SC ADMITS SEBI PLEA AGAINST BROKERS

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The Supreme Court has admitted the plea of market regulator Sebi seeking legalisation of its action against a stock broker on the basis of circumstantial evidence and conduct in FUTP violation cases. The market regulator had come to the apex court challenging an order of the Securities Appellate Tribunal (SAT) which set aside its penalty against the brokers on the ground that a cogent material on record is necessary to prove their malafide.

“In FUTP (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) violations, there may not be any direct evidence revealing the malafide of the broker. Rather, the surrounding circumstantial evidence and the conduct of the broker is taken into account while determining the complicity of the broker,” Sebi said in its plea.

The market regulator said the tribunal had failed to appreciate the fact that the knowledge of a broker is apparent from the trading data and the pattern of behaviour as a proof of manipulation depended on inferences drawn from factual detail.

“The brokers will violate the law against manipulation with impunity and the regulator would be handicapped in enforcing the law and put to a very high burden of proof even though the facts speak for themselves,” said Sebi.

It further said, “If the principles stated by the tribunal is upheld, the regulator would be put to a very serious handicap where a clear inference will have to be ignored as a matter of law and a very high degree of proof will be required to draw an inference of malafide on the part of the stock broker.”

Sebi, on the basis of an inquiry, had held two stock brokers, Ramaben Samani Finance and RR Bohra guilty for manipulating the scrips of Rashel Agrotech during September 24, 2002 to January 7, 2003. Investigations had revealed that some of the major trades were in the nature of synchronised deals and fictitious transactions.

It was found that the buyer and seller were the same, namely the client M/s ASK Holdings, who had connived through these two brokers.

Since they were the brokers, Sebi found them guilty of violation of Regulation 4 of FUTP and imposed a penalty of Rs 10 lakh.

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