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2021 (2) TMI 1362 - Board - SEBIViolations of provisions of PFUTP Regulations, 2003 - misleading appearance of trading in the scrip to the market participants - Whether the Noticees are connected entities? - HELD THAT - As observed from records that some of the connected group entities have been made Noticees in the instant proceedings while some other entities have been reportedly proceeded against in separate proceedings including adjudication proceedings. Be that as it may, the Board has set its criteria and exercised intelligible differentia while selecting cases/entities for proposing action and the Noticees cannot plead innocence by merely basing their arguments on such extraneous reasons. Also find it appropriate to observe that though the Noticees have claimed parity with the other entities, who have not been proceeded with, however, these Noticees have not brought any specific instance to my attention which are factually identical or similar to that of the entities so as to stake a claim that they also ought to have been exonerated from the instant proceedings. Considering the foregoing, Reject this contention of the Noticees in limine and do not find it necessary to further deal with this contention. These entities are found to be connected to each other and almost all of their trades have been entered with the connected entities and from their unusual trading pattern in the scrip of the Company, it cannot be stated with confidence that the trades executed by them were mere coincidences without there being any commonality between the Noticees and their trading pattern do not in the scrip of Rutron do not suggest for abnormality. It can be reasonably concluded that the Noticees are enjoying close proximities as well as close connection amongst themselves. Whether the acts of the Noticee nos. 12, 13 and 14 during Patch-1 of the Investigation period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003? - 3 Noticees have failed to give any plausible reason/explanation to defend themselves against the charges levelled against them in the SCN. Further, the roles played by the 3 Noticees to artificially increase the price during the Patch-1 need to be perceived as the acts of a united group of entities which was aimed at manipulating the price of the scrip of Rutron over a period of time by cumulatively contributing to the LTP of the scrip during the Patch-1 of the Investigation Period. Therefore, in the light of the aforesaid observations of the Hon ble SAT and after considering the trading pattern, and the manner and frequency with which such trades were executed by the 3 Noticees, as constrained to hold that the Noticee nos. 12, 13 and 14 were not acting as genuine market participants and had no bona fide intention to trade in the shares of Rutron. Therefore, hold that the trading behavior of Noticees nos. 12 to 14 during Patch-1 of the Investigation Period of vis- -vis the scrip of Rutron has been conspicuously ill motivated, fraudulent and was targeted to manipulate the price of the shares of Rutron hence, is in violation of regulations 3 (a), (b), (c), (d) and 4 (1), 4 (2) (a), (e) of SEBI (PFUTP) Regulations, 2003. Whether the acts of the Noticee nos. 1, 2, 3, 4, 9, and 11 during Patch-2 of Investigation Period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003? - As unusual LTP contributing trades executed amongst the connected entities strengthens the allegations made in the SCN that these trades have been deliberately executed with a fraudulent intent of manipulating the price and causing misleading appearances of trading in the scrip, thereby causing inducement to the investors at large., It is highly inconceivable that the trades of the 6 Noticees executed on an anonymous trading platform matched with their connected entities on a numerous occasions by sheer coincidence of matching of orders and not by any pre-set design keeping in view the inter se nexus that existed amongst the 6 Noticees during the relevant period. In fact, the repeated matching of such orders suggests how these 6 Noticees have deployed a strategy to defeat the objective of even an anonymous trading platform and have successfully ensured that their trades match with each other as per their preconceived strategy to mark up the price of the scrip of the Company. Therefore, in my considered view, the alleged trades can t by any standard be categorized as trades executed in normal course of trading in securities market. As glaringly show that the trading conduct of Noticee nos. 1, 2, 3, 4, 9 and 11 was evidently laced with malicious intent and fraudulent motive, hence, on the basis of the reasons recorded above, hold that the Noticee nos. 1, 2, 3, 4, 9 and 11 have violated regulations 3(a), (b), (c), (d) and regulation 4(1), 4(2) (a) and (e) of the PFUTP Regulations, 2003 while trading in the scrip of Rutron during Patch-2 of the Investigation period. Whether the acts of the Noticee nos. 3, 5, 6, 7, 8 and 10 during Patch-3 of Investigation Period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003? - As manner and frequency with which such trades were executed by the above noted six Noticees, we are constrained to hold that the Noticee nos. 3, 5, 6, 7, 8 and 10 were not acting as genuine market participants and had no bona fide intention to trade in the shares of Rutron. As having found that the charges levelled against Noticees in the SCN stand established, in exercise of the powers conferred upon me under Sections 11(1), 11(4) and 11B(1) read with Section 19 of the Securities and Exchange Board of India Act, 1992, hereby hold that considering the volume of trades executed and percentage of contribution to the LTP by the Noticees and their impact on the price of the scrip of Rutron, it would be proper and in the interest of Securities Market that such entities should be restrained from being associated with the Securities Market and accordingly, restrain all the Noticees from accessing the securities market and further prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, for a period of six (06) months from the date of this Order. As clarified that during the period of restraint, the existing holding of securities of the Noticees including units of mutual funds, shall remain frozen. Obligation of the aforesaid Noticees in respect of settlement of securities, if any, purchased or sold in the cash segment of the recognized stock exchange (s), as existing on the date of this Order, can take place irrespective of the restraint/prohibition imposed by this Order, only in respect of pending unsettled transactions, if any. Further, all open positions, if any, of the aforesaid Noticees in the F O segment of the stock exchange, are permitted to be squared off, irrespective of the restraint/prohibition imposed by this Order.
Issues Involved:
1. Whether the Noticees are connected entities. 2. Whether the acts of the Noticee nos. 12, 13, and 14 during Patch-1 of the Investigation period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003. 3. Whether the acts of the Noticee nos. 1, 2, 3, 4, 9, and 11 during Patch-2 of Investigation Period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003. 4. Whether the acts of the Noticee nos. 3, 5, 6, 7, 8, and 10 during Patch-3 of Investigation Period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003. Issue-wise Analysis: Issue 1: Whether the Noticees are connected entities. The SCN alleged that all Noticees were part of a connected group based on common addresses, common shareholder-ship, financial transactions, common directorship, and common address of directors. For instance, Noticee no. 5 is a shareholder in Noticee no. 3, and there are financial transactions between Noticee no. 5 and Noticee no. 11. Noticee no. 3 is connected to the Company through bank transactions. Despite some Noticees disputing their connection, no documentary evidence was provided to support their claims. The analysis of KYC/UCC details, MCA data, off-market transfers, and bank statements indicated connections among the Noticees. The trading pattern of the Noticees, coupled with their connections, suggested a concerted effort to manipulate the scrip of Rutron. Issue 2: Whether the acts of the Noticee nos. 12, 13, and 14 during Patch-1 of the Investigation period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003. During Patch-1, the price of Rutron's scrip rose from ?5.25 to ?214.45, with the 3 Noticees contributing significantly to the positive LTP. They executed 116 trades, contributing ?201.97 to the positive LTP, which was 96.49% of the net market positive LTP. These trades were executed by placing sell orders for minuscule quantities, despite holding substantial shares, to match pending buy orders at higher prices. This trading pattern was not genuine and aimed at creating a misleading appearance of trading. The 3 Noticees were found to have manipulated the price of the scrip and violated the relevant SEBI regulations. Issue 3: Whether the acts of the Noticee nos. 1, 2, 3, 4, 9, and 11 during Patch-2 of Investigation Period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003. During Patch-2, the price of the scrip rose from ?218.60 to ?243.00, with the 6 Noticees contributing ?16.85 to the positive LTP through 64 trades. Noticee nos. 4 and 11 acted as sellers, while Noticee nos. 1, 2, 3, and 9 were buyers. These trades were executed amongst connected entities, contributing to the price rise and creating a misleading appearance of trading. Despite some Noticees disputing the allegations, the trading pattern and the significant contribution to the positive LTP indicated manipulative intent. The 6 Noticees were found to have violated the relevant SEBI regulations. Issue 4: Whether the acts of the Noticee nos. 3, 5, 6, 7, 8, and 10 during Patch-3 of Investigation Period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003. During Patch-3, the price of the scrip fell from ?24.45 to ?7.3, with the 6 Noticees contributing ?12.74 to the negative LTP through 201 trades. Noticee nos. 3, 5, and 8 acted as sellers, while Noticee nos. 6, 7, and 10 were buyers. These trades were executed amongst connected entities, contributing to the price fall and creating a misleading appearance of trading. The trading pattern, where orders of the Noticees matched repeatedly on an anonymous trading platform, indicated a premeditated strategy to manipulate the price. The 6 Noticees were found to have violated the relevant SEBI regulations. Directions: All Noticees are restrained from accessing the securities market and prohibited from buying, selling, or otherwise dealing in securities, directly or indirectly, for six months from the date of the Order. The existing holdings of securities, including mutual funds, of the Noticees shall remain frozen during the period of restraint. The Order shall come into force immediately, and a copy of the Order shall be forwarded to the Noticees, all recognized stock exchanges, depositories, and registrar and transfer agents for ensuring compliance.
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