2013 (12) TMI 399 - AT - Companies Law

Prohibition of manipulative, fraudulent and unfair trade practices as per Regulation 4, read with regulation 3, of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 - SEBI found violation of provisions of FUTP Regulations which suggested certain trading activity on part of appellant along with others with intention of creating artificial volumes so as to give market players a false impression regarding liquidity in scrip Held that - The shares were transferred to the applicant and other noticees from the accounts of promoters and not from Dena Bank - No evidence of the payment has been shown by the appellant - No document is brought on record to substantiate the story regarding the payment for these 20,000 shares. the appellant had kept the shares of the company in fact in his demat account without any transaction whatsoever in the said shares which were stated to be pledged for the loan in question - The role of the appellant was confined to extending loan facility to MK and no more - He was not found to have been engaged at all in any dealing in the shares of the ASL in any manner - He had no role in the circular/manipulative trades highlighted by the learned WTM in the impugned order for the simple reason that he did not trade in the shares - The role of the appellant in that case was that of a mere financier - He kept the shares of ASL in his demat account only as a security for the loan provided by him to MK. In this background, his appeal was allowed by this Tribunal - the appellant has admittedly received 20,000 shares in his demat account on January 19, 2009 - This fact clearly proves a nexus between the appellant and the promoter group Decided against Appellant.

Summary

Issues:
Challenge to SEBI order restraining access to securities market and trading activities under SEBI Act and FUTP Regulations.

Analysis:
1. The appellant contested an order by SEBI dated May 11, 2012, restricting market access and trading activities for two years under SEBI Act and FUTP Regulations. The appellant, claiming to be the Karta of a Hindu Undivided Family, had a history of trading in securities for almost a decade with a record of compliance.

2. The appellant held 20,000 shares of a company in physical form, which were later dematerialized and transferred to his demat account. Following a recovery process by Dena Bank involving the same company, the appellant acquired additional shares through an off-market transfer. Subsequently, the appellant sold these shares through a broker.

3. SEBI issued an ex-parte order in 2009, prohibiting the appellant from trading in the company's securities due to alleged violations of FUTP Regulations. A show cause notice was later issued, accusing the appellant of being a conduit in manipulating share prices.

4. The appellant defended his actions, stating innocence and claiming the shares were acquired in good faith from Dena Bank. In contrast, SEBI alleged collusion between the appellant and others to manipulate share prices, violating FUTP Regulations.

5. The impugned order found the appellant guilty of violating specific FUTP Regulations. SEBI's investigation revealed discrepancies in the appellant's share acquisition narrative, undermining his defense.

6. The respondent argued against the appellant's claim of purchasing shares from Dena Bank at a lower price, questioning the rationale behind such a transaction when market prices were higher. SEBI's findings linked the appellant to manipulative trading practices.

7. A previous judgment involving a different appellant was cited to distinguish the current case. Unlike the previous case where the appellant acted as a financier, the present appellant received shares without consideration, indicating a connection to the promoter group.

8. The Tribunal dismissed the appeal, citing lack of merit in the appellant's defense and upholding the validity of the impugned order based on factual and legal grounds.

In conclusion, the Tribunal's decision affirmed SEBI's findings of regulatory violations and manipulation, leading to the dismissal of the appeal without costs.