V. Rajasekharan And Anr. vs Sebi on 12 July, 2019

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Securities Appellate Tribunal

V. Rajasekharan And Anr. vs Sebi on 12 July, 2019

2. Rajasekharan Devaki Plot 499, 18th Street, 4th Sector, K.K. Nagar, Chennai - 600 078. ..... Appellants Versus Securities & Exchange Board of India SEBI Bhavan, G Block, C-4A, Bandra Kurla Complex, Bandra (E), Mumbai ...... Respondent 400051.

Mr. Paras Parekh, Advocate with Mr. Robin Shah, Ms. Ankita Roy and Mr. Ashish Venugopal, Advocates i/b. Parinam Law Associates for the Appellants.

Mr. Mustafa Doctor, Senior Advocate with Mr. Anubhav Ghosh and Ms. Rashi Dalmia, Advocates i/b. The Law Point for the Respondent.

With Misc. Application No.416 of 2018 And Appeal No.98 of 2018 Srivatsan P. Old No.18 A, New No.39, 2 Rajamannar Street, T. Nagar, Chennai, Tamil Nadu-600017. ..... Appellant Versus Securities & Exchange Board of India SEBI Bhavan, G Block, C-4A, Bandra Kurla Complex, Bandra (E), Mumbai ...... Respondent 400051.

Mr. Anant Upadhyay, Advocate for the Appellant. Mr. Mustafa Doctor, Senior Advocate with Mr. Anubhav Ghosh and Ms. Rashi Dalmia, Advocates i/b. The Law Point for the Respondent.

With Misc. Application No.407 of 2018 And Appeal No.99 of 2018 V.R. Venkatachalam 25, Sir C.V. Raman Raod, New No.24, Alwarpet, Chennai - 600 018. ..... Appellants Versus Securities & Exchange Board of India SEBI Bhavan, G Block, C-4A, Bandra Kurla Complex, Bandra (E), Mumbai ...... Respondent 400051.

Mr. Gaurav Joshi, Senior Advocate with Mr. Paras Parekh, Mr. Robin Shah, Ms. Ankita Roy and Mr. Ashish Venugopal, Advocates i/b. Parinam Law Associates for the Appellant. Mr. Mustafa Doctor, Senior Advocate with Mr. Anubhav Ghosh and Ms. Rashi Dalmia, Advocates i/b. The Law Point for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member Per : Justice M.T. Joshi

1. The present appellants have suffered penalties ranging from Rs.3 lakhs to Rs.15 crores at the hand of the Adjudicating Officer of the respondent Securities and Exchange Board of India (referred to hereinafter as 'SEBI') vide order dated 31st January, 2018.

2. Appellant Mr. V. R. Venkatachalam and Mr. V. Rajasekharan were found to have violated Securities and Exchange Board of India (Prohibition of Fraudulent of Unfair Trade Practices Relating to Securities Markets) Regulation, 2003 (hereinafter referred to as PFUTP Regulations) as well as Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as 'PIT Regulations') while the rest of the appellants were found to have violated the PFUTP Regulations.

The impugned order would show that the appellant Mr. V.R. Venkatachalam was the promoter of M/s. TCP Ltd. (hereinafter referred to as 'TCP') during the relevant period. Appellant Rajashekharan was the Executive Director of TCP. 4 Said TCP was incorporated as a Joint Venture with Tamil Nadu Industrial Development Corporation Ltd. and Mitsubishi Corporation Japan. The scrip of TCP though was not listed on National Stock Exchange of India Ltd. (hereinafter referred to as 'NSE') but permission to trade on NSE platform was granted. The shares were however not frequently traded. Prior to 8th August, 2013 no trading was found to have occurred in the scrip. The last date of trading was on 4th April, 2013. However, for a period from 8th August, 2013 till 20th September, 2013 except appellant Mr. V.R. Venkatachalam other three parties had either purchased or sold shares in miniscule quantity of one to six shares between themselves by bringing down the price 37.66% lower to the last traded price (hereinafter referred to as 'LTP').

According to the respondent SEBI this activity was carried out in order to facilitate appellant Vekatachalam to purchase 10,24,503 shares of TCP during 16th August, 2013 to 21st August, 2013 at depressed prices ranging from Rs.351.95/- to Rs.302.7/- i.e. the average price of Rs.323.34/-. All these transactions between the other parties than appellant Mr. V.R. Vekatachalam of sale and purchase were made on the same day within two seconds to three minutes of this 5 illiquid scrip on the platform of NSE. Appellant Mr. V. Rajashekharan is the husband of Mrs. Rajashekharan Devaki. As already pointed out Mr. V. Rajashekharan was the Executive Director of very same TCP of which the appellant Mr. V.R. Venkatachalam was the promoter. Appellant Srivatsan P was alleged to be in collusion with the other appellants though he was not related with any of them. During investigation this appellant stated that he knew some of the friends of appellant Mr. V.R. Venkatachalam.

3. Appellant Mr. V. Rajashekharan, the Executive Director of TCP in his reply before the respondent SEBI submitted that he has for himself and on behalf his wife Mrs. Rajashekharan Devaki had bought 8 shares and sold 7 shares during the relevant period. According to them it would be irrational that the trade in such miniscule percentage would in any way affect the price movement in the scrip. They have not traded with appellant Mr. V.R. Vekatachalam, the promoter of TCP but with other persons. They further put a query that if the price of the shares was brought down at the lowest price by Rs.201/- by them in September, 2013 appellant Mr. V.R. Venkatachalam would not have purchased 6 the shares at the price between Rs.321.95/- and Rs.302.70/- per share in August, 2013.

4. Appellant Srivatsan P replied that he had no connection with any of the other parties. He had undertaken the insignificant trades in very insignificant manner as alleged by the respondent SEBI itself without any intention. During hearing he submitted that he knew some of the friends of appellant Mr. V.R. Venkatachalam.

5. Appellant Mr. V.R. Venkatachalam put a case before the respondent SEBI that between 16th August, 2013 to 21st August, 2013 he purchased 10,24,503 shares from Mr. E. Shanmugam who was his brother-in-law as well as co- promoter of TCP Ltd. The entire shareholding of Shri E. Shanmugam was bought by him in pursuance of a family arrangement with the promoters. The shares were purchased at Rs.352.50 to Rs.302.70 while the lowest price of Rs.201 had reached two weeks thereafter i.e. only on 2nd September, 2013. He also therefore argued that had there been an intention to manipulate the prices to purchase the shares by him at a lower price he would have just waited for another two weeks till the price fell to Rs.201/-.

As regards the allegation of insider trading he submitted that he had not taken pre clearance for opposite transactions executed within six months for 500 shares in January, 2014, 200 shares in July, 2014 and 214 shares in August, 2014 as it was aggregating to less than Rs.10 lakhs as per the Model Code of Conduct for Prevention of Insider Trading adopted by TCP. Same submissions were made by Appellant Mr. V.R. Rajeshakharan, the Executive Director of TCP who had traded in three shares within three months.

6. The Adjudicating Officer had put the detailed table of transactions as described supra in his impugned order. He found that for a long period there was no trade in the scrip and only movement was seen when these four entities had entered into the trade. The trading pattern detailed by him shows that the parties except Mr. V.R. Venkatachalma had entered into sale or purchase of one to six shares just within a second or minute of the same sale. There were no other buyers or purchaser on the scene except two other buyers. He further found that on 10th August, 2013 when the Last Traded Price (hereinafter referred to as 'LTP') was Rs.454.64/-, appellant Srivastan placed the buy order at Rs.431.95/- at 11:11:14 and immediately within 20 seconds Mrs. Rajasekharan Devaki had 8 placed sell order for the same price. This orders matched with each other. No other trade was at all there on that day.

On 13th August, 2013 Smt. Rajasekharan Devaki placed a sell order for one share for a price of Rs.389.90 at 11:30:22 when the LTP was Rs.410.42/-. Appellant Srivatsan at 11:32:30 placed buy order at the same rate for one share and thus the sell and buy orders were matched bringing down the price of the share. Other instances of 14th August, 2013, 16th August, 2013, 19th August, 2013 and 21st August, 2013 are quoted by the Adjudicating Officer.

7. The Adjudicating Officer calculated that appellant Mr. V.R. Venkatachalam was benefited to the extent of Rs.13 crores being able to buy share of TCP at reduced prices owing to the trading of three other appellants as detailed supra.

8. The argument of the appellant Mr. V.R. Venkatachalam that he could have waited for another two weeks to buy the shares at the lowest price at Rs.201/- was not accepted by the Adjudicating Officer by observing that the prior reduced price had benefited the appellant by Rs.13/- crore.

9. As regards appellant Srivatsan, the Adjudicating Officer observed that though he is not directly connected with other parties, during hearing he admitted that he knew few friends of 9 Mr. Venkatachalam. Further, the trading pattern in view of the Adjudicating Officer would show that appellant Mr. V. Rajasekharan and his wife Mrs. Rajasekharan Devaki used to put sell or buy order for lower prices which used to be matched with the counter order of this appellant within seconds or minutes while no other trade activity was noted on that day.

10. In that view of the matter the following penalty was imposed by the Adjudicating Officer.


Sl.    Name of the Noticee     Penal Provision under SEBI Act, Amount of Penalty
No.                            1992
1      Mr. V.R. Venkatchalam   Section 15HA of SEBI Act, 1992 Rs.15,00,000,00/-
                                                               (Rupees Fifteen Crores
                                                               only)

Section 15HB of SEBI Act, 1992 Rs.3,00,000/-

(Rupees Three Lakhs only) 2 Mr. V. Rajasekharan Section 15HA of SEBI Act, 1992 Rs.1,00,000,00/-

(Rupees One Crore only) Section 15HB of SEBI Act, 1992 Rs.3,00,000/-

(Rupees Three Laksh only) 3 Ms. Rajasekharan Devaki Section 15HA of SEBI Act, 1992 Rs.1,00,000,00/-

(Rupees One Crore only) 4 Mr. Srivatsan P Rs.1,00,000,00/-

(Rupees One Crores only)

11. The learned counsels for the appellants countered the finding of the Adjudicating Officer. Mr. Gaurav Joshi, Senior Advocate submitted that appellant Mr. V.R. Venkatachalam was not at all benefited by the alleged trade of the other 10 parties. As per the family arrangement between the appellant and his brother-in-law, another promoter of TCP, he had purchased the shares. He submitted that had there been any intention in depressing the prices of the shares in collusion with other parties the appellant would have waited as per the plan for two weeks to purchase the shares at more reduced price. As regards the breach of Model Code of Conduct the learned counsel submitted that some bonafide mistake is committed by Mr. V. R. Venkatachalam for not seeking permission for purchasing miniscule shares as detailed by the Adjudicating Officer in the order and hence he wanted that the order be set aside.

12. Mr. Paras Parekh, the learned counsel for the appellant Mr. V. Rajasekharan while supporting the above argument submitted that trade logs and order logs on which the allegations were leveled were not provided to these appellants. Only during the pendency of the present appeal upon making a specific request the same is provided to them by the respondent on 30th April, 2018. The trade logs would show that during the relevant period there were many orders pending in the system placed by third parties which did not match. Merely because the order of the appellants matched 11 with the order of another appellant Srivatsan the same cannot be doubted. The trade logs would show that there was a steady decline in the price of the scirp even after 12th August, 2013 and the trade matched with some other parties than the present appellant. It was further argued that since Mr. Venkatachalam - the another appellant - had bought the substantive shares pursuant to family arrangement with Mr. E. Shanmugam the price did not matter and, therefore, the charge would not hold any water.

13. Mr. Anant Upadhyay, Advocate in appeal of Mr. Srivatsan submitted that the appellant had no connection with any of the other parties and only on the statement of the appellant during enquiry that he knew some friends of Mr. Venkatachalam it was observed by the Adjudicating Officer that this appellant was privy to a conspiracy.

14. On the other hand, Mr. Mustafa Doctor, Senior Advocate on behalf of respondent submitted that the evidence on record would clearly show that the TCP stock was an illiquid stock. There used to be no trade other than miniscule transactions carried out by the respective parties. The only answer of the appellants except Mr. V.R. Venkatachalam was that we traded in miniscule proportion while affidavit in reply 12 of Srivatsan would show that he had traded out of curiosity. He further submitted that infact these miniscule trades matching within seconds or minutes had depressed the price of the share as detailed by the Adjudicating Officer and therefore the argument of Venkatachalam that he could have waited for two more weeks is merely an afterthought.

15. Mr. Mustafa Doctor further submitted that though it is the case of the appellant Venkatachalam that as a result of family settlement he had purchased the shares, the copy of the memorandum of undertaking in this regard filed at Exhibit E by the appellant in his appeal would show that so called family arrangement was executed much after the transactions i.e. on 13th September, 2013 as an afterthought. He further submitted that for the transfer without approval, finding that purchase of the shares in small quantity were made, penalty of Rs.3 lakhs only was imposed and, therefore, no interference in the impugned order is warranted.

16. In reply Mr. Gaurav Joshi learned senior counsel submitted that respondent SEBI did not challenge the factum of oral family settlement which is permissible in law.

17. Learned counsel for Mr. V. Rajasekharan and Smt. Rajasekharan Devaki, Mr. Paras Parekh submitted that even 13 after stopping of trade by this appellant the price fell further. Not only the appellant but three others had traded as can be seen from the trade logs. The trade volume of these persons also was very miniscule which would have caused no effect on the price of this illiquid share.

The learned counsel Mr. Anant Upadhyay for appellant Srivatsan submitted that merely because the appellant during enquiry told that he knew few friends of Mr. Venkatachalam he was roped in. He had no connection with other appellants. The record would show that the appellant was a jobber and used to do intraday trading in other shares also.

18. Upon hearing both sides in our view the trading pattern of the parties except Mr. R. Venkatachalam would show that these parties entered into buy and sell order of the shares in miniscule proportion for a price much lower than LTP on the given date within seconds to three minutes. Further, within seconds or minutes their orders matched. Three other persons had transacted only on four occasions out of 18 transactions. Appellant Mrs. Rajasekharan Devaki is the wife of appellant Mr. Rajasekharan and are admittedly connected to Mr. Venkatachalam. Though appellant Mr. Srivatsan has no direct connection it is a fact that not only he knew some friends of 14 Mr. Venkatachalam, the trading pattern as detailed supra would on preponderance of probabilities, show that there was meeting of minds between the parties. The impugned order of the Adjudicating Officer in this regard therefore cannot be faulted with. As regards the violation of the PIT Regulations it is an admitted fact that the said regulation has been violated though for small quantity of shares. The Adjudicating Officer has taken note of this and therefore the penalty of Rs.3 lakhs on this count was imposed. Considering all these facts on record we do not find any reason to interfere in the impugned order. The appeals are therefore dismissed without any order as to costs. In view of the dismissal of the appeals, all Misc. Applications for interim relief has become infructuous and are dismissed as such.

Sd/-

Justice Tarun Agarwala Presiding Officer Sd/-

Dr. C. K. G. Nair Member Sd/-

Justice M.T. Joshi Judicial Member 12.7.2019 Prepared and compared by RHN

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