J.Sagar Associates (JSA) represented Factorial Master Fund (“Factorial”), a Cayman Island fund, in an Appeal before the Securities Appellate Tribunal (SAT) against a decision of SEBI which held Factorial guiltyof insider trading while trading in F&O of L&T Finance Holdings Limited (“LTFH”). SEBI had directed Factorial to disgorge an amount of INR 20 Crores, plus interest from March 2014, on the ground that Factorial had unpublished price sensitive information (“UPSI”) while trading in the scrip of LTFH ahead of the announcement of an Offer for Sale (“OFS”) of shares of LTFH by Larsen and Toubro Limited (“L&T”). The information was alleged to have been accessed by Factorial during a market gauging exercise undertaken by Credit Suisse prior to the OFS. This is the first case where SEBI had raised concern over the market gauging exercise conducted by the merchant banker.

In Appeal, SAT has set aside the SEBI order and dismissed all the contentions and allegations of SEBI. SAT held that Factorial’s trading cannot be a ground to contend that there was any UPSI where there were other reasons for such trading. SAT agreed with the contention of Factorial that there was no UPSI in existence when the impugned trades were executed or during the UPSI.

The SAT also directed SEBI to consider the issue as to whether investors who participated in the market gauging exercise for a scrip should be allowed to trade in such scrip.

The JSA Team comprised Partner Ravichandra S. Hegde; Senior Associate Paras Parekh & Luckyraj Indorkar and Associate Stuti Shah.