2020 (1) TMI 1485 - AT - SEBI

Unfair trade practices - Ingenuine trading of shares - Manipulation of price scrip - charge of raising price artificially - violation of Regulations 3 and 4 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 - HELD THAT - The investigative reports nor the WTM or the AO found any connection between the buyer and the seller. We also find that neither in the investigative report nor in the impugned order any connection has been found between the appellant with the promoters / directors of the Company. Thus, no causal connection has been established. The investigative report finds that no adverse inference can be drawn against the buyer merely because the buyer had placed buy orders above LTP. On this basis, the buyer was exonerated from the charge of manipulation in the price of the scrip when admittedly the buyer was placing buy orders above the LTP. Buy orders were placed at 9.15 hrs and sell orders were placed during the course of the day but not immediately after the buy orders nor the sell orders of the appellants were placed before the buy orders.There is no finding that the appellant has indulged in fraudulent or unfair trade practices in securities. Selling miniscule amount of shares by itself is not illegal nor manipulative nor violative of Regulation 3 and 4 of the PFUTP Regulations unless collusion with others is found. Allegation that the appellant has contributed to the LTP cannot be upheld in the absence of any collusion with the buyer or promoter / director of the Company. One has to establish a connection between a buyer and with the seller in order to infer a manipulation in the price of the scrip. See SECURITIES AND EXCHANGE BOARD OF INDIA VERSUS KISHORE R. AJMERA 2016 (2) TMI 723 - SUPREME COURT - There must be evidence to show collusion between the buyer and the seller. In the instant case there is none. The principle of preponderance of probability cannot be exercised in the absence of any connection between the seller and the buyer. The charge that the appellant had contributed to the LTP as a seller which resulted in the manipulation in the price of the scrips cannot be sustained in the light of the glaring fact that the same charge against the buyer had been dropped. Charge of raising price artificially has to be established and the element of collusion between the buyer and the seller is a sine quo non. We are in the entire agreement with the aforesaid decisions and reiterate that in the absence of any finding of collusion between the buyer and the seller the charge contributing to the LTP cannot be sustained - orders restraining the appellant from accessing the securities market cannot be sustained.

Summary

Issues:
1. Appeal against SEBI order restraining access to securities market and imposing penalties.
2. Allegation of manipulation in the price of securities.
3. Lack of causal connection and collusion between buyer and seller.
4. Interpretation of trading patterns and regulations under PFUTP Regulations.
5. Comparison with previous judgments regarding collusion between buyer and seller.

Issue 1: Appeal against SEBI order and penalties
The appellant filed two appeals against SEBI orders: Appeal No. 97 of 2019 challenging a two-year market access restriction and Appeal No. 544 of 2019 contesting a ?2 lakh penalty for violating PFUTP Regulations. Both appeals were related to the same violation, thus decided together.

Issue 2: Alleged manipulation in securities price
The appellant was accused of contributing to the positive Last Traded Price (LTP) as a seller, leading to a misleading appearance of trading in a specific company's scrips. The WTM found the appellant's trading pattern manipulative, violating PFUTP Regulations.

Issue 3: Lack of causal connection and collusion
The tribunal noted the absence of evidence establishing a connection between the buyer and the seller, as well as no link between the appellant and the company's promoters/directors. Without causal connection or collusion, the charges could not be sustained.

Issue 4: Interpretation of trading patterns and regulations
The tribunal analyzed the trading activities, emphasizing that selling miniscule shares alone is not illegal unless collusion is proven. The appellant's actions did not indicate fraudulent or unfair trade practices, and the charge of contributing to LTP required collusion, which was not evident.

Issue 5: Comparison with previous judgments
The tribunal referenced past judgments emphasizing the necessity of collusion between buyer and seller to establish artificial price raising. Without such collusion, charges related to manipulating prices could not be upheld. The tribunal quashed the impugned orders and allowed the appeals, citing the absence of evidence of collusion.

In conclusion, the tribunal found in favor of the appellant, highlighting the lack of evidence of collusion between the buyer and seller, essential to proving manipulation in securities prices. The tribunal emphasized the importance of establishing a causal connection and collusion to sustain charges related to contributing to the LTP. The past judgments reiterated the requirement of collusion for allegations of artificially raising prices. As a result, the impugned orders were quashed, and the appeals were allowed with no costs imposed.