Securities Appellate Tribunal
Jayprakash Bohra vs Sebi on 5 November, 2019
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved On: 14.10.2019
Date of Decision : 05.11.2019
Appeal No. 162 of 2019
Jayprakash Bohra
Panchvati 1, Wing C, Flat No. 601,
Raheja Township, Malad East,
Mumbai- 400 097 ...Appellant
Versus
Securities and Exchange Board of India,
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai - 400 051 ...Respondent
Mr. Saurabh Bachhawat, Advocate with Mr. Jitendra Sharda,
Advocate i/b Mindspright Legal for the Appellant.
Mr. Abhiraj Arora, Advocate i/b ELP for the Respondent.
CORAM: Justice Tarun Agarwala, Presiding Officer
Dr. C.K.G. Nair, Member
Justice M. T. Joshi, Judicial Member
Per: Dr. C.K.G. Nair
1.This appeal is preferred aggrieved by the order of the Whole Time Member ("WTM" for convenience) of Securities and Exchange Board of India ("SEBI" for convenience) dated October 30, 2018 whereby the appellant, among others, has 2 been restrained from dealing in the securities market, directly or indirectly, for a period of five years from the date of the ad- interim ex-parte order issued on February 20, 2015. The said direction is following the finding in the impugned order that the appellant (and other noticees) has violated Regulations 3(a),(b),(c) and (d) and 4(1), 4(2)(a) and (e) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 ("PFUTP Regulations" for convenience).
2. The relevant background of the matter is as follows. The scrip of M/s Gromo Trade & Consultancy Ltd. ("Gromo" for convenience), a listed Company was suspended from trading for a long period till 2012. As on September 30, 2013 Gromo had a share capital of ` 5,00,000 (rupees five lakh) with 50,000 equity shares of ` 10 each. It made 3 preferential allotments of equity shares whereby allotting a total of 2,83,40,000 equity shares to 137 persons/ entities for about ` 42 crores on three dates, November 09, 2013, February 17, 2014 and June 24, 2014. These preferential allotments had a lock-in period of one year. However, soon after the 1st preferential allotment the price of the scrip stated increasing significantly. For instance from January 15, 2014 to January 27, 2015 the price increased from 3 ` 10.20 to ` 656, an increase of about 64 times. Investigation also revealed that during the examination period the total volume of trading was only 1385 shares as against the total 2,83,90,000 subscribed shares of the company. The average daily trading volume was only 9 shares consisting of 2-4 trades per day. Given these and other findings, the impugned order holds that it was a case of market manipulation by a few entities in raising the price of the shares of Gromo by putting extremely small orders of 1 or 2 shares at far away prices from the Last Traded Price ("LTP" for convenience), thereby violating the provisions of PFUTP Regulations, 2003.
3. The investigation also revealed that the non-independent directors of Gromo in connivance with a group of entities known as Kamalakshi Group indulged in price manipulation and thereby created false/ misleading appearance of trading in the scrip at inflated prices. It was also revealed that there was no perceptible change in the fundamentals of the company which would support even a feeble rise in the price of the scrip.
4. Shri Saurabh Bachhawat, the learned counsel for the appellant submits that in January 2014 the appellant purchased 1,050 shares of Gromo off-market from one Mr. Ramnarayan 4 who in turn got the same from one Mr. Kushal Jain. Since Mr. Ramnarayan is from the Appellants' native place and was in need of money he took the shares by paying the consideration of ` 10,500, though the shares were in the name of Mr. Kushal Jain. On March 20, 2014 the said shares were dematerialized, Mr. Kushal Jain was not one of the preferential allottees and hence the shares were out of the original allotment of 50,000 shares by Gromo. It was also submitted that between April 17, 2014 and January 22, 2015, as and when buyers were available the appellant sold the said 1,050 shares in the open market. As regards his off-market transactions with Gromo in the scrip of Ojas Asset Construction Company Ltd. ("Ojas" for convenience), it was submitted that those shares were also brought on the recommendation of Mr. Ramnarayan and on the same person's suggestion he transferred ` 60,000 to the account of Gromo and Gromo, in turn, transferred 6000 shares of Ojas to him on June 23, 2014. The appellant did not have any direct connection with the promoters/ directors of Gromo and did not belong to the Kamalakshi Group.
5. In short, the learned counsel for the appellant submits that he had no connection with Gromo or its promoters/directors; shares of both Gromo and Ojas were purchased on the 5 recommendation of a person from his native place; transfer of money and shares between the appellant and Gromo does not indicate any connection and he did not belong to the Kamalakshi Group or any link established in the impugned order.
6. It was further contended that just because some of his trades have impacted the LTP it cannot be called market manipulation under PFUTP Regulations. In order to emphasise this contention the learned counsel relied on the judgements of this Tribunal in the matters of Ms. Smitaben N. Shah vs. SEBI (Appeal No. 37 of 2010 decided on 30.07.2010, M/s. Jagruti Securities Ltd. vs. SEBI (Appeal No. 102 of 2006 decided on 27.10.2008) and Shri Nagad Sarvar vs. SEBI (Appeal No. 336 of 2017 decided on 06.08.2019).
7. Shri Abhiraj Arora, the learned counsel for the respondent SEBI took us through the complete picture regarding the scheme or artifice employed by multiple entities which included the directors of Gromo and entities collectively called the Kamalakshi Group. The modus operendi, according to the learned counsel, is to revive, on paper, a dormant listed company with very little share capital; go for a preferential 6 allotment and by trading in very small number of shares at inflated prices or far away prices from LTP between the group entities to show considerable activity of trading in the scrip and thereby induce the retail/other investors and thereby provide an exit route to the group entities, including the preferential allottees. All these symptoms are present in this matter. The Company's (Gromo) share capital was only ` 5,00,000 (rupees five lakh) with 50,000 shares; it was suspended from trading for a long period, then came the preferential allotment and soon afterwards small size trading in the scrip at higher and higher prices for a period of time thereby taking the price from just about ` 10 in January 2014 to 656 in January 2015. However, in the instant case, the preferential allottees could not off-load any fresh allotment since SEBI started investigation in 2014 and the ex-parte order was passed on February 20, 2015. Moreover, the preferential allotments had a lock-in period. Therefore only part of the shares belonging to the original allotment could be transacted since the free float was only about 1300 shares.
8. We are in complete agreement with the contentions of the learned counsel for the respondent that the submission of the appellant that he was not in any way connected to Gromo or to the Kamalakshi Group is totally unfounded as the connection is 7 writ large ex-facie in the matter. There are off-market transaction between Gromo and the appellant in other shares and the off-market purchase of the shares of Gromo by the appellant is clouded in mystery as the appellant is not disclosing any facts relating to the same. The impugned order itself gives the connection between the appellant and Gromo in clear terms in Table 2 of paragraph 14. Moreover, appellants' explanation regarding receipt of 1,050 shares of Gromo off-market when Gromo itself has a limited floating stock of only about 1300 shares has no veracity. The submission that all the holdings of the appellant are in normal course of business has no merit as the entire issue in the matter is not normal course of business. An unknown company suspended from trading for long; off- market buying of 1,050 shares of the said company which constitutes more than 2% of its share capital and which is in the name of an unknown person (Kushal Jain) on the recommendation of a person from the native place of the appellant with no prior connection etc. can be treated as only a fiction rather than normal business. Coupled with the finding that the appellant had other transactions off-market with Gromo as given in Table 2 page 13-14 of the impugned order is sufficient evidence to prove the connection between Gromo, the appellant and entities in the Kamalakshi Group, many of whom 8 are inter connected in the matter as explained in the said table. Moreover, out of 1,050 shares of Gromo obtained off-market in an inexplicable way by the appellant more than half of it was sold in small tranches; most of the time placing sell order at far away prices than LTP. The said trading pattern and the other connections as explained above is sufficient enough to prove that the appellant was part of the group that created the artifice/ scheme and therefore finding in the impugned order that the appellant has violated the stated provisions of the PFUTP Regulations cannot be faulted.
9. Further, the five year restraint imposed on the appellant has been in operation since February 20, 2015. However, the appellant never challenged the ex-parte interim order and filed this appeal belatedly with a delay of 101 days only on March 25, 2019 when there was hardly 1 year left to complete the restraint period.
10. The orders relied on by the appellant are distinguishable in the facts of the present matter and in law since subsequent Judgements of the Hon'ble Supreme Court in the matter of Securities and Exchange Board of India vs. Kishore R. Ajmera (2016) 6 SCC 368 and SEBI vs. Rakhi Trading (P) 9 Ltd., 2018 (13) SCC 753 etc., whereby it has been conclusively held that preponderance of probability is sufficient in confirming violations like market manipulation as direct evidence in such matters may not be forthcoming.
11. Given the above reasons, we find no merit in the appeal. Therefore, appeal is dismissed with no orders on costs.
Sd/-
Justice Tarun Agarwala Presiding Officer Sd/-
Dr. C.K.G. Nair Member Sd/-
Justice M. T. Joshi Judicial Member 05.11.2019 Prepared & Compared By: PK