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Sebi to hold independent probe into Rathi's 'inside trading'

Securities and Exchange Board of India on Tuesday informed Bombay high court that it would conduct an independent probe into the allegations of 'insider trading' against former president of Bombay Stock Exchange Anand Rathi and his firms and has also decided to continue its earlier order of debarring them from trading on the bourse.

Sebi's counsel Goolam Vahanvati informed the high court that it would institute a detailed probe against Rathi and his firms by appointing an independent inquiry officer.

The decision to continue Sebi's earlier order was taken on Monday by its board, which considered the preliminary investigation report against Rathi and his firms.

The Sebi board was unanimous on conducting an independent probe against Rathi and his firms on "insider trading" but on continuing ban on trading by them on BSE, its member J R Verma gave a dissenting note, the court was informed.

Sebi's board arrived at three major findings -- inquiry made by Rathi on March 2 from BSE's surveillance department was price sensitive information, he used this information to trade on the stock exchange on March 5 and lastly Rathi and his firms had prima facie indulged in price manipulation.

The court allowed Rathi to amend his petition challenging Sebi's decision to debar him from trading in view of the regulator's decision taken afresh on Monday. The matter will be heard on April 26.

Rathi would be served a show cause notice before an independent probe was conducted against him and his firms and the scope of the inquiry would be more wider than the previous one, Sebi's counsel submitted.

Sebi had debarred Rathi and his firms from trading on the ground that he has 'misused' his position as BSE president to obtain 'inside' information of select scrips from the surveillance department on March 2.

Rathi argued that Sebi's order was passed without following the principles of natural justice. He also contended that the post-decision hearing was given to him after ten days, thereby making it a nullity. If he was not allowed to trade, his business would be badly affected, Rathi contended.

Sebi argued that there was no question of following principles of natural justice because due to Rathi's alleged actions, investors' confidence had been shaken.

After preliminary hearing, the high court, on March 19, had ordered Sebi to hear Rathi afresh and pass a reasoned order on the question of allowing him to trade on the bourse.

Accordingly, Sebi had passed a reasoned order, which upheld its earlier decision. Later, it assured the high court that it would once again review its decision by April 23.

Rathi's counsel denied any lapse on his client's part. He said Rathi had merely performed his duty to monitor the stock market situation and become aware of the abnormal trends in the trading on the exchange.

He said Rathi was BSE president and in that capacity he was answerable to the finance minister, media and investing public. He was only trying to find answers regarding fall in market from BSE's surveillance department.

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