2010 (7) TMI 1179 - AT - SEBI

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Alleged connection between the appellants and other entities.
3. Similarity of trading pattern among appellants.
4. Allegation of unrealistic initial order prices.
5. Allegation of sucking out liquidity and creating artificial scarcity.
6. Allegation of price manipulation.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The appellant contended that the principles of natural justice were violated as she was not furnished with the trade and order logs despite repeated requests. The Board provided selective data from the trade and order logs, which was deemed insufficient by the appellant. The Board argued that the logs were voluminous and thus not feasible to provide. The Tribunal found merit in the appellant's contention, stating that the trade and order logs were relevant for the appellant to prepare her defense. The Tribunal held that non-furnishing of these logs resulted in a violation of the principles of natural justice.

2. Alleged Connection Between the Appellants and Other Entities:
The Board's case was based on the alleged connection between 21 entities, including the appellants, referred to as "connected buyers." The appellant denied any connection, except being a sister-in-law of Dhiren Vora. The Tribunal examined Annexures 1 and 2 of the show cause notice and found that the connections were tenuous and far-fetched. The Tribunal concluded that the Board failed to establish any substantial link between the appellants and other entities, thus rejecting the charge that the appellants acted in concert with others.

3. Similarity of Trading Pattern Among Appellants:
The Board alleged that the appellants placed buy orders at a uniform rate and modified them within a short time frame, indicating collusion. The Tribunal found that the appellants traded through the same broker, and the similarity in order placement was not unusual. The Tribunal noted that the Board selectively questioned only specific trades of the appellants, creating an artificial grouping. The Tribunal concluded that the similarity in trading patterns did not establish fraudulent intent or collusion.

4. Allegation of Unrealistic Initial Order Prices:
The Board alleged that the appellants placed initial buy orders at unrealistic prices to disguise their trades. The Tribunal found that some orders did get executed at the initial price, indicating it was not unrealistic. The Tribunal emphasized that the price discovery mechanism was in full play on the first day of trading, and the initial order prices were part of testing the market. The Tribunal rejected the allegation, stating that the trading pattern was not unusual.

5. Allegation of Sucking Out Liquidity and Creating Artificial Scarcity:
The Board alleged that the appellants' trades created artificial scarcity by sucking out liquidity. The Tribunal found that the appellants were day traders who sold the shares on the same day, thus not reducing market liquidity. The Tribunal noted that the appellants' trades were a small fraction of the total market activity, and there was no evidence of creating artificial scarcity. The Tribunal rejected this allegation as baseless.

6. Allegation of Price Manipulation:
The Board argued that the appellants manipulated the price through structured and synchronized trades. The Tribunal found no such charge in the show cause notice and noted that the whole time member had absolved the day traders of manipulating the price. The Tribunal emphasized that charges must be clear and precise, which was not the case here. The Tribunal rejected the allegation of price manipulation.

Conclusion:
The Tribunal allowed the appeals, set aside the impugned orders, and directed the Board to refund the impounded amounts with accrued interest until the date of remittance to the Consolidated Fund of India. The Tribunal found that the Board's case was unsustainable on merits and that the appellants did not act in concert or engage in fraudulent trading.