Securities Appellate Tribunal
Banhem Stock Broking P. Ltd & Ors. vs Sebi on 17 May, 2023
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing: 11.05.2023
Date of Decision: 17.05.2023
Misc. Application No.488 of 2023
And
Misc. Application No.618 of 2023
And
Appeal No.351 of 2023
1.Banhem Stock Broking P. Ltd.
4, Laxminarayan Shopping Centre, 1st Floor, Poddar Road, Malad (East), Mumbai - 400097.
2. Ninja Securities P. Ltd.
4/29, Laxminarayan Shopping Centre, 1st Floor, Poddar Road, Malad (East), Mumbai- 400097.
3. Manish Mehta 501, Prabhu Darshan, Manchhubhai Road, Malad (East), Mumbai-400097.
4. Kashmira Mehta 501, Prabhu Darshan, Manchhubhai Road, Malad (East), Mumbai-400097.
5. Sumatilal Mehta B-6, Siddharth Apartment, Manchhubhai Road, Malad (East), Mumbai - 400097. ...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. P. N. Modi, Senior Advocate with Mr. Prakash Shah, Advocate i/b. Prakash Shah & Associates for the Appellants.
Mr. Shyam Mehta, Senior Advocate with Mr. Mihir Mody, Mr. Arnav Misra and Mr. Harshvardhan Melanta, Advocates i/b. K Ashar & Co. for the Respondent. CORAM: Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member Per: Justice Tarun Agarwala, Presiding Officer
1. The appellants have filed the present appeal challenging the order dated 28th March, 2023 passed by the Whole Time Member (hereinafter referred to 'WTM') whereby they have been directed to deposit the unlawful gains earned from front running activities in an escrow account with a lien marked in favour of Securities and Exchange Board of India (hereinafter 3 referred to as 'SEBI'). In addition to the aforesaid, the WTM has restrained the appellants from buying, selling or dealing in securities, directly or indirectly, till further orders and further their bank accounts and demat accounts have also been frozen. Other directions have also been issued including to show cause as to why appropriate directions under Section 11 and 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act') should not be passed and an order to disgorge an amount equivalent to the wrongful gains should not be passed.
2. The brief facts leading to the filing of the present appeal is that the surveillance system in National Stock Exchange of India Ltd. (hereinafter referred to as 'NSE') generated certain alerts regarding unusual trades being executed which prima facie depicted front running activities. SEBI conducted an investigation and found that Anvil Wealth Management Pvt. Ltd, was a portfolio management service provider and was 4 executing large orders. The investigation further revealed that Banhem Stock Broking Pvt. Ltd. and Ninja Securities P. Ltd., the appellants were trading ahead of impending orders placed by Anvil Wealth Management Pvt. Ltd. The investigation also revealed that Mr. Manish Mehta, one of the appellant was a common Director in Ninja Securities P. Ltd and Banhem Stock Broking Pvt. Ltd., and was also connected with a portfolio manager, Mr. Kaushal Chandarana of Anvil. It was observed that Ninja Securities P. Ltd and Banhem Stock Broking Pvt. Ltd., were frequently placing orders ahead of the Anvil in the equity segment and, therefore, observed that a scheme was hatched between Mr. Kaushal and Mr. Manish wherein the former would pass on the information on the impending orders to the latter, who would then place orders from his connected entities Ninja and Banhem thereby front running the trades of Anvil. 5
3. Based on the aforesaid prima facie finding the WTM observed that on a preponderance of probability basis it could be prima facie strongly be inferred that it was Mr. Kaushal who passed on the information regarding impending orders of Anvil to the appellants. The WTM further observed that Mr. Kaushal apparently communicated the impending orders to Mr. Manish who in turn executed the front running trades through Ninja and Banhem.
4. The WTM further observed that there is no direct substantive evidence to infer the exchange of such non- public information considering the surrounding circumstances and immediate and proximate facts especially the peculiar trading pattern. The WTM came to a prima facie conclusion that the appellants were guilty of front running and, accordingly, passed an ex- parte ad-interim order cum show cause notice.
5. We have heard Mr. P. N. Modi, Senior Advocate assisted by Mr. Prakash Shah, Advocate for the 6 appellants and Mr. Shyam Mehta, Senior Advocate assisted by Mr. Mihir Mody, Mr. Arnav Misra and Mr. Harshvardhan Melanta, Advocates for the Respondent.
6. After hearing the matter at the time of admission stage, we directed the respondent to file a reply and, accordingly, granted an interim order staying the directions given in paragraph nos.51.1 and 51.2 of the impugned order. These directions are as under:
"51.1 The Noticees are restrained from buying, selling or dealing in the securities market or associating themselves with the securities market, either directly or indirectly, in any manner whatsoever until further orders. If the Noticees have any open position in any exchange traded derivative contracts, as on the date of the order, they can close out /square off such open positions within 3 months from the date of order or at the expiry of such contracts, whichever is earlier. The Noticees are permitted to settle the pay-in and pay-out obligations in respect of transactions, if any, which have taken place before the close of trading on the date of this order.
51.2. An amount of INR 2,23,46,850 as mentioned in Table No.12 above, being the estimated total wrongful gains earned from the prima facie front running activities is impounded, jointly and severally from the Noticees as indicated in the said Table No.12 on page no.38." 7
7. The learned counsel for the appellant submitted that there is not even a shred of evidence to show front running activities of the appellant. Further, ex-parte ad- interim orders cannot be passed on the basis of preponderance of probability basis or on the basis of surrounding circumstances or proximate fact. It was also contended that in the instant case the circumstantial evidence which led to the passing of the impugned order was on the basis of peculiar trading pattern of the appellants. It was contended that the Supreme Court in Balram Garg v. SEBI (2022) 9 SCC 425 held in paragraph 45 that the trading pattern cannot be the circumstantial evidence to prove the communication of UPSI and that there has to be other cogent material such as letters, emails, witnesses which could be considered as material evidence.
8. It was further urged that ad-interim orders can only be passed in case of extreme emergency or to protect 8 the interest of the investors or the securities market. In the instant case there is no evidence to this fact and, accordingly, contention that the decision of this Tribunal in Affluence Fincon Services P. Ltd. vs. SEBI, Appeal no.269 of 2020 decided on 7th September, 2020 and in the case of Arshad Hussain Warsi v. SEBI, Appeal No.284 of 2023 decided on 27th March, 2023 are fully applicable.
9. On the other hand, the learned counsel for the respondent, Mr. Shyam Mehta fairly contended that the present appeal could be disposed of in terms of the interim order that was granted on 13th April, 2023.
10. In view of the aforesaid, we dispose of the appeal with the following directions.
(a) The direction given in paragraph 51.1 of the impugned order shall remain stayed during the pendency of the proceedings before the WTM.
(b) With regard to the direction contained in paragraph 51.2 of the impugned order, we direct 9 the appellant to deposit 50% of the said amount in an escrow account with the lien marked in favour of SEBI. Upon the deposit of 50% of the alleged unlawful gains, the bank accounts, the demat accounts etc., will be defreezed forthwith.
(c) The appellants shall file their reply if not filed to the show case notice on or before 9th June, 2023. The WTM will thereafter proceed in accordance with law and pass appropriate order after giving an opportunity of hearing preferably within six months from the date of filing the reply.
(d) All other directions as contained in the impugned order dated 28th March, 2023 will continue to operate during the pendency of the proceedings before the WTM.
11. If any modification is required by the appellants with regard to the remaining directions given in the impugned order, it would be open to the appellants to 10 move an application for vacation/ modification of the said directions. It is also made clear that any observation made in this order will not come in the way of the WTM while passing the final order.
12. The appeal is accordingly disposed of with no order as to costs. All the misc. applications are also accordingly disposed of.
13. 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. Certified copy of this order is also available from the Registry on payment of usual charges.
Justice Tarun Agarwala Presiding Officer Ms. Meera Swarup Technical Member RAJALAK Digitally signed by SHMI RAJALAKSHMI 17.5.2023 HARISH HARISH NAIR NAIR Date: 2023.05.25 15:16:57 +05'30' RHN