2015 (7) TMI 257 - AT - Companies Law

Penalty under section 15HA of the SEBI Act, 1992 - Violation of PFUTP regulations, 2003 - Artificial volume and price manipulation in the scrip - Self trade through various brokers - Increase in price of about 31.77 percent in 163 trading days - Held that - The learned AO has himself, while considering the question of imposition of penalty, observed that it was difficult to quantify any gain or unfair advantage which might have accrued to the two Appellants due to the trades in question or any loss to the investors. Moreover, no action has been taken against the persons who acted as a group along with Appellants. In view of this finding in paragraph 25 of the impugned order, we are of the considered opinion that the ends of justice would be duly met by reducing the penalty to ₹ 10 lakh on each of the two Appellants in the facts and circumstances of the case. - Decided partly in favour of appellants.

Issues:
Challenge to penalty imposed under SEBI Act for violation of PFUTP Regulations.

Analysis:
1. Violation of SEBI Act and PFUTP Regulations:
The appeal challenged the penalty imposed under section 15HA of the SEBI Act for violating Regulations 3(a), (b), (c), and (d); 4(1), 4(2)(a), and (g) of the PFUTP Regulations. The investigation revealed that the appellants, along with others, manipulated trading in the scrip of a company, creating a false appearance of trading and price manipulation. The appellants were part of a group that had a significant trading concentration in the scrip during the investigation period.

2. Procedural Compliance and Ex-Parte Proceedings:
Despite receiving a show cause notice, the appellants did not file a reply or attend the personal hearing granted by the Adjudicating Officer. The AO proceeded ex-parte and passed the impugned order based on the findings of the investigation and trading details. The appellants' failure to respond to the notice led to the imposition of the penalty.

3. Self-Trades and Synchronized Trading:
The judgment highlighted that self-trades, where the buyer and seller are the same person, are injurious to the market, creating artificial volumes and misleading signals for investors. The appellants executed self-trades through various brokers, and the AO found a significant volume of such trades during the investigation period. Additionally, synchronized trades, where buy and sell orders were identical and placed almost simultaneously, were also noted, amounting to a percentage of the total market volume.

4. Role of Appellants in Group Trading:
The appellants argued that the AO had expanded the scope of the show cause notice and failed to investigate other members of the alleged group involved in trading. They contended that the appellants did not control the trading accounts of other group members and did not advance funds to them. The judgment acknowledged the difficulty in quantifying gains or losses directly attributable to the appellants and reduced the penalty considering the lack of action against other group members.

5. Penalty Modification:
After considering the submissions and findings, the Tribunal upheld the impugned order but modified the penalty to &8377; 10 lakh for each appellant, totaling &8377; 20 lakh, to be paid within two months. The judgment emphasized the need for justice and fairness in imposing penalties under the SEBI Act and PFUTP Regulations, ensuring that appropriate steps could be taken for recovery if the penalty was not paid within the specified timeframe.

In conclusion, the appeal was partly allowed, and the penalty was reduced for each appellant based on the considerations of justice and the circumstances of the case.

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