2021 (1) TMI 188 - AT - SEBI

Whole Time Member restraining the appellant from accessing the securities market - securities of the appellant in its demat account has also been frozen for the same period - appellant is a trader and investor in the capital market - HELD THAT - Appellant had only executed one trade out of 983 trades, we are of the opinion that the penalty of debarring the appellant for six months is wholly unwarranted and cannot be sustained. Finding that 13 entities were acting as a homogenous group and were connected to each other and had executed the trades in a premeditated manner with a sole purpose of manipulating the price is not applicable in so far as the appellant is concerned. The finding that other notices were taking turns on different trading days with a premeditated motive to raise the LTP of the scrip is not applicable in the appellant's case as he had only executed one trade whereas the other 13 entities were executing several trades on various days in a premeditated manner. Thus, clubbing the single trade of the appellant with the trades executed by other 13 noticees on the ground that he is connected to them is per se erroneous and baseless. No finding to the effect that the appellant was trading either on the buy side or on the sell side with the other noticees. Thus, having common email or address with some of them is redundant in the absence of any trades being executed between them. There is no finding that the appellant had any connection with the buyer, namely, Gajpal. In the absence of any connection, no collusion could be proved with regard to price manipulation or artificially increasing the price or its volume. Appellant has not contributed to the LTP on the basis on one trade executed on the sell side unless connection was established with the buyer which in the instance case is lacking. We find that no proceedings have been initiated against the buyer who had placed orders above the LTP and was thus responsible in the increase in the price of the scrip. Thus, we are of the opinion that the appellant has not indulged in fraudulent or unfair trade practices in securities. In the absence of any connection being found between the buyer and the seller and between the appellant and other entities the finding of a trading pattern being premeditated to manipulate the price is patently erroneous. The impugned order cannot be sustained and is quashed in so far as it relates to the appellant.

Summary

Issues involved:
Violation of Securities and Exchange Board of India Act, 1992; Violation of Regulations 3 and 4 of PFUTP Regulations; Service of notice to the appellant; Manipulative trading pattern; Debarment of the appellant from securities market; Connection of the appellant with other entities; Collusion and fraud allegations; Application of preponderance of probability; Contribution to Last Traded Price (LTP); Misapplication of Supreme Court's decision; Quashing of the impugned order.

Violation of Securities and Exchange Board of India Act, 1992 and PFUTP Regulations:
The judgment pertains to an appeal filed against an order debarring the appellant from accessing the securities market for six months and freezing the securities in the demat account. The investigation revealed manipulative trading patterns in the scrip of a company, leading to artificially raised prices. The Whole Time Member found the appellant's involvement in trades resulting in a positive contribution to the Last Traded Price (LTP), violating Regulations 3 and 4 of the PFUTP Regulations.

Service of Notice and Appearance of Appellant:
The appellant contended that no notice was served upon them, challenging the validity of the impugned order. However, the Tribunal noted that the summons were served through affixation, and the appellant failed to appear despite being duly served. The appellant's decision not to appear was considered voluntary, and the contention of improper service was dismissed.

Manipulative Trading Pattern and Connection with Other Entities:
Out of 983 trades investigated, the appellant was involved in only one trade resulting in a minor positive LTP contribution. The Tribunal observed that the appellant's limited involvement did not align with the premeditated trading patterns of other entities. The appellant's connection with other noticees was based on commonalities like email and address, but no substantial collusion was proven.

Collusion and Fraud Allegations:
The judgment highlighted the absence of direct evidence linking the appellant to collusion or fraud with other entities. The Tribunal emphasized the necessity of establishing a connection between the buyer and seller to prove collusion, which was lacking in this case. The appellant's single trade did not demonstrate fraudulent or unfair trade practices.

Application of Preponderance of Probability and Misapplication of Supreme Court's Decision:
The Tribunal criticized the misapplication of the Supreme Court's decision in a similar case, emphasizing that the appellant's single trade did not indicate manipulation. The judgment clarified that selling a miniscule quantity of shares does not imply manipulation without evidence of collusion. The application of preponderance of probability was deemed inappropriate in the absence of substantial connections.

Quashing of the Impugned Order:
Considering the appellant's minimal involvement in the manipulative trading pattern and the lack of collusion evidence, the Tribunal quashed the impugned order debarring the appellant from the securities market. The appeal was allowed, and no costs were imposed. The judgment was delivered via video conference due to the Covid-19 pandemic, with directions for parties to act on the digitally signed copy of the order.

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