The Supreme Court on Tuesday stayed a sectoral tribunal’s ruling that quashed the Sebi’s order asking Mumbai-based software firm Zenith Infotech (ZIL) to furnish a bank guarantee of $33.93 million and barred its promoters from accessing the securities market in an asset stripping case.
A bench headed by Justice SS Nijjar stayed the Securities Appellate Tribunal’s July 23 order that set aside the Sebi order on the ground that the regulator’s directions were “not sustainable in the eyes of law” as the promoters were not given the opportunity of being heard.
It also issued notice to six promoters — chairman Rajkumar Saraf, managing director Akash Saraf, Vu Technologies, Zenith Technologies, Devita Saraf and Vijayrani Rajkumar Saraf — on Sebi’s appeal.
SAT asked Sebi to look afresh into the matter and pass an order in six weeks as the regulator’s interim order was passed in “gross violation of the principles of natural justice”.
Stating that given the vital function of protecting investors and safeguarding the integrity of the securities market, Sebi in its appeal said it was necessary for it to exercise these powers firmly and effectively to insulate the market and its investors from the fraudulent actions of the participants in the securities market.
It further said that to prevent any further harm to investors and to thwart any further design, it was necessary to send a stern message to prevent companies and their promoters/directors from indulging in such acts of omissions and commissions.
According to the regulator, the promoters prima facie were found to have “stripped the assets of ZIL for the benefit/interest of companies/entities controlled by them in fraudulent and deceitful manner.”
Sebi started a probe into the matter after its integrated market surveillance system alerted on a sudden change in the share price of ZIL in late 2011. A preliminary inquiry report said ZIL had defaulted on redemption of FCCBs (Foreign Currency Convertible Bonds) despite raising money through the sale of its managed services division business and the same information was not disclosed to investors.