2019 (10) TMI 1051 - AT - SEBI

Off market transfer of shares - intra group transfers - Violation of the provisions of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ( PFUTP Regulations ) - Penalty imposed - HELD THAT - So far as the appellant Mr. G. Moorthi is concerned his own submission would show that he had transferred substantive shares to Mr. Sudhir and Mrs. Madhu Jhunjhunwala off market without any consideration for management of portfolio by promising a commission of 15 percent. The record would show that Mr. Sudhir and Mrs. Madhu Jhunjhunwala had another story to tell. Be that as it may. It is clear from the records that the share were not transferred with an intention to transfer the beneficial ownership. The record would show that during the same period Mr. Sudhir and Mrs. Madhu Jhunjhunwala as well as the present appellant Ritika had purchased bulk of shares from the platform of BSE and NSE and thereafter the same were sold in different quantities. More notably the percentage of trading of this group would show that they have contributed substantially in the buying and selling during that period i.e.8,34,472. Similarly, the sale was also of the substantive proportion i.e. 14,55,160. Most important factor is the intra group transfers between appellant Ritika and Mr. Sudhir and Mrs. Madhu Jhunjhunwala on BSE platform, which occurred within less than a minute which has been highlighted by the Adjudicating Officer Analysis of the trading of Mr. Sudhir and Mrs. Madhu Jhunjhunwala with appellant Ritika would clearly show that it cannot just be a coincidence that exact quantity of buy and sell would match within a time difference of less than one minute. The trades also points toward the one and only fact that the trades entered into by the appellant alongwith other group members was not a genuine transfer. In that view of the matter, the order of the Adjudicating Officer in this regard requires no interference. Both the appeals are thereby dismissed with no order as to costs.

Summary

Issues Involved:
1. Imposition of penalty on appellants for violation of SEBI Act and PFUTP Regulations.
2. Allegations of price rigging in shares of Gemini Communication Limited (GCL).
3. Defense and claims of appellants regarding their involvement and relationship with the Jhunjhunwala group.
4. Analysis of synchronized trades and intra-group transactions.

Issue-wise Detailed Analysis:

1. Imposition of Penalty:
The appellants Ms. Ritika Jhunjhunwala and Mr. G. Moorthy were penalized by SEBI's Adjudicating Officer for violating Section 15HA of the SEBI Act and the PFUTP Regulations. Ms. Ritika was fined ?15 lakhs, and Mr. Moorthy was fined ?25 lakhs.

2. Allegations of Price Rigging:
SEBI received complaints against Mr. Sudhir Jhunjhunwala, Mr. Sanjay Talati, and Mr. G. Moorthy for allegedly rigging the prices of GCL shares. An investigation was initiated, covering transactions from July 1, 2006, to April 30, 2008. SEBI's analysis indicated that the appellants, along with others, engaged in synchronized deals and intra-group trades, which suggested price manipulation.

3. Defense and Claims of Appellants:
- Ms. Ritika Jhunjhunwala: Denied being the daughter of Mr. Sudhir and Mrs. Madhu Jhunjhunwala, claiming she was their niece. She argued that her trades in GCL were not substantial and that she traded in multiple companies, incurring losses in GCL. She denied any connection with the Jhunjhunwala group.
- Mr. G. Moorthy: Claimed to be a victim of fraud by Mr. Sudhir and Mrs. Madhu Jhunjhunwala. He stated that he transferred ?5.87 crores and three lakh shares of GCL to them based on their guarantees, for which he was promised a 15% commission. He denied involvement in synchronized trading and sought exoneration.

4. Analysis of Synchronized Trades and Intra-group Transactions:
- Adjudicating Officer's Findings: The officer accepted that Ms. Ritika was not the daughter but concluded she was a close relative due to synchronized trades. Mr. Moorthy's admission of transferring substantial shares and funds without consideration indicated non-genuine transactions aimed at price rigging.
- Trading Patterns: The intra-group trades between Ms. Ritika, Mr. Sudhir, and Mrs. Madhu Jhunjhunwala on the BSE platform occurred within less than a minute, indicating synchronization. The trades contributed significantly to the buying and selling volumes during the investigation period.
- Detailed Instances: Specific dates and quantities of synchronized trades were highlighted, showing substantial percentages of daily traded quantities on both BSE and NSE platforms. This analysis demonstrated that the trades were not coincidental and pointed towards deliberate price manipulation.

Conclusion:
The appeals were dismissed, upholding the penalties imposed by the Adjudicating Officer. The synchronized trades and intra-group transactions were deemed non-genuine and aimed at price rigging, warranting no interference with the Adjudicating Officer's order. Both appellants' defenses were rejected, and the findings of SEBI were affirmed.