SAT sets aside SEBI order directing Factorial Master Fund to disgorge Rs 20 crore worth of 'illegal' gain

New Delhi: The Securities Appellate Tribunal (SAT) has set aside markets regulator SEBI’s order which had directed Factorial Master Fund to disgorge Rs 20 crore worth of illegal gains made by it through insider trading in the scrip of L&T Finance Holdings. The decision came after Factorial, a Hong-Kong based firm founded by an Indian-origin banker, moved the tribunal against the SEBI order. The Securities and Exchange Board of India (SEBI), in an order passed in December 2016, had ordered Factorial to disgorge Rs 20 crore worth of illegal gains made by it through insider trading in the scrip of L&T Finance Holdings. [caption id=“attachment_4307425” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] A SEBI probe had found that Factorial, incorporated in Cayman Islands, had traded in the scrip of L&T Finance Holdings on the basis of its access to unpublished price sensitive information (UPSI) related to Offer for Sale (OFS) by Larsen & Toubro in its unit. On 13 March, 2014, Factorial had indulged in unusual and aggressive trading in the L&T Finance scrip a day ahead of the OFS announcement, as per the SEBI order. In a ruling dated 29 June, the tribunal said that SEBI is not justified in holding that Factorial traded in the scrip of L&T Finance Holdings in the F&O segment on 13 March, 2014 while in possession of alleged UPSI that L&T had made an application to the regulator 10 March, 2014 seeking exemption from the cooling-off period. As per the tribunal, L&T had sold 1 percent shares of L&T Finance Holdings (LTFH) in November-December 2013 through OFS and was entitled to sell the balance shares after the expiry of the 12 weeks cooling off period on 17 March, 2014. Factorial, that had participated in the market gauging exercise on 10 March, 2014, had every reason to believe that L&T would sell LTFH shares on or after after the cooling off period, it added. It is not in dispute that during the market gauging exercise, various investors including Factorial had expressed their views demanding deep discount in the shares of LTFH. Therefore, it had every reason to believe that the shares of LTFH would be offered by L&T at a deep discount. SAT noted, “SEBI is not justified in presuming that the appellant had traded in the scrip of LTFH in the F&O segment on 13 March, 2014, while being in possession of the UPSI that L&T would sell the shares of LTFH through OFS imminently.” “In our opinion, this is a fit case to grant benefit of doubt, because, it is possible that the appellant (Factorial) aggressively traded in the scrip of LTFH in the F&O segment on 13 March, 2014 and kept the position open not on the basis of UPSI but on the basis of calculated risk that L&T which had commenced off loading of LTFH shares in November-December 2013 would sell the balance shares of LTFH after the expiry of cooling-off period, that is, on or after 17 March, 2014,” the tribunal added. Accordingly, the tribunal has set aside the Sebi’s order passed in December 2016 against Factorial.