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TMI Blog2012 (7) TMI 1053X X X X Extracts X X X X X X X X Extracts X X X X ..... therwise dealing in securities directly or indirectly for a period of 2 years. The impugned direction under section 11 of the Act was issued since the appellant was found to have violated regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (FUTP Regulations). 3. The facts of the case, in brief, are the following. In March, 2009, M/s. Mahesh Kothari Share and Stock Brokers P. Ltd. (M.K.) approached the appellant seeking a loan against the shares of Alka Securities Ltd. (the company). The appellant agreed to lend a sum of ` 72,37,000 to M.K. and in turn M.K. agreed to provide security of 4,00,000 shares of the company. M.K. transferred the said 4,00,000 shares of the company to the demat account of the appellant on March 28, 2009 and the appellant gave the loan amount to M.K. on March 30, 2009. The appellant kept the shares of the company intact in his demat account without any transaction whatsoever in the said shares. The appellant received the said shares of the company in off market transaction and he did not deal in the shares of the company after March 28, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, the appellant being one among them, confirming the stand already taken in the earlier orders. The appellant challenges the directions of the whole time member in the present appeal. 4. The facts of the case and sequence of the events are identical in the case of Ketan Joshi but for the difference that he had extended a loan of ` 1,50,29,000 on the security of 8,00,000 shares of the company. 5. Shri P.N. Modi, learned counsel for the appellant stoutly opposed the directions issued by the whole time member. According to him, the role of the appellant in the whole chain of events is confined to only providing a loan of ` 72,37,000 on the security of 4,00,000 shares of the company. According to him, the appellant is not connected to the promoters of the company and he did not trade directly or indirectly in the shares of the company provided to him as security and the shares are kept intact till date. The loan was granted on the basis of an agreement between the parties and the shares were transferred to his demat account so as to ensure the appellant s hold over the shares and to ensure security for the loan in the event of future default. It is admitted that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the volumes and thereby hoodwink innocent investors. He would argue very strenuously that the appellant by virtue of the shares pledged with him, contributed to circular trade and so he has been charged with the violation of FUTP Regulations. The overall structure of the transaction has been made out in a manipulative manner and the movement of shares running to several crores establishes a well thought out game plan in which the appellant is seriously involved. According to him, the case of the appellant should not be viewed in isolation and identical replies given by the parties show the meeting of minds and manipulative intent. With reference to the appeal memorandum he submitted that the transaction in shares has been considered by the appellant to be a pledge without conforming to the legal formalities set out for a pledge and this is a glaring mistake on the part of the appellant. It was also observed by him that the loan document which is part of the records was not produced at the stage of personal hearing, but only afterwards. In short, he submitted that the role of the appellant is vital in the chain of events when the background of the case and manipulation in shares a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressing, maintaining or causing fluctuation in the price of such security; (e) any act or omission amounting to manipulation of the price of a security; (f) to (r) . 8. It is necessary to examine the charge leveled against the appellant in the backdrop of the aforesaid Regulations. The whole time member made the following preliminary findings: The trading activity by the promoter/company connected entities suggests circular trading activity with an intention of creating the volume so as to give the market a false impression about the liquidity of the scrip. The activities of the aforesaid entities are an attempt to attract unsuspecting investors to deal in the scrip. The related motive of maintaining trading price at artificial levels may arise from the fact that 74% of promoter shares were pledged against loans. The promoters and entities (1st level and 2nd level entities) connected to the promoters and company appear to have violated the provisions of Regulation 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. 9. In the confirmatory order the who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leged circular trades. It is true that the whole time member has made out a chart showing the movement of the shares during the period under consideration (Page 46 of the appeal paper and page 16 of the impugned order). However, the role of the appellant in the manipulative activity vis- -vis the promoters and other entities has not been established. The mere fact that a loan was extended by the appellant and the promoters of the company whose shares were kept as security with the appellant indulged in certain suspicious transactions may not involve the appellant in the web of mischief unless his active role in the process is brought out. The learned senior counsel for the Board drew our attention to the background of the case and insisted that the whole game plan and operation of the same should be viewed holistically. On the basis of the facts on record, we are unable to appreciate as to how the appellant can be linked with the manipulative game plan alleged by the whole time member. Unlike many of the entities involved in the transactions by way of trading in the shares, the appellant has kept aloof without even a single trade in the shares of the company. So we are unable to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant was suspicious from the very beginning. It is true that the appellant has used the term pledge in various parts of the reply furnished by him and also in the grounds of appeal. But we do not consider it necessary to analyse the nuances of pledge, bailment and other concepts in the present case since this is a case of providing security for loan, pure and simple. In the impugned order there is no material to establish that the appellant was engaged in fraudulent practices by resorting to pledge of the impugned shares and there by conniving with other entities in the scheme of things. In fact, there is reference to regulation 58 of the DP Regulations which deals with the manner of creating pledge or hypothecation of dematerialized shares. However, no charge has been made out on the basis of the default, if any, in this respect. In any case, we do not find it necessary to enter into an examination of the nature of security in this case. The facts of the case show that the appellant has insisted on a proper security to safeguard his interest. This was provided by MK. It is not necessary to go beyond this fact in the present case. 15. The learned senior counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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