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TMI Blog2013 (10) TMI 1520X X X X Extracts X X X X X X X X Extracts X X X X ..... s'). FACTS OF THE CASE:-- Respondent conducted investigation in trading of scrip of Asian Star Company Limited (hereinafter referred to as 'ASCL') for period October 10, 2008 to November 20, 2008 (hereinafter referred to as 'Investigation Period' or 'IP'). Shares of ASCL are listed at Bombay Stock Exchange ('BSE'). It was observed that during investigation period price of scrip went up from ₹ 1,240.00 on October 10, 2008 to ₹ 1,306.15 on November 20, 2008 (18.57% rise in 28 trading days), and during same period Sensex had fallen by 19.73% (i.e. from 10,527.85 to 8,451.01). Subsequent to investigation period price of scrip started falling and closed at ₹ 905 on January 30, 2009. 2. Role of brokers and their clients, who traded in scrip of ASCL on BSE, was scrutinized, and it was observed certain entities found connected had allegedly indulged in circular/reversal synchronized trading, in such a manner that led to creation of artificial volume in scrip. 3. It was alleged that one of the connected entities viz., appellant trading through broker Triveni Management Consultancy Services (hereinafter referred to as 'Triveni' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and fallacious. i. I strongly deny being linked with the alleged other parties who traded in the scrip of ASCL through Sunil Mehta, Ajay Roongta, Manish Mathur or Triveni and forming the alleged group i.e. Mehta group and entering into synchronized/reversal trades with these entities. My relationship with Sunil Mehta is on the basis of my submission that Sunil Mehta has opened my account with Triveni. On the basis of this relationship I am linked to various other clients of Triveni and others who have traded in the scrip of ASCL and have together formed a group. Such allegation is as vague as it can be and the same cannot be made as a basis for holding me liable for any manipulation as alleged. j. I deny that I have traded in scrip of ASCL and have executed any synchronized and structured trades and I have never been part of Mehta group and have no link/connection/nexus/with any of alleged entities. Further it is submitted that no details of trading which were in nature of reversal of trade/circular trade has been provided to me. k. That these trades were never executed by me and it seems that the broker has done unauthorized trades in my account and same came to my knowled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with broker or any of the counterparty, what was mode of placement of order by me, whether any funds were transferred by me to any of entities for alleged manipulation, whether I was having knowledge of any such alleged manipulative trading in my account. t. I fail to understand that how mere statement of one Mr. Sunil Mehta that he knows me for last 10-15 years can be made as basis of alleging connection of mine with alleged Mehta group. u. That there is no business or financial connection with any of alleged entity. 5. In interest of natural justice and in order to conduct an inquiry as per rule 4(3) of PFUTP Rules, appellant was granted an opportunity of personal hearing. Authorized Representative (for short 'AR') appeared for hearing on May 10, 2011 and undertook to submit further submission by May 18, 2011. AR further submitted that appellant came to know that he has traded and that his name was unauthorizedly used by the broker when SEBI Officials visited his place for recording his statement on March 10, 2010. AR submitted that appellant has not taken any action against broker for alleged unauthorized trading in his account and undertook to submit copy of demat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss; (c) .... (d) .... (e) any act or omission amounting to manipulation of the price of a security; (f) .... (g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security; FINDINGS:-- 9. Findings in connection with role of appellant on violations as alleged in the case, as follows: (a) Price of scrip opened at ₹ 1,240.00 on October 10, 2008 while it closed at ₹ 1,101.55 on the same day. Closing price of scrip on November 20, 2008 was ₹ 1306.15 (close to close 18.57% rise in 28 trading days). During same period Sensex had fallen by 19.73% (from 10,527.85 to 8,451.01). Total traded quantity for entire investigation period on BSE was 1974219 shares. Subsequent to investigation period price of scrip started falling and closed at ₹ 905 on January 30, 2009. (b) There was neither price sensitive news/announcement which might have supported the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Mehta has submitted before investigation that Jitendra, Pradesh, Ajay Roongta and Manish Mathur were his friends. vi. Sunil Mehta has entered into bank account transaction with Suresh, Jitendra, Gopal Lal Mathur, Seema Mathur (Wife of Manish Mathur, CEO of the broker Triveni) and Triveni (even though Sunil Mehta did not trade through the broker Triveni in the scrip of ASCL). vii. Sunil Mehta, Usha Mehta and Jitendra were introduced to the broker Arcadia by Suresh and Pradesh. viii. Jitendra has provided email id and phone number (9322123257) of Sunil Mehta in the KYC with the broker Emkay Global and address (Evershine Millenium Park, EMP 47, Flat No. 1804, Thakur Village, Kandivali (E), Mumbai, Maharashtra, 400101) and phone number (9322123256) of Sunil Mehta in the KYC with BP Equity. Further Sunil Mehta has submitted that Jitendra was his friend and trading account of Jitendra was being jointly operated by him and Jitendra. Sometime he used to place orders and sometime Jitendra used to place orders. Sunil Mehta and Jitendra Jain hold joint account number 1821000064427 with HDFC, Kandivali. ix. Jitendra has entered into bank account transactions with Sunil Mehta, Usha M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mehta was introduced to him by Manish Mathur. xxii. Both Sunil Mehta and Manish Mathur have submitted that they are friends. Further, there were fund flow between Sunil Mehta on one hand and Seema Mathur and Gopal Lal Mathur, wife and father of Manish Mathur respectively, on the other hand. xxiii. A demand draft issued by Jitendra Jain in favour of Bharat Jain was deposited by Sunil Mehta in the bank account of the Notice. It can be seen from the above that the entities including the Notice are interconnected with each other. (e) Issue of involvement of appellant in manipulating scrip of ASCL is now looked into, which shows that Mehta Group was found to be entering into transactions which were in nature of reversal of trade/circular trade. Most of these transactions were in synchronized trades (less than one minute difference between buy and sell orders) and structured trades (i.e. not only time of buy and sell order was within 1 minute but the order price and quantity was also matching). It is seen that large numbers of synchronized trades were being entered into mostly by few brokers trading for their clients on almost every traded day during IP, and out of total 6953 num ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies in manipulating price of the scrip. It is noticed that the effective number of counterparties was only five and all were found to be related with each other. It was not possible unless there is some understanding that almost all of trade will match with same counterparties that too in synchronized transactions over a period of time and further half of the transactions were structured trades. (i) It is seen that orders of appellant were being placed through broker Triveni whose clients were also part of Mehta group and found to be trading in a synchronized and structured manner. Triveni was found to be related to Sunil Mehta through its Chief Operating Officer, Manish Mathur. Notice before IA and before hearing has denied his relationship with entities belonging to Mehta group. Notice in his submission before investigation also submitted that he was not having knowledge of any trading in his account. It is observed that appellant before IA in his statement recorded on oath has submitted as follows: Q1. How many brokers are you traded with? Provide details. A. I am not trading with any broker, however I remember once Mr. Sunil Kumar Mehta came with some forms of Triveni Bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to mislead the gullible investors. AO also found that during investigation period there has been significant trade volumes (with daily average at 70,000 shares) in scrip despite very low floating stock; which has come down to mere 14,392 shares at end of September 2008 quarter. AO found that at BSE price of scrip opened at ₹ 1,240.00 on October 10, 2008 while it closed at ₹ 1,101.55 on same day. Closing price of scrip on November 20, 2008 was ₹ 1306.15 (Close to close 18.57% rise in 28 trading days). During same period Sensex had fallen by 19.73% (from 10,527.85 to 8,451.01). Subsequent to the investigation period price had started to fall and closed at ₹ 905 on January 30, 2009. There was no price sensitive news/announcement which might have supported the price. Also financial results of the company do not justify the price rise in the scrip of ASCL. Trading pattern not only created artificial volume but also helped in artificial price rise of shares of ASCL. All these leads to malafide intention of Notice along with connected entities to create artificial market and price rise in scrip of ASCL. Hence the submissions made by appellant are not accepted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of ASCL and also causing fluctuations in price of scrip of the company. Hence in light of facts of case and materials available on record, it is seen that appellant has violated provisions of Regulation 3(a), (b), (c), (d), 4(1) and 4(2)(a), (b), (e) & (g) of PFUTP Regulations. 15. Next issue for consideration is as to what would be monetary penalty that can be imposed on the Notice for violation of Regulation 3(a), (b), (c), (d), 4(1) and 4(2)(a), (b), (e) & (g) of PFUTP Regulations. The Hon'ble Supreme Court of India in the matter of SEBI v. Shri Ram Mutual Fund [2006] 68 SCL 216(SC) held that "In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and hence the intention of the parties committing such violation becomes wholly irrelevant...." 16. Thus, the aforesaid violations by the Notice make him liable for penalty under Section 15HA of SEBI Act, 1992 which read as follows: 15HA - Penalty for fraudulent and unfair trade practices If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature. 19. After taking into consideration all the facts and circumstances of the case, penalty of ₹ 5,00,000 (Rupees Five lakh only) under section 15HA of the SEBI Act, on appellant which will be commensurate with the violations committed by him, is imposed. Analysis of findings of adjudicating officer:-- 20. From perusal of entire case, connected documents, submissions of Learned Advocates on behalf of appellant and respondent, it is admitted position that trade volumes of scrip ASCL were manipulated to show higher trading volumes; certain entities called 'Mehta Group' traded amongst each other and engaged in circular, reversal trades to increase volumes that created buying pressure and which increased price of scrip during IP; these entities also executed a large number of synchronized trades and after half of these synchronized trades were structured; all entities of Mehta Group traded through a few brokers (5 brokers had very high percentage in buy and sell trade in entire volume of trade) and these manipulations in volume, thus price, of scrip was masterminded by Sunil Mehta, who along with a few others of entities of Mehta Group, perpetrated the entire m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing with that individual and this generic approach adopted by AO to deal with all entities of Mehta Group may not be proper and may lead to injustice, which this Tribunal has to guard against. 25. Again, it may be mentioned that generalistic approach adopted by Learned AO with all entities of Mehta Group deal with all entities in same way for proving the charges against them. Here, in fact, two generalistic approaches exist - one deal with entities who traded for themselves and also traded on behalf of other entities of the Group and second approach is to deal with entities, who had allegedly lent their names to first group - knowingly or unknowingly, to trade on their behalf. As a matter each individual of second group should have dealt more carefully and individually, instead of dealing with this group generalistically, by asking them whether they instituted proceedings against a member of first group; who traded on their behalf with his/her authorization and when, invariably, the reply is in negative, it has been concluded this each entity of second group is equally responsible for the alleged manipulative trade in scrip of ASCL and aided/abetted in manipulation of volume/price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eveals any payment/receipt for his dealing in scrip of ASCL or any other scrip during this period. A perusal of his statement of account in State Bank of Bikaner & Jaipur shows that credits of ₹ 5,17,419 and debit of ₹ 5,28,390 during this period i.e. for 6 years and 4 months, which shows that he is a person of meagre income/expenditure. 30. Regarding reporting of authorized operation of appellant's trading account by Sunil Mehta, for which it has been concluded by AO that appellant aided/abetted trading from his account by Sunil Mehta and he is equally liable for manipulation of scrip of ASCL and hence violative of PFUTP Regulations; it may be stated that such unauthorised operation of trading account has not been reported in most of the cases, especially since Sunil Mehta was friend of appellant's son and appellant was most likely to be unaware of consequences of merely signing for opening of his trading account and that he being a resident of Udaipur, he would have to travel to Mumbai (where unauthorised operation in his account took place) and a person of 73 years is generally not expected to do so. Hence, non-reporting of unauthorized operation of trading ..... X X X X Extracts X X X X X X X X Extracts X X X X
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