2017 (10) TMI 1669 - Board - SEBI

Offence under FEMA - Preferential allotment of shares - significant rise in the price of the company s scrip - SEBI restrained the 129 entities including Mishka and its Promoters and Directors from accessing the securities market and further prohibited them from buying selling or dealing in securities either directly or indirectly HELD THAT - No adverse findings against the 104 entities mentioned at S. No. 1-104 in Table No. 2 with respect to their role in the price manipulation /prima facie violations for which Interim Order dated April 17 2015 was passed and subsequently confirmed in the scrip of Mishka warranting continuation of action under Sections 11B and 11(4) of the SEBI Act the directions issued against them vide interim order which were confirmed Orders later are liable to be revoked. With regard to 9 entities at S. No. 105 to 113 in in Table No. 2 no adverse material was found in the Investigation Report with respect to prima facie violations found against them in Interim Order dated April 17 2015 (which was subsequently confirmed) but the Investigation Report has brought out violation relating to disclosure under SEBI (Prohibition of Insider Trading) Regulations 1992 and SEBI (Substantial Acquisition of Shares And Takeovers) Regulations 2011 warranting Adjudication Proceedings. Therefore directions issued against them vide interim order which were subsequently confirmed are also liable to be revoked. The revocation of the directions issued vide this order is only in respect of the entities mentioned at paragraph 7 of this order in the matter of Mishka pertaining to the period from February 14 2013 to December 31 2014 in respect of the prima facie violations for which the Confirmatory Order were passed by SEBI. As regards remaining 13 entities in the scrip of Mishka violations under SEBI Act and/or SCRA and/or PFUTP Regulations and other securities laws were observed and SEBI shall continue its proceedings against them. Hence the directions issued vide Order dated April 17 2015 against remaining 13 entities shall continue.

2024 (1) TMI 1428 - AT

The Securities and Exchange Board of India (SEBI) conducted an examination into the dealings of Mishka Finance and Trading Limited on the BSE Limited during February 14, 2013, to December 31, 2014, due to a significant rise in the price of the company's scrip. The investigation revealed several issues and violations.

Issues Presented and Considered:

The core legal issues considered were:

Whether Mishka and associated entities engaged in fraudulent activities to manipulate the price and volume of the scrip.
Whether the preferential allotment of shares was used to provide fictitious long-term capital gains (LTCG) to certain entities.
Whether there was a violation of the SEBI Act, 1992, and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations).
Whether there was a breach of disclosure obligations under the SEBI (Prohibition of Insider Trading) Regulations, 1992, and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

Issue-wise Detailed Analysis:

1. Alleged Price Manipulation and Fraudulent Activities:

Legal Framework and Precedents: The SEBI Act and PFUTP Regulations prohibit fraudulent and manipulative practices in the securities market.
Court's Interpretation and Reasoning: SEBI observed that Mishka made a preferential allotment of shares at a premium to 46 entities, which then engaged in low-volume trading to artificially inflate the scrip's price. After the lock-in period, these entities exited at high prices, suggesting a scheme to convert unaccounted income into accounted income through fictitious LTCG.
Key Evidence and Findings: The investigation found connections among the entities involved, indicating a coordinated effort to manipulate the market.
Application of Law to Facts: The actions of Mishka and associated entities were deemed to violate the SEBI Act and PFUTP Regulations due to the artificial inflation of the scrip's price and volume.
Treatment of Competing Arguments: The entities failed to provide satisfactory explanations or evidence to refute SEBI's findings.
Conclusions: SEBI concluded that Mishka and associated entities engaged in fraudulent practices to manipulate the market.

2. Preferential Allotment and Fictitious LTCG:

Relevant Legal Framework: The SEBI Act and PFUTP Regulations govern the issuance and trading of securities, prohibiting fraudulent schemes.
Court's Interpretation and Reasoning: The preferential allotment was used as a mechanism to provide fictitious LTCG, converting unaccounted income into legitimate gains.
Key Evidence and Findings: The pattern of trading and the connections between entities indicated a premeditated scheme.
Application of Law to Facts: The allotment and subsequent trading activities were inconsistent with legitimate market practices, violating securities laws.
Treatment of Competing Arguments: The entities did not present credible evidence to counter SEBI's allegations.
Conclusions: The preferential allotment was part of a fraudulent scheme to generate fictitious LTCG.

3. Violation of Disclosure Obligations:

Relevant Legal Framework: The SEBI (Prohibition of Insider Trading) Regulations and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations require disclosures to maintain market transparency.
Court's Interpretation and Reasoning: SEBI found violations related to disclosure obligations, warranting adjudication proceedings.
Key Evidence and Findings: The investigation identified non-compliance with disclosure requirements by certain entities.
Application of Law to Facts: The failure to disclose material information breached regulatory obligations, impacting market integrity.
Treatment of Competing Arguments: The entities did not provide adequate justification for their non-compliance.
Conclusions: The entities violated disclosure obligations, necessitating further proceedings.

Significant Holdings:

Core Principles Established: The judgment reinforced the importance of compliance with securities laws to prevent market manipulation and ensure transparency.
Final Determinations on Each Issue: SEBI revoked the confirmatory orders against 113 entities due to a lack of adverse findings. However, proceedings against 13 entities continued for observed violations.
Verbatim Quotes of Crucial Legal Reasoning: "The actions of Mishka and associated entities were deemed to violate the SEBI Act and PFUTP Regulations due to the artificial inflation of the scrip's price and volume."

In conclusion, SEBI's investigation revealed significant fraudulent activities involving Mishka and associated entities, leading to the revocation of restrictions against certain entities while continuing proceedings against others for securities law violations. The judgment underscores the necessity of adherence to regulatory frameworks to maintain market integrity.

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