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2019 (3) TMI 827

lation of the principles of natural justice - HELD THAT:- We find that on the basis of the enquiry, the rationale for taking urgent preventive actions is based on the fact that appellant, NEFM had accumulated/cornered stocks of Mentha Oil through entities in Group A and Group B by misusing the exchange platform. Such large accumulation of Mentha Oil was with the intention of acquiring a dominant position in the market in order to manipulate the future price of Mentha Oil during the lean season on the strength of the physical stock of Mentha Oil it held on the exchange platform. - The impugned order is harsh and unwarranted. There was no real urgency at this late stage in passing an ex-parte restraint order which virtually amounts to passing a final order. The period of trades is 2017-2018. At the time when the impugned order was passed the future contracts had been executed. The lean season was over. - There is nothing on record to indicate that the sales made by the appellants was on a higher side indicating manipulation in the price nor there is any prima-facie, finding that by accumulating large stocks of Mentha Oil, the appellant had dominated the market without making .....

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5 of 2019 With Appeal No. 86 of 2019 - 12-3-2019 - Mr Tarun Agarwala, Presiding Officer And Dr. C. K. G. Nair, Member For The Appellants : Mr. Janak Dwarkadas, Senior Advocate with Mr. Somasekhar Sundaresan, Mr. Vikram Raghani, Mr. Pulkit Sukhramani, Ms. Stuti Shah, Advocates i/b J. Sagar Associates And Mr. Gaurav Joshi, Senior Advocate with Mr. Saurabh Bachhawat, Mr. Nirmal Chopda, Advocates i/b Vraj Legal For The Respondent : Mr. J. P. Sen, Senior Advocate with Mr. Anubhav Ghosh, Ms. Vidhi Jhawar, Advocates i/b The Law Point ORDER Per : Justice Tarun Agarwala, Presiding Officer 1. On the basis of urgency, this batch of appeals has been posted today for admission and for an interim order. These appeals arises against an ex-parte interim order dated February 28, 2019 passed by the Whole Time Member (hereinafter referred to as, WTM ) of Securities and Exchange Board of India (hereinafter referred to as, SEBI ) exercising the powers conferred under Section 11(1), 11(4) and 11B read with Section 19 of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as, SEBI Act ) restraining the appellants and other entities from buying, selling or dealing in the securiti .....

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in a period of 15 days from this order. 2. The fact leading to the issuance of the ex-parte interim order in a nutshell is, that SEBI received an e-mail from Multi Commodity Exchange of India Ltd. (hereinafter referred to as MCX ) intimating that three entities, namely, Mr. Abhishek Aggarwal, Ms. Neetu Gupta and Mr. Yash Gupta (hereinafter referred to as Group A entities ) were holding more than 75% of the total exchange deliverable stock of Mentha Oil. MCX further informed that Group A entities were clubbed in accordance with MCX s circular dated August 23, 2017 with regard to monitoring of position limits as it was found to be receiving funds from the appellant, i.e. North End Foods Marketing Pvt. Ltd. & Anr. (hereinafter referred to as NEFM). On perusal of the details submitted by MCX, it was observed that Group A entities acquired Mentha Oil through transactions in Mentha Oil futures contracts on the exchange platform as well as by way of off-market transfers. Further Group A entities acquired off-market transfers from Group B entities. These allegations were examined in detail and it was, prima-facie, found that Group A and Group B entities had taken large deliveries of Me .....

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Regulations 3 and 4 of the PFUTP Regulations. A presumption was drawn that this accumulated / cornered stocks of Mentha Oil was predominantly done with the purpose of manipulating the Mentha Oil market on the exchange platform and on the physical stocks of Mentha Oil through Group A and Group B entities. A prima-facie opinion was formed that concentration of large stocks with a single entity was detrimental to the price discovery and that a single entity was in a position to dictate the Mentha Oil Future Contracts on exchange platform during the lean season. On this bonafide apprehension that a single entity could dominate or dictate the price of Mentha Oil on future contracts on the exchange platform led the WTM to adopt urgent measures by passing an ex-parte interim order with a view to prevent the appellants from indulging in such activities or taking positions in Mentha Oil or for that matter in other commodities in violation of prescribed positions limits. 4. The appellant, NEFM, has filed Appeal No. 80 of 2019 contending that it is actively involved in the business of procurement of commodities and warehousing of commodities for which it receives orders from its clients and, .....

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latform. 9. The Appellant, Neeru Gupta in Appeal No. 86 of 2019 has been categorized in Group B entity and contends that she has not done any trading since 2018 and had resigned as a director in the companies indicated in Group B prior to the relevant period. She categorically submitted that she has no dealings in Mentha Oil and, therefore, the ex-parte ad-interim order is patently erroneous. 10. R. K. Commodities, appellant in Appeal No. 84 of 2019 is a broker and is a trading member and contends that it has wrongly been connected with the entities in Group B. It was contended that the Code of Conduct for stockbrokers has not been violated and that MCX had issued an order dated November 30, 2018 restraining the appellant from trading in Mentha Oil and, therefore, there was no further occasion for the WTM to pass the impugned ex-parte interim order restraining it from dealing in all commodities on the exchange platform. 11. In the light of the aforesaid, we have heard at length Shri Janak Dwarkadas, learned senior counsel, Shri Gaurav Joshi, learned senior counsel, Shri Mustafa Doctor, learned senior counsel alongwith Shri Somasekhar Sundaresan, and Shri Prakash Shah, the learned c .....

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rtually put a death knell on their business and has undoubtedly stopped their business which is otherwise guaranteed under the Constitution. It was contended that freezing of the mutual funds had no relation with the trading activities and, therefore, the ex-parte order was wholly arbitrary and, in any case, was harsh and punitive and not remedial in nature, which is envisaged under Section 11 of the SEBI Act. 12. On the other hand, the learned senior counsel for the respondent contended that the allegations of dominating the market and cornering the stocks with a view to manipulate the price will only come out after the enquiry. It was further contended that, admittedly, the securities market in trading of these commodities are small as compared to the trading in the open physical market, and, therefore, the restraint order was only confined to the trading on the exchange platform and, therefore, it was open for the appellants to continue dealing with the commodities in the open market. It was submitted that considering the gravity of the violations and the fraudulent intention under the PFUTP Regulations, SEBI with a view to act diligently has taken immediate preventive measures .....

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g investigation or enquiry unless provided by the statute. In such cases, rules of natural justice would be satisfied, if the affected party is given a post-decisional hearing. 14. However, it does not mean that in every case, an ex-parte interim order should be passed on the pretext that it was imminent to pass such interim order in order to protect the interest of the investor or the securities market. An interim order, however, temporary it may be, restraining an entity/person from pursuing his profession/trade may have substantial and serious consequences which cannot be compensated in terms of money. 15. Thus, ex-parte interim order may be made when there is an urgency. As held in Liberty Oil Mills & Ors. vs. Union of India & Ors. [AIR (1984) SC 1271] decided on May 1, 1984, the urgency must be infused by a host of circumstances, viz. large scale misuse and attempts to monopolise or corner the market. In the said decision, the Supreme Court further held that the regulatory agency must move quickly in order to curb further mischief and to take action immediately in order to instill and restore confidence in the capital market. 16. In the light of the above, we find that .....

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