New Delhi, June 15 -- The Securities Appellate Tribunal has overturned an order passed by the Securities and Exchange Board of India more than 15 years ago, after noting that it took the capital markets regulator 13 years to send the order to the correct address.

The market regulator had investigated an entity named Prince Securities for a pump-and-dump operation in the shares of Silicon Valley Infotech, which were traded on Calcutta Stock Exchange and the Bombay Stock Exchange. The period under investigation was between November 2002 and April 2003, and the order was passed in 2010.

But according to SAT, Prince Securities got the order delivered to their email and postal address only on November 2, 2023.

During the course of the hearing, SEBI admitted that the order was initially delivered to an incorrect address.

Since SEBI did not give an explanation on why the order was not served for 13 years, the alleged transactions were a quarter-century old and the Calcutta Stock Exchange had been closed, the tribunal on June 11 set aside SEBI's order.

Backstory

SEBI had investigated Prince Securities for colluding with the promoters of Silicon Valley Infotech, the stock broker Bubna Stock Broking and others to take SVL's share price from Rs 8.6 to Rs 65.75 apiece between November 2002 and April 2003, or an increase of 664.53% over five months.

The regulator found that Prince Securities traded in a large number of shares to "create a false and misleading appearance of trading in the scrip".

Several anomalies were uncovered during the investigation. Prince Securities bought shares from promoter-related entities through Bubna but several of these deals were entered in random client codes on the CSE to avoid paying the margin money. The regulator also noted that Prince had a debit balance of Rs 55 lakh in its account with Bubna but was allowed to buy 8.75 lakh shares despite that. The shares were then transferred to entities that claimed to be known to Prince and then to Bubna. The debit balance in Prince's account with Bubna increased to Rs 2.13 crore subsequently.

During the course of the investigation, the regulator made several attempts to reach Prince. It first sent the showcause notice (SCN) through the postal authority but it came back undelivered as "address not known". Then, the SCN was sent through the stock broker Bubna, which was also under investigation for the same operation. Bubna also submitted that Prince was not available at the given address.

Then, an address was sought from the depository NDSL, which forwarded the address of Prince Shares and Securities Pvt Ltd, and from the Registrar of Companies (RoC), from where the address of Prince Securities Services Pvt Ltd was pulled out. Notices for hearing along with a copy of the SCN were sent to these addresses.

While mails sent to one address came back undelivered, mails sent to the other came back with a response that no such concern existed or had existed at the address.

Thereafter, SEBI also put out notices through national newspapers, but failed to get any response from Prince. Finally, the regulator passed the ex-parte interim order imposing a fine of Rs 6 lakh on Prince.

In 2023, the order was served to Prince Securities through the stock broker Zerodha at its present address, and through its email ID. Prince Securities then appealed the order citing "abuse of process of law".

SEBI submitted that all efforts in accordance with law had been taken to serve Prince before passing the ex-parte order, and that Prince had been involved in manipulative trading and that there was no error in the order itself.

Prince never paid the fine. Now, with SAT overturning the order, it doesn't need to.

Published by HT Digital Content Services with permission from VC Circle.