Securities Appellate Tribunal
Shailesh Jain vs Sebi on 1 May, 2012
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 15 of 2012
Date of Decision: 01.05.2012
Shailesh Jain
Badi Bazar Masjid Ward,
Bina, Sagar, Madhya Pradesh - 470 113. ...Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No.C4A, G Block,
Bandra Kurla Complex,
Bandra (East), Mumbai - 400 051. ...Respondent
Mr. Prakash Shah, Advocate for the Appellant.
Mr. Shiraz Rustomjee, Senior Advocate with Mr. Mobin Shaikh, Advocate for the Respondent.
CORAM : P. K. Malhotra, Member & Officiating Presiding Officer S.S.N. Moorthy, Member Per : S.S.N. Moorthy The appellant is an investor in the scrip of M/s. Oregon Commercial Limited (the company). The present appeal is against an order passed by the adjudicating officer of the Securities and Exchange Board of India (for short the Board) imposing a penalty of ` 2 lacs under section 15 I of the Securities and Exchange Board of India Act, 1992. The penalty was imposed since the adjudicating officer came to the conclusion that the appellant was guilty of violating the provisions of regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as FUTP Regulation).
2. The Board conducted investigations in the affairs, trading and dealings in the shares of the company during the period November 21, 2008 to June 8, 2009. Investigations revealed that the appellant had traded in the scrip of the company by placing buy orders at 2 prices significantly above the last traded price and thereby artificially propped up the price of the scrip for a few days during the investigation period. The appellant adopted a crude and subtle strategy of placing buy orders of minimum number of shares on each trading day in such a way that it was above the last traded price and this paved the way for next higher price on the next trading day. A show cause notice was issued to the appellant setting forth the allegation of manipulative trades and violation of the provisions of regulations 3 and 4 of FUTP Regulation on May 13, 2011. There was no ready response to the show cause notice and further opportunities provided by the adjudicating officer. However, the adjudicating officer, to comply with the principles of natural justice, afforded further opportunities. The appellant submitted a reply stating that he was a small investor and had not committed any wrong while trading in the scrip and thereby denied the allegation of manipulation.
3. During the hearing of the appeal, it was fairly conceded by the appellant's learned counsel that the thrust of the objection was against the quantum of penalty since the trades were not subject to dispute. According to him, the penalty of ` 2 lacs imposed in the present case is highly excessive since the appellant was a small time investor living in a remote place in Sagar district and did not consciously indulge in any manipulative trades. The impugned transactions related to only 46 shares which had allegedly some impact on the market. It is submitted that no connivance with the counter party or promoter stands established and 19 trades in 46 shares is a miniscule portion of total trades and the penalty of ` 2 lacs is highly excessive. With a pointed reference to paragraph 20 of the impugned order, it was submitted that one of the counter parties, Shri Sanjeev Khare, whose transactions with the appellant are highlighted, has not been punished for any wrong doing. The appellant's learned counsel would also make a pertinent reference to the adjudication order in the case of Mr. Ravindra Singhai. According to him, a penalty of ` 1,50,000 only has been imposed on Mr. Ravindra Singhai even though his contribution to creation of artificial volume and inflation of the value of shares was more serious as compared to that of the appellant. He also pointed out that a few of the parties to the transactions like Mr. Vinod Dugar, Mrs. Anju Dugar etc have been exonerated.
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4. The learned senior counsel appearing for the Board laid emphasis on the peculiar strategy adopted by the appellant in trading in minimum number of shares and on many days one share only, which resulted in periodical increase in the value of the scrip. According to him, the bonafides of the appellant leaves much to be desired when it is noticed that he had placed orders at prices higher than the last traded price when sell orders at lower price were available in the market. He was not only guilty of contributing to the artificial increase in the share price but also of indulging in self trades which are prima facie manipulative and fraudulent. He, therefore, stoutly defended the order of the adjudicating officer and observed that the quantum of penalty in the present case is very modest and reasonable.
5. We have considered the rival submissions. Admittedly, the appellant, alongwith a few other entities, had traded in the scrip of the company in such a way that the share price went up periodically to touch a high of ` 874 at the end of the investigation period. The involvement of the appellant in the manipulation of the trades is writ large and this cannot be wished away as casual or coincidental. The adjudicating officer has brought on record the contribution of the appellant and connected entities to the price rise. The adjudication order consists of a chart showing the contribution of each of the entities and this stands undisputed. According to the chart which appears in paragraph 10(V) of the adjudication order maximum manipulation was done by Mr. Ravindra Singhai whose contribution to the new high price has been worked out at ` 181.35. The second in line is the appellant whose contribution has been worked out at ` 114.45. The modus operandi adopted by Mr. Ravindra Singhai and the appellant appear to be identical. Both have placed buy orders significantly above the last traded price. Both have transacted in minimum number of shares on each day, very often transacting in one share per day. Both have indulged in self trades which are admittedly fictitious and manipulative. The comparison with the counter party Mr. Sanjeev Khare may not be of any assistance to the appellant. The appellant's role has been one of conscious indulgence in manipulation of the trade in a crude and preplanned manner. The very fact that the appellant has placed orders above the last traded price when sell orders were available in the market at a lower price shows the intention behind the trade. So the only point to be considered is whether the quantum of ` 2 lacs is excessive or not. It 4 is an admitted fact that a penalty of ` 1.5 lacs has been imposed on Mr. Ravindra Singhai who tops the list of wrong doers. There has to be a reasonable nexus between the penalty imposed on the one hand and the gravity of the offence and the facts of the case on the other. Mr. Ravindra Singhai could pitch the value to a high of ` 181.35 by virtue of 7 trades. The appellant contributed to the new high of price at ` 114.45 with the help of 46 trades. So, the gravity of the offence in the appellant's case appears to be a shade lower as compared to that of Mr. Ravindra Singhai. Considering the stand taken by the adjudicating officer in the case of Mr. Ravindra Singhai and the facts and circumstances relating to the appellant's transactions we are of the view that a penalty of ` 1 lac would be just and reasonable in the case of the appellant. Penalty is, therefore, reduced to ` 1 lac and the appeal is partly allowed. No costs.
Sd/-
P.K. Malhotra Member & Officiating Presiding Officer Sd/-
S.S.N. Moorthy Member 01.05.2012 Prepared and compared by:
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