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2015 (7) TMI 129 - AT - Companies LawIrregularities in trading in scrip - Self trade - Held that - It is stated in para 8 of SCN that, Appellant No.1 due to his self trades and resultant monetary profit gained, has violated Regulations 3(a), (b), (c), (d) and 4(1), 4(2)(a), 4(2)(b), 4(2)(e) and 4(2)(g) of Prevention of Fraudulent and Unfair Trade Practices(PFUTP) Regulations, 2003. In reference to gain from self trades, it is not clear how Appellant No.1 gained from self trades, since sale and buy price are the same. This aspect of allegation cannot be appreciated. Moreover, how acts of self trades have resulted in violation of regulations of SEBI (PFUTP) Regulations, 2003 and SEBI Act, 1992, has not been explained. Self-trades are the acts that violate provisions of SEBI (PFUTP) Regulations, 2003 and SEBI Act, 1992, but how these Regulations and Act can be imputed to acts of self-trades of Appellant No.1 has to be explained explicitly; which is not done in SCN. It is evident, that Appellant No.1 did indulge in manipulative trades by executing 375 trades, involving 1206 shares in scrip of VIL and contributed to increase/decrease in LTP and also played crucial role in establishing new high/low in the same scrip and also executed six self-trades, two of these being executed by Appellant No.2 as broker and counter-party broker and hence it will not in interest of justice to discharge the two Appellants from alleged violations as stated against them, due to improper handling of entire adjudication proceedings by Ld.A.O. - Case is remanded back to Respondent.
Issues:
Violation of SEBI regulations by Appellant No.1 and Appellant No.2 leading to penalties under Section 15HA of SEBI Act, 1992. Analysis: Issue 1: Violation of SEBI Regulations by Appellant No.1 - Appellant No.1 was penalized for violating provisions of SEBI (Prevention of Fraudulent and Unfair Trade Practices) Regulations, 2003 by engaging in self-trades in the scrip of Veritas (India) Limited (VIL). - The investigation revealed that Appellant No.1 self-traded on multiple occasions, contributing to market manipulation by creating artificial volumes in the scrip. - The Adjudication Officer (A.O.) found Appellant No.1 guilty of manipulative trading practices due to his self-trades, which were deemed fictitious and fraudulent. - Despite Appellant No.1's submissions that the trades were meagre and not manipulative, the A.O. upheld the allegations of market manipulation against him. - However, the A.O. failed to differentiate between Appellant No.1's total trades and self-trades, leading to confusion in the analysis of his trading activities. Issue 2: Violation of SEBI Regulations by Appellant No.2 - Appellant No.2, acting as a stock broker and counter-party broker for Appellant No.1, was accused of facilitating illegal gains through self-trades. - The A.O. mentioned Appellant No.2's role in the irregularities related to Appellant No.1's self-trades but failed to establish a clear link between Appellant No.2's actions and the violations of SEBI regulations. - Appellant No.2's defense that the self-trades were coincidental and not intentional market manipulation was not adequately considered by the A.O. - The A.O.'s handling of the allegations against Appellant No.2 was deemed improper, leading to the quashing of the impugned order. Conclusion: - The judgment quashed the impugned order and remanded the case back to SEBI for fresh adjudication proceedings. - SEBI was directed to issue fresh show cause notices to both Appellant No.1 and Appellant No.2, with the proceedings to be overseen by a different adjudication officer for a fair and thorough examination of the alleged violations. - While the impugned order was set aside, the judgment emphasized that Appellant No.1's involvement in manipulative trading practices through self-trades and total trades warranted further scrutiny to ensure justice and regulatory compliance.
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