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Case Law Details

Case Name : Dr. Udayant Malhoutra Vs SEBI (SAT Mumbai)
Appeal Number : Misc. Application No. 154 of 2020
Date of Judgement/Order : 27/06/2020
Related Assessment Year :
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Dr. Udayant Malhoutra Vs SEBI (Securities Appellate Tribunal, Mumbai)

1. The present appeal has been filed against an ex-parte order dated June 15, 2020 passed by the Whole Time Member (‘WTM’ for short) of Securities and Exchange Board of India (‘SEBI’ for short) directing the appellant to deposit a sum of Rs. 2,66,59,215/-plus interest till date totaling Rs.3,83,16,230.73 in an Escrow Account towards notional loss allegedly avoided by him by using unpublished price sensitive information and further directed that the bank accounts / demat accounts of the appellant shall remain frozen till such time the amount is not deposited. The WTM further directed the appellant to show cause as to why an order of disgorgement should not be passed.

2. The facts leading to the filing of the present appeal is, that the appellant is the Chief Executive Officer and Managing Director of a listed company known as Dynamatic Technologies Limited (‘DTL’ for short) which is engaged in the manufacturing of aerospace, automotive and engineered products. The appellant has been the Managing Director since 1989. The charge leveled against the appellant is, that he had sold 51,000 shares of the company DTL on October 24, 2016 having inside knowledge of the price sensitive information, namely, the unaudited financial results of the quarter ending September 30, 2016. It was alleged that the financial results were approved by the Board of Directors on November 11, 2016 whereupon the price of the scrips of the company drastically went down. It was alleged that the appellant had inside information of the price sensitive information and, being a connected person had sold the shares and thus made a notional gain or averted a notional loss.

3. In this regard, the sales made by the appellant was investigated in 2017 and that the investigation team only asked information from the appellant for the first time on November 28, 2019 and thereafter the WTM passed the impugned exparte order on June 15, 2020.

4. The contention of the appellant is, that there was no urgency in passing an ex-parte order with regard to a trade done by the appellant more than three and half years ago and especially during the pandemic period. It was urged that the action of the respondent in freezing the accounts of the appellant during these time was wholly arbitrary. It was further urged that an ex-parte order cannot be sustained in as much as the same is violative of the principles of natural justice. The appellant contended that the shares were sold on account of a loan agreement entered by the company with a consortium of banks and that appellant was required to reduce its pledge holdings for the purpose of disbursement of a loan of 3,69,00,00,000 (Rupees Three Hundred and Sixty Nine Crores Only). It was urged that had an opportunity of hearing been given these relevant facts could have been intimated which could have been considered by the respondent. It was also contended that the prices of the scrip went down not because of the disclosure of the financial results of the quarter ending September 30, 2016 but on account of the fact that the Government of India announced the demonetisation of its currency on November 8, 2016 and share prices across the board had declined which factor, being a relevant factor, was not taken into consideration.

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