2019 (9) TMI 246 - AT - SEBI

Manipulative transactions - artificial trades - violation of SEBI Act and PFUTP Regulations - penalty imposed - HELD THAT - Volume of trading, percentage of the market share traded by the appellants, timing of trades etc. are so glaring to ignore the manipulative nature of transactions concerned. The appellant and another Noticee No. 3 were the major traders on the market wherein substantial trades matched between them and sizable quantity of self-trades also happened. Though, the appellant had traded in some other time slot as well in moderate quantity as contended, substantive volume of trade was carried out during the closing half an hour of trading clearly demonstrate that the objective was in manipulating the volume and prices though the rise in prices happened to be moderate (1.21%). In any case, volume manipulation is also a market manipulation under PFUTP Regulations, 2003. So the appellant (along with Noticee No. 3) had bought a total of 26.05 lakh shares and sold 20.73 lakh shares between 15 04 and 15 06 hours on August 23, 2010 and matched 78% of buy quantity and 100% of sell quantity of appellant with Noticee No. 3. Such a huge matching cannot happen without prior meeting of minds. Therefore, the contention that appellant had no connection with Noticee No. 3 does not have any merit. Similarly, in the case of Green Field Infrastructure Pvt. Ltd. apellant along with other two appellants in the same appeal and Noticee No. 1 had taken large positions in call options on the same day i.e. April 28, 2010 with a total quantity exercised as 37,73,000 and an amount of ₹ 1,90,65,200 profit made. The submission by appellant in Sandeep Paul Ors. that appellant Sandeep Paul was abroad and not even in India and it is the broker misusing the power of attorney that the impugned trades have been conducted is without any merit since the appellant had not taken any action on the issue. On the contrary, we note that the appellant had continued to deal with the same broker for almost a month thereafter and the appellant also availed the payouts credited to his account. In any case, the responsibility of giving a power of attorney lies with the person who gives the same and in this case we notice that it was a blank power of attorney which was given and that too along with an advance credit amount of ₹ 5 crores. As regards the alleged manipulation in the price volumes of MTNL substantial volume of trading between these entities happened between 15 29 24 and 15 58 25 hours. Therefore, the same set of buyers and sellers who were repeatedly buying and selling and creating artificial volumes without even changing the beneficial ownership. Such artificial trades is clearly violation of PFUTP Regulations, 2003. Trading of this nature and in such huge volumes could not have happened between the parties at such short time intervals of just a few seconds without some prior meeting of their minds. In view of this, we cannot find fault in the findings in the impugned order that the appellants in these appeals have violated Section 12A (a), (b), (c) of the SEBI Act, 1992 and various stated provisions of PFUTP Regulations, 2003. 17. Accordingly, penalty is imposed on Appellants in all these Appeals under Section 15HA of SEBI Act, 1992 for violation of Section 12A (a),(b),(c) of SEBI Act read with various provisions of PFUTP Regulations, 2003. The penalty imposable under Section 15HA of the SEBI Act, 1992 for violations relating to fraudulent and unfair trade practices at the relevant time was twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher. In the instant matters wherever there is findings to the effect that profits are made a higher penalty has been imposed while in other cases a lower/ nominal penalty has been imposed by taking the mitigating factors under Section 15J of the SEBI Act into account. Therefore, the submission that the penalties imposed are too harsh also has no merit.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Alleged violations of Section 12A (a), (b), (c) of the SEBI Act, 1992 and PFUTP Regulations, 2003.
3. Manipulative trading activities in specific scrips.
4. Connection and concerted actions among various entities.
5. Imposition and quantum of penalties.

Detailed Analysis:

1. Delay in Filing the Appeal:
The tribunal acknowledged an 85-day delay in filing the appeal. The cause shown for the delay was deemed sufficient, and thus, the delay was condoned, allowing the appeal to proceed.

2. Alleged Violations of SEBI Act and PFUTP Regulations:
The appeals challenged an order by the Adjudicating Officer of SEBI, which penalized 14 entities for violating Section 12A (a), (b), (c) of the SEBI Act, 1992, read with various provisions of the PFUTP Regulations, 2003. The violations involved manipulative and deceptive trading practices.

3. Manipulative Trading Activities in Specific Scrips:
- Power Grid Corporation of India Ltd.: The appellants were found to have engaged in manipulative trading, significantly impacting the scrip's price. For instance, a series of buy and sell orders placed by one appellant led to the price rising from ?108.50 to ?120 in a short span, affecting the closing price and resulting in substantial profits from call options.
- Tata Teleservices (Maharashtra) Ltd.: The trading activities of the appellants involved placing stop-loss buy orders and subsequent sell orders, leading to significant matched trades and price manipulation. The appellant's trades constituted a significant market volume, demonstrating manipulative intent.
- Mahanagar Telephone Nigam Ltd. (MTNL): The trading pattern showed substantial inter-se transfers of shares among the appellants, indicating no change in beneficial ownership and creating artificial volumes. The appellants' trading activities in the post-closing session were also scrutinized for their impact on market equilibrium.

4. Connection and Concerted Actions Among Various Entities:
The tribunal noted that the appellants were linked through relationships, trading activities, and KYC documents. The coordinated trading activities, including synchronized trades and self-trades, indicated a concerted effort to manipulate the market. The appellants' claims of independent trading were dismissed due to the overwhelming evidence of prior coordination and the magnitude of matched trades.

5. Imposition and Quantum of Penalties:
The tribunal upheld the penalties imposed under Section 15HA of the SEBI Act, 1992, for violations of Section 12A (a), (b), (c) of the SEBI Act and PFUTP Regulations, 2003. The penalties were determined based on the profits made and mitigating factors under Section 15J of the SEBI Act. The tribunal found no merit in the appellants' contention that the penalties were too harsh and directed them to pay the penalty amounts within 30 days.

Conclusion:
The appeals were dismissed, and the appellants were directed to pay the penalties to SEBI. The tribunal found substantial evidence of manipulative trading practices, coordinated actions among the entities, and violations of SEBI regulations, justifying the penalties imposed.