HC dismisses the request of Prannoy Roy and his wife against Sebi's warning

MUMBAI: The Bombay High Court on Monday dismissed a petition filed by Prannoy Roy and his wife Radhika who challenged a justified cause notice issued in August 2018 by the market regulator, Securities Exchange Board of India ( Sebi ) for alleged violations of a decade, as promoters of NDTV , of the insider rules.

Roys had challenged the validity of the notice dated August 31, 2018 issued by Sebi 10 years after the alleged trading activity in violation of the Sebi (Prohibition of Insider Trading) Regulations, of 1992 in relation with NDTV scrips. Their counsel Fereshte Sethna argued that Sebi had not granted it inspection of several documents it was referring to and relying on.

A bench of justices S C Dharmadhikari and Riyaz Chagla after hearing her and Sebi counsel JJ Bhatt dismissed the petition by Roys holding there to be “no need for interference” in the show cause.

An adjudicating authority of Sebi - S K Mahanty as whole time member - will now hear and decide the issue raised by the show cause notice. His order, once passed, can be challenged before Securities Appellate Tribunal (SAT). The HC after dictating its order, observed when Sethna persisted that inspection of documents at least be given, that if the administrative adjudicatory panel makes an error, Roys can always point it out later.

Roys said that the Sebi notice “constitutes a gross abuse of process” and that the allegations levelled by the regulator “are baseless and unfounded.” Their case is that there is “no shred of evidence” with Sebi nor have they been furnished any documents to substantiate the allegations.

Roys said that the Sebi notice relates to proposed restructuring of NDTV into ‘News related Businesses’ and investments in ‘Beyond News’ businesses held through NDTV Network Plc, during the year 2008, a proposal that was eventually not implemented.

Sebi issued the notice saying that they traded in the shares of NDTV, while in possession of ‘unpublished price sensitive information’ pertaining to such proposed restructuring, and that such alleged wrongful gain is reliable to disgorgement.

Sebi was represented by counsel JJ Bhatt. The case of Sebi is that whatever documentation was required was shown.

Roys' allegation is that as promoters they had sought and secured authorizations prior to negotiation in terms of the Code of Conduct for the Prohibition of the use of privileged information adopted by the channel.

Their petition says that since Sebi notice is issued after lapse of 10 years from the alleged transactions, relevant records are no longer available with them and hence the notice would, “irretrievably prejudice and jeopardize the right of the to defend themselves.”

Roys has pointed to a Delhi HC interim order of last year which had granted them inspection of documents in another show cause notice issued by Sebi over a loan transaction. Sethna had argued that by directing Sebi to permit inspection there, the Delhi HC had recognized the need for such inspection to be mandatory. The Bombay HC was not persuaded by these arguments and dismissed their petition.