Securities Appellate Tribunal
Sunil Bhandari vs Sebi on 5 May, 2021
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved:26.4.2021
Date of Decision:05.5.2021
Appeal No.76 of 2019
Kaushik Rajnikant Mehta
Building No.149,
Saidham Cooperative Housing Society,
Pant Nagar, Surrounding Vallabh Bagh
Cross Lane, Ghatkopar -(E),
Mumbai-40075. ...Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No.C4-A,
'G' Block, Bandra-Kurla Complex,
Bandra (E), Mumbai-400051. ...Respondent
Mr. Vikas Bengani, Advocate for the Appellant.
Mr. Suraj Chaudhary, Advocate with Mr. Abhiraj Arora,
Karthik Narayan and Ms. Rashi Dalmia, Advocates i/b.
ELP for the Respondent.
With
Appeal No.103 of 2019
CGF Mercantile P. Ltd.
(Formerly Known as Benko Trading
Private Limited)
Shop No.45, Handloom Market,
Gandhibagh, Nagpur-440 002. ...Appellant
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Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No.C4-A,
'G' Block, Bandra-Kurla Complex,
Bandra (E), Mumbai-400051. ...Respondent
Mr. Vikas Bengani, Advocate for the Appellant.
Mr. Suraj Chaudhary, Advocate with Mr. Abhiraj Arora,
Karthik Narayan and Ms. Rashi Dalmia, Advocates i/b.
ELP for the Respondent.
With
Appeal No.161 of 2019
Sunil Bhandari
B-301, Wembley Estate,
Opp. Rose Wood City,
Sector 49-50,
Gurgaon, Haryana-122001. ...Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No.C4-A,
'G' Block, Bandra-Kurla Complex,
Bandra (E), Mumbai-400051. ...Respondent
Mr. Vikas Bengani, Advocate for the Appellant.
Mr. Suraj Chaudhary, Advocate with Mr. Abhiraj Arora,
Karthik Narayan and Ms. Rashi Dalmia, Advocates i/b.
ELP for the Respondent.
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CORAM: Justice Tarun Agarwala, Presiding Officer
Justice M.T. Joshi, Judicial Member
Per: Justice Tarun Agarwala, Presiding Officer
1.Three appeals have been filed against a common order dated 10th September, 2018 passed by the Adjudicating Officer ('AO' for short) imposing separate penalties.
2. The facts leading to the filing of the present appeals are that investigation in the irregularities in the trading of the scrip of Shakti Pumps (India) Ltd. for the period from 1st February, 2010 to 30th July, 2010 for possible violation of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003 (hereinafter referred to as 'PFUTP Regulation') was carried out by Securities and Exchange Board of India (hereinafter referred to as 'SEBI'). Pursuant to the investigation report, a show cause notice was issued to 35 entities which included the three 4 appellants contending that the 56 entities were connected with each other and had dealt with the scrip in a fraudulent manner by creating artificial volume by way of synchronised trades, reversal trades and self trades which contributed in the price rise of the scrip fraudulently by trading among themselves at a price above the Last Traded Price ('LTP' for short), manipulating the first trade of the day and established a new high price which were all violative of Regulations 3 and 4 of the PFUTP Regulations.
3. The charges were denied by the appellants contending that they had no connection with the other entities nor they had indulged in synchronised trades or reversal trades or self trades nor created artificial volumes by any such trades.
4. The AO after considering the material evidence on record imposed a penalty on all the entities except two of them. In the case of Mr. Sunil Bhandari and Mr. Kaushik Mehta a penalty of Rs.4 lakhs each was 5 imposed. In the case of CGF Mercantile a penalty of Rs.8 lakhs was imposed.
5. We have heard Mr. Vikas Bengani, Advocate for the Appellant and Mr. Suraj Chaudhary, Advocate assisted by Mr. Abhiraj Arora, Karthik Narayan and Ms. Rashi Dalmia, Advocates for the Respondent.
6. Various submissions were made on the issue that there was no connection with other entities and, therefore, there cannot be a charge of synchronised trades nor there can be a charge of reversal trades. Further, proceedings were initiated belatedly. The trades were of the year 2010 whereas the show cause notice was issue after seven years in September, 2017 and, accordingly, on account of this inordinate delay the proceedings should be quashed.
7. It was further contended that whereas the data of 56 entities have been used in showing connection, total volume of trades and percentage of trades and on the other hand the show cause notice was only issued against 35 entities. It was contended that such 6 connection with 56 entities was erroneous and at best the connection with 35 entities ought to have been taken into consideration.
8. On the other hand, the stand of the respondent was that the impugned order does not suffer from any error of law and that the AO has analysed the case of each of the 35 entities and had come to the conclusion that the appellants as well as the other entities had violated Regulation 3 and 4 of the PFUTP Regulations.
9. Having heard the learned counsel for the parties, we are of the opinion that the analysis against the appellants had not been done correctly for the reasons stated hereunder.
10. In the first instance, we find that the AO has found that there is a connection between each of the entities on the basis of a table shown in para 5 of the impugned order. A perusal of the table shown in the para 5 of the impugned order shows that the connection has been established between 56 entities whereas the show cause notice was issued to 35 entities. In our opinion, 7 a connection has to be drawn between the 35 entities only and not against the 56 entities in as much as the charge is one of synchronised trades and reversal trades and if one of the entities who is not charged in the show cause notice is a link for synchronised trading then that charge cannot be proved.
11. Further, we find that in the case of Mr. Sunil Bhandari the connection is off market transfer with self. No connection has been established of this appellant with any other entities. In case of Mr. Kaushik Mehta, the connection has been established on the basis of off market transfer with self and one noticee no.6 Mr. Vipul Hiralal Shah and in the case of CGF Mercantile the connection has been established on the basis of off market transfer with self and with noticee no.9 Mr. Bharatkumar Baldevbhai Parmar and one Mr. Samir Sureshchandra Shah who is not a noticee. Thus, we are not satisfied with the findings that the appellants are connected with the other parties. We are of the opinion that a connection is required to 8 be established between the appellant and the counter party in the case of synchronised trading which has to be established with the 35 entities. In the case of CGF Mercantile we find that the Company is connected with Mr. Bharatkumar Parmar. If certain trades are executed by the CGF Company which are synchronised then the onus is upon the AO to first prove the connection with the synchronised counter party.
12. We also find that the AO has taken into consideration the total trades of 56 entities and the percentage of the buy trades of the 56 entities and has also taken into consideration the percentage of transfer of the 56 entities which in our opinion would be different and distinct in the volume and percentage of the trades executed by the 35 entities. Therefore, such comparison is odious.
13. The common charge against the three appellants is synchronised trades and, in the case of CGF Mercantile the additional charge is of reversal and self trades. In 9 the case of Mr. Sunil Bhandari the synchronised trades is 2972 buy orders. The contention of the appellant is that he had executed 5000 buy orders which matched with ten entities and the charge is only in relation to synchronised trading with one entity totalling 2972 shares which had a trade percentage of 0.01 percentage against the total volume which is too miniscule to influence the market or could amount to manipulation in the price. In the case of CGF Mercantile total buy orders were 1918 shares which also had a total percentage of volume of 0.01% which is also being miniscule.
14. In this regard, namely, synchronised trading we find from the impugned record that the charge against Mr. Ashok Kumar was that there were 1,25,868 synchronised trades and in the case of Mr. Narendra Pawar there were 1,31,439 and in the case of Mr. Kochale Santosh there were 1,24,530 synchronised trades. These entities have been let off whereas the appellant Mr. Sunil Bhandari traded 2972, CGF 10 Mercantile 1918 and Mr. Kaushik 30,000 shares whose percentage is less than 0.01 percent of the total trades have been charged for synchronised trades.
15. In the light of the aforesaid, we are of the view that the AO has not taken into consideration the individual stand of the appellants. Consequently, the impugned order cannot be sustained for the aforesaid reasons and is set aside. The appeals are allowed. The matter is remitted back to the AO to pass a fresh order in the light of the observation made above in accordance with law after giving an opportunity of hearing to the appellants.
16. We also direct that the AO should decide the matter within a period of six months from today as the matter is an old one. It would also be open to the appellants to raise the ground of delay and such other grounds as permissible in law which, if raised, would be dealt with appropriately by the AO.
17. In the circumstances of the case, parties shall bear their own costs.
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18. The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor a certified copy of this order could be issued by the registry. In these circumstances, this order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally signed copy sent by fax and/or email.
Justice Tarun Agarwala Presiding Officer Justice M.T. Joshi Judicial Member Digitally signed 5.5.2021 RAJALA byRAJALAKSHMI RHN KSHMI HDate:
NAIR H NAIR 2021.05.12 17:18:58 +05'30'