HC asks Sebi to specify time period for Rathi probe

Our Markets Bureau

Mumbai, April 26: THE division bench of the Bombay High Court has asked the Securities and Exchange Board of India (Sebi) to give a specific commitment on the time required to complete the probe into the alleged price manipulation by former BSE president Anand Rathi. The high court adjourned the case to next Wednesday (May 2, 2001) for handing out its verdict.

Meanwhile, First Global director Shankar Sharma, has also moved the high court against banning of trading activity by his firm before the same division bench consisting of Justice AP Shah and S Vazifdar. Regulations 11 and 11B have come under fire by the counsel of both the brokers fighting the Sebi orders.

Mr Sharma’s counsel Aspi Chinoy said that First Global, which is the first broking firm in Asia, excluding Japan, to become a member of the London Stock Exchange (LSE), is expected to lose its membership if the ban on its broking activities are allowed to continue beyond April 30.

Taking this plea into account, the high court has posted the case for further hearing on next Monday. The counsel has also argued that the ban was also threatening to affect the granting of membership by the New York Stock Exchange (NYSE) to Mr Sharma and Devina Mehra of First Global, for which they have applied and appeared for the required test.

While the Sebi counsel Ghulam Vahanvati was making his submissions before the bench in Rathi case, the judges asked him whether he would justify the Sebi ban on trading activities of Mr Rathi’s firms should continue till the completion of final investigations.

Mr Vahanvati asked the court to consider that the Sebi order was passed taking the investor interest at large and as such it would require at least two months to complete a full-fledged probe into the Mr Rathi’s involvement in price rigging.

Earlier, Mr Vahanvati said that the Sebi required at least two months to complete the probe. The files sought from the Income-Tax department seized during its searches on borker premises were expected to reach the regulator by next Monday.

However, when the bench asked for a commitment from the regulator on the issue, the counsel said that he would be in a position to submit the schedule of probe only on Monday. But the bench has expressed its reservations over allowing perpetuity of the ban on these firms without substantial evidence.

When the bench specifically asked Sebi’s counsel whether the information allegedly taken by Mr Rathi from the surveillance department of the BSE could be misused by him to manipulate the market now, Mr Vahanvati said that it cannot be misused now as the market is dynamic, but sought that the ban should continue, quoting the Sebi board statement, “The gravity of the charges, which require further investigations and need for not permitting anyone suspected of such serious charges from operating in the stock exchange, has been considered for subserving the public interest.”

Earlier, Mr Rathi’s counsel Dr Abhishek Singhvi argued against Sebi’s act of invoking regulations 11 and 11B of the Sebi act, which are said to be the ultimate powers of Sebi used to protect investor interests, when it should have invoked regulation 12 of the Sebi (stock brokers and sub-brokers) Regulations 1992, dealing with violations of code by registered brokers. He also brought to the notice of the bench that no opportunity for representing his case was given to his client before passing the orders.

He also contested the Sebi order seeking to continue with the probe without levelling any specific charges against Mr Rathi and his associate firms. He also said that the ban also defies the law of proportionality, stating that under this law, no single person should be held responsibility for the national crisis in the markets.

While the regulator should have appointed an inquiry officer before passing the ban decision, it is planning to do so only after submission of its preliminary report. He also expressed his apprehensions that Sebi would be in a position to complete its probe in specified time, citing BPL, Videocon and Sterlite case which pertained to price manipulation taken place in 1998.

On Sebi’s reference to sale of Global Tele, Infosys and Satyam shares worth Rs 3.66 crore by Navratan Capital on March 5, 2001, in its submissions, Dr Singhvi said, that the company has made sale and purchase entries in the stocks once again ending the day in a net outstanding position in the stocks. On the contrary, firms of Mr Rathi and his associate firms had posted net outstanding buy positions in these stocks. Citing this, he sought to say that the trading in these stocks were only incidental.

Mr Sharma’s counsel also attacked invoking of regulations 11 and 11B without invoking its consequences. Mr Chinoy also asked how the Sebi, which had looked into the activities of First Global thrice during the last year and had not found any infraction by the firm, could suddenly found something wrong. Sebi has looked into the firm and granted registrations as foreign institutional investor (FII), Category I merchant banker and portfolio investment manager.