Securities Appellate Tribunal
Paresh Ramjibhai Chauhan vs Sebi on 15 September, 2021
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on: 02.09.2021
Date of Decision : 15.09.2021
Misc. Application No. 830 of 2021
(Stay Application)
And
Appeal No. 375 of 2019
Ashlesh Gunvantbhai Shah
16, Vasupujya Krupa,
8/7, Niyojan Nagar, Nehru Nagar,
Ambawadi, Ahmedabad,
Gujarat - 380 015. ..... 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
Ms. Rinku Valanju, Advocate with Mr. Pratham Masurekar
and Mr. Aditya Shah, Advocates i/b R V Legal for the
Appellant.
Mr. Pradeep Sancheti, Senior Advocate with Mr. Nishit
Dhruva, Mr. Hridhay Khurana, Mr. Chirag Bhavsar, Mr. Yash
Garach and Ms. Aalisha Shah i/b MDP & Partners for the
Respondent.
WITH
Misc. Application No. 818 of 2021
(Stay Application)
And
Appeal No. 377 of 2019
Paresh Ramjibhai Chauhan
10 B, Full Stop Society,
Chandkheda, Ahmedabad, ..... Appellant
Gujarat - 382 424.
2
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. Rushin Kapadia, Advocate with Mr. Pratham Masurekar
and Mr. Aditya Shah, Advocates i/b R V Legal for the
Appellant.
Mr. Pradeep Sancheti, Senior Advocate with Mr. Nishit
Dhruva, Mr. Hridhay Khurana, Mr. Chirag Bhavsar, Mr. Yash
Garach and Ms. Aalisha Shah i/b MDP & Partners for the
Respondent.
WITH
Appeal No. 378 of 2019
Vipul Virendrabhai Patel
8, Siddhi Vinayak Row House,
Near Jivraj Park Over Bridge,
132 Feet Ring Road,
Ahmedabad - 380 015, Gujarat. ..... 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
Ms. Rinku Valanju, Advocate with Mr. Pratham Masurekar
and Mr. Aditya Shah, Advocates i/b R V Legal for the
Appellant.
Mr. Pradeep Sancheti, Senior Advocate with Mr. Nishit
Dhruva, Mr. Hridhay Khurana, Mr. Chirag Bhavsar, Mr. Yash
Garach and Ms. Aalisha Shah i/b MDP & Partners for the
Respondent.
3
WITH
Appeal No. 415 of 2019
Jayshriben Maniyar
Plot No. 2215/a, Gokul,
Near Fulwadi Chowk,
Hill Drive, Bhavnagar,
Gujarat - 364 002. ..... 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
Ms. Rinku Valanju, Advocate with Mr. Pratham Masurekar
and Mr. Aditya Shah, Advocates i/b R V Legal for the
Appellant.
Mr. Pradeep Sancheti, Senior Advocate with Mr. Nishit
Dhruva, Mr. Hridhay Khurana, Mr. Chirag Bhavsar, Mr. Yash
Garach and Ms. Aalisha Shah i/b MDP & Partners for the
Respondent.
AND
Appeal No. 47 of 2020
Piyush Batukbhai Dave
Plot No. 128 A 3,
Nirmal Nagar, Kesarbaug,
Street No. 4,
Bhavnagar - 364 001. ..... 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
4
Ms. Rinku Valanju, Advocate with Mr. Pratham Masurekar
and Mr. Aditya Shah, Advocates i/b R V Legal for the
Appellant.
Mr. Pradeep Sancheti, Senior Advocate with Mr. Nishit
Dhruva, Mr. Hridhay Khurana, Mr. Chirag Bhavsar, Mr. Yash
Garach and Ms. Aalisha Shah i/b MDP & Partners for the
Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer
Justice M.T. Joshi, Judicial Member
Per : Justice Tarun Agarwala, Presiding Officer
1.These five appeals are filed against a common order dated March 29, 2019 passed by the Adjudicating Officer ('AO' for short) of the Securities and Exchange Board of India ('SEBI' for short) whereby separate penalties has been imposed upon the appellants for violation of Regulation 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ('PFUTP Regulations' for short). Since the issues are common in all the appeals, the same are being taken up together.
2. The five appellants before us are out of the 11 noticees against whom adjudication proceedings were initiated and 5 penalties were imposed. The appellants are noticee no. 1,2,3,4 & 6.
3. Investigations into the irregularities in the trading in the scrip of Cupid Traders and Finance Ltd. was conducted for the period June 19, 2013 to November 5, 2013 wherein it was found that there was an increase in the price of the scrip from Rs.107.35 to Rs. 149. Based on the investigation, a show cause notice was issued to the appellants alleging that the 11 noticees were connected entities and had traded amongst themselves and contributed to the total trade volume through synchronised, reversal and self trades and therefore were directed to show cause as to why appropriate enquiry should not be made and penalty should not be imposed.
4. The appellants filed their replies contending that they were retail investors and were doing intra-day trading on delivery basis and were not related to the promoter group entities nor were connected with other noticees. The appellants denied that they had indulged in reversal and self trades or synchronised trades and vehemently refuted the allegations of violating Regulation 3 and 4 of the PFUTP Regulations. The appellants contended that compared to the 6 trades executed by the appellants from the buy side or on the sell side the alleged synchronised trades were coincidental and not intentional and, in any case, were miniscule which had no impact to the total market volume.
5. For example, the appellant Ashlesh Gunvantbhai Shah contended that the total sell trades were 1,12,044 which was 5.59% of the market volume and that the alleged synchronised sell trades were only 11,638 shares which worked out to 0.58% of the market volume. Similarly, the buy trades 1,38,079 and the alleged synchronised trades were 14,049 which worked out to 0.70% of the market volume. Similarly, with regard to the appellant Vipul Virendrabhai Patel the sell transactions were 63,064 shares which constituted 3.14% of the market volume and the alleged synchronised trades alleged were 22,665 which constituted 1.13% of the market volume. A similar figure of miniscule percentage of the market volume was also illustrated by the other appellants in their replies.
6. The AO after considering the material evidence on record held that the appellants and other noticees were connected to each other on the basis of KYC details like 7 common address, common telephone numbers / mobile numbers, off-market transactions among themselves and fund flows on the basis of their bank statement. The AO also came to the conclusion that on the basis of the trading pattern a connection is established and since they were repeated nature of trades, more particularly, synchronised trades the appellants were found guilty of executing synchronised trades as a group and therefore violated Regulation 3 and 4 of the PFUTP Regulations. The AO, however, admitted that if the individual trades of the appellants are taken in isolation the said trades are miniscule and cannot create artificial volume. However, as a group, the pattern of trading indicates that the total market volume was 68.58% which was very high.
7. The AO further found that all the buy trades and sell trades were executed within a minute of placing of the orders and therefore an irresistible inference could be drawn that the appellants were executing synchronised trades. The AO, however, found no evidence with regard to reversal or self trades and accordingly discharged the noticees on these allegations. However, on the issue of synchronised trades the AO found the appellants to be guilty and accordingly imposed a penalty.
8
8. We have heard Ms. Rinku Valanju and Shri Rushin Kapadia, the learned counsel for the appellants and Shri Pradeep Sancheti, the learned senior counsel for the respondent.
9. The AO in paragraph 5 and 19 of the impugned order has drawn connection inter se between the appellants and other noticees. Paragraph 5 lays down the table in which it indicates as to how each noticee is connected with other noticee. This connection has been explained by the AO in paragraph 19. On this issue, we find from a perusal of the chart in paragraph 5 of the impugned order that the appellants who are noticee nos. 1,2,3,4 & 6 are somehow connected in one manner or other prima facie as per their bank statement, common mobile numbers etc. but there is no evidence to show that the appellants i.e. noticee nos. 1,2,3,4 & 6 are connected in any manner with the other noticees except that noticee no. 11 is connected with appellant Ashlesh Gunvantbhai Shah, noticee no. 3 on the basis of bank statement. Thus, we are of the firm opinion that the finding of the AO that the appellants are connected with each other and with the other noticees is not borne out from any documentary 9 evidence that has been explained in paragraph 5 of the impugned order.
10. In this regard a submission was made by the appellants that the copies of the bank statement was not provided to them which was a relevant factor to find as to how and in what manner the appellants were connected with each other on the basis of the bank statement. There is no finding in this regard in the impugned order as to how the appellants were connected with each other on the basis of bank statement. In this regard we are of the opinion that in order to prove a connection and if reliance is being made by the AO on the bank statement then some details were required to be indicated in the impugned order to show the connection with clarity. Further, if the bank statements are being relied upon relevant copies was required to be supplied to the appellants which in the instant case was not done and therefore there was a violation of the principles of natural justice.
11. The AO while considering the connection in paragraph 19 also held that the trading pattern inter se between the noticees and appellants indicate a connection more particularly with regard to this synchronised trades. In this 10 regard the AO has given relevant findings with regard to synchronizsd trades from paragraph 20 to 28. In paragraph 25 the details of the synchronised trades as executed by the appellants and other noticees has been given in a table and on that basis the AO has come to a conclusion in paragraph 26 that the noticees have indulged in synchronised trades for two or more days which works out to 68.58% of total synchronised trades. In our opinion a perusal of the table indicated in paragraph 25 of the impugned order indicates otherwise. We find from the said table that a few trades have been made inter se by the appellants but only one trade at best is made by the appellants against some of the other noticees. Finding of the AO that noticees had indulged in synchronised trades for two or more days prima facie appears to be incorrect. Further, one or two trades cannot make it a synchronised trades. It could also be coincidental and therefore it is essential that in order to ensure that a trade is synchronised not only the timings of the execution of the trades has to be taken into consideration but the volume of trading vis-à-vis the total market volume is required to be taken into consideration which apparently has not been done. Therefore, we are of the opinion that the table disclosed in 11 paragraph 25 of the impugned order does not indicate synchronised trades for two or more days and this finding is incorrect and thus requires more clarity to be given by the AO.
12. Insofar as timings are concerned a finding has been given by the AO that buy and sell orders of the trades were structured in such a way with regard to the quantity, price and time that there was no difference in the buy quantity, sell quantity, buy rate and sell rate and the time difference between order time and counter party order time was almost the same. This finding in our opinion is based on presumptions. Paragraph 27 indicates 5 trades wherein buy and sell orders were executed within a minute of each other. In our opinion 5 trades shown in paragraph 27 out of 524 trades cannot form the basis of synchronised trades that all the trades were executed within a fraction of a minute. Thus, the AO is required to give details of all the trades executed.
13. The pattern of trading as indicated in table of paragraph 25 of the impugned order shows inter se trades between the appellants but scattered and miniscule trades of one or two trades with the other noticees and therefore such sparse one or 12 two trades would not make it a synchronizsd trade unless comparison with total trades volume is seen before holding it to be a synchronised trade or coincidental trade. We are further of the opinion that connection and pattern of trading must have an inter connection to establish meeting of mind, premeditated motive or synchronised trading and that volume of trading vis-à-vis the total market volume is required to be compared.
14. In Ketan Parekh vs Securities and Exchange Board of India, Appeal no. 2 of 2004 decided on July 14, 2006 this Tribunal held:-
"20. There are yet another type of transactions which are commonly called synchronised deals. The word „synchronise‟ according to the Oxford dictionary means "cause to occur at the same time; be simultaneous". A synchronised trade is one where the buyer and seller enter the quantity and price of the shares they wish to transact at substantially the same time. This could be done through the same broker (termed a cross deal) or through two different brokers. Every buy and sell order has to match before the deal can go through. This matching may take place through the stock exchange mechanism or off market. When it matches through the stock exchange, it may or may not be a synchronised deal depending on the time when the buy and sell orders are placed. There are deals which match off market i.e., the buyer and the seller agree on the price and quantity and execute the transaction outside the market and then report 13 the same to the exchange. These are also called negotiated transactions. Block deals (when shares of a company are traded in bulk) are an instance of trades that match off market. Such trades have always been recognised by the market and also by the Board as a regulator. It has recently issued a circular requiring all bulk deals to be transacted through the exchange even if the price and quantity are settled outside the market. When such deals go through the exchange, they are bound to synchronise. It would, therefore, follow that a synchronised trade or a trade that matches off market is per se not illegal. Merely because a trade was crossed on the floor of the stock exchange with the buyer and seller entering the price at which they intended to buy and sell respectively, the transaction does not become illegal. A synchronised transaction even on the trading screen between genuine parties who intend to transfer beneficial interest in the trading stock and who undertake the transaction only for that purpose and not for rigging the market is not illegal and cannot violate the regulations. As already observed „synchronisation‟ or a negotiated deal ipso facto is not illegal. A synchronised transaction will, however, be illegal or violative of the Regulations if it is executed with a view to manipulate the market or if it results in circular trading or is dubious in nature and is executed with a view to avoid regulatory detection or does not involve change of beneficial ownership or is executed to create false volumes resulting in upsetting the market equilibrium. Any transaction executed with the intention to defeat the market mechanism whether negotiated or not would be illegal. Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available. The nature of the transaction executed, the frequency with 14 which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether there is real change of beneficial ownership, the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn."
15. In the light of the aforesaid, we are of the opinion that the impugned order cannot be sustained and is quashed. The matter is remitted again to the AO for fresh consideration as we find that the connection of the appellants amongst themselves and with the remaining entities have not been fully established. Further, the AO is required to consider whether the alleged synchronised trades was coincidental or whether there was a meeting of minds or premeditative motive for synchronised trades. We also direct the AO to supply the bank statement with regard to establishing connection to the appellants. It would be open to the appellants to file fresh evidence and affidavit and thereafter the AO will decide the matter in accordance with law. In view of the aforesaid, the impugned order insofar as it relates to the appellants is quashed. The appeals are allowed. The matter is remitted to AO to decide the matter afresh as observed above 15 in accordance with law. In the circumstances of the case, the parties shall bear their own costs. Misc. Applications are also disposed of.
16. 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 Digitally signed Judicial Member RAJALA byRAJALAKSHMI H 15.09.2021 KSHMI NAIR Date:
msb H NAIR 2021.09.16
13:50:55 +05'30'