2017 (1) TMI 1647 - AT - SEBI

Penalty u/s 15HA of SEBI Act - violating the provisions contained in the SEBI Act and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003 - violating the Code of Conduct for Stock Brokers specified under the SEBI (Stock Brokers and Sub-Brokers) Regulations 1992 - HELD THAT - It is an admitted fact that penalty of Rs. 1 crore has been imposed on Shri Purshottam Khandelwal and individual penalty of Rs. 80 lac has been imposed on Cosmo Corporate Services Ltd and Ishita Finstock Ltd. respectively who are the other entities involved in the present case. Therefore the argument of the appellant that compared to other entities involved in the present case penalty imposed against the appellant is excessive and exorbitant cannot be accepted. No merit in Argument of the appellant that the AO has failed to consider the mitigating factors set out in Section 15J of the SEBI Act. As against the penalty of Rs. 25 crore imposable under Section 15HA of the SEBI Act the AO after considering all mitigating factors has imposed penalty of Rs. 60 lac and as against penalty of Rs. 1 Crore imposable under Section 15HB of the SEBI Act AO after considering all mitigating factors has imposed penalty of Rs. 15 lac. Therefore the argument of the appellant that the AO has failed to consider the mitigating factors cannot be accepted. Having committed serious violations under the PFUTP Regulations and Brokers Regulations the appellant is not justified in contending that the penalty imposed is excessively harsh or exorbitant especially when penalty of Rs. 60 lac has been imposed as against the penalty of Rs. 25 crore imposable under Section 15HA of the SEBI Act and penalty of Rs. 15 lac has been imposed as against penalty of Rs. 1 crore imposable under Section 15HB of the SEBI Act. Argument of the appellant that having recorded in para 32 of the impugned order that the contribution of the appellant towards LTP was not much the AO ought not to have held that the appellant has aided and abetted in LTP variation is also without any merit. What is held that even though the appellant has not directly indulged in LTP variations since the appellant has indulged in synchronized trades and circular trades with those entities who had also indulged in LTP variations it is apparent that the appellant had aided and abetted other entities in committing LTP variations. AO was justified in arriving at the aforesaid conclusions because all the trades in question were executed for manipulating the price of Gangotri scrip. Appeal dismissed.

Summary

Issues:
Violation of SEBI Act and PFUTP Regulations, imposition of penalty under Section 15HA, violation of Brokers Regulations, mitigating factors consideration, excessive penalty imposition, aiding and abetting in LTP variation, appellant's turnover as a factor in penalty imposition.

Violation of SEBI Act and PFUTP Regulations:
The appellant, a registered stock broker, engaged in synchronized, circular, and reversal trades in a company's scrip during an investigation period, contributing to Last Traded Price (LTP) variation. The Adjudicating Officer (AO) of SEBI imposed penalties under Section 15HA of the SEBI Act for violating SEBI Act and PFUTP Regulations.

Violation of Brokers Regulations:
Additionally, the appellant violated the Code of Conduct for Stock Brokers specified under Brokers Regulations. The AO imposed penalties under Section 15HB of the SEBI Act for this violation.

Mitigating Factors Consideration:
The appellant argued that the penalty was exorbitant, unreasonable, and excessive. They contended that the penalty should be lenient due to being a first-time violator and considering mitigating factors outlined in Section 15J of the SEBI Act.

Excessive Penalty Imposition:
The appellant claimed that penalties of Rs. 60 lac and Rs. 15 lac were unjustified given their annual turnover and the alleged minimal contribution to LTP variation. They argued for a nominal penalty or leniency based on mitigating factors.

Aiding and Abetting in LTP Variation:
The appellant disputed being a significant contributor to LTP variation but the AO found their involvement in synchronized and circular trades with entities manipulating the stock price. The AO held that the appellant aided and abetted in LTP variations.

Appellant's Turnover as a Factor:
The appellant's argument that their low annual turnover should result in a nominal penalty was dismissed. The Tribunal emphasized that penalties are imposed based on violations, not turnover, and upheld the penalties considering the serious nature of the violations.

In conclusion, the Securities Appellate Tribunal upheld the penalties imposed on the appellant for violating SEBI Act, PFUTP Regulations, and Brokers Regulations. The Tribunal rejected the appellant's arguments regarding excessive penalties, mitigating factors, and turnover considerations. The appellant's involvement in fraudulent and unfair trade practices, including aiding and abetting in LTP variation, led to the dismissal of the appeal and the directive for SEBI to recover the penalties with interest as permitted under the SEBI Act.