SAT Sets Aside Sebi's Order in Morepen Laboratories Case

The Securities Appellate Tribunal (SAT) has set aside regulator Sebi's order that had barred Morepen Laboratories from the capital markets for one year.

Sebi, in September 2019, had prohibited Morepen Laboratories from the capital market for one year for making misleading disclosures about the issuance of global depository receipts (GDRs) way back in 2003.

Pursuant to this, the company moved SAT against the order passed by the Securities and Board of India (Sebi).

Setting aside Sebi's order, the tribunal said there was a delay of more than 14 years in issuing the show cause notice (SCN).

Even though there is no period of limitation prescribed in the Sebi Act and Regulations in the issuance of a show cause notice or for completion of the adjudication proceedings, the tribunal said the regulator was required to exercise its powers within a reasonable period.

The tribunal also noted there was no diversion of funds in the issuance of the GDR. 

Further, it said no finding has been given with regard to any violation in the procedure adopted by Morepen Laboratories in the issuance of the GDR.

"The only charge that remains was non-disclosure of the Account Charge Agreement before the stock exchange. We find that nothing has been brought on record to indicate as to how this non-disclosure was violative of the Listing Agreement," SAT said in an order passed on April 15.

It further said that no misleading statement was made by the company with regard to the subscription of the GDR issue. 

"Considering the fact that there has also been an inordinate delay in the issuance of the GDR the order passed by the WTM debarring the appellant from accessing the securities market for a period of one year cannot be sustained in the peculiar facts and circumstances of the present case and is therefore quashed," SAT noted.

The regulator had noticed some arrangement being perpetrated by certain entities in respect of issuance of GDRs and therefore conducted an investigation into such issues of various companies, including Morepen Laboratories, made in March 2003.

The probe had found that GDRs of Morepen were subscribed by two entities -- Solsec Company and Seviron Company -- both incorporated in the British Virgin Islands. These two entities had obtained loan through credit agreement from Lisbon-based Banco Efisa, SFE, SA.

Further, Morepen had secured the loan obtained by Solsec and Seviron from Banco by pledging the GDR proceeds through an ''Account Charge'' agreement with Banco, Sebi had said in its order.

Sebi had said Morepen did not inform BSE about the execution of Account Charge agreement entered in March 2003 with Banco which acted as a security for the loans availed by the subscribers and also that the GDR issue was subscribed by only two entities -- Solsec and Seviron.

Through such acts, Morepen violated the provision of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms, Sebi had said.