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Tribunal on the importance of motive under PFUTP Regulations

Finsec Law Advisors

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In an order dated March 13, 2019 in the matter of R.S. Agarwal v. SEBI, the Securities Appellate Tribunal (“SAT”), while discussing the implications of a reported statement to acquire a listed company under SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market) Regulations, 2003 (“PFUTP Regulations”), held that while dealing with fraud SEBI needs to ascertain the motive in the absence of any connecting evidence.

The chairman of Emami Ltd. (“Chairman”) had, in an interview, expressed his interest to acquire Amrutanjan Healthcare Ltd. (“Amrutanjan”), a listed company. SEBI contended that such a statement was not made pursuant to any approval by the board of directors of Emami Ltd., and it has impacted the price and volumes in the scrip of Amrutanjan to a considerable extent. Therefore, it alleged that the Chairman had planted false and misleading news which led to the manipulation in the price of the security.

Rejecting these contentions, SAT observed that the chairman had not acquired or had made no efforts to acquire the shares of Amrutanjan. Further, a clarification was issued to the stock exchange by the chairman stating that it was a general statement. Therefore, it held that in the absence of any connecting evidence, while dealing with the issue of fraud, SEBI needs to ascertain the motive. In this matter, SAT found an absence of any motive or a scheme to defraud, and observed that substantial movement in the price of a liquid stock of a profitable company cannot be attributed to such reported statement alone.

SAT has appropriately rejected SEBI’s fallacious arguments, and has provided clarity on the necessity for ascertaining motive in cases involving fraud under the PFUTP Regulations.