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2022 (4) TMI 1650 - AT - SEBIOffence under SEBI - charge of price manipulation - Misuse of the trading system for creation of bogus long term capital gains and short term capital gains - appellants were restrained from accessing the securities market for a specified period as mentioned in the impugned order and were further prohibited from buying selling or otherwise dealing in the securities either directly or indirectly - HELD THAT - Acquisition of 17.64% of the shares by the two connected entities Samtal Financial System Pvt. Ltd. and Anant Fin Consultancy Pvt. Ltd. took place on March 21 2011 and May 31 2011 and was not spread over a period of time. The acquisition made on March 21 2011 was around the same time when the first preferential allotment was made. This is another indication to show that the promoter directors and the connected entities were cornering the entire free float of the shares of the Company so that they could control the buying and selling of the shares. Evidence has come indicating that inspite of large buy orders pending during Patch 1-A and Patch 1-B no sale were being made and only miniscule shares were being sold so that the price of the shares could rise since it was found that the shares that was being sold was above the LTP. We also find that during Patch 1-A 4560 shares were sold by 13 noticees and whereas only 3910 shares were delivered the balance 650 shares were not delivered. The selling of these miniscule shares above LTP raised the price from Rs. 11/- to Rs. 173.65. These 3910 shares which were sold by the connected noticees were traced back to Anant Fin Consultancy Pvt. Ltd. and therefore the scheme got exposed to the extent that the Company wanted to keep the free float of the shares between the promoter directors and its connected noticees so that they could control the market to increase the price of the shares. This view is based on the finding that the connected noticees were predominantly the sellers contributing 85.04% as sellers and the liquidity of the shares in the market was meager. Further we find that in Patch 1-B the 13 noticees who were sellers in Patch 1-A became the buyers in Patch 1-B. Promoter directors and other connected noticees indulged in manipulation in the scrip and benefited by selling the shares in the subsequent patch period. We find that the entire scheme of acquiring the shares by the new promoters and ensuring this free float of shares prior to the resumption of trading on the Stock Exchange platform and using the same for manipulating the price so that the price of the scrip increased multifold which resulted in subsequent sale of shares to benefit from the manipulated price was carried out by the new promoters and connected noticees in connivance with each other. Such scheme was totally fraudulent and violative of Regulation 3 and 4 of PFUTP Regulations. Thus the Company cannot escape its liability. Thus in view of the finding given by the WTM that Santosh Kumar Agarwal was not involved in the day to day affairs of the Company and was not part of the orchestrated scheme to manipulate the price of the scrip the order of the WTM debarring Santosh Kumar Agarwal for a period of 5 years does not make any sense. In the absence of any reasoning the debarment order against Santosh Kumar Agarwal is wholly misplaced. We are of the opinion that the appellants in the first set were guilty of violation of Regulation 3 and 4 of the PFUTP Regulations except the appellant Santosh Kumar Agarwal. Connection of Subodh Agarwal with the new promoters Manoj Kumar Agarwal and Deepa Mittal is clear and deep rooted. Contention that it was only a historic association is a misnomer. In fact it was a deep rooted connection going back to several years - various entities and connected noticees were connected to Subodh Agarwal either directly to a common directorship or through off-market transaction or where common shareholders in a Company. We find that many of these entities / noticees connected through Subodh Agarwal traded during various patch periods and were responsible for a fraudulent scheme in the scrip of the Company.
1. ISSUES PRESENTED and CONSIDERED
The core issues considered in this judgment include: - Whether the appellants engaged in fraudulent and manipulative practices in violation of the SEBI Act and the PFUTP Regulations. - Whether the proceedings were initiated and concluded within a reasonable timeframe. - The validity of the connections alleged between the appellants and the Company or other entities involved in the scheme. - Whether the appellants' actions constituted a scheme to manipulate the price of the Company's shares. - The appropriateness of the penalties imposed by SEBI's Whole Time Member (WTM) on the appellants. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Alleged Fraudulent and Manipulative Practices Relevant Legal Framework and Precedents: The case revolves around alleged violations of the SEBI Act and the PFUTP Regulations, which prohibit fraudulent and unfair trade practices in the securities market. Court's Interpretation and Reasoning: The Tribunal found that the appellants, particularly Manoj Kumar Agarwal and Deepa Mittal, orchestrated a scheme to artificially inflate the price of the Company's shares. The Tribunal noted that the financial position of the Company was weak, and the shares had not been actively traded before the alleged scheme. Key Evidence and Findings: Evidence showed that the promoters and connected entities acquired a significant portion of the Company's shares, limiting the free float in the market. The Tribunal found that the appellants engaged in trades that manipulated the share price by selling shares in minuscule quantities above the last traded price (LTP). Application of Law to Facts: The Tribunal applied the PFUTP Regulations to determine that the appellants' actions constituted a fraudulent scheme. The Tribunal found that the appellants' trades were not genuine market transactions but were intended to create a misleading appearance of trading activity. Treatment of Competing Arguments: The appellants argued that there was no direct evidence of manipulation and that any connections were too remote. However, the Tribunal found that the connections were significant and that the trading patterns indicated a coordinated scheme. Conclusions: The Tribunal concluded that the appellants violated the PFUTP Regulations by engaging in fraudulent and manipulative practices. Issue 2: Timeliness of Proceedings Relevant Legal Framework and Precedents: The appellants argued that the proceedings were delayed, citing the principle that justice delayed is justice denied. Court's Interpretation and Reasoning: The Tribunal found that there was no inordinate delay in the proceedings, considering the complexity and the number of entities involved. The Tribunal noted that the investigation required detailed deliberation and that the time taken was reasonable. Conclusions: The Tribunal rejected the appellants' argument regarding the delay, finding that the proceedings were conducted within a reasonable timeframe. Issue 3: Validity of Alleged Connections Relevant Legal Framework and Precedents: The appellants contested the connections alleged by SEBI, arguing that they were too remote or based on historical associations. Court's Interpretation and Reasoning: The Tribunal found that the connections between the appellants and the Company or other entities were significant and relevant to the scheme. The Tribunal noted that historical connections indicated a deeper relationship that supported the allegations. Conclusions: The Tribunal upheld the findings of connections, supporting the conclusion of a coordinated scheme. Issue 4: Appropriateness of Penalties Relevant Legal Framework and Precedents: The penalties were imposed under the SEBI Act and PFUTP Regulations, aimed at preventing market manipulation. Court's Interpretation and Reasoning: The Tribunal reviewed the penalties imposed and found them appropriate for the violations identified. However, the Tribunal noted that the penalty against Santosh Kumar Agarwal was misplaced, as he was not involved in the scheme. Conclusions: The Tribunal upheld the penalties against most appellants but quashed the order against Santosh Kumar Agarwal. 3. SIGNIFICANT HOLDINGS Core Principles Established: The Tribunal reaffirmed the principles against market manipulation and the importance of maintaining market integrity. It emphasized that even remote connections could be relevant in establishing a coordinated scheme. Final Determinations on Each Issue: - The Tribunal found the appellants guilty of violating the PFUTP Regulations, except for Santosh Kumar Agarwal, whose penalty was quashed. - The Tribunal rejected the argument of undue delay in the proceedings. - The Tribunal upheld the findings of connections between the appellants and the Company or other entities involved in the scheme. - The penalties imposed were largely upheld, with exceptions for certain appellants whose cases were remitted for reconsideration.
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