Securities Appellate Tribunal
Rajani Dusad & Anr vs Sebi on 24 November, 2023
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Decision : 24.11.2023
Appeal No. 651 of 2023
1.Rajani Dusad
2. Anil Dusad E-83, Shastri Nagar, Jaipur - 302 016. ...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. Vikas Bengani, Advocate for the Appellants. Mr. Vishal Kanade, Advocate with Mr. Ravishekhar Pandey, Mr. Nishit Dhruva, Ms. Shefali Shankar, Ms. Rasika Ghate and Mr. Harsh Sheth, Advocates i/b MDP & Partners, Advocates for the Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member Per : Justice Tarun Agarwala, Presiding Officer (Oral)
1. The appellants, noticee nos. 8 and 10 are wife and husband respectively and have challenged the order dated May 31, 2023 passed by the Adjudicating Officer ('AO' for short) of the Securities and Exchange Board of India ('SEBI' for short) 2 imposing a penalty of Rs. 7 lakh each for violation of Section 12A of the SEBI Act, 1992 read with Regulation 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ('PFUTP Regulations' for short).
2. The facts leading to the filing of the present appeal is, that SEBI conducted an investigation in the scrip of Generic Engineering Construction and Projects Ltd. for the period November 04, 2016 to September 20, 2017 to ascertain whether there was any violation of the provisions of the SEBI Act. Based on the investigation a common show cause notice dated January 12, 2022 was issued. The show cause notice was issued to 12 noticees which were divided into Group - 1 and Group -
2. Group - 1 was charged with synchronized and circular trades and in Group - 2 noticee nos 8, 9 and 10 were charged with manipulating the price in the scrip through their trading pattern.
3. The show cause notice alleged that noticee nos. 8 and 9 had traded during investigation period and contributed to 281.85 to positive LTP difference. Further it was observed that both the entities of suspected entities group 2 i.e. noticee nos. 8 and 9 had traded during the investigation period and had contributed 3 Rs. 281.85 to the positive LTP difference. Further it was observed that in 618 positive LTP trades with non-group entities, the suspected entities group contributed Rs. 552.15 to positive LTP (15.18% of total market positive LTP). The said contribution of the suspected entities group to the market positive LTP was done in the following ways:
(i) In 25 instances, the suspected entities group repeatedly placed buy order at a price higher than LTP, before sellers placed the sell orders. The LTP contributed through such trades was Rs. 8.90 i.e. 0.24% of the market positive LTP.
(ii) In 593 instances, the suspected entities group repeatedly placed buy orders to match the already existing sell orders (with order rate higher than LTP and negligible quantity of 1-10 shares in many instances). The LTP contributed through such trades was Rs. 543.25 i.e. 14.93% of the market positive LTP.
4. On the basis of the aforesaid allegations, Group - 2 entities i.e. noticee nos. 8 and 9 were alleged to have manipulated the price of the scrip thereby violating Section 12A 4 of the SEBI Act read with Regulation 3 and 4 of the PFUTP Regulations. Noticee no. 10 being the sub broker of noticee no. 9 and husband of noticee no. 8 was alleged to have facilitated the manipulation of the price of the scrip in question by noticee nos. 8 and 9 and therefore was alleged to have violated Section 12A of the SEBI Act read with Regulation 3 and 4 of the PFUTP Regulations.
5. The AO after considering the material evidence on record found that the trading pattern of noticee no. 8 indicated that she was manipulating the price in the scrip and that noticee no. 10 was facilitating noticee no. 8 in increasing the price. The AO accordingly imposed a penalty of Rs. 7 lakh each upon noticee nos. 8 and 10.
6. We have heard Shri Vikas Bengani, the learned counsel for the appellant and Shri Mr. Vishal Kanade, the learned counsel with Shri Ravishekhar Pandey, Shri Nishit Dhruva, Ms. Shefali Shankar, Ms. Rasika Ghate and Shri Harsh Sheth, the learned counsel for the respondent.
7. Noticee no. 8 is the wife of noticee no. 10. In paragraph 54 of the impugned order, the AO found that in 25 instances noticee no. 8 had placed buy orders at a price higher than LTP before sellers placed the sell orders. The LTP contributed 5 through such trades was 0.24% of the market positive LTP. Further, in 593 instances noticee no. 8 placed buy orders to match the already existing sell orders with order rate was higher than the LTP and therefore the appellant had contributed 14.93% of the market positive LTP. On this basis the learned counsel for the respondent contended that noticee no. 8 trading pattern was indicative that she was executing manipulative trades and was carrying out trades with the purpose of increasing the price of the scrip. It was contended that a prudent person will not buy a scrip at a higher price when the same is available at a lower price and therefore the trading pattern of noticee no. 8 indicated that the intention was to manipulate the price which was violative of Section 12A of the SEBI Act read with Regulation 3 and 4 of the PFUTP Regulations.
8. We find that there is no evidence to show that noticee no. 8 was connected with the counter party and therefore there is no collusion between the buyer and the seller and consequently the charge of manipulating the price of the scrip cannot be sustained since it has not been proved. In the first instance we find that noticee no. 8 on 25 instances had placed buy orders at a price higher than LTP. For this noticee no. 8 can be charged of increasing the LTP which could be manipulative but we find 6 that noticee no. 8 has also been charged for purchasing shares at a higher price than LTP. We are of the opinion that the respondent cannot blow hot and cold penalizing the noticee no. 8 on both counts, namely, while buying the shares at a higher price and while selling the shares at a higher price.
9. When the buyser is placing the buy order above LTP, the buyer is inducing the seller to buy at a higher price. The buyer is thus manipulating the price and is playing a fraud on the system. Considering the aforesaid in 25 instances noticee no. 8 has placed buy orders above LTP and therefore to that extent noticee no. 8 could manipulate the price and play a fraud on the system but the same cannot be found when a counter party has placed sell orders above LTP which the appellant has purchased. Such purchasing by noticee no. 8 cannot lead to a conclusion that noticee no. 8 was involved in manipulating the price since the counter party is not known nor there is any meeting of minds between noticee no. 8 and the counter party.
10. In Amaresh Pathak & Ors. vs SEBI, Appeal no. 332 of 2020 decided on February 16, 2021 this Tribunal held:-
"10. In the absence of any finding of collusion between the buyer and the seller the charge of collusion and/or manipulation in the price of scrip cannot be sustained since it has not been proved. We also find that the buyer had placed the order above the LTP and, 7 therefore, was increasing the price. The buy orders had been on the stock exchange platform for a period of time and only matched when the appellants sold their scrip. The appellant alone therefore cannot be charged for manipulating the price especially when the buyer have not been prosecuted by the respondent. We find that there is no connection established between the appellants with the shareholders and promoters of the Company.
11. Similarly in M/s. Nishith M. Shah HUF vs SEBI, Appeal no. 97 of 2019 decided on January 16, 2020 this Tribunal held that' the element of collusion between the buyer and the seller is a sine quo non.' We are of the opinion that the said decisions are squarely applicable in the instance case. The seller who had placed orders on 593 instances above the LTP has not been charged for manipulating the price and noticee no. 8 who purchased those shares has been charged for manipulating the price which in our opinion is absurd especially when there is no collusion between noticee no. 8 and the counter party.
12. Considering the aforesaid, we are of the opinion that noticee no. 8 cannot be charged for manipulating the price for buying shares on 593 instances where sell orders were previously placed above LTP.
13. On the other hand, the mere fact that on 25 instances the noticee no. 8 had placed buy orders at a higher price than LTP 8 could at best raise a suspicion but beyond that it cannot lead to a charge of manipulating the price since we find that there was no major impact to market positive LTP. The trades executed on these 25 instances by noticee no. 8 only had a impact of 0.24% of the market positive LTP which in our opinion is negligible.
14. Insofar as noticee no. 10 is concerned we find that he was only a sub broker. Noticee no. 10 has not traded in the shares and is husband of noticee no. 8. The said noticee cannot be charged for violating Regulation 3 and 4 of the PFUTP Regulations only on the ground that being the husband he had facilitated the transactions of noticee no. 8.
15. In the light of the aforesaid, the finding that appellants, noticee nos. 8 and 10 had manipulated the price of the scrip in question cannot be sustained. The penalty imposed upon them is patently erroneous and are quashed. The appeal is allowed insofar as it relates to the appellants.
Justice Tarun Agarwala Presiding Officer Ms. Meera Swarup Technical Member Digitally signed by 24.11.2023 MADHUKAR MADHUKAR SHAMRAO SHAMRAO BHALBAR msb BHALBAR Date: 2023.11.28 14:48:37 +05'30'