2013 (8) TMI 1056 - AT - Companies Law

Unconscionable and Unexplained delay of about 12 years for completing the proceedings by SEBI - Charge of Manipulation of Scrip Price Creation of Artificial volumes - Securities and Exchange Board of India Act, 1992 - Merger of 3 Appeals - After prolonged and protracted proceedings, the investigation culminated into the impugned order. Whereby the Respondent has restrained the three Appellants from buying, selling or dealing in the securities market, whatsoever, directly or indirectly for a period of two years. With consent of the learned counsel for the parties concerned, these three appeals were, therefore, heard together and are being disposed of by this common order. The Respondent-SEBI is stated to have conducted some investigation into dealings in the scrip of the Company and reaching prima facie conclusion that all three Appellants had undertaken synchronized trades and thereby the Appellants are alleged to have manipulated the price of the scrip during relevant time. The Respondent also claims that there were irregular patterns in volumes of trading on the Company's scrip. the SCN was based on the trade and order logs were not supplied to the Appellant, and most of the documents, in legible form, were supplied only after more than 10/11 years of occurrence of the event. HELD THAT - The court quashed and set aside the impugned order in each case and allow the three appeals on merit as well as on the ground of unconscionable and unexplained delay of about 12 years in initiating and completing the proceedings against the three Appellants in question. Regarding the abnormality in the volume of the scrip as a result of the Appellants' trades. The court observed that the SCN as well as documents, other material and certain graphs produced by the parties before us. The facts clearly indicate that fluctuations of a similar nature in the volumes of the scrip existed even during the period when the Appellants did not execute any trade. The SCN itself makes it clear that there were ups and downs in the volume during the preceding and subsequent six months of the period of investigation in question. Therefore, we find that the charge of volume manipulation is also hollow and baseless. Also the existence of unnatural and unexplained delay of more than a decade and prejudice caused due to such undue delay is writ large in the matter. Therefore, the impugned order deserves to be quashed on this ground as well.

Issues Involved:
1. Allegations of synchronized trades and price manipulation.
2. Creation of artificial volumes in the scrip of Jagsonpal Pharmaceuticals Ltd.
3. Delay in the initiation and completion of proceedings.
4. Non-supply of relevant documents to the appellants.

Detailed Analysis:

1. Allegations of Synchronized Trades and Price Manipulation:
The Respondent (SEBI) alleged that the appellants engaged in synchronized trades between August 2000 and December 2000, manipulating the price of the scrip of Jagsonpal Pharmaceuticals Ltd. The price of the scrip on NSE increased from Rs. 599 on August 18, 2000, to Rs. 700 on September 11, 2000, and then decreased to Rs. 660 on November 1, 2000. The appellants were accused of creating a false market for the company's scrip by placing buy and sell orders within a few seconds to minutes of each other, often at higher prices than the previous day's closing price.

2. Creation of Artificial Volumes:
The Respondent claimed that the appellants created artificial volumes in the scrip, which varied significantly on days when the appellants traded. The SCN alleged that the appellants' trades led to irregular patterns in trading volumes, which were injurious to the healthy functioning of the capital market. However, the appellants contended that no significant aberrations in volume were noted and that similar fluctuations were observed in the periods before and after the trades in question.

3. Delay in Initiation and Completion of Proceedings:
The appellants argued that the long delay in initiating and completing the proceedings violated the principles of natural justice. The SCN was issued on September 2, 2005, more than five years after the alleged trades, and the final order was passed on May 9, 2012, after a delay of about 12 years from the occurrence of the events. The appellants contended that such delays prejudiced their ability to present a proper defense.

4. Non-Supply of Relevant Documents:
The appellants repeatedly requested the Respondent to supply documents forming the basis of the SCN, including trade and order logs, investigation reports, and other relevant materials. Despite these requests, many documents were provided only after significant delays, and some crucial documents were not supplied at all. The appellants argued that this non-supply of documents deprived them of a valuable right to present a proper defense.

Judgment:

1. Allegations of Synchronized Trades and Price Manipulation:
The Tribunal found that the major charge of price manipulation was not proved by the Respondent based on the documents and evidence presented. The Tribunal noted that synchronization of trades is not per se illegal and is actionable only if it is illegitimate and results from a mischievous meeting of minds. Since the counterparty, Gloria Investment Limited, was exonerated by the Respondent, there was no evidence of connivance to prove the charge of synchronization against the appellants.

2. Creation of Artificial Volumes:
The Tribunal observed that fluctuations in trading volumes of a similar nature existed even during periods when the appellants did not trade. The SCN itself indicated that there were ups and downs in volume during the preceding and subsequent six months of the investigation period. Therefore, the Tribunal found the charge of volume manipulation to be hollow and baseless.

3. Delay in Initiation and Completion of Proceedings:
The Tribunal held that the unexplained delay of about 12 years in initiating and completing the proceedings against the appellants caused definite prejudice to them. The Tribunal emphasized that such delays risk the loss of evidence and adversely affect the ability of parties to present a proper defense. The Tribunal noted that the law governing fraudulent and unfair trade practices had been amended during the period of delay, further complicating the matter.

4. Non-Supply of Relevant Documents:
The Tribunal criticized the Respondent for not supplying the complete trade and order logs and other relevant documents in a timely and legible form. The Tribunal emphasized that the onus of supplying complete material on which allegations were based lies with the Respondent. The non-supply of documents amounted to a gross violation of the principles of natural justice.

Conclusion:
The Tribunal quashed and set aside the impugned order in each case, allowing the three appeals on merit and on the ground of unconscionable and unexplained delay in initiating and completing the proceedings. The Tribunal also highlighted the importance of expeditious disposal of proceedings and the need for SEBI to supply all relevant documents to ensure a fair hearing. No order as to costs was made.

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