SEBI Imposes Three-Year Ban On Vijay Mallya For Securities Market Manipulation

This decision stems from Mallya's involvement in a scheme to manipulate the Indian securities market through overseas accounts. SEBI's investigation revealed that Mallya used Matterhorn Ventures, a Foreign Institutional Investor (FII) to covertly trade shares of his group companies including Herbertsons Ltd and United Spirits Ltd (USL). The funds for these transactions were routed through various overseas accounts held with UBS AG, a Swiss bank.

The probe, which covered transactions from January 2006 to March 2008, found that Mallya employed a complex network of overseas entities to conceal his identity and influence the Indian market.

Regulation 3 of the PFUTP Regulations prohibits individuals from engaging in fraudulent practices in the securities market. Regulation 3(a) forbids any manipulative or deceptive dealings in securities. Regulation 3(b) prohibits the use of manipulative devices or deceptive schemes in transactions related to securities listed or proposed to be listed on a recognized stock exchange. Furthermore, Regulation 3(d) ensures that no person engages in any act or practice that constitutes fraud or deceit in connection with securities transactions.

Under Section 12A of the SEBI Act, individuals are prohibited from employing manipulative or deceptive practices in securities transactions.

SEBI referred to the Supreme Court decision in Securities and Exchange Board of India vs. Kanaiyalal Baldevbhai Patel (2017) 15 SCC 1 where it was held that unfair trade practices encompass conduct that undermines ethical standards in business dealings. Further, Jindal Cotex Ltd and Others Vs. SEBI (Appeal No. 376 of 2019) where the Securities Appellate Tribunal (SAT) addressed the complexities involved in international manipulative issues, such as Global Depository Receipts (GDR) cases. SAT held that delays in investigations due to cross-border elements are permissible provided they do not undermine the fairness of the proceedings.

SEBI's June 2018 order imposed a three-year ban on Mallya which prohibited his participation in the securities market from June 1, 2018, to May 31, 2021. Additionally, Mallya was barred from holding director or managerial positions in listed companies for five years. This earlier order was a response to Mallya's alleged manipulative activities including the diversion of funds and improper transactions related to USL shares.

Mallya's recent ban extends this prohibition following a detailed investigation that included data from multiple foreign regulatory bodies. SEBI began its investigation after receiving information from the Financial Conduct Authority (FCA) in the United Kingdom. The process involved cooperation with international regulators including the Monetary Authority of Singapore (MAS), the Jersey Financial Services Commission (JFSC), and the Financial Market Supervisory Authority (FINMA) of Switzerland.

The investigation noted that Mallya used Matterhorn Ventures to invest in the Indian market indirectly. SEBI's investigation revealed that Mallya, through a scheme involving multiple overseas accounts, funneled funds to invest in Indian companies. These transactions were conducted under the guise of an FII to avoid detection.

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