. He believes that a proper legal advice to a client and litigant can be given after considering the entire matter. He is consistent and precise in identifying strength and weakness of the matter. His analytical, logical and client-friendly approach makes him a well-founded advocate for assistance.

View Lawyer Profile