2020 (2) TMI 538 - AT - SEBI

Inordinate delay in initiating the proceedings - Self trades and match trades - unfair trade practices - Regulation 3 and 4 of the PFUTP Regulations - penalty under Section 15HA of the SEBI Act - HELD THAT - Respondent had investigated the scrips of Shree Global Tradefin Ltd. for the period March 1, 2009 to January 10, 2011 in September 2011. Pursuant thereto, a show cause notice dated April 20, 2012 was issued for the violation found during the investigated period March 1, 2009 to November 30, 2009. The respondents thereafter waited for another five years to issue a second show cause notice dated July 20, 2017 for the investigated period April 1, 2010 to January 10, 2011 which had been investigated in September 2011. We find that the respondents were aware of the alleged violation and thus there is no justification for waiting for more than five years to issue the second show cause notice dated July 20 2017. In our view there is an inordinate delay in initiating the proceedings. Without going into the question of res judicata or estoppel raised by the appellants we are of the opinion that on account of the inordinate delay in initiating the proceedings, the impugned penalty order cannot be sustained. Even on merits, we find that during the investigation period the observed variations in prices as well as of quantities traded are less than what was the trend during the pre-investigation period. Table at page 3 of the impugned order gives these details. Similarly, we also note that the percentage of matched trades are negligible except in respect of 2-3 appellants. Given these facts the alleged intention to manipulate becomes a weak ground for issuing a second show cause notice after considerable delay.

Summary

Issues:
1. Appellants challenging penalty imposed by SEBI for violation of SEBI Act and PFUTP Regulations.
2. Principle of res judicata and delay in initiating proceedings.
3. Allegations of self trades and match trades being manipulative and fraudulent.
4. Arguments regarding applicability of res judicata and delay by both parties.

Issue 1: Appellants challenging penalty imposed by SEBI for violation of SEBI Act and PFUTP Regulations:
The appellants filed an appeal against the penalty imposed by the Adjudicating Officer of SEBI for violating Section 12(A)(a),(b) and (c) of the SEBI Act and Regulations 3(a),(b),(c),(d),4(1), 4(2)(a) and (g) of PFUTP Regulations. The penalty was imposed under Section 15HA of the SEBI Act due to the appellants' involvement in match trades and self trades in a manipulative manner, which SEBI found to be fraudulent and unfair practices.

Issue 2: Principle of res judicata and delay in initiating proceedings:
The appellants argued that the principle of res judicata should apply as the second show cause notice issued by SEBI was for the same violation previously investigated. They contended that there was an inordinate delay of seven years in initiating the proceedings, which should lead to dismissal based on laches. The Tribunal agreed, citing previous cases and held that the delay was unjustified, leading to the quashing of the penalty order.

Issue 3: Allegations of self trades and match trades being manipulative and fraudulent:
SEBI found that the appellants engaged in self trades and match trades in a manipulative and fraudulent manner, violating Regulations 3 and 4 of the PFUTP Regulations. The appellants disputed these findings, arguing that the AO's conclusions were erroneous and did not prove manipulative practices. However, SEBI maintained that the evidence supported the findings.

Issue 4: Arguments regarding applicability of res judicata and delay by both parties:
The respondents argued that the principle of res judicata did not apply as the noticees in the first and second show cause notices were different. They also contended that there was no inordinate delay in initiating the proceedings, as they acted promptly upon noticing the violations. The Tribunal, however, found the delay unjustified and emphasized the need for timely action by regulatory authorities.

In conclusion, the Tribunal quashed the show cause notice and the penalty order due to the inordinate delay in initiating the proceedings. The appeals were allowed, and no costs were imposed.