Securities Appellate Tribunal
Smt. Kaushalya Devi Jhunjhunwala & ... vs Sebi on 19 November, 2013
Author: J.P. Devadhar
Bench: J.P. Devadhar
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved On: 23.10.2013
Date of Decision : 19.11.2013
Appeal No. 44 of 2013
1.Smt. Kaushalaya Devi Jhunjhunwala 10/4, Alipore Part Place, Kolkata- 700 027
2. Smt. Sangita Jhunjhunwala 10/4, Alipore Part Place, Kolkata- 700 027
3. Smt. Suruchi Jhunjhunwala 10/4, Alipore Part Place, Kolkata- 700 027 ...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. Ravichandra S. Hegde, Advocate with Mr. Abishek Venkatraman, Advocate for Appellants.
Mr. Shiraz Rustomjee, Senior Advocate with Dr. Mrs. Poornima Advani, Mr. Ajay Khaire and Ms. Virakthi Hegde, Advocates for the Respondent.
AND Appeal No. 77 of 2013 Harrington Commercial Pvt. Ltd.
Raksha Financiers Pvt. Ltd.
Hawks Financiers Pvt. Ltd.
Pingle Marketing Pvt. Ltd.
Hi-Fi Tradecom Pvt. Ltd.
Now known as Octal Suppliers Private Limited R. N. 15B, 15th Floor, Everest House, Chowringee Road, Kolkata, West Bengal ...Appellants 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. Deepak Dhane, Advocate for Appellants.
Mr. Shiraz Rustomjee, Senior Advocate with Mr. Ajay Khaire and Ms. Virakthi Hegde, Advocates for the Respondent.
AND Appeal No. 78 of 2013 Sangita Securities Pvt. Ltd.
1A, Grant Lane, 2nd Floor, P.S.- Bow Bazar, Kolkata (West Bengal) ...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 Mr. Neville Lashkari, Advocate for the Appellant. Mr. Shiraz Rustomjee, Senior Advocate with Mr. Ajay Khaire and Ms. Virakthi Hegde, Advocates for the Respondent.
AND Appeal No. 79 of 2013 Rajkamal Marketing Private Limited 1A, Grant Lane, Room No. 118, Kolkata 700 012 ...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 3 Mr. R. R. Bhansal, Advocate for the Appellant. Mr. Shiraz Rustomjee, Senior Advocate with Mr. Ajay Khaire and Ms. Virakthi Hegde, Advocates for the Respondent. CORAM : Justice J.P. Devadhar, Presiding Officer Jog Singh, Member Per : Justice J.P. Devadhar
1. By consent all these appeals are heard together and disposed of by this common judgement.
2. Appellants in all these appeals are aggrieved by common order passed by Adjudicating Officer ("AO" for short) of Securities and Exchange Board of India ("SEBI" for short) on December 31, 2012 wherein various penalties have been imposed upon each appellant on ground that they have violated Section 15HA/15A(a) of the Securities and Exchange Board of India Act, 1992 ("SEBI Act" for short).
3. Investigation carried out by SEBI in respect of alleged irregularities in the trading of shares of REI Agro Limited ("REIAL" for short) during the period from August 09, 2004 to September 16, 2005 ("investigation period") revealed wide fluctuations in price and volume of REIAL shares at Bombay Stock Exchange ("BSE" for short) and National Stock Exchange ("NSE" for short). At BSE, REIAL scrip moved from `100.20 on August 09, 2004 to `212 on September 13, 2005 and closed at `198.85 on September 16, 2005. At NSE, shares of REIAL when listed on October 11, 2004, opened at ` 98.80, moved to ` 211 on September 13, 2005 and then closed at `198.25 on September 16, 2005.
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4. Investigation revealed that all three appellants in Appeal no. 44 of 2013, namely, Smt. Kaushalya Devi Jhunjhunwala, Smt. Sangita Jhunjhunwala and Smt. Suruchi Jhunjhunwala who were promoters of REIAL had traded in shares of REIAL during the investigation period with appellants in Appeal No. 77 of 2013, Appeal No. 78 of 2013 and Appeal No. 79 of 2013 along with Right Fiscal Management Private Limited as also Mr. Ramesh Mor and Smt. Sangita Mor (together referred to as "Harrington Group" for convenience). According to SEBI those trades which were substantially synchronized trades, created artificial volume and also influenced price of REIAL scrip. Apart from above, according to SEBI, Hi-Fi Tradecom Pvt. Ltd., (one of the appellant in Appeal No. 77 of 2013) had failed to comply with summons issued to it.
5. On a show cause notice issued by Adjudicating Officer appointed by SEBI on December 8, 2009, appellants showed cause and thereafter by impugned order dated December 31, 2012, the Adjudicating Officer of SEBI rejected contentions of appellants and imposed penalty upon each appellants. Challenging impugned order dated December 31, 2012 appellants have filed these appeals.
6. Counsel for appellants in Appeal No. 44 of 2013 submitted that appellant's therein had sold 80,450 shares of REIAL over a period of 10 days from February 8, 2005 to February 18, 2005 in an investigation period of 11 months. Total volumes of trading in REIAL scrip during investigation period was approximately 1.6 crore shares as against 80,450 shares traded by appellants. Thus, trades of appellants in Appeal No. 44 of 5 2013 were negligible and constituted 0.48% of the total volume of trading in REIAL scrip. Sale trades of appellants genuinely involved change of beneficial ownership of REIAL shares and there is no charge of price manipulation against appellants in Appeal No. 44 of 2013.
7. Counsel for appellants in Appeal No. 44 of 2013 further submitted that in the impugned order appellants are held guilty of creating artificial volume on following grounds:
a) Out of 80,450 shares sold by appellants, 80,310 shares were purchased by Harrington Group through synchronized trades.
b) Entities comprising of Harrington Group are indirectly related to appellants.
c) Fraudulent and manipulative trades of Harrington Group enabled appellants to offload shares of REIAL held by appellants.
8. Counsel for appellants further submitted that aforesaid findings of Adjudicating Officer are untenable for the following reasons:
a) Synchronized trades even among related entities are not per se illegal unless they are shown to have interfered with the price and orders matching mechanism of the stock exchanges. In support of above contention reliance is placed on decision of this Tribunal dated November 16, 2006 in Appeal No. 127 of 2004 (M.J. Patel Shares & Stock Brokers Ltd. vs. SEBI) 6
b) There is no evidence on record to show that sell orders of appellants created artificial volumes. Since the only charge against appellants that their trades created artificial volumes stands unsubstantiated, impugned order is liable to be set aside.
c) Mere fact that certain entities in the Harrington Group were related indirectly to the appellants, does not absolve respondents of its burden to establish that the trades of appellants in fact created artificial volumes.
9. Counsel for appellants further submitted that total volume of trades in the quarter in which appellants in Appeal No. 44 of 2013 sold shares of REIAL was far less than the total volume of trades in REIAL shares in the previous quarter. Thus, volume of trades in REIAL shares had decreased during the period when sell trades of appellants were executed and therefore, findings that appellant's trades have contributed to the creation of artificial volumes in the REIAL scrip is contrary to facts on record. On the basis of a chart showing intraday movement of price in REIAL shares, counsel for appellants submitted that appellant's trades had negligible impact on the price of REIAL scrip and that is why no charge of price manipulation has been framed against appellants. Thus, no evidence has been adduced in the impugned order to substantiate serious charge of market manipulation under provisions of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 7 2003 ("FUTP Regulations" for short). Assuming that Harrington Group may have manipulated price of REIAL scrip, appellants cannot be penalized unless it is established by cogent evidence that appellant's trades created artificial volume in REIAL scrip. Since SEBI has failed to establish the charges levelled against appellants, the impugned order is liable to be quashed and set aside. Without prejudice to above contentions, it is submitted by counsel for appellants in Appeal No. 44 of 2013 that monetary penalty imposed upon appellants is grossly disproportionate to the alleged violations especially keeping in mind the miniscule quantities traded by appellants which admittedly had no impact on the price or volume of trading.
10. Counsel for appellants in Appeal No. 77 of 2013, 78 of 2013 and 79 of 2013 while adopting arguments advanced by counsel for appellants in Appeal No. 44 of 2013 submitted that appellants therein were traders and short term investors who sought to make profits from the price movement in REIAL scrip and such trades were not prohibited in law. Therefore, appellants could not be held guilty of violating provisions of FUTP Regulations. In any event, it is contended that in case of Sangita Securities Pvt. Ltd. (Appeal No. 78 of 2013) there is no synchronized trade involved and hence imposition of penalty of Sangita Securities Pvt. Ltd., is unjustified. Lastly it is contended that since Right Fiscal Management Pvt. Ltd. which according to SEBI was part of Harrington Group has been let off with penalty of ` 2 lac, appellants being part of alleged Harrington Group, heavy penalty ought not to have been imposed upon appellants.
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11. We find it difficult to accept aforesaid arguments advanced on behalf of appellants.
12. As rightly contended by counsel for respondent, REIAL is a company promoted interalia by Smt. Kaushalaya Devi Jhunjhunwala, Smt. Sangita Jhunjhunwala and Smt. Suruchi Jhunjhunwala (appellants in Appeal No. 44 of 2013) in which two sons of Smt. Kaushalaya Devi Jhunjhunwala namely, Shri Sanjay Jhunjhunwala is the Chairman and Shri Sandip Jhunjhunwala is the Managing Director of REIAL. These two sons of Smt. Kaushalaya Devi Jhunjhunwala were also directors Hi- Fi Tradecom Pvt. Ltd. (appellant in Appeal No. 77 of 2013) alongwith Mr. Krishna Kumar Jujodia ("Jujodia" for short). Jujodia was also a director of Rajkamal Marketing Pvt. Ltd. (appellant in Appeal No. 79 of 2013), Raksha Financiers Pvt. Ltd. and Hawks Financiers Pvt. Ltd. (appellants in Appeal No. 77 of 2013). Similarly, Smt. Sangita Jhunjhunwala and Smt. Suruchi Jhunjhunwala (appellants in Appeal No. 44 of 2013) were directors of Sangita Securities Pvt. Ltd. (appellant in Appeal No. 78 of 2013) & Pingle Marketing Pvt. Ltd. (appellant in Appeal No. 77 of 2013). Thus connection between appellants in all these appeals are clearly established in the adjudication order. Apart from above, it is on record that almost all appellants have common address which clearly shows that appellants in all these appeals are closely connected.
13. Argument of appellants that synchronized trades are not per se illegal and that there is no material to suggest that the alleged 9 synchronized trades did not create artificial volumes is unsustainable in view of following finding of facts recorded in impugned order:
"20. I find from the records that the Harrington group entities have traded significantly in the scrip of REIAL during the investigation period. They traded through multiple brokers and altogether bought 36,24,155 shares (17,50,560 shares at NSE and 18,73,595 shares at BSE) and sold 80,77,145 shares (38,12,872 shares at NSE and 42,64,273 at BSE) which accounted for 13.99% and 31.17% of total volume recorded at both the exchanges viz. 2,59,09,165. A summary of their trading volume as available in records is as follows:
NSE BSE
Client Name
Buy Qty (%) Sell Qty (%) Buy Qty (%) Sell Qty (%)
Harrington 544275 3.48 742446 4.75 645811 6.29 710886 6.92
Hawk 146526 0.94 130214 0.83 128714 1.25 366599 3.57
Hi-Fi 451693 2.89 978689 6.26 443361 4.32 1136691 11.07
Raksha 108359 0.69 110209 0.70 306653 2.99 316287 3.08
Pingle 118194 0.76 814933 5.21 47188 0.46 629815 6.13
Sangita Sec. 0 0.00 532185 3.40 0 0.00 605000 5.89
Right Fiscal 64500 0.41 64500 0.41 40705 0.40 40705 0.40
Rajkamal 50986 0.00 187500 1.20 0 0.00 173500 1.69
Sangita Mor 65054 0.42 0 0.00 88430 0.86 92075 0.90
Ramesh Mor 201027 1.29 252196 1.61 172733 1.68 192715 1.88
Total 1750560 10.87 3812872 24.38 1873595 18.25 4264273 41.53
21. I find from Annexure 5 & 6 of the SCN and the table below that the Harrington Group entities had traded for a large volume among themselves. At BSE, the Harrington Group entities traded 14,08,753 shares among themselves which accounted for 13.72% of the total volume recorded at BSE in which 4,64,481shares were traded through synchronized orders which accounted to 32.92% of their trading amongst themselves and 4.52% of the total volume recorded at BSE. At NSE, they traded 12,11,220 shares amongst themselves which accounted for 7.74% of total market volume at NSE in which 8,44,664 shares were traded through synchronized orders which accounted for 69.73% of their trading amongst themselves and 5.40% of the market volume on NSE. The records reveal that there were many instances where the Noticees buy order had matched with their own sell orders i.e. they bought from and sold to themselves. An extract of trades of the Harrington Group entities within 10 themselves at NSE, as provided in the records, is given below:
NSE Buy Sell Client Client Name No. of No. of No. of Traded Synchronized % Name Buy Sell Trade Qty Qty Order Order Harrington 11 12 12 12329 11548 93.67 Hawk 28 42 42 27413 11800 43.05 Hi-Fi 91 132 132 177127 150788 85.13 Pingle 15 15 15 29122 19030 65.35 Harrington Rajkamal 3 9 9 66357 0 0 Raksha 9 9 9 29361 29351 99.97 Ramesh Mor 73 70 82 39824 29093 73.05 Right 7 6 7 20000 15000 75 Total 237 295 308 401533 266610 66.4 Harrington 7 5 7 10490 10310 98.28 Hawk 1 2 2 500 500 100 Hi-Fi 7 7 7 24600 24600 100 Pingle 2 1 2 8000 8000 100 Hawk Rajkamal 2 2 2 10000 10000 100 Raksha 3 3 3 7499 7499 100 Ramesh Mor 10 10 12 13659 6159 45.09 Right 1 1 1 4500 4500 100 Total 33 31 36 79248 71568 90.31 Harrington 122 181 200 195299 136960 70.13 Hawk 22 26 28 24756 13322 53.81 Hi-Fi 2 3 3 7000 6500 92.86 Pingle 4 5 5 2671 2671 100 Hi-Fi Rajkamal 1 1 1 5000 5000 100 Raksha 9 10 10 20960 12060 57.54 Ramesh Mor 41 50 59 24629 20302 82.43 Right 9 8 9 23600 15200 64.41 Sangita Securities 1 1 1 15000 0 0 Total 211 285 316 318915 212015 66.48 Harrington 60 42 65 31388 28565 91.01 Hawk 3 3 3 20000 20000 100 Pingle Hi-Fi 8 7 9 8264 8163 98.78 Pingle 1 1 1 10 10 100 Ramesh Mor 73 61 100 19247 15317 79.58 Total 145 114 178 78909 72055 91.31 Harrington 24 42 59 20617 9 0.04 Hawk 3 4 4 5154 3700 71.79 Rajkamal Hi-Fi 2 2 2 10000 10000 100 Raksha 14 8 15 7308 3744 51.23 Right 8 4 8 5600 0 0 Total 51 60 88 48679 17453 35.85 Harrington 18 17 19 39987 34437 86.12 Hawk 6 6 6 12430 7930 63.8 Raksha Hi-Fi 14 8 14 15956 13526 84.77 Raksha 3 3 3 10000 10000 100 Ramesh Mor 6 6 6 1411 1303 92.35 Sangita Securities 1 1 1 1415 0 0 Total 48 41 49 81199 67196 82.75 Harrington 57 50 177 31240 20036 64.14 Hawk 7 6 24 2661 125 4.7 Ramesh Hi-Fi 63 54 139 32611 21485 65.88 Mor Pingle 35 32 101 11044 9798 88.72 Raksha 4 4 4 6850 4290 62.63 Ramesh Mor 18 16 32 2250 1101 48.93 Sangita Securities 1 1 1 290 0 0 Total 185 163 478 86946 56835 65.37 11 Harrington 10 30 30 27500 20050 72.91 Hawk 3 9 18 10000 101 1.01 Right Hi-Fi 5 20 20 20000 12000 60 Pingle 1 1 1 4500 4500 100 Raksha 1 1 1 2500 0 0 Total 20 61 70 64500 36651 56.82 Harrington 14 17 24 31348 26712 85.21 Hawk 9 13 13 6210 6150 99.03 Sangita Hi-Fi 7 7 7 12054 9990 82.88 Mor Raksha 4 4 13 1239 1239 100 Ramesh Mor 2 2 2 440 440 100 Total 36 43 59 51291 44531 86.82 Grand Total 966 1093 1582 1211220 844914 69.76
22. I further find that for a large number of trades executed within the Harrington Group, which are mentioned in Annexure 5 & 6, the difference in the buy and sell order time was only a few seconds to few minutes. Thus, it is clear that the Noticees had synchronized their orders to execute trades within the group. The same created false and misleading appearance of trading in the scrip and generated artificial volume. Further, I find from details of the trades of the Harrington Group entities at NSE and BSE provided in Annexure 7 & 8 of the SCN that they had executed trades at incremental prices. The difference between the buy quote and the previous traded price ranged between Re. 1 to ` 8.90. 332 such incremental trades were executed by the Noticees at NSE, out of which 132 trades were executed within the group. Similarly, 371 incremental trades were executed by the Noticees. Therefore, I find that such trades definitely increased the price of the scrip in an artificial manner."
14. Aforesaid facts recorded in the impugned order clearly demonstrate that various entities of the Harrington Group have traded in REIAL shares through different brokers on BSE as also NSE in a synchronized manner. Finding of fact recorded in para 23 of the impugned order is that almost all trades mentioned in Annexure 9 to the show cause notice had matched in price and quantity and the time difference was few seconds only. Thus, facts on record show that appellants were connected with each other and that they have traded amongst themselves in a synchronized manner, with some trades within 12 the group at incremental prices (difference between the buy price offered and LTP ranging between `1 to `8.90). Aforesaid facts as also self trades effected by appellants in respect of REIAL shares which was an illiquid scrip justify inference drawn by SEBI that trades in question were carried out with a view to create artificial volume in an illiquid REIAL scrip.
15. It may be noted that appellants in Appeal No.44 of 2013 who are promoters of REIAL have sold 80,450 shares of REIAL through stock exchanges during the period from February 8 to 18, 2005. It was only on account of manipulative artificial trades effected by Harrington Group, illiquid shares of REIAL could be sold by promoters of REIAL through stock exchanges. Therefore, decision of Adjudicating Officer that appellants in connivance with each other have resorted to artificial trade in illiquid REIAL scrip to facilitate promoters of REIAL to sell shares of REIAL through stock exchanges cannot be faulted. In other words, decision of SEBI in holding that appellants in all these appeals have acted in concert with common design of manipulating volume of trades in REIAL scrip with a view to facilitate offloading of REIAL shares by appellants in Appeal No. 44 of 2013 who are promoters of REIAL cannot be faulted. Consequently, penalty imposed upon appellants in all these appeals cannot be faulted.
16. Alternative argument of appellants that since penalty of ` 2 lac has been imposed upon Right Fiscal Management Pvt. Ltd., imposition of higher penalty upon appellants is unjustified is also without any 13 merit, because, in para 17 of the impugned order it is specifically recorded that Right Fiscal Management Pvt. Ltd. is neither related to REIAL through common Promoters nor through common Directors and hence stand on a different footing from other appellants. Since Right Fiscal Management Pvt. Ltd., cannot be compared with appellants before us, we see no reason to entertain alternative argument advanced on behalf of appellants.
17. Additional penalty of ` 3 lac has been imposed upon Hi-Fi Tradecom Pvt. Ltd. ( appellant in Appeal No. 77 of 2013) for failure to comply with summons issued by the investigating authority. Finding of fact recorded at para 29 of the impugned order is that authorized representative of Hi-Fi Tradecom Pvt. Ltd. had undertaken to submit annual reports for AY 2004-05 and 2005-06, but the same were not furnished and no explanation was given in that behalf. Argument that on account of merger, appellant could not furnish annual reports cannot be accepted, because, having undertaken to furnish annual reports it was obligatory on appellant therein to furnish annual reports for the years in question. Assuming that there was any difficulty in furnishing annual reports, failure to furnish explanation in that behalf to the Adjudicating Officer clearly amounts to not complying with the requirements of the summons. In these circumstances we see no reason to interfere with the additional penalty imposed upon Hi-Fi Tradecom Pvt. Ltd.
18. Reliance was placed by counsel for appellants on a decision of this Tribunal in case of Rakhi Trading Pvt. Ltd. (supra). That decision is 14 distinguishable on facts, as in that case there was no evidence of market manipulation, whereas, in the present case, evidence on record clearly establish that appellants in Appeal No. 44 of 2013 were connected with Harrington Group and the trades in REIAL Scrip by Harrington Group were intended to create artificial volume so as to facilitate offloading of REIAL shares by appellants in Appeal No. 44 of 2013 who were promoters of REIAL. For the same reason, decision of this Tribunal in Appeal No. 127 of 2004 (M.J. Patel Share & Stock Brokers Ltd. vs. SEBI) decided on 16.11.2006 and decision of this Tribunal in Appeal No. 30 of 2013 (Ramswarup Sarda vs. SEBI) decided on 23.07.2013 are also distinguishable on facts.
19. For aforesaid reasons we see no merit in all these appeals and accordingly all these appeals are dismissed with no order as to costs.
Sd/-
Justice J.P. Devadhar Presiding Officer Sd/-
Jog Singh Member 19.11.2013 Prepared & Compared By: Pk