Satyam Case: Setback For SEBI As Securities Appellate Tribunal Sets Aside Parts Of SEBI Order

In a setback for the Securities and Exchange Board of India, the Securities Appellate Tribunal (SAT) on Friday set aside parts of the order passed by the market regulator against Satyam Computers founder Ramalinga Raju and four others in July 2014.

The apellate body, in an order posted on its website, said that SEBI's decision “in uniformly restraining all appellants from accessing the securities market for 14 years without assigning any reasons is unjustified”. The SAT also set aside the quantum of illegal gains directed by SEBI to be paid by each appellant, saying that it is based on grounds which are mutually contradictory and without application of mind.

The appellate body has asked SEBI to pass a fresh order within four months.

Raju had in 2009 confessed to cooking up accounts in what is India's biggest accounting scam worth Rs 7,000 core. He was sentenced to seven years in prison and Satyam was later acquired by Tech Mahindra Ltd. SEBI too had slapped a penalty of Rs 1,802.81 crore along with 12 percent interest, besides barring Raju and others from capital markets for 14 years.

The former Satyam chairman and others challenged the market regulator's order at SAT, alleging that it was in violation of natural justice. Rajiv Kumar Agarwal, then whole-time director at SEBI, had found them guilty of violating the SEBI Act, Prevention of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, 2003 and Prevention of Insider Trading (PIT) Regulations, 1992.

They also challenged the SEBI order that barred them from the capital markets and asked them to disgorge or pay the unlawful gains.

The SAT upheld that SEBI is justified in passing the ex-parte order in the Satyam case as the regulator gave several opportunities to the appellants to present their case.

The appellate body also upheld the order against Raju, former Satyam managing director Rama Raju, former chief financial officer V Srinivas, former general manager (finance) G Ramakrishna and former head of internal audit Prabhakara Gupta for violation of SEBI Act, PFUTP Regulations and PIT Regulations.

The disgorgement or repayment ordered by SEBI included Rs 543.93 crore of unlawful gains from sale of shares between 2001 and 2008, and Rs 1,258.88 crore from pledging Satyam shares with various financial institutions. The SAT found this part of the order unjustified as loan sanctioned with the obligation to pay could not itself constitute gain under any provision of the securities laws.