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SAT rules on charges of making false statements and deletion of emails

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The Securities Appellate Tribunal (SAT) in its decision today has set aside and reduced monetary penalties imposed by SEBI in the matter of “Dark Fibre” matter relating to the NSE India.

Briefly, SEBI had received complaints that some brokers were illegally using P2P dark fibre connectivity. Based on these allegations, SEBI WTM issued an order against NSE, several of its functionaries, stock brokers and other associated entities. In appeal, the SAT had set aside several directions of the SEBI WTM. However, in the meanwhile SEBI had also issued another order imposing monetary penalties in the same matter.

While the SAT did not extensively deal with several issues previously covered but decided at length on certain issues which involved a violation of provisions of Section 11C i.e. SEBI’s power to investigate.

Allegation of providing false information to SEBI during statement recording:

SEBI had imposed a penalty on three individuals for allegedly providing a false statement to SEBI. The SAT quashed the penalty for the following reasons: (i) The SEBI AO had given a vague finding that the statements made by these noticees were contradictory when compared with the evidence available on record without showing what part of the statement was contradictory; (ii) The SEBI AO had taken selective extracts of the statements of these noticees which if read in isolation conveys a different picture instead of making an assessment based on the entire statement; (iii) Merely because there were some inconsistencies in the statements made by the appellants cannot lead to a conclusion that the charge of false statement is proved – False statement implies an intentional act of deception or fabrication, with the intent to mislead or manipulate the course of an investigation which has to be conclusively proved by relying upon the evidence. The statements made by the appellants herein was based mere interpretation and / or understanding and / or on their belief and while may be incorrect cannot by itself be a false statement.

Allegation of deleting of emails:

SEBI penalized three individuals for deleting emails / not preserving information. The penalty was quashed by the SAT on the grounds that (i) The allegation of deleting emails (against two individuals) was based on no evidence since there is no finding as to what emails the individuals had deleted and whether such deleted emails were relevant for the purpose of the case; and (ii) in respect of the third individual who had admitted to deleting emails, SAT held that the deleted emails were available in a secondary mailbox under company policy and if the email was still available in the secondary inbox the question of destruction of evidence does not arise.

A copy of the SAT decision is enclosed herewith and available on the SAT website.

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