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While overruling an order passed by the Adjudicating Officer (AO) of the Securities and Exchange Board of India (SEBI), the Securities Appellate Tribunal (SAT) has found that a substantial movement in the prices of a profitable company cannot be attributed to a news report alone.
The SAT was hearing an appeal filed by Chairman of Emami Limited, RS Agarwal, against an order passed by the AO imposing a penalty of Rs 8 lakh on him for giving out (mis)information.
As per a news report published on April 3, 2010, Agarwal told a TOI journalist that he was interested in acquiring Amrutanjan Healthcare.
Soon after, on April 5, 2010, NSE and BSE sought clarification from both companies. Emami claimed that their Chairman, Agarwal expressed a general intention to acquire. The promoters of Amrutanjan responded by saying that they had no intention of selling their shares.
The AO found that the news report had an impact on the price and volumes in the scrip of Amrutanjan to a considerable extent, and hence violated sub section (c) of Section 12(A) of the SEBI Act read with Regulation 3(d) of PFUTP Regulations, 2003. He, therefore, proceeded against Agarwal and penalized him under Section 15HA of SEBI Act.
The AO’s conclusion was that there had been an increase in both volume and price after the statement was published as a news item, as compared to the period prior to April 3, 2010. In this regard, a specific comparison was made between two trading days – April 1, 2010, and April 5, 2010 – the last traded day and the first traded day before and after the press report.
In the appeal, the question before the SAT was – whether a reported statement made by the Chairman of a Company about his interest in another Company amounts to fraud or a fraudulent act in the given facts of the case.
The SAT found that the volumes on March 31, 2010, and April 5, 2010, are not much different while when one compares the volume of April 5 with that of April 1, the volumes are quite different. This shows that a two-day comparison can be misleading and is not sufficient to establish evidence for a serious offence like fraud, it was held.
The SAT further found that there is no evidence of Emami acquiring any shares of Amrutanjan. SAT also noted that there was in fact, no effort for an acquisition. This was further read along with Emami’s response to the stock exchanges wherein they clarified that it was a general statement relating to his business interest.
The SAT noted that the statement was further emphasized by the clarification provided by Amrutanjan itself which also stated that “the said news item is false and without basis and the promoters of the Company have no intention to sell out and the promoters do not foresee any reason to dilute their stake and exit from the company”.
On the burden of proof required for proving fraud, the SAT held,
“While dealing with a serious issue of fraud the authorities need to ascertain the motive in the absence of any connecting evidence…
…In the absence of any motive or a scheme or any evidence a reported news item alone is not sufficient to prove a serious charge like fraud…Substantial movement in the prices etc. of a profitable company with sufficient liquidity cannot be attributed to such a reported statement alone.”
Therefore, the appeal was allowed.
Somasekhar Sundaresan, along with Abishek Venkatraman, Joby Mathew, Ramesh Gogawat appeared for RS. Agarwal, the appellant whereas Karan Bhosale with Mihir Mody and Nishant Upadhyay appeared for SEBI.
(Read the order)