Jaya Hemant Ghai And Others vs Securities And Exchange Board Of India

Tarun Agarwala, Presiding Officer, J

The aforesaid appeals raise a common issue and are being taken up together. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted a preliminary examination of the trades executed by Mrs. Jaya Hemant Ghai and Mrs. Shyam Mohini Ghai, the appellants which revealed violations under the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) and the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003 (hereinafter referred to as ‘PFUTP Regulations, 2003’). The preliminary examination revealed that Mr. Hemant Ghai was buying shares of various companies in the name of his wife Mrs. Jaya Hemant Ghai and mother Mrs. Shyam Mohini Ghai on the previous day. Mr. Hemant Ghai was a financial adviser and was hosting/cohosting various shows on the T.V. channel and he would make recommendation on the next day before the start of the stock exchange recommending those very stocks which he had purchased the previous day. As a result of his recommendations on T.V. show, fluctuations in those very scrips were noticed in which Mr. Hemant Ghai made a recommendation. As a result of this movement of the trades by other investors Mr. Hemant Ghai off loaded the shares which he had purchased in the name of his wife and mother under the BTST trades, which means, Buy Today Sell Tomorrow and made unlawful gains. It was, thus, observed that the trades executed in the name of the wife and mother was prima facie in violation of the SEBI Act and PFUTP Regulations. The investigation revealed that unlawful gain amounting to Rs.2,95,18,680 was earned during this period.

Accordingly, an ex-parte ad-interim impounding order dated 13th January, 2021 was passed by the Whole Time Member (‘WTM’ for short) restraining the appellants from buying, selling or dealing in securities. The appellant Mr. Hemant Ghai was restrained from giving any investment advice directly or indirectly. The appellants were further directed to deposit the unlawful gain of Rs.2,95,18,680 in an escrow account.

The appellants appeared before the WTM and contested the matter. The WTM issued a confirmatory order dated 2nd September, 2021.

During the investigation period it was found that unlawful gains were more than Rs.2,95,18,680. Accordingly, another ex-parte order dated 3rd February, 2022 was passed further impounding a sum of Rs.3,90,67,921 directing the appellants to deposit the said amount in an escrow account. This order of 3rd February, 2022 has been challenged by Mrs. Jaya Hemant Ghai and Mrs. Shyam Mohini Ghai in appeal no.111 of 2022. The appellant Mr. Hemant Ghai has filed appeal no.110 of 2022 confining the appeal to direction no.59.3 of the ex-parte ad-interim order dated 13th January, 2021 wherein the appellant was restrained from giving investment advice directly or indirectly.

We have heard Mr. Mustafa Doctor, Senior Advocate assisted by Mr. Ravichandra Hegde, Mr. Vishal Khanavkar, Mr. Abhineet Sharma, Mr. Samyak Pati, Ms. Ishita Bajaj and Ms. Parinaz Bharucha, Advocates for the appellant and Mr. Pradeep Sancheti, Senior Advocate assisted by Mr. Abhiraj Arora, Ms. Anshu Mehta, Mr. Shourya Tanay and Mr. Harshvardhan Nankani, Advocates for the Respondent.

We find that the impugned order 3rd February, 2022 cannot be sustained for the following reasons. No reason has been given as to why the further sum of Rs.3,90,67,921 are unlawful gains. There is no discussion as to how the said figure has been arrived at.

We further find that the impugned order is violative of the principles of natural justice. When the appellants have already appeared and have contested the ex-parte ad-interim order dated 13th January, 2021 which was confirmed on 3nd February, 2021 the WTM could not proceed to pass another ex-parte ad-interim order impounding further amounts. Once the appellants have appeared it was necessary for the WTM to give notice and to give an opportunity to show cause before passing a further impounding order. Thus, in the absence of providing an opportunity of hearing and in the absence of not giving any reason, the impugned order dated 3rd February, 2022 cannot be sustained in so far as the appeal of Mr. Hemant Ghai is concerned.

Prima facie we find that the pattern of buying shares in the trading account of wife and mother on the previous day and making recommendations on the show co-hosted by the appellant and selling the same immediately after the said recommendation appears to be in violation of the SEBI laws and, therefore, at this stage it is sufficient for us to hold that the ex-parte ad-interim order dated 13th January, 2021 restraining the appellant from giving investment advice does not suffer from any error of law. We refrain from commenting or delving into the merits at this stage as it would affect the proceedings pursuant to the show cause notice that would be issued.

We are in agreement with the contention of the appellant that the restraint order cannot continue indefinitely. The fact that whether the appellant has violated the SEBI laws is yet to be adjudicated and, therefore, on prima facie basis the restraint order cannot continue indefinitely otherwise it would become arbitrary and in violation of the appellants fundamental right to trade and do business under Article 19(1)(g) of the Constitution of India.

We, however, find that a show cause notice dated 24th February, 2022 has been issued and a reply has been sought from the appellants. Considering this fact we are not inclined to interfere in the restraint order passed against the appellant Mr. Hemant Ghai at this stage.

In view of the aforesaid the impugned order dated 3rd February, 2022 is quashed. Appeal no.111 of 2022 of Mrs. Jaya Hemant Ghai and Mrs. Shyam Mohini Ghai is allowed. Appeal no.110 of 2022 of Mr. Hemant Ghai is disposed of with a direction that the WTM will hear the matter within six weeks from the date of filing of the reply by the appellant and order be passed with two months thereafter. Misc. application no.175 of 2022 is disposed of accordingly. In the circumstances of the case parties shall bear their own costs.

This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.