2018 (6) TMI 1737 - AT - SEBI

Violation of SEBI Act and the PFUTP Regulations - trading in the shares of Out of company - scrip of the company was an illiquid scrip and out of purchase and sale of 157 shares, some of the trades of the appellant were self trades and some trades had influenced the price of the scrip of the company by contributing the market net LTP (Last Traded Price) and some trades had also contributed to the NHP (New High Price) - Penalty imposed - HELD THAT - The trades executed by the appellant had the effect of net positive LTP of ₹ 85.35. Very fact that the appellant had indulged in self trades/ LTP/ NHP without giving any justifiable reason, clearly justifies the inference drawn by the AO that the trades executed by the appellant were manipulative trades. As held by the Apex Court in the case of SEBI V/s Kishore R. Ajmera 2016 (2) TMI 723 - SUPREME COURT in the absence of direct evidence, by taking into account immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded it is open to an AO to arrive at a reasonable conclusion that the trades executed were manipulated trades. In the facts of the present case, in our opinion, no fault can be found with the decision of the AO that the trades executed by the appellant were manipulative trades and hence, the appellant was guilty of violating the SEBI Act and the PFUTP Regulations. Argument advanced by the Representative of the appellant that the penalty imposed is excessively harsh is without any merit. Penalty imposable under Section 15HA of SEBI Act for violating the PFUTP Regulations is up to ₹ 25 crore. However, after taking into consideration all mitigating factors the AO has imposed penalty of ₹ 7 lac which cannot be said to be unreasonable or excessive.

Summary

Issues:
Violation of SEBI Act and PFUTP Regulations leading to penalty imposition.

Detailed Analysis:

Issue 1: Violation of SEBI Act and PFUTP Regulations
The appeal challenged an order imposing a penalty of ?7 lac on the appellant for violating Section 12A (a) to (c) of SEBI Act and regulations 3(a) to (d), 4(1) and 4(2)(a) & (e) of PFUTP Regulations. The appellant was found to have traded in shares of a company during a specific period, influencing the market price significantly. The investigation revealed that the appellant's trades, including self-trades, contributed to the market net LTP and NHP of the company's scrip. The appellant's trades were deemed manipulative, leading to the penalty imposition.

Issue 2: Appellant's Defense and Tribunal's Analysis
The appellant argued that there was insufficient evidence to prove manipulative trading and that the trades were normal. However, the Tribunal disagreed, citing the trades' impact on the market price and the absence of justifiable reasons for self-trades and price influence. Referring to a Supreme Court case, the Tribunal emphasized that circumstantial evidence could establish manipulative trades. Therefore, the Tribunal upheld the AO's decision that the appellant violated the SEBI Act and PFUTP Regulations through manipulative trades.

Issue 3: Penalty Imposition
The appellant contended that the ?7 lac penalty was excessive. The Tribunal disagreed, noting that the penalty could go up to ?25 crore under Section 15HA of SEBI Act. Considering mitigating factors, the AO imposed a reasonable penalty of ?7 lac, which the Tribunal deemed appropriate. Consequently, the appeal was dismissed, upholding the penalty imposition and finding no fault with the AO's decision.

In conclusion, the Tribunal affirmed the penalty imposition on the appellant for violating the SEBI Act and PFUTP Regulations through manipulative trades, emphasizing the trades' impact on market prices and rejecting the appellant's defense. The penalty amount of ?7 lac was deemed reasonable, leading to the dismissal of the appeal.