SAT sets aside SEBI order in Morpen Laboratories case

The Securities Appellate Tribunal (SAT) has set aside the order of regulator SEBI, which banned Morpen Laboratories from the capital market for a year.

In September 2019, SEBI banned Morpen Laboratories for a year from the Capital Market for making misleading revelations about the issuance of Global Depository Receipts (GDRs) in 2003.
For this, the company moved the SAT against an order passed by Securities and Board of India (SEBI).

Setting aside the SEBI order, the tribunal said that there was a delay of more than 14 years in issuing a show cause notice (SCN).

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Even though the SEBI Act and Regulations set no time for a limited period for issuing show cause notices or completing adjournment proceedings, the tribunal held that the regulator was required to exercise its powers within a reasonable period.
The tribunal also noted that there was no division of funds in the issuance of GDRs. Further, it stated that no discovery has been made in relation to any breach in the procedure adopted by Morpen Laboratories in issuing the GDR.

The SAT stated that the only fee which was the non-disclosure of the account charge agreement before the stock exchange. The order was passed on 15 April.

It further stated that no misleading statement was made by the company regarding membership of the GDR issue. “In view of the fact that the issuance of the GDR has also been delayed, the order passed by the WTM has dissuaded the appellant for a period of one year from reaching the securities market, which remains intact under the peculiar facts and the present circumstances. Cannot live. The case was therefore dismissed.
The regulator had noted the implementation of certain arrangements by some entities in relation to the issuance of GDRs and therefore investigated such issues of various companies, including Morpen Laboratories, formed in March 2003.

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The investigation found that Morpen’s GDR was given membership by two entities – the Solacek Company and the Seachians Company – both of which were included in the British Islands. These two entities had secured loans through a credit agreement from Lisbon-based Banco Efisa, SFE, SA.
In addition, Morpen obtained loans from Banco to Solsek and Sechian through GDR’s proceeds through an “account charge” agreement with Banco, Sebi said in its order.

SEBI had stated that Morpen had not informed the BSE about the execution of the Account Charge Agreement entered into with the banks in March 2003, which acted as a security for the loans taken by the subscribers and also The GDR issue was subscribed to by only two entities – Solsec and Sechians. .

SEBI said that through such acts, Morpen violated the PFUTP (Prohibition and Prohibition of Unfair Trade Practices) provisions.

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