Securities Appellate Tribunal
Mathew Easow vs Sebi on 10 January, 2008
IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 137 of 2006
Date of decision : 10.1.2008
Mathew Easow ...... Appellant
Versus
The Adjudicating Officer,
Securities and Exchange Board of India ...... Respondent
Mr. Somasekhar Sundaresan Advocate with Mr. Joby Mathew Advocate and
Mr. Karan Bharihoke Advocate for the Appellant.
Dr. Poornima Advani Advocate with Ms. Sejal Shah Advocate for the Respondent.
Coram : Justice N.K. Sodhi, Presiding Officer
Arun Bhargava, Member
Utpal Bhattacharya, Member
Per : Justice N.K. Sodhi, Presiding Officer
Mathew Easow (Mathew) is the appellant before us in this appeal filed
under section 15T of the Securities and Exchange Board of India Act, 1992 (for short
the Act). He claims to be a well known Chartered Accountant and a Financial
Analyst and is currently the chairman of Mathew Easow Research Securities Limited
(for short Research), a company whose shares are listed on the Bombay Stock
Exchange Limited and the Calcutta Stock Exchange Association. He also claims to
be a committee member of Calcutta Chamber of Commerce and states that he is
regularly interviewed on CNBC, BBC, NDTV, Sahara TV and other television
channels as a Stock Analyst on topics and issues relating to corporate affairs and the
securities market. He contributes by way of e-mails to the website
www.moneycontrol.com (for short the website), promoted and maintained by the
owners of CNBC TV channel. He further claims that his articles are published
in the Economic Times, Business Standard and The Hindu Business Line.
According to him, he is a frequent guest lecturer at The Institute of Chartered
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Accountants, The Institute of Chartered Financial Analysts, Birla Institute of
Futuristic Studies etc.
Mathew Easow Fiscal Limited (for short Fiscal) is a trading company which
generates income from trading in securities. It is a stock broker registered with the
Securities and Exchange Board of India (hereinafter called the Board). However,
Fiscal has not been functioning as a stock broker since the inception and Mathew
holds about 79% of the shares of Fiscal. Fiscal is also a sub-broker registered with
the Board and acts as a sub-broker of Eureka Stock and Share Broking Services Ltd-
a member of the National Stock Exchange of India Ltd.
Television Eighteen India Limited (TV18) as the owner of CNBC TV
channel had engaged Mathew as an exclusive panelist for stock market coverage on
its television channels, websites etc. It was agreed between the parties that Mathew
shall not appear on any non-TV18 group television channels, websites during the
period of his association with TV18. To begin with, he was paid a consideration of
Rs.50,000 per month which has been subsequently enhanced. TV18 has complete
freedom and authority to air/use the views/opinions of Mathew in any manner it
deems fit and it also reserves the right not to air/display any coverage. It is common
case of the parties that Mathew sent six e-mails which are now in issue on the
website on 31.8.2005, 12.9.2005, 13.9.2005, 14.9.2005, 17.9.2005 and 19.9.2005
making his investment recommendations for purchase and sale of shares of four
companies namely, Kalpana Industries Ltd., CESC Ltd., Ahlcon Parenterals (India)
Ltd. and Albert David Ltd. for the benefit of the investors in general. It is not in
dispute that the website is accessible to all and sundry. What these e-mails /
recommendations mean is the question that arises for our consideration in this appeal
and the learned counsel for the parties were agreed that the interpretation given to
the e-mail dated 31.8.2005 in regard to the scrip of Albert David shall hold good for
other e-mails as well. It is this e-mail which was discussed at length during the
course of arguments and we shall deal with it a little later.
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The Board noticed that representatives of some of the regulated entities were
offering investment advice/tips regarding purchase and sale of shares/securities
through the media without specific disclosures or disclosing stock specific position
taken by such persons. As a part of its on going analysis, the recommendations made
over a period of six months from June, 2005 to December, 2005 by Mathew who is
the chairman of Research and holds a substantial controlling stake in Fiscal were
examined. The Board also collected from the stock exchanges the trade data which
revealed that Research and Fiscal through Mathew had dealt in the shares of the
companies in regard to which he had made investment recommendations. When the
trading pattern of Mathew through his associate companies was compared with the
investment recommendations made by him through the aforesaid e-mails, the Board
found that Mathew took an opposite trading position to what he recommended to the
investors at large and that he started selling his stocks after giving an opposite advice
to the market. In view of this, the Board initiated against Mathew and his associate
companies cease and desist proceedings under section 11D of the Act. By a detailed
ad-interim ex-parte order passed on 19.1.2006, Mathew was directed to cease and
desist from giving any recommendations about any investment in securities market
in any public media "which amounts to violation of Regulation 4(2) (f) of the
Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Market) Regulations, 2003" (for short FUTP
Regulations). Similar directions had been issued against Fiscal and Research as
well. Regulation 4(1) of these Regulations prohibits every person from indulging in
a fraudulent or an unfair trade practice in securities. Regulation 4(2) (f) provides that
"Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if
it involves fraud and may include all or any of the following namely..... publishing
or causing to publish or reporting or causing to report by a person dealing in
securities any information which is not true or which he does not believe to be true
prior to or in the course of dealing in securities." In the ex-parte order the Board
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recorded firm findings against Mathew in the following words though these were
described as preliminary findings in the beginning of paragraph 2 of the order:-
"The above instances clearly indicate that Mathew Easow took an
opposite trading position to what he recommended to the investors at
large and he also started selling the stock after giving an opposite
advice to the market."
Again in paragraphs 3.1 and 3.2, the Board concluded as under:-
"3.1 I see from the above analysis a clear and definite pattern in
the trading by Mathew Easow in certain shares and his investment
recommendations in those shares. While Mathew Easow has been
advising the market to buy a stock, he himself has taken contrary
positions. This indicates an obvious attempt to mislead the investors
through investment recommendations, in a striking posture of
ambivalence coupled with interest.
3.2 It is apparent that Mathew Easow is purveying information to the
public which he himself does not appear to believe to be true. The only
possible ulterior motive for Mathew Easow to employ such an artifice
appears to be to make unfair gain for himself at the cost of lay investors.
The act of Mathew Easow and his associate entities thus is in violation
of Regulation 4(2) (f) of SEBI (Prohibition of Fraudulent and Unfair
Trade Practices Relating to Securities Market) Regulations, 2003 ..."
Entities/persons against whom ex-parte directions had been issued were given an
opportunity to file their objections, if any, to the order within 15 days there from and
the order appears to have been treated as a show cause notice. This opportunity was
afforded to provide Mathew and others a post decisional hearing in terms of the
proviso to section 11(4) of the Act. Mathew and his associate companies filed their
replies on February 14, 2006 and the whole time member of the Board heard them
personally on April 18, 2006. After hearing Mathew and the two companies, the
order was reserved.
While cease and desist proceedings were pending against Mathew and his
associate companies, the Board simultaneously initiated adjudication proceedings
only against Mathew for the violation of Regulation 4(2) (f) of the FUTP
Regulations and appointed an adjudicating officer on 13.2.2006. The adjudicating
officer issued a notice dated April 28, 2006 after the order in the cease and desist
proceedings had been reserved by the whole time member of the Board, calling upon
Mathew to show cause why a monetary penalty be not imposed on him under
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section 15 HA of the Act for violating Regulation 4(2) (f) of the FUTP Regulations.
Reference in the notice was made to the findings in the ex-parte order dated
19.1.2006 (cease and desist order) and also to the recommendations made by
Mathew on the website and also to the trade data gathered from the exchanges and it
was alleged that he took an opposite trading position to what he recommended to the
investors at large and that he started selling the stocks through his associate
companies after giving an opposite advice to the market. It was further alleged that
he attempted to mislead investors through his investment recommendations in as
much as he did not believe the information given by him to the public to be true and
thereby violated Regulation 4(2) (f) of the FUTP Regulations. No other charge has
been levelled in this show cause notice. What is prominently borne out from the
show cause notice is that not only the allegations made therein are identical to the
allegations made in the ex-parte order dated 19.1.2006 passed by the whole time
member of the Board but even the language used in the two is the same. It appears
that the adjudicating officer picked up certain portions of the ex-parte order and
those formed part of the show cause notice. Mathew filed a detailed reply dated
25.5.2006 controverting the allegations made against him. At the outset, he objected
to the initiation of adjudication proceedings on the same set of allegations for which
cease and desist proceedings were pending before the whole time member of the
Board. He stated that this amounted to double jeopardy which was in violation of his
fundamental right under Article 20 of the Constitution of India and, therefore,
requested that the adjudication proceedings be kept in abeyance until the proceedings
were concluded before the whole time member. He did not dispute that he traded
through Research and Fiscal in the scrips of those companies in regard to which he
had made his investment recommendations on the website through e-mails. He,
however, seriously disputed that his trades were contrary to his recommendations. It
was specifically pleaded in the reply that Mathew had not only made a strong
recommendation for buying a scrip with a short term target but he also mentioned the
short term resistance targets which, according to him, are meant for routine profit
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taking levels by selling the scrips as and when those targets are met. He had also
mentioned the different support levels in case the price of the scrips were to go down
recommending the sale of the scrips. It is Mathew's case that he sold a part of his
portfolio only when those resistance levels had reached with a view to book profits
which is in accordance with the recommendations made by him in the e-mails. He
submitted a detailed research/technical rationale which formed the basis of his
investment recommendations in regard to the four scrips referred to earlier.
On a consideration of the reply filed by Mathew and the recommendations
made by him on the website through e-mails and having regard to the trade data
collected from the Stock Exchanges, the adjudicating officer came to the conclusion
that Mathew had given "buy" recommendations in the case of all the aforementioned
four scrips in the month of September 2005 and he himself sold those scrips in the
same month which was contrary to his recommendations. He further observed that
the resistance and support levels mentioned by Mathew in his recommendations were
meant only for "intraday traders" and not for the investors. He also found that no
resistance level had been mentioned between the maximum expected price for the
day and the short term target price fixed for the scrip. He recorded his findings in
para 4.6 of the impugned order which reads as under :
"It was observed that the Resistance levels given by Mr. Mathew Easow
in all the four scrips were meant for "intraday trades" and not for the
investors. Further, the resistance level and support level given were
generally 3-4% of the previous day's closing price. For example, in the
case of 'Albert David', on 01/09/2005, the short term target was given as
Rs.200 and the resistance level given was from Rs.145 to Rs.149 and
support level was from Rs.140 to Rs.135 when the previous day's closing
price was Rs.139.65. It was to be noted that there was no resistance level
given between Rs.149 and the target price of Rs.200. This substantiates
that the resistance and support level were given only for the intraday
trades and not for the investors. However, the trading pattern of Mr.
Mathew Easow did not suggest that he is an intraday trader. Therefore,
Mr. Mathew Easow's submission that he was selling whenever the target
is reached is not admissible as these levels were recommended only for
the intraday traders. Further, the resistance levels were given with a
quote saying "BUY ABOVE" whereas at these levels Mr. Mathew Easow
was selling. In fact, in the scrip of Ahlocn, the resistance was seems to
arisen due to MER'S selling instead of market selling."
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In view of the above, the adjudicating officer concluded that Mathew misled the
investors through his investment recommendations and purveyed the said
information to the public which he himself did not believe to be true. Mathew was
held guilty of violating Regulation 4(2)(f) of the FUTP Regulations and was liable
for the imposition of monetary penalty under section 15HA of the Act. In order to
determine the quantum of penalty, the adjudicating officer considered the factors
referred to in section 15J of the Act and concluded that there were no quantifiable
figures available on the record which could show the amount of disproportionate
gain or unfair advantage made by Mathew or the amount of loss caused to the
investors as a result of the default. Since Research and Fiscal had earned a profit of
Rs.6,70,115 on the sale of the scrips of the four companies, the adjudicating officer
by his order dated September 26, 2006 imposed a monetary penalty of Rs.20 lacs on
Mathew. It is against this order that the present appeal has been filed.
To complete the narration of facts, it is necessary to mention that after the
adjudicating officer had passed the impugned order, the whole time member who had
earlier reserved his orders in the cease and desist proceedings on 18.4.2006
pronounced the same on November 7, 2006 and taking note of the impugned order
disposed of those proceedings as under:
"7. I further hold that the subsequent trading behaviour of the associated
companies of Mathew Easow after making the recommendation, in the
above said four scrips clearly comes within the prohibitive ambit of
Regulation 4(2)(f) of FUTP Regulations, since Mathew Easow who is a
person dealing in securities had published information to the public
which he did not believe to be true in the course of dealing in securities.
8. Further I have noted that the Adjudicating Officer vide his order
dated September 26, 2006 imposed a penalty of Rs.20,00,000 on Shri
Mathew Easow for the same violation, which will act as a deterrent and
therefore, there is no need to continue the directions passed under
section 11D vide the interim order dated January 19, 2006.
9. In view of the above, in exercise of the powers delegated to me in
terms of Section 19 of the Securities and Exchange Board of India Act
1992 I, hereby dispose off the matter, as above."
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This order is not the subject matter of the present appeal but it has some bearing on
the contentions raised before us on behalf of Mathew and it is for this reason that a
reference is being made to this order.
We have heard the learned counsel for the parties. It was strenuously argued
on behalf of Mathew that the findings recorded by the adjudicating officer in the
impugned order are not only perverse but they are based on a misunderstanding of
the recommendations made by him. Learned counsel for Mathew contended that the
recommendations made in the e-mails were not only 'buy' recommendations and that
the resistance and support levels mentioned therein recommended to the investors
that they could sell the scrips as and when the resistance levels were met to book
profits and again when the support levels would reach in the case of a falling scrip.
Mr. Somasekhar learned counsel for Mathew forcefully argued that the adjudicating
officer was not justified in recording a finding that when Mathew had sold a part of
the portfolio through his associate companies, he acted contrary to his own
recommendations. His grievance is that the adjudicating officer has not at all dealt
with the research/technical rationale furnished by Mathew which formed the basis of
his investment recommendations. He contends that if the adjudicating officer had
examined this rationale, he would have understood what the recommendations meant
and would not have concluded that they were only "buy" recommendations. Dr.
Poornima Advani learned counsel for the respondent was equally emphatic in her
submissions that the recommendations made by Mathew were only 'buy'
recommendations for the investors and that the resistance and support levels
mentioned in the e-mails were only meant for intraday traders. She contended that
since Mathew and his associate companies did not execute intraday trades, those
recommendations were not attracted to the trades executed by Mathew. She was
very forceful in submitting that on the one hand Mathew had recommended the
investors in general to buy the scrips of the four companies in regard to which he
made his recommendations and on the other hand he sold substantial part of his
portfolio through his associate companies thereby acting contrary to his own
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recommendations. She strenuously urged that the adjudicating officer in these
circumstances was justified in holding that Mathew did not believe his own
recommendations to be true and thereby he violated the provisions of Regulation
4(2)(f) of the FUTP Regulations. She emphatically urged that the impugned order be
upheld in the light of the findings recorded therein.
From the rival contentions of the parties, the short question that arises for our
consideration is as to what is the meaning of the recommendations made by Mathew
and whether he acted contrary to his own recommendations. If he did, then obviously
he did not believe his recommendations to be true and could be said to have misled
the investors thereby violating Regulation 4(2)(f) of the FUTP Regulations.
Before we deal with the e-mails containing the recommendations made by
Mathew, it is necessary to understand who are intraday traders and are they in any
way different from short term/long term traders. A day trader is a trader who buys
and sells financial instruments like stocks, options, futures, derivatives etc. within the
same trading day such that all positions will usually be closed before the market
close of the trading day. This trading style is called day trading and depending on
one's trading strategy, it may range from several to even a hundred trades a day. In
other words, day trading refers to the practice of buying and selling the financial
instruments within the same trading day so that all positions will usually be closed
before the market close of the trading day. Intraday trading is only a practice or a
style of trading and intraday traders are not a class by themselves. They are no
different from short term/long term traders and in fact they have much in common.
A trader is a trader and his objective is to make profit out of trading in securities
whether he executes intraday trades or trades on short term/long term basis and that
depends on his trading strategy and financial and risk taking capacity. It is true that
there are exclusive intraday traders in the market who do not execute other trades but
they are not barred from doing so. Similarly, short term/ long term traders are not
barred from executing intraday trades. There is no compartmentalization between
this class of traders nor is any such compartmentalization recognized either by the
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Board or by the market. When a recommendation/prediction for a short term/ long
term trader is made by an analyst, what he predicts is the price of the scrip which,
according to his analysis would be prevalent after a short term/long term duration
whatever that duration be. Such a prediction would not be relevant for a day trader
since he will concentrate on the price movement of the scrip only during the course
of that day when he is trading. On the other hand, when a recommendation/
prediction is made for an intraday trader, what is predicted is the price movement of
the scrip during the course of that day. It could move upwards as well as downwards
and every trader including a short term/ long term trader could take advantage of
that price movement even though he may not be an intraday trader. This is how the
market works.
We may now deal with the recommendations made by Mathew in the e-mails
sent by him on the website. As already observed, the e-mail dated 31.8.2005
pertaining to the scrip of Albert David Ltd. was discussed at length during the course
of the arguments and we will deal with this e-mail which reads as under :
"E-mail dated 31/08/2005 (time sent 6:52 PM)
Sub : DAILY TECHNICALS FOR 01-09-05
From : [email protected]
<[email protected]>; To vidya kumara swamy
<[email protected]>; money control
<[email protected]>
BEST TRADING PICKS
ALL RATES MENTIONED ARE BASED ON NSE/BSE
CAPITAL MARKETS CLOSING RATES AND NOT FUTURES
RATES.
(1) ALBERT DAVID (139.65) LISTED ON BSE
Strong Recommendation for Buying
Short Term Target is 200
For intraday traders:
Buy above 143 R1-145, R2-146, R3- 149
Sell below 137 S1-135, S2-133, S3-130"
It is clear from the e-mail that it was sent on 31.8.2005 at 6.52 pm, that is, after the
close of the trading hours on that day. The closing price of the scrip (Albert David)
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on 31.8.2005 was Rs.139.65. It is further clear that Mathew had made a technical
analysis of the scrip for 1.9.2005. According to his analysis, the short term target of
the scrip was Rs.200 and keeping in view the prevailing price of the scrip on the day
of the e-mail, he strongly recommended short term traders to buy. Having made this
recommendation, he goes on to predict the price of the scrip on the following day for
the benefit of the day traders. No one can be certain as to whether the price of a
scrip on a particular day would go up or down. He, therefore, recommends the
intraday traders to watch the movement of the price and if it touches Rs.143 the
trend, according to him, would be upwards and if it touches Rs.137, the trend would
be downwards. If the trend is upwards, he recommends to them to buy the scrip
above Rs.143. He has then mentioned the resistance levels at Rs.145, Rs.146 &
Rs.149. The three resistance levels referred to in the recommendation mean that
when the scrip is going upwards it will meet a resistance at Rs.145 and once that
level is breached the share is likely to go up further to Rs.146 when the price will
meet the next resistance level. If that level is also breached, then the scrip is likely to
go upto Rs.149 during the course of the day (1.9.2005). The resistance levels
referred to in the e-mail refer to the selling pressure which would be generated as a
result of the rising price. When the price rises, investors tend to book profits by
selling a part or whole of their holdings. It is, thus, clear that the buy
recommendation made by Mathew in the very nature of things inheres in it the
recommendation to sell if the trader wishes to book profits at certain levels as
referred to in the e-mail. This is the recommendation which Mathew made if the
movement of the price of the scrip was upwards. It could well have been
downwards. In that event also, he recommends to the day traders to watch till the
price reaches Rs.137. He recommends to them to sell the scrip below Rs.137 to
reduce their losses because, according to him, the price then would further move
downwards. In case the price of the scrip was falling, he predicted three support
levels at Rs.135, Rs.133 & Rs.130. When the price falls, investors sometime tend to
purchase that scrip and the buying pressure gives a support to the falling price.
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According to Mathew, the support level would be at Rs.135 and thereafter at Rs.133
and according to him the price during the course of the day could go down upto
Rs.130. This recommendation/prediction would have different meanings for
different day traders depending upon their strategy, financial and risk taking
capacity. Some may like to reduce their losses by selling the scrip when it goes
below Rs.137. Others who may have more risk taking capacity may like to wait till
it reaches Rs.135 and so on because the ultimate prediction about the scrip is that it
could touch Rs.200 which is the short term target. These buy and sell
recommendations no doubt have been made for the day traders but, as already
observed, Mathew has predicted the price movement of the scrip during the course of
the day both if it were to go upwards or downwards and it is open to every trader
whether he be a day trader or a short term/long term trader, to take advantage of that
price movement. In other words, when the price is moving upwards it is open to a
short term trader who may have acquired the scrip at a lower price to book profits
during the course of the day and he need not wait for the price to go upto Rs.200
which has been predicted as a short term target. He need not be a day trader.
Similarly, the bears in the market could take advantage of the falling price and
according to their strategy they may buy when Mathew had recommended sell. It
would follow that his sell recommendation inheres in it a buy recommendation as
well. Learned counsel for the parties were agreed that all the e-mails were alike and
that the interpretation given to the aforesaid e-mail of 31.8.2005 regarding the scrip
of Albert David would hold good for the other e-mails as well. We have, therefore,
no hesitation in holding that all the recommendations made by Mathew through the
e-mails in question were not only 'buy' recommendations but they also included the
recommendations to sell the scrips as and when the short term resistance targets were
met to enable the trader/ investor to book routine profits which is his sole objective.
Now when we look at the impugned order and the findings recorded by the
adjudicating officer, we find that he has held that the resistance and support levels
mentioned by Mathew in regard to the four scrips were meant only for intraday
13
traders and not for investors/traders like Mathew. He has understood the
recommendations of Mathew to mean only 'buy' recommendations for the short
term investors. He compared the trade data gathered from the exchanges with the
trading pattern of Mathew and found that Mathew took an opposite trading position
to what he recommended to the investors at large and that he started selling the
stocks through his associate companies after giving an opposite advice to the market.
Since Mathew, according to the adjudicating officer, acted contrary to his own
recommendations when he sold the scrips, it was held that he did not believe the
information that he was purveying to the public to be true and thereby violated
Regulation 4(2)(f) of the FUTP Regulations. We cannot uphold any of these findings
which are based on a complete misreading of the recommendations made through the
e-mails. We have analysed above the e-mail dated 31.8.2005 pertaining to the scrip
of Albert David and found that the recommendation made therein was not only a buy
recommendation and that a sell recommendation was inherent in it. It is true that the
resistance and support levels mentioned in the e-mails were meant only for intraday
traders but that does not mean that short term/long term traders/investors could not
take advantage of those levels/price movement. It was open to them to sell their
stocks and book routine level profits which most of the traders do when the price is
rising and this is how the market functions. We are amazed that the adjudicating
officer could not understand this basic concept. Unfortunately, the adjudicating
officer did not apply his mind to the merits of the recommendations made by
Mathew. He did not even make an attempt to understand what the recommendations
meant. Mathew had furnished a detailed research/ technical rationale which formed
the basis of his investment recommendations. Had the adjudicating officer examined
this rationale he would have understood that the recommendations made in the
e-mails had in them an inherent sell recommendation as well. We would have
appreciated if he had examined the rationale in detail and then come to the
conclusion that Mathew was trying to mislead the investors by giving information to
the public which he did not believe to be true. All that he has said in the impugned
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order is that the recommendations made by Mathew were buy recommendations for
short term traders and Mathew being one of them could not have taken an opposite
position in trading. He has failed to appreciate that the benefit of the resistance and
support levels referred to in the e-mails could be taken by other investors as well
even though the recommendations purport to be for intraday traders only. We cannot
agree with the adjudicating officer that Mathew took an opposite trading position to
what he recommended to the investors at large or that he misled the investors
through his investment recommendations. His specific stand before the adjudicating
officer was that he sold only a part of the portfolio and not the whole of it and that
too when the recommended target levels had reached. The adjudicating officer has
not examined this aspect of the matter at all nor has he recorded a finding to the
contrary. All that he says is that Mathew made a buy recommendation for a short
term trader and he himself sold the scrips. We have already pointed out the
hollowness of this finding. We agree with Shri. Somasekhar that if Mathew wanted
to act contrary to his own recommendations, he would have sold his entire portfolio
which he did not. He only sold a part of it to book profits when the recommended
resistance targets were met which traders/investors normally do. This was in
consonance with his recommendations and not opposite to what he recommended.
Further, Mathew through Research had purchased 14500 shares of Albert David on
31.8.2005, the date on which he sent the e-mail in question. Having purchased the
shares himself, he also recommended to the investors at large to purchase those
shares. Was he purveying information to the public which he did not believe to be
true and could he be said to be acting contrary to his own recommendations. The
answer has to be in the negative. Again, while dealing with the aforesaid e-mail, the
adjudicating officer recorded in the impugned order that "It was to be noted that
there was no resistance level given between Rs.149 and the target price of Rs.200."
We have not been able to understand this observation. It makes no sense to us and
only exhibits total lack of understanding in the matter. The price of Rs.149 predicted
by Mathew was the maximum which, according to him, the scrip could touch on
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1.9.2005 whereas Rs.200 was the short term target price of the scrip. The two prices had nothing in common and, therefore, there was no question of mentioning the resistance levels between these two prices. We wonder what the adjudicating officer is referring to. When it came to quantifying the monetary penalty, the adjudicating officer took note of the profits made by Research and Fiscal on the sale of the scrips and imposed three times of those profits as penalty on Mathew. Shri. Somasekhar learned counsel for Mathew made a grievance of this and he is right. The adjudicating officer had forgotten that adjudication proceedings had not been initiated against Research and Fiscal. Moreover, section 15HA of the Act provides that if any person indulges in fraudulent and unfair trade practices, he shall be liable to a penalty of Rs.25 crores or three times the amount of profits made out of such practices, whichever is higher. In this case the profits were made by Research and Fiscal and penalty has been levied on Mathew. It is quite anomalous. The shares had, in fact, been sold by Research and Fiscal through Mathew and if penalty was to be imposed for the alleged violation, adjudication proceedings should have been initiated against all the three making them liable jointly and severally.
It appears that the adjudicating officer had before him the ex-parte cease and desist order dated 19.1.2006 passed by the whole time member in which firm findings had been recorded against Mathew and in that order also it had been observed that the recommendations of Mathew were buy recommendations and that he took an opposite trading position when he sold the scrips through his associate companies. The adjudicating officer has simply followed the observations made in the ex-parte order and has chosen to record findings in terms thereof. We wonder whether he conducted the proceedings independently or impartially in the present case. Shri. Somasekhar learned counsel for Mathew pointed out during the course of the hearing that the cease and desist proceedings were pending before the whole time member who had afforded a personal hearing to the parties on 18.4.2006 and reserved his orders. It was thereafter that the adjudicating officer issued the show cause notice on April 28, 2006 in which he made reference to the findings recorded 16 in the cease and desist order dated 19.1.2006 and concluded the proceedings on September 26, 2006. The learned counsel contended that it was thereafter that the whole time member put an end to the cease and desist proceedings on November 7, 2006 and did not continue with the cease and desist order in view of the penalty imposed by the adjudicating officer which, according to the whole time member, was enough of a deterrent for Mathew. He also pointed out that the adjudicating officer in the instant case was the deputy general manager in the department of surveillance which department is headed by the whole time member who passed the cease and desist order- a fact which was confirmed by learned counsel for the respondent. The insinuation is that the adjudication proceedings were being watched by the whole time member as the adjudicating officer was his subordinate and immediately when the former learnt that a penalty of Rs.20 lacs had been imposed, the ex-parte cease and desist order of 19.1.2006 was discontinued. We need not comment on this aspect and only hope that what is being insinuated is not correct.
The Act enables the Board to initiate parallel proceedings on the same set of facts against a delinquent under the enquiry regulations, under section 11B or under section 11D, as the case may be, on the one hand and adjudication proceedings under Chapter VIA for the imposition of monetary penalties on the other. It is not in dispute that orders under the inquiry regulations, directions under section 11B or an order under section 11D are passed by the Board whereas the proceedings under chapter VIA are conducted by an adjudicating officer who is a subordinate officer of the Board and it is he who passes final order. Even though the two sets of proceedings may be independent of each other, we have yet to come across a case where the adjudicating officer has taken a view contrary to the one taken by the whole time member who exercises the delegated authority of the Board. The learned counsel for Mathew forcefully argued that how could a subordinate officer of the Board record findings contrary to those recorded by the Board under the inquiry regulations or under section 11B or under section 11D, as the case may be. May be, he is right but we cannot grant any relief to Mathew on this ground because the law 17 does permit two sets of parallel proceedings to be carried on. Whether this state of the law should continue is a matter which the law makers have to decide. When the two sets of proceedings are independent of each other as is often argued on behalf of the Board, then the possibility of conflicting views on the same set of facts cannot be ruled out which would not be in public interest. We feel that if only one inquiry is held in such cases and on the basis of that inquiry the same body is given the power to impose penalties under both sets of proceedings, it would not only expedite matters but also avoid conflicting opinions. As already observed, this is a matter for the Parliament to consider.
In view of the aforesaid discussion, we allow the appeal, reverse the findings recorded by the adjudicating officer and set aside the impugned order. The damage caused to the reputation of Mathew cannot be undone. However, he will have his costs which are assessed at Rs.1 lac.
Sd/-
Justice N.K. Sodhi Presiding Officer Sd/-
Arun Bhargava Member Sd/-
Utpal Bhattacharya 10.1.2008 Member bk