Securities Appellate Tribunal
Mr. Jayesh S Patel vs Sebi on 25 April, 2018
Author: J. P. Devadhar
Bench: J. P. Devadhar
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on: 05.03.2018
Date of Decision : 25.04.2018
Appeal No. 456 of 2015
1.Mr. Bhavesh Patel
2. Ms. Hetal Patel
3. Ms. Pragna Patel
4. Ms. Jagruti Patel
5. Ms. Manjula Patel
6. Ms. Rasila Patel
7. Ms. Geeta Patel Flat No. 1307, 13th Floor, NR Aquaria Club, Devidas Lane, Borivali West, Mumbai - 400 103. .....Appellants 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. Deepak Dhane, Advocate i/b Joby Mathew & Associates for Appellants.
Mr. Gaurav Joshi, Senior Advocate with Mr. Mihir Mody and Mr. Nishant Upadhyay, Advocates i/b K Ashar & Co. for the Respondent.
With Appeal No. 513 of 2015
1. Mr. Ramesh D. Patel E-104, Panchvati-1, Raheja Township, Rani Sati Marg, Malad (East), Mumbai - 400 097.
2. Ramesh D. Patel HUF E-104, Panchvati-1, Raheja Township, Rani Sati Marg, Malad (East), Mumbai - 400 097.
3. M/s Shamo Investments Private Ltd.
204, Nutan Nishigandha CHS, Sant Janabai Road, Vile Parle (East), Mumbai - 400 057.
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4. Ms. Dharmishtha R Patel E-104, Panchvati-1, Raheja Township, Rani Sati Marg, Malad (East), Mumbai - 400 097.
5. Ms. Reshma Patel E-104, Panchvati-1, Raheja Township, Rani Sati Marg, Malad (East), Mumbai - 400 097.
.....Appellants 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. Mustafa Doctor, Senior Advocate with Ms. Anuja Bhansali, Advocate i/b Vertices Partners for Appellants.
Mr. Gaurav Joshi, Senior Advocate with Mr. Pulkit Sukhramani and Ms. Vidhi Jhawar, Advocates i/b The Law Point for the Respondent.
With Appeal No. 525 of 2015 1 Savjibhai D. Patel H. No. 304, Parvati Apartment, Gaushala Lane, Malad (East), Mumbai - 400 097.
2 Usha S Patel H. No. 304, Parvati Apartment, Gaushala Lane, Malad (East), Mumbai - 400 097. .....Appellants 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. P.N. Modi, Senior Advocate with Mr. Vinay Chauhan, Mr. Neville Lashkari and Mr. K.C. Jacob, Advocates i/b Corporate Law Chambers India for the Appellant.
Mr. Gaurav Joshi, Senior Advocate with Mr. Pulkit Sukhramani and Ms. Vidhi Jhawar, Advocates i/b The Law Point for the Respondent. 3
With Appeal No. 526 of 2015
1. Shantibhai M Chanchpara
2. Madhuben M. Chanchpara ANP Chambers 9-A, Apollo House, Mumbai Samachar Marg, Fort, Mumbai - 400 001. .....Appellants Versus Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ......Respondent Ms. Ankita Singhania, Advocate with Mr. Anant Upadhyay, Advocate for the Appellant.
Mr. Gaurav Joshi, Senior Advocate with Mr. Pulkit Sukhramani and Ms. Vidhi Jhawar, Advocates i/b The Law Point for the Respondent.
With Appeal No. 531 of 2015 Swarn Sarita Gems Ltd.
17/19, Ground Floor,
Dhanji Street,
Mumbai .....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. Vinay Chauhan, Advocate with Mr. K.C. Jacob, Advocate i/b Corporate Law Chambers India for the Appellant.
Mr. Gaurav Joshi, Senior Advocate with Mr. Pulkit Sukhramani and Ms. Vidhi Jhawar, Advocates i/b The Law Point for the Respondent. 4
With Misc. Application No. 379 of 2015 And Appeal No. 535 of 2015 Ms Urvashi J Patel Emerald Sea, Bungalow 1, Thakur Complex, Opp. Bayleaf Hotel & Mah & Mah., Kandivli (East), Mumbai - 400 101. .....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. Prakash Shah, Advocate for the Appellant.
Mr. Gaurav Joshi, Senior Advocate with Mr. Pulkit Sukhramani and Ms. Vidhi Jhawar, Advocates i/b The Law Point for the Respondent.
With Misc. Application No. 380 of 2015 And Appeal No. 536 of 2015 Mr. Jayesh S Patel Emerald Sea, Bungalow 1, Thakur Complex, Opp. Bayleaf Hotel & Mah & Mah., Kandivli (East), Mumbai - 400 101. .....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. Prakash Shah, Advocate for the Appellant.
Mr. Gaurav Joshi, Senior Advocate with Mr. Pulkit Sukhramani and Ms. Vidhi Jhawar, Advocates i/b The Law Point for the Respondent. 5 CORAM : Justice J. P. Devadhar, Presiding Officer Dr. C. K.G. Nair, Member Per : Dr. C.K.G. Nair, Member
1. These seven appeals are filed to challenge the order of the Adjudicating Officer ('AO' for short) of Securities and Exchange Board of India ('SEBI' for short) dated August 26, 2015. It has been held in the said order that various entities violated provisions of Section 12A(a) and 12A(c) of the Securities and Exchange Board of India Act, 1992 ('SEBI Act' for short) and regulations 3(a), 3(c), 4(1), 4(2)(a), 4(2)(b) and 4(2)(e) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 ('PFUTP Regulations' for short) by hoisting a fraudulent scheme of trading in the scrip of M/s. S. J. Corporation Ltd. ('SJC' for convenience). Accordingly, 13 entities have been directed to disgorge the illegal gains made by them and all 19 entities who were held to be parties to the fraudulent scheme during the investigation period have been directed to pay penalty of Rs. 2.5 crore jointly and severally. Since the impugned order is common and basic facts in all the appeals are similar, by consent of the parties, all appeals are heard together and disposed of by this common decision by taking Appeal No. 525 of 2015 as the lead case.
2. Facts relevant and common to all appeals are as follows :-
(i) SJC was originally an IT company listed on Bombay Stock Exchange Ltd. (BSE). In 2007 it had negative net worth and limited floating stock with a total capital of 2,00,000 shares.
(ii) Savjibhai Patel and Usha Patel (appellants in Appeal No. 525 of 2015) acquired control over SJC following a Share 6 Purchase Agreement (SPA) jointly with a Jivani family thereby purchasing 1,32,000 shares from the 12 promoters on April 6, 2007.
(iii) The shares were purchased at the rate of Rs. 25/- per share.
(iv) Savjibhai Patel (Appellant No. 1 in Appeal no. 525 of 2015) was appointed as a director of the company on July 31, 2007 and the business of the company was changed from IT to diamond/jewellery trading.
(v) Appellant No. 2 in Appeal No. 525 of 2015 was never a director of the company though she has been a promoter.
(vi) Since the acquisition of 1,32,000 shares triggered open offer, an open offer was made during 21/6/2007 - 10/7/2007 at the rate of Rs. 142/- per share. After this open offer the promoter group held a total of 1,40,2000 (70.10%) shares out of the total 2,00,000 shares of the company. On July 31, 2008, the appellants in Appeal No. 525 of 2015 through another SPA acquired 70,100 shares held by the Jivani family. Following this another open offer was made during 24/09/2008 -
13/10/2008 at the rate of Rs. 447/- per share. After this open offer the shares held by Appellants in Appeal No. 525 of 2015 increased to 1,48,000 shares (74%). On August 28, 2009 the shares were split at 1:10 ratio.
3. SEBI conducted an investigation into trading in the scrip of SJC during March 18, 2008 to October 1, 2009 and noticed several irregularities and came to the conclusion that several entities together manipulated the price of the shares of SJC. Accordingly, on February 5, 2010, the WTM of 7 SEBI passed an ad-interim ex-parte order restraining 16 entities from dealing in the securities market directly or indirectly till further directions. This order was confirmed by the WTM on December 24, 2010. No appeal has been filed challenging either the ad-interim ex-parte order or the confirmatory order of the WTM. Later, an adjudication proceeding was initiated and a show cause notice dated October 14, 2011 was issued to 19 entities (appellants herein) asking why an inquiry should not be held against them and penalty imposed under Section 15HA of the SEBI Act for the alleged violation of Section 12A(c) of the SEBI Act and various provisions of PFUTP Regulations. Following due process like filing of reply and providing opportunity of being heard etc. the AO of SEBI passed the impugned order on 26th August, 2015. Further on 06.09.2017 final order was passed by the WTM which held that neither further restraint nor disgorgement was necessary in view of the AO order dated August 26, 2015.
4. It was observed that during the period of investigation the scrip of SJC which was highly illiquid had registered substantial increase in price and in volume. For instance, price rose from Rs. 392/- on March 18, 2008 to Rs. 3,464.60 on August 27, 2009 and post-split the price moved from Rs. 363.75 on August 28, 2009 to Rs. 816/- on September 30, 2009. Therefore, in total, during the period of investigation the increase in the price of the scrip of SJC was about 2000%.
5. Investigation also revealed that the appellants in these Appeals had been involved in manipulating the price of the scrip of SJC and these entities were related either by blood or through law or by having financial relationships.
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6. Though the overall price rise in the scrip of SJC during investigation period was about 2000% for the sake of greater clarity and to understand the scheme of manipulation more deeply the investigation period has been divided into three phases. In phase I, i.e. during March 18, 2008 to January 27, 2009 the scrip continued to remain illiquid with a daily average volume of only 29 shares and the overall price movement was only +25.77%. It was so illiquid that after August 18, 2008 the next day on which the share was traded was January 28, 2009, i.e. with a gap of more than five months.
7. In Phase-II i.e. between January 28, 2009 and August 27, 2009, the average daily volume of trading was three shares and price movement was + 570% i.e. from Rs. 517/- on January 28, 2009 to Rs. 3,465/- on August 27, 2009.
8. In Phase-III, i.e. between August 28, 2009 to October 1, 2009, the period after the stock split the average daily volume rose to 1133 shares and price moved up by 114% i.e. from Rs. 363/- to Rs. 816/-.
9. In the letter of offer dated 07.08.2008 the acquirers confirmed that they had adequate resources to make the public offer and got a certificate from the Chartered Accountant to that effect. However, funds had been obtained from Appellant No. 1's mother, his HUF, his brother-in-law, his sister and the company promoted by his brother-in-law and sister. On 22.10.2008 SJC made a corporate announcement showing Rs. 12.22 crore as sales and Rs. 10.19 crore as purchase. Similarly, on 03.02.2009 it published the unaudited quarterly financial results with sales on Rs. 6.83 crore and purchases as Rs. 5.50 crore. The audited annual results declared on 29.05.2009 sales were shown as Rs. 22.28 crore and purchases at Rs. 18.62 crore.
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10. The sales were made only to two clients Spark Trading and Vee Design (HK) Ltd. and purchases were made from Floral Impex which was also supplier to Shyam Star Gems Ltd., a company promoted by Savjibhai.
11. Since SJC has also entered into diamonds and jewellery business and Savjibhai's other company Shyam Star Gems Ltd. was also in the same business, a comparison has also been made about their market capitalization, EPS, dividend declared return of capital etc. In all these variables the performance of SJC improved while that of Shyam Star declined during the investigation period.
12. While a corporate announcement was made on 14.05.2009 by SJC to BSE that a board meeting to be held on 29.05.2009 would consider the issue of splitting of shares, bonus issues and dividend issue of bonus was not decided. Instead on 03.08.2009 SJC informed that the bonus issue been dropped, though in April 2010 bonus was given.
13. On 11.08.2009, Sanjay V. Patel and Bhavik Patel were appointed as Directors of SJC. The former is the cousin of Savjibhai Patel and the latter the nephew of Usha Patel. However, as per Form 32, Sanjay Patel was appointed as Director of SJC on 24.01.2009.
14. For the sake of convenience the details of relationship amongst the parties (appellants) as given in the impugned order is reproduced as follows:-
Sr. Name of the Noticee Relationship No. Self (Promoter of SJCL)
1. Sh. Savjibhai D. Patel Wife of Sh. Savjibhai D. Patel.
2. Smt. Usha S. Patel M/s. Swarn Sarita Gems Ltd. (Formerly Known as Promoted by Sh. Savjibhai D. Patel
3.
"M/s. Shyam Star Gems Ltd.") Sister of Sh. Savjibhai D. Patel & wife of
4. Smt. Dharmishtha R. Patel Sh. Ramesh D. Patel 10 Brother-in-Law of Sh. Savjibhai D. Patel
5. Sh. Ramesh D. Patel HUF of Sh. Ramesh D. Patel
6. Ramesh D. Patel HUF Daughter of Sh. Ramesh D. Patel
7. Ms. Reshma Patel Shamo Investments Pvt. Promoted by Sh. Ramesh D. Patel
8. Ltd.
Financially linked with Sh. Ramesh Patel /
9. Sh. Jayesh Shamjibhai Patel Linked with S. Savjibhai on the basis of call records.
Wife of Sh. Jayesh Shamjibhai Patel
10. Smt. Urvashi Patel Sh. Shantibhai M. Brother-in-law of Sh. Sanjay V. Patel
11.
Chanchpara (director of SJCL)
Smt. Madhuben M. Mother-in-law of Sh. Sanjay V.Patel
12.
Chanchpara (director of SJCL)
Brother of Ms. Pragna Patel
13. Sh. Bhavesh Patel
Mother of Ms. Pragna Patel & Sh. Bhavesh
14. Smt. Rasila Patel
Patel
Sister of Sh. Bhavesh Patel
15. Ms. Pragna Patel
Daughter of Smt. Manjula Patel
16. Ms. Jagruti Ptel
Mother of Ms. Hetal Patel
17. Smt. Manjula Ptel
Daughter of Smt. Manjula Patel
18. Ms. Hetal Patel
Sister-in-law of Smt. Manjula Patel
19. Ms. Geeta Patel
15. Accordingly, appellants were related to one another in the following manner:-
(a) Savjibhai Patel and his wife Usha Patel are the promoters of SJC.
(b) Sanjay Patel, appointed as a director of SJ Corporation on 24.01.2009, as per the Form 32, was the cousin brother of Savjibhai Patel.
(c) Sanjay Patel is related to Rajesh Chanchpara, the proprietor of Floral Impex located in Hong Kong.
(d) Ramesh Patel is the brother-in-law of Savjibhai. Dharmishtha Patel is the wife of Ramesh Patel and Sister of Savjibhai.11
Reshma Patel is Ramesh and Dharmishtha Patel's daughter (Savjibhai's niece).
(e) Shamo Investments is a company promoted by Ramesh and Dharmishtha.
(f) Jayesh Patel, through his HUF, had lent money to Ramesh Patel.
(g) On the basis of call records, Savjibhai is connected to Jayeshbhai Samjibhai Patel, Harjibhai Parshottam Patel, Shantibhai M. Chanchpara, Savjibhai T. Anghan and Dhananjaya S. Desai.
(h) Shyam Star Gems (now known as Swarn Sarita Gems Ltd.) is a company promoted by Savjibhai.
16. The role played by different entities are as follows:-
(a) Bhavesh Patel Group (Appeal No. 456 of 2015) have been considered connected to the promoter entities of SJC in terms of their common residential locality of Raheja Township at Malad (East); trades of Bhavesh Patel entities had been executed from the same location "4006020024001007"; call records between the counter party (seller) Harjibhai Patel and Savjibhai Patel who lived in the same building etc. Bhavesh Patel Group, along with three entities in the Ramesh Patel Group were the major buyers during Phase-I and Phase-II of the investigation. Between 18.03.2008 to 27.01.2009 a total of 19 trades were executed for a total volume of 6151 shares out of which 2890 shares were traded by Bhavesh Patel Group.
They purchased 47% of the shares traded during Phase-I. They 12 did not sell any shares during the open offer. They sold the shares during Phase-III; they were the top sellers in Phase - III and the group as a whole earned a profit to the tune of Rs. 25 Lakh;
(b) In Appeal No. 513 of 2015, Mr. Ramesh Patel and Ramesh Patel HUF put buy orders of huge quantity of shares (2500 shares on 18.07.2008, for 2000 shares on 30.07.2008). Ramesh Patel bought 2500 shares at the rate of Rs. 447/- which was at 5% or upper circuit and contributed 40.64 of total market value. Similarly, Ramesh Patel and his HUF placed buy orders for various quantities in Phase-II. All these buy orders increased the price of shares considerably. In Phase-III Ramesh Patel and his HUF placed only sell orders. They could sell 185 shares in the price range of 511.55 to 685.35 (post split). Ramesh Patel made a profit of Rs. 2737/-, his HUF made a profit of Rs. 72,497/-;
(c) Similarly, buy orders were placed by Shamo Investment (Appellant No. 3 in Appeal No. 513 of 2015), promoted by Ramesh Patel and his wife Dharmishtha Patel. In Phase-III Shamo Investment did not place any buy orders but sold 459 shares and made a profit of Rs. 2,26,403/-. Dharmishtha Patel (Appellant No. 4 in Appeal No. 513 of 2015) received 4450 shares on 09.04.2004 from one Sushilachandra Dhananjay Desai and Surbhi Desai in off-market transaction. In Phase-II she placed buy orders from 18.01.2009 onwards at the upper circuit and bought 633 shares creating artificial buying pressure. Appellant No. 5 in Appeal No. 513, Ms. Reshma 13 Patel received only a gift of shares of SJC from her mother. There is no trading done by her.
(d) Appellant in Appeal No. 526 of 2015 placed heavy buy orders during Phase-II. Madhuben Chanchpara placed buy order for 4600 shares. Shantibhai Chanchpara executed 200 trades amounting to 46.62% of the total volume during Phase-II. In Phase-III Shantibhai sold 2418 shares and Madhuben sold 1981 shares and made a profit of Rs. 13,88,884/- and Rs. 11,93,772/- respectively.
(e) Swarn Sarita, Appellant in Appeal No. 531 of 2015 (earlier Shyam Star) placed buy order for 100 shares on 28.01.2009 at rate Rs. 517/- per share out of which order for only 10 shares got executed. Ms. Urvashi and Jayesh Patel in Appeal Nos. 535 and 536 entered buy orders at the beginning of market hours on alternate days during Phase-II. They together raised price of scrip by Rs. 460.20, which is 15.49% of the total rise in share price. Together they placed buy orders for 14132 shares amounting to 31.14% of the aggregate order book size during Phase-II. During Phase-III Jayesh Patel sold 160 shares and made a profit of Rs. 93,783/-.
17. Shri P. N. Modi, learned Senior counsel appearing on behalf of the appellants in appeal no. 525 of 2015 submitted that the main charge against the appellants is that during the investigation period of March 18, 2008 to October 1, 2009, the price was manipulated and pushed up by the trading done by parties who were allegedly connected to the Appellants who are the promoters of the company. However, he argued that this contention in the impugned order is devoid of any merit for the following reasons:- 14
(a) Admittedly, the appellants did not trade in a single share even though the prices had risen very substantially.
(b) Some parties are admittedly related, but that does not prevent them from legitimately trading in the scrip. Further, admittedly the "Bhavesh Patel" group was not connected to the Appellants.
(c) Just because some parties live in the same locality (Raheja Township) cannot amount to being connected.
(d) Even as per the particulars in the Impugned order itself, the price rose very substantially because the floating stock was very limited and sellers were selling only at higher prices.
18. Shri. P.N. Modi, Learned Senior Counsel for the appellant further argued that the charge in the impugned order that price / volume manipulation was done so as to manipulate the open offer price to Rs. 447/- as compared to Rs. 25/- which would have been the open offer price if there had been no manipulation has no meaning because the appellants were forced to make an open offer and had to buy shares offered therein at a higher price. Obviously, their desire and intention would be to pay as low a price as possible and it is impossible to conceive as to why they would be complicit in jacking up the price from Rs. 25/- to Rs. 447/-. It is on record that 7800 shares were offered in the Open Offer @ Rs. 447/- and the Appellants had to pay a total of Rs. 34.86 lac. If the price had been Rs. 25/-, they would have paid only Rs.1.95 lac and they would have saved Rs. 32.9 lac. In fact, no one would have offered shares because even at the rate of Rs. 447/- per share only 7800 shares were tendered. 15
19. The allegation in the impugned order is that the company's accounts were rigged by showing bogus transactions of sale and purchase so as to show artificial increase in sales, which acted as a trigger for the share prices to increase is factually false. The impugned order completely ignores the appellants submissions by which it proved with documentary evidence that the sales and purchases were genuine.
20. The charge that the company made false but favorable corporate announcements of sub-division of shares, bonus shares and dividend to mislead investors and create a positive impact on the scrip is factually false. The impugned order completely ignores the appellants submissions by which it proved that in fact sub-division of shares had taken place (which is admitted even in the impugned order), bonus shares were in fact issued and dividend was in fact paid.
21. Comparing share price, profit after tax, market capitalization, earnings per share, dividends etc. of the company with that of Shyam Star Gems Ltd. which is a another company of the same promoters, and concluding that funds, clients and suppliers of Shyam Star Gems Ltd. were diverted to the company to help manipulate the open offer price is untenable since there were no such allegations in the SCN. The conclusion drawn in the impugned order that appellants did not have sufficient funds for the open offer and, therefore, included Shyam Star Gems Ltd. as a PAC so as to divert shareholders funds from Shyam Star Gems Ltd. is factually false and self contradictory. The impugned order itself holds that the source of funds for the open offer, apart from the appellants own funds, was from the mother of appellant no. 1, the HUF of appellant no. 1, the sister of appellant no. 1 and her husband and their company Shamo Investments Pvt. Ltd. 16
22. It is alleged that a false statement was made in the LOO that "the financial obligations of the acquirers under the offer will be fulfilled through internal resources of the Acquirers and no further borrowing from banks or FI's or NRI's or otherwise is envisages..." since appellant no. 1 received funds from his mother, his HUF, his sister and her husband and their company Shamo Investments Pvt. Ltd. The LOO in fact states that the appellants had already made sufficient financial arrangements and that no further borrowing from banks or FI's or NRI's or otherwise is envisaged. The arrangement of funds by appellant no. 1 from his HUF, his mother, his sister and her husband and their company cannot be alleged to be any false statement in the LOO. In any event, the same cannot amount to borrowing from any banks or FI's or NRI's.
23. Neither the SCN nor the impugned order contains a single allegation against Mrs. Usha Patel, except that she is a promoter of the company. She is not even a director.
24. The allegation that Reshma Patel, a relative of the appellant no. 1, played an important role in the manipulation, and earned huge profits is factually false and baseless. The impugned order itself records that Reshma Patel had only received some shares as a gift from her mother and had not traded even a single share. In fact, the Impugned order purports to find fault with her for choosing not to tender her shares in the open offer.
25. The impugned order levies a penalty of Rs. 2.5 crore on all 19 noticees "jointly and severally". There are totally differing allegations against different parties some of whom are not even related to each other in a legal / meaningful manner. The appellants in appeal no. 525 of 2015 admittedly did not trade in a single share and made no profits. The impugned order itself alleges that 13 of the parties made actual profits, and 3 17 of the parties made "notional profits". It is inconceivable as to how a "joint and several" penalty could have been levied in such a context.
26. The Learned Senior Counsel also submitted that reliance placed by Counsel for the respondent on the order of the Apex Court in the matter of Rakhi Trading Pvt. Ltd. is distinguishable as the loss incurred by the appellants therein is to take advantage of tax while in the instant matter it is a case of normal trading in securities market and there was no intention to make any loss.
27. In Appeal no. 456 of 2015, Learned Counsel Shri Deepak Dhane submitted that appellants are investors in securities market and as an investment purchased a total of 2890 shares of SJC on March 18, April 18 and April 25, 2008 at an average price of Rs. 395/-. Even as per the trade logs relied upon by SEBI, appellants' 1st trade on March 18, 2008 was at a prevailing market price i.e. Rs. 392/- and the said trade did not result in any change in price of the scrip. In fact, on SEBI's own finding, out of the 9 trades executed by the appellants, 5 trades resulted in no change in price, 3 resulted in a downward movement of price/ negative last traded price (LTP) and only 1 trade on April 25, 2008 resulted in an upward movement of price/ positive LTP of Rs. 19.3. It is SEBI's case that the appellants' role in the alleged scheme was to jack up the price of the scrip. It is submitted that if the appellant was part of any scheme and if it was appellants' intention to jack up the price, then appellants would have not at all entered into any trades which would result in no change in price and/or negative LTP.
28. It is SEBI's case that these buy trades of the appellants matched with counter party Mr. Harjibhai Patel / Mr. Gabani Bharat Harjibhai, promoter related entities and the said counter party, Mr. Harjibhai was staying in the same premises as that of Shri Savjibhai Patel (promoter of company) and 18 also calls were exchanged between Mr. Harjibhai and Shri Savjibhai. Though the appellants used to stay in the same locality, SEBI has not shown any kind of connection between the appellants and Mr. Harjibhai / Mr. Gabani Bharat Harjibhai and /or Shri. Savjibhai. Merely on the basis of staying in the same location and /or some calls have been exchanged between Mr. Harjibhai and Shri Savjibhai, a conclusion cannot be drawn that appellants were part of the alleged deceptive scheme. Moreover, though SEBI has alleged that the appellants' buy trades matched with Mr. Harjibhai and Mr. Bharat Gabani, SEBI has not taken any action against the said counterparty Mr. Bharat Gabani. Further, appellants did not trade at all in Phase-II (January 28, 2009 to August 27, 2009) when the price of the scrip moved from Rs. 517.15 to Rs. 3463.60.
29. According to SEBI, appellants did not tender their shares inspite of better price of Rs. 447/- offered in the open offer and, therefore, it is assumed that appellants were part of the alleged scheme. Appellants decided not to tender their shares in the open offer because appellants believed that the price of the scrip was likely to move upward and it is matter of record that post stock split (when the aforesaid 2890 shares held by the appellants became 28900 shares) the price moved upwards and, therefore, appellants sold a total of 4000 shares at a price between Rs. 511.55 to Rs. 800.5 in September 2009. It is important to note that even as on date, appellants hold substantial number of shares of the company.
30. It is further submitted that a bare reading of the impugned order makes it clear that SEBI has levelled several other serious allegations/observations against the promoters of the company. For e.g., it is held that promoters made wrong disclosures in the offer document, borrowed funds from related / associated entities who played vital role in 19 alleged manipulation during pre and post open offer period, diverted clients / suppliers of Shyam Star Gems Ltd. to artificially manipulate the financial results, made series of favourable announcements including bonus, split etc. However, appellants have no connection whatsoever with the said allegations / observations levelled against the promoters and, therefore, holding the appellants jointly and severally liable for a penalty of Rs. 2.50 crore is unfair and unwarranted.
31. Shri. Vinay Chauhan, Learned Counsel for the appellant in appeal no. 531 of 2015 submitted that the appellant company is in the business of trading and manufacturing of Gold studded jewellery, and listed on Bombay Stock Exchange ('BSE'). Mr. Mahendra M. Chordia & Mr. Sunil G. Jain are its promoters. In 2010, the current promoters had acquired control and management of the appellant from Savjibhai Patel & Usha Patel, by buying out their shareholding of 21.17% in the appellant and w. e. f. 10th August 2011 the name of the appellant company was changed from Shyam Star Gems Ltd. to its current name Swarn Sarita Gems Ltd.
32. The findings qua the appellant company in the impugned order pertain to the period March 18, 2008 to October 1, 2009. However, the appellant had bought mere 10 shares of SJC on 28.01.2009 in the ordinary course during the entire investigation period. The said 10 shares are still held by the appellant as on date.
33. In the impugned order, the respondent has inter-alia recorded :
(i) That the appellant had entered a buy order for 100 shares, out of which trade for 10 shares was executed and the order for the remaining 90 shares was automatically deleted and that Ramesh D. Patel HUF was the counter party to the said trade of the 20 appellant. It may be noted that there is no finding that the said trade of 10 shares was synchronized or premeditated.
(ii) That the order was placed at the 5% upper circuit filter level. It may be noted that due to absence of sellers, the order was placed at upper circuit filter level. Admittedly, due to absence of sellers, the remaining order of 90 shares was automatically deleted.
(iii) That from 28.1.2009 the price of the scrip started moving up significantly. Admittedly, post 28.1.2009 the appellant has not bought or sold even a single share of SJC. In view of the illiquidity of the scrip, the appellant did not buy any further shares.
(iv) That the appellant had bought and sold more than 100 shares each in various other scrips during the investigation period, whereas the appellant had traded only in 10 shares in the scrip of SJC, therefore, the trading pattern clearly indicates an abnormal interest shown by the appellant in the scrip of SJC.
The said finding reveals complete non application of mind. Buying of 10 shares of SJC cannot lead to a finding that the appellant had abnormal interest in the scrip of SJC. It is not the case that the quantum of trading of the appellant in the scrip of SJC is far in excess of the quantum of trading in other scrips.
(v) That the appellant had deliberately misled the investors by manipulating the order book and to create artificiality in the market so as to serve its own purpose. There was no allegation of manipulating the order book in the SCN. Further, by placing 21 one solitary order for 100 shares (out of which only 10 shares got executed), during the entire investigation period it cannot be concluded that appellant was trying to mislead the investors. The trade of 10 shares was delivery based, wherein the appellant had paid the purchase consideration and taken delivery of the 10 shares, therefore, the issue of creating artificiality cannot and does not arise. Admittedly, the scrip was illiquid as found by the respondent also. There were no sellers available. How, by buying 10 shares and taking delivery of the same, can the appellant manipulate the order book and create artificiality in the market has not been spelled out by the respondent.
(vi) That the purpose of trading of 10 shares was not for accumulating the shares but only to increase the price of SJCL. In view of the illiquidity of the scrip, the appellant did not buy further shares. Based on mere one purchase of 10 shares, it cannot be concluded that the solitary purpose of appellant was to increase the price as alleged. Had the purpose of appellant been to increase the price, the appellant would have continued purchasing the shares post January 28, 2009. The alleged purpose is belied by the trading pattern of the appellant wherein the appellant did not trade at all in the scrip post January 28, 2009.
(vii) That the respondent has further recorded that Savjibhai did not have sufficient funds for the open offer and, therefore, included appellant as a PAC so as to divert shareholders' funds from appellant. The finding is factually false and self-contradictory. Further, the same is coming for the first time in the impugned 22 order. The allegations are baseless and reveal the predetermined mindset of the respondent. Fact is that the whole consideration amount towards open offer obligations was met by Savjibhai Patel through his own sources and not even a penny was given by appellant for the purpose. The impugned order itself holds that the source of funds for the open offer, apart from Savjibhai's own funds, was from the mother of Savjibhai, the HUF of Savjibhai, the sister of Savjibhai and her husband and their company Shamo Investments Pvt. Ltd.
(viii) By the impugned order, the respondent has imposed a penalty of Rs. 2.5 crore on all 19 noticees "jointly and severally". There are totally different allegations against the various different parties. The appellant admittedly had bought 10 shares during the investigation period and made no profits. The impugned order itself alleges that 13 of the parties made profits, and 3 of the parties made "notional profits". Given these it is inconceivable as to how a "joint and several" penalty could have been levied.
34. Learned Senior Counsel Shri Mustafa doctor appearing on behalf of the appellants made the following submissions in Appeal no. 513 of 2015:-
(a) Five appellants are regular investors in securities market.
(b) Shares splits are undertaken for increasing liquidity, therefore, increase in volume / liquidity in Phase III is not abnormal.
(c) Turnover automatically increases price.
(d) Only 3 of the appellants (Ramesh Desai, Ramesh Desai HUF, M/s. Shamo Investments Pvt. Ltd.) sold 644 shares in Phase-
III and still hold 10329 shares.
23
(e) Appellants no. 4 and 5 (Dharmishtha Patel and Reshma Patel) did not buy or sell any shares. Shares bought by appellant no. 4 were before investigation period and she is holding whatever she has already bought.
(f) Appellant no. 5 (Reshma Patel) had received shares as a gift from her mother i.e. appellant no. 4 - Dharmishtha Patel and not traded / sold any of them.
(g) Dharmishtha and Reshma are part of the total penalty of Rs.
2.5 crore jointly and severally, while on appellant nos. 1 to 3 disgorgement of Rs. 2,737, Rs. 72,429 and Rs. 2,26,403 respectively has been imposed.
(h) Appellant Nos. 1, 3, 4 had advanced loan to Mr. Savjibhai Patel, which was a help to their relative.
(i) Buying 2500 shares was nothing special and same is apparent from the investment of the appellant since 2007.
(j) No finding in the impugned order to link to the Desai family who sold shares. Their statement was not provided; their broker was not made party to the show cause notice.
(k) Jayesh Patel was an acquaintance who lent Rs. 4 lac to the appellant. This has no connection with trading.
(l) The money lent to Savjibhai Patel was a general loan. They had no connection with the open offer.
(m) Appellant no. 3 has no direct link with Savjibhai Patel; only link is through Ramesh Patel who is promoter of appellant no.
3.
(n) Investment in SCJ scrip since 2007 and still holding 3101 shares; did not tender any shares in open offer because appellant was considering long term investment. 24
(o) Appellant no. 4 had only a transfer of 4450 shares, return of shares lent to the Desai family.
(p) Rs. 16.55 Lakh was given to Savjibhai Patel because of his financial ill health.
(q) Appellant no. 5 received various quantities of shares on different dates, totalling 9850 shares as a gift from her mother (appellant no. 4) but not traded in any single share. No financial arrangement with her uncle Savjibhai Patel.
35. The Learned Senior Counsel for the appellants Shri Mustafa Doctor in Appeal No. 513 of 2015 has relied on the following judgments in support of his arguments (a) Canara Bank and Others vs. Debasis Das and Others (2003) 4 Supreme Court Cases 557; Vikas Ganeshmal Bengani vs. Whole Time Member, SEBI (Appeal No. 225 of 2009 decided on February 25, 2010); Jagruti Securities Ltd. vs. SEBI (Appeal No. 143 of 2008 decided on October 27, 2008); M/s. Dimensional Securities Pvt. Ltd. vs. SEBI (Appeal No. 143 of 2008 decided on June 29, 2009); Sterlite Industries (India) Ltd. vs. SEBI (Appeal No. 20 of 2001 decided on October 22, 2001) and submitted that SCN should be unambiguous and in the SCN benefit gained by the appellant was not clearly stated; prices may not be always based on fundamentals, it could go down or up on technicalities and preponderance of probabilities is not enough to hold one acting in connivance or being part of a fraud.
36. Learned Counsel Ms. Ankita Singhania appearing on behalf of the appellant in Appeal No. 526 of 2015 submitted that penalty imposed on all the 19 appellants jointly and severally is not sustainable, there is no disgorgement, the ingredients of fraud are not met, impugned trades were neither manipulative nor induced by anybody, small quantity of trades had 25 not impacted volume or prices, no collusion between appellant and other noticees / entities, all trades genuine, legal, delivery based and beneficial ownership changed and section 15J not considered while imposing the huge penalty.
37. Learned Counsel Shri Prakash Shah appearing on behalf of the appellant in Appeal No. 535 submitted that appellant purchased only 5 shares on one day i.e. September 26, 2009 at Rs. 1185/- at market rate and exchange closed out the trade crediting the difference to the appellants account as the counter party did not meet the obligation; allegation of creation of artificial volume is not correct and the counter party Sneha Suresh Turkul maintaining account with broker Gunderia and Kaur but no show cause notice was issued to Turkul. Appellant was already holding 400 shares (pre-split) of SJC and, therefore, the submission of having a long term view was not considered.
38. Learned Counsel Shri Prakash Shah appearing on behalf of the appellant in Appeal No. 536 of 2015 submitted that appellant bought just 146 shares and sold only 160 shares of SJC during the investigation period. All trades were normal, genuine and on market rates. Six years' restraint from the market affected his livelihood. He was holding 250 shares of SJC prior to the investigation period and hence having a long term view in the scrip; no collusion with promoters of SJC, not party to any manipulation or fraud. He had sufficiently explained the association between him and Savjibhai Patel to the WTM of SEBI that it was because of their community and their association started subsequent to his buying the shares of SJC. Therefore, there was no connection between dealing in the scrip and his tele- calls. Connection with Ramesh Patel was only with respect to some money lent to the HUF of Ramesh Patel. He was not related / connected / linked 26 directly or indirectly to any of the noticees except Urvashi Patel who is his wife. Admittedly, he made a profit of only Rs. 93,783/-. Despite that he has been made joint and severally liable for Rs. 2.5 crore penalty.
39. Shri Gaurav Joshi, Learned Senior Counsel appearing for SEBI in all these appeals submitted that the facts of the matter should be seen in its totality to understand the fraudulent scheme hatched by the appellants. In isolation, if the role of any one is examined, it is difficult to get full picture.
40. It is fact that SJC was a company with negative net worth having only limited stock of 2 lac shares which was illiquid and being traded once in a while in very small quantities of at an average of 3 to 29 shares per day during Phase-I and Phase-II of the investigation period. In parallel with multiple false/misleading corporate announcements, announcements relating to stock split, bonuses and dividends and by transferring some business from sister company to the appellant company, the price of these illiquid shares was jacked up by trading in small quantities by entities related to the promoters. While in phase I and II of the investigation period the volume of trading remained subdued because of very limited floating stock available (promoters holding was more than 70% and a considerable part of the remaining stock was held by the related parties) but after the split of the stock on August 28, 2009 the volume of trading increased during which most of the appellants offloaded part of their holdings at abnormal prices. In such a scheme, it is not easy to decipher the exact role played by each entity and hence the need for looking at the schema in totality.
41. It is an unique case of market manipulation where the scheme employed by the appellants involved hiking the price of the shares in which the promoters had to make open offer. Therefore, the arguments of the appellants have to be faced squarely in their own terms as to which 27 promoter would like to increase the price of the scrip which they have to buy in an open offer at a higher price. Herein lies their ingenuity enabled by the nature of the scrip; illiquidity, low floating stock, low price to start with and the desire of a few groups of related entities to ensure that they exit by making substantial profits at an opportune time. The promoters were aware that there was only a limited quantity of floating stock available as such even if the price of the scrip was raised artificially by placing a small buy order it would not trigger a major offering by the public. Even during the public offer period most of the appellants did not sell their shares despite the fact that the offer price of the share was increased from Rs. 142 in the first open offer to Rs. 447/- in the second open offer but they waited for Phase- III by which time sufficient liquidity was created with daily average volume crossing 1100 shares. However, all the appellants could not offload their entire holding because soon after Phase - III was over interim order of the WTM of SEBI dated February 5, 2010 was issued restraining the appellants from dealing in the securities market. Hence, though many of the appellants had started offloading their holdings the entire holdings could not be offloaded within a few months even with increased liquidity. Therefore, the appellants arguments that they are still holding sizeable part of the scrip of SJC as a long term business strategy has no merit.
42. Learned Senior Counsel Shri Gaurav Joshi further elaborated the violations committed by various appellants in these appeals in terms of their detailed role as promoters and how they made corporate announcements and disclosures which were not either fully or partially correct; nature of relationship between entities; how different entities placed buy trades at 5% above LTP in Phase-I and Phase-II of the investigation period when the scrip was highly illiquid and trading was not more than 3 to 29 shares (Phase-I and Phase-II respectively); financial transactions between some of 28 the appellants and the promoters; the relative performance of two companies of the promoters and their association with companies based in Hong Kong and how in Phase-III some of the appellants off-loaded the shares in SJC. He also walked us through the detailed trade logs of the appellants, which is on record.
43. In conclusion, Learned Senior Counsel Shri Gaurav Joshi reiterated that the role of each individual /party in isolation does not clearly bring out the scheme of fraud and manipulation perpetuated by the appellants together. Therefore, in the impugned order those who made unlawful gains by trading have been asked to disgorge the unlawful gains and those who played any role in the fraudulent scheme have been asked to jointly and severally pay the penalty of Rs. 2.5 crore. On a specific query from the bench on the role of Reshma Patel in the entire scheme as to whether getting some shares as a gift from her mother and keeping the shares without selling make her a party to the fraudulent scheme the learned senior counsel fairly stated that the role of Reshma Patel is not that clear.
44. Learned Counsel Shri. Gaurav Joshi relied on the following judgments of the Supreme Court (a) Securities and Exchange Board of India vs. Rakhi Trading Private Ltd. (Civil Appeal No. 1969 of 2011 decided on February 08, 2018); (b) Securities and Exchange Board of India vs Shri Kanaiyalal Baldevbhai Patel, 2017 SCC OnLine SC 1148 decided on September 20, 2017 and (c) Securities and Exchange Board of India vs. Kishore R. Ajmera, (2016) 6 Supreme Court Cases 368 decided on February 23, 2016 and submitted that in deciding on PFUTP violation, totality of facts and preponderance of probabilities have to be resorted to as full evidence may not be forthcoming and manipulative, fraudulent schemes also include deliberately making losses as held in Rakhi Trading (supra). 29
45. We have heard the detailed submissions made by the Learned Senior Counsel and Counsel appearing for all the parties and perused the records placed before us. We have also noted the exact construction of Section 12A(a)(c) of SEBI Act and Regulations 3(a)(c) and Regulation 4(1)(2)(a)(b)(e) of PFUTP Regulations which reads thus:-
"SEBI Act Section 12A. No person shall directly or indirectly--
(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognised stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder;
(b) ............
(c) engage in any act, practice, course of business which
operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder;
PFUTP Regulations Regulation 3. Prohibition of certain dealings in securities No person shall directly or indirectly--
(a) buy, sell or otherwise deal in securities in a fraudulent manner;
(b) ..............
(c) employ any device, scheme or artifice to defraud in
connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange;
Regulation 4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities.
(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:-
(a) indulging in an act which creates false or misleading appearance of trading in the securities market;30
(b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss;
(c) ............
(d) ............
(e) any act or omission amounting to manipulation
of the price of a security;"
46. From the totality of the picture there is no ambiguity in our mind that a scheme of fraud has been conceived and implemented by the appellants herein, except appellant no. 5 in appeal 513 of 2015. We also hold that this is a unique case of manipulation. A defunct company is taken over by a few parties; peculiar interest is shown by a few others in buying the shares of that company placing orders mostly at 5% above the LTP thereby gradually raising its price to abnormal levels and creating artificial liquidity in the scrip and thereafter most of the parties trying to off-load their holdings at a substantially inflated price. If individual case is seen independently there is nothing abnormal about it but when the picture is looked at in totality what is unfolding is a fraud perpetuated on the market / investors.
47. The first SPA was signed by the appellants in Appeal No. 525 of 2015 on April 06, 2007. The price paid under this SPA was Rs. 25/- per share. The open offer price given in June 2007 was Rs. 142/-; barely three months after the first SPA. The second SPA was signed on July 31, 2008 and the consequent open offer made in September 2008 was at a price of Rs.
447/ - per share. The share split at the rate of 1:10 was done on August 28, 2009. The share price was Rs. 816/- on September 30, 2009. The post-split price of Rs. 816/- is tantamount to Rs. 8160 pre-split, which is 326 times the price at which the first SPA was entered into just 29 months earlier. Though the investigation period is limited to only about 19 of this 29 months and thereby shows an increase of about 2000% (20 times) in the price of the 31 share the fact that the share price actually hit 326 times since the first SPA cannot be ignored. For a company which was inactive at the time of taking over in April 2007 and which made a nominal profit of just Rs. 3.66 crore (with total sale of Rs. 22.68 crore) in 2008-09 even by assuming that those disputed sales and profits were correct, appreciation of the share price by 326 times and reaching the level of Rs. 8160/- per share cannot be treated a normal development by any yardstick. In that context finding in the impugned order that several of the appellants herein placing buy orders 5% above the last traded price during Phase - I and Phase - II and thereafter off- loaded or attempting to off-load those shares when the price had increased dramatically and when liquidity had increased reasonably (around 1100 share per day) during Phase - III as a result of a fraudulent scheme hoisted by the promoters and related entities cannot be faulted.
48. Some specific submissions have been made by some of the appellants before us. These include that appellants are no related to the promoters; their trade is in the normal course of business; only one order for a small quantity has been placed; mere call records are not sufficient to prove the connection; staying in the same locality is not an indicator of a connection; giving a small amount of loan to a relative is not connected to manipulation in trade etc.
49. We find no merit in these arguments given that the basic facts and the available evidence is sufficient to prove existence of a fraudulent scheme. It is not that the trade logs are disputed or the financial transactions are in dispute. What is disputed is only the motive behind such trade and the financial transactions. Even the argument of the promoters of SJC (appellants in appeal no. 525 of 2015) that they did not trade is only legally correct since another company (appellant in appeal 531 of 2015) wherein 32 they were promoters at the relevant time placed a buy order on 28.01.2009 (in Phase-II) for 100 shares at price 5% above the LTP, though only 10 shares got delivered. Similarly, appellant in Appeal No. 535 of 2015 placed one buy order for just 5 shares at the rate of Rs. 1185/- per share on 26.09.2009. This was the highest reported price ever and it is equivalent to a pre-split price of Rs. 11850/-. Since the counter party did not meet the obligation the difference was credited to the appellant's account. This appellant was already holding 400 shares of SJC (pre-split) and her husband (appellant in appeal no. 536 of 2015) had offloaded part of his holdings in Phase-III. Therefore, each small buy or small role played by each appellant needs to be juxtaposed with the motive of the appellant. Further, residing in a location or telephone calls between people also in itself do not make one party to a fraudulent scheme; but all associated factors together do make them parties. Therefore, given the factual matrix perused by us we find no merit in the submissions of the appellants.
50. Argument made by each of the appellant individually that each of them played only a small trade in isolation or as per normal course of their business or some of them did not trade at all or some small loan has been given etc stand no merit when totality of the picture is looked at. All of them together enabled launching this major fraud by using a dormant, low capital base and low public float company. In this context, we also find that the argument that many of the appellants did not off-load either full or major chunk of their holding even in Phase-III or thereafter also has no merit since with the still limited liquidity of about 1100 shares per day there was an inbuilt absorptive limitation for the market and thereafter the ad-interim restraint order of the WTM of SEBI came on their way on February 5, 2010. As held by the Hon'ble Supreme Court in several orders such as SEBI vs Rakhi Trading (supra), SEBI vs. Shri Kanaiyalal Baldevbhai (supra) and 33 SEBI vs. Kishore R. Ajmera (supra) complete evidence may not be forthcoming in every such matter and what is needed is to prove that in a factual matrix preponderance of probabilities indicate a fraud. In Rakhi Trading (supra) it is held that in some cases parties may even incur willful losses in the market to achieve some objectives.
51. It has been submitted before us that some of the parties allegedly connected to the fraudulent scheme were not penalized by the impugned order. We note that these parties were only sellers acting as counter parties to the buy orders placed by some of the appellants herein. Selling in Phase-I and Phase-II is not considered abetting the fraudulent scheme since charge is that by placing buy orders volume and prices have been increased. In such a context somebody offering the shares for sale is not abetting the fraudulent scheme. Similarly, during the open offer period if anybody has offered the shares for sale it was rightly not considered in abetting fraudulent scheme. Therefore, no action taken against such entities cannot be held to be faulty.
52. All the appellants argued that a joint and several liability of a penalty of Rs. 2.5 crore imposed on appellants is not sustainable or even practical because the allegedly connected entities are not a homogenous group. In fact, the connection itself is disputed though blood relationship between some of them is not. However, we find no fault in imposing such a joint and several penalty as it is now abundantly clear that the appellants were acting together and together they inflated the notional value of their shares to more than Rs. 132 crore. If they could be party to such a fraudulent scheme whether they are a homogeneous group or otherwise they should find a way to fulfill the consequences / obligation of paying the penalty jointly and severally imposed upon them.
34
53. In view of the above reasons we find no merit in the appeals except that of Ms. Reshma Patel, Appellant No. 5 in Appeal No. 513 of 2015. She succeeds in her appeal. Since in the impugned order penalty of Rs. 2.5 crore has been imposed under Section 15HA of SEBI Act on 19 appellants jointly and severally and one of them succeeds in the appeal the penalty amount also needs to be reduced. Accordingly, we reduce the joint and several penalty from Rs. 2.5 crore to Rs. 2.3 crore to be paid by 18 of the appellants.
54. All appeals are disposed of in above terms with no order as to costs. In view of the disposal of the appeals, Misc. Applications do not survive and are also disposed of accordingly with no order on costs.
Sd/-
Justice J.P. Devadhar Presiding Officer Sd/-
Dr. C.K.G. Nair Member 25.04.2018 Prepared and compared by:ptm/msb