Mumbai: The Securities and Exchange Board of India (Sebi) has received a major setback with the Securities Appellate Tribunal (SAT) striking down its order prohibiting Sterlite Industries from acce ssing the capital market for two years for alleged market manipulation in 1998.

The matter assumes significance as Sebi had issued similar orders against BPL and Videocon for alleged manipulation of their stocks along with Harshad Mehta in 1998.

The tribunal set aside the Sebi order against Sterlite on the ground that the evidence was insufficient and said that the conclusion drawn by Sebi in its order, holding Sterlite Industries guilty of indulging in market manipulation is not substantiated by sufficient evidence.

SAT also said the market regulator was unable to give enough evidence pointing to the nexus between Sertlite and the Harshad Mehta-controlled Damayanti Group, which allegedly manipulated the Stertile scrip during April and May 1998.

Sebi chairman D R Mehta had on 19 April 2001 issued an order prohibiting Stertile from accessing the capital market for a period of two years and ordered prosecution proceedings against three company directors - Anil Aggarwal, Tarun Jain and Shashikant - for allegedly manipulating the price of the Sterlite scrip along with Harshad Mehta.

The Sebi order had claimed that the Sterlite associate company Malco had advanced Rs 5 crore to Dil Vikas Finance to manipulate the Sterlite scrip. SAT, however, said there was no evidence to prove that these funds were given to manipulate the market. Dil Vikas had told Sebi that the Rs 5 crore had been lent to buy government securities and SAT found no reason to disbelieve this.

Also, while Dil Vikas did spent Rs 9 crore to buy Sterlite shares on behalf of two clients, SAT found there was no evidence to link these transactions with the advance from Malco. Sterlite had also allegedly bailed out Mehta after its scrip crashed, according to the Sebi order. The evidence for this, Sebi had argued, is centred on an advance of Rs 11.75 crore from Malco to Dil Vikas to purchase the Sterlite shares. This helped in bailing out the Damayanti group, controlled by Mehta, Sebis order had said.

Nevertheless, SAT has accepted Sterlites arguments that the payment of Rs 11.75 crore was done at the behest of the management of the Bombay Stock Exchange to avert a payment crisis. Sterlite has claimed that it did know the identities of the brokers who were selling and that in any case the list of brokers was decided by the BSE.

Sterlite also says it didnt know that the Rs 11.75-crore advance would help in bailing out Mehta. SAT says there is no evidence to refute these arguments. SAT also questioned the fact that Sebi had taken this action under Section 11B. The power vested under 11B is not a penal provision, but a preventive or a remedial provision. SAT has taken the view that the action against the company under 11B prohibiting it from accessing the market for two years is not a preventive or a remedial action a punitive action.

The SAT order has come as a boon to Sterlite as it can now participate in the disinvestment of Hindustan Zinc (HZL), where Sterlite Industries is one of the six bidders. The financial bids for HZL may be opened in the first week of November this year. The government had banned companies indicted by Sebi from participating in the disinvestment process.

In a statement issued late Monday (22 October), Sterlite said the SAT order has vindicated their stand that it had no involvement whatsoever in the alleged share price manipulation by Mehta and/or his associates.

Welcoming the SAT decision, Sterlite CMD Anil Agarwal said: The company is also hopeful of going in for the proposed buyback plan, which was stalled by Sebi saying the ban on accessing the market also include buyback of securities.

The Sebi can now move the high court against the SAT order and can even get a stay on the order till there is a final verdict on issue.