2020 (6) TMI 284 - AT - SEBI

Reversal trades - manipulative and unfair trading - 5 Entities restrained from accessing or dealing in the securities market directly or indirectly for a period of 5 - 7 years - Further 11 entities, who have already undergone a debarment of more than 5 years from the date of the interim order have been directed to disgorge an amount of ₹ 3,05,99,174/- jointly and severally along with the 5 entities who have now been restrained along with interest @ 12% p.a. from December 17, 2012 till the date of payment - HELD THAT - In a scheme of manipulative and unfair trading it is not necessary that every participant should be indulging in every type of trading violation or even in the same/similar magnitude. Once they are found to be part of a group trying to manipulate the volume or price of the scrip they became party to the violation. Hair splitting arguments that some traded more than others or on more days or some indulged in synchronized reversal and self trade while others did only one of those types do not cast away their violations. We agree with the contention of Dave that more disaggregated details are needed to prove reversal trade and in the impugned order only aggregates are given though we do not agree with their submission that reversal trade done on the same trading day only can be treated as reversal trades. As borne out from SEBI's record that detailed calculations regarding profits made by the trading entities in respect of two entities were not given to the appellants - We also note that there is considerable discrepancy between the profits as calculated by the appellants themselves as well as SEBI as given in the impugned order though the appellants claim that those calculations are based on the trade logs given by SEBI. In order to harmonize the appellants deserve to be given details of calculations made by SEBI in respect of all noticees which admittedly is not done in the instant matter. We pass the following directions - (a) Appeal No. 356 of 2019 is allowed and we permit the appellant to liquidate the shares lying in the margin account of Ghogari to the extent of the legally permissible debit amount. (b) In respect of other 11 appeals while upholding the finding in the impugned order that the appellants have violated provisions of SEBI Act and PFUTP Regulations and therefore upholding the direction relating to the restraint imposed on the appellants we remit the matter to SEBI with the following directions - (i) Bring out date-wise details of reversal trades in respect of the trading noticees. (ii) Bring out details of calculation of profits in respect of all the trading noticees. (iii) SEBI shall provide (i) and (ii) above to all the appellants and thereafter recalculate the amount of disgorgement against the appellants and pass an order within three months from the date of this order after giving an opportunity of hearing.

Summary

Issues Involved:
1. Restraint from accessing or dealing in the securities market.
2. Joint and several liability for disgorgement.
3. Allegations of synchronized trades, reversal trades, and self trades.
4. Provision of documents and natural justice.
5. Validity of orders against extinct entities.
6. Calculation and evidence of illegal gains.
7. Merger of investigation periods.
8. Set-off of losses against profits.
9. Maintenance of appeal by a non-impacted entity.

Issue-wise Detailed Analysis:

1. Restraint from accessing or dealing in the securities market:
The appeals challenged the SEBI order restraining 5 entities from the securities market for 5-7 years and directing 11 entities to disgorge ?3,05,99,174/- with interest. The tribunal upheld the restraint, noting the appellants' involvement in manipulative trading practices.

2. Joint and several liability for disgorgement:
The appellants contended that joint and several liability for disgorgement was untenable, especially against those who did not trade. The tribunal dismissed this argument, citing evidence of connections and fund transfers between financing and trading entities, which facilitated manipulative schemes.

3. Allegations of synchronized trades, reversal trades, and self trades:
The tribunal found that the appellants engaged in synchronized trades, reversal trades, and self trades, contributing to artificial volumes and price manipulation. However, it noted that more detailed, date-wise evidence of reversal trades was required.

4. Provision of documents and natural justice:
Appellants argued that SEBI did not provide complete documents, prejudicing their defense. The tribunal acknowledged that some documents were provided late or were incomplete, directing SEBI to furnish detailed calculations and evidence to the appellants.

5. Validity of orders against extinct entities:
Orders were challenged against two entities, Oliwonders and Neevan, which were struck off by the Registrar of Companies. The tribunal held that statutory liabilities persisted despite the companies' dissolution, given their significant financial contributions to the manipulative scheme.

6. Calculation and evidence of illegal gains:
Appellants disputed the calculation of illegal gains, arguing discrepancies and lack of detailed data. The tribunal directed SEBI to provide detailed calculations and recalculate disgorgement amounts after giving appellants an opportunity to respond.

7. Merger of investigation periods:
Appellants argued for merging two investigation periods for Polytex to show high prices and volumes outside the alleged manipulation period. The tribunal found no merit in this, noting distinct entities and scrips involved in each period.

8. Set-off of losses against profits:
The tribunal rejected the argument to set off losses in other scrips against profits in Polytex, stating that manipulative and fraudulent trade practices do not warrant such treatment.

9. Maintenance of appeal by a non-impacted entity:
A broker, not directly impacted by the order, claimed prejudice due to inability to liquidate a client's shares. The tribunal found the appeal maintainable, criticizing SEBI's apathy in not responding to the broker's requests.

Conclusion:
The tribunal upheld the findings of violations by the appellants but directed SEBI to provide detailed evidence and recalculate disgorgement amounts. The appeal by the broker was allowed, permitting liquidation of shares to cover the client's debit amount. All appeals were disposed of with no orders on costs.