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TMI Blog2019 (5) TMI 977X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was being utilized by KB from his trading activity. The appellant is the beneficiary of the profits from the trading activities done by KB. We find that the profit received by KB was transferred to Bhoomi Industries in which the appellant was a partner. We further find that the same amount was again transferred to the personal account of the appellant. Thus an irresistible conclusion can be drawn that the profits earned through this illegal trading activity by KB was shared with the appellant. In this regard, a vague reply was given by the appellant to the extent that the fund received by the appellant from Bhoomi Industries could have been in the nature of loan or repayment or withdrawal from capital account. No details were furnished in this regard and, therefore, an irresistible conclusion drawn by the Adjudicating Officer that there was a sharing of profits cannot be faulted. The standard of proof is preponderance of probability and the proof of manipulation always depends on the inferences drawn from a host of circumstances. A finding has to be arrived at from the pattern of trading. The cumulative analysis determines the modus operandi which can lead to an infer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er KB for short) an individual trader and Passport India Investment (Mauritius) Ltd. (hereinafter Passport for short) for the period January, 2007 to March, 2009. During the investigation, it was found that KB was placing orders ahead of orders placed by Passport. One Dipak Patel (hereinafter referred to as DP ) was Portfolio Manager of Passport who also happened to be the cousin of KB and the appellant Shri Anandkumar Baldevbhai Patel (hereinafter referred to as AB ). It was alleged that DP provided information to KB and AB regarding the forthcoming trading activities of Passport. It was found that trades were executed using the telephone number which was registered in the name of AB at the common residential address of KB and AB. It is alleged that AB and KB took advantage of the information received from DP whereby KB indulged in trading before Passport and consequently squared off the position when order of Passport was placed in the market. It was alleged that KB earned a total profit of ₹ 1,56,32,364.01/- from the alleged trades. Pending investigation, an ex-parte interim order dated 28/5/2009 was passed by the Whole Time Member of SEBI issuing a slew of direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sport and KB, the same was allowed by the Supreme Court by judgment dated 30/09/2017. The order of the Tribunal was set aside and the imposition of penalty was affirmed. The said decision is reported in (2017) 15 SCC 1 SEBI vs. Kanaiyalal Baldevbhai Patel and other connected appeals. The Supreme Court explained what front running was in addition to the definition provided by SEBI in its circular holding that front running comprises of at least three forms of conduct, namely; trading by third parties who are tipped on an impending block trade ( tippee trading), transactions in which the owner or purchaser of the block trade himself engages in the offsetting futures or options transaction as a means of hedging against price fluctuations caused by the block transaction (self front-running), and transactions where an intermediary with knowledge of an impending customer block order trades ahead of that order for the intermediary s own profit (trading ahead). The Supreme Court further found that front running was explicitly recognized under Regulation 4 (2)(q) of the FUTP Regulations, 2003. The Supreme Court further held that in order to establish charges against tipee, under Regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch an inference would be a permissible mode of arriving at a conclusion with regard to the liability, as held by this Court in SEBI v. Kishore R. Ajmera referred to by my learned Brother Ramana J. The volume; the nature of the trading and the timing of the transactions in question can leave no manner of doubt that Kanaiyalal Baldevbhai Patel and Anandkumar Baldevbhai Patel had acted in connivance with Dipak Patel to encash the benefit of the information parted with by Dipak Patel to them and, therefore, they are parties to the fraud committed by Dipak Patel having aided and abetted the same. 6. In the light of the aforesaid narration of facts, we have heard Shri Yogesh Jagia, learned Counsel assisted by Mr. Chinmay Paradkar, Advocate for the Appellant. The learned Counsel for the appellant contended that he is only engaged in importing and trading of scrap metal and was not dealing in the securities market. It was further contended that the Adjudicating Officer only found trading of the securities by KB and that there was no finding that the appellant had done any trading. It was contended that the mere fact that KB was using the landline telephone which was regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Venkataramana (1996) 6 SCC 409 wherein the Supreme Court held that strict construction is required to be adopted in the interpretation of penal provisions and if any doubt arises, the benefit of doubt should be extended to the accused. The learned counsel also placed reliance upon a decision of the Tribunal in Bhanwar Lal Paliwal v. SEBI decided on 31/10/2013 wherein the Tribunal held that there has to be substantial or clinching evidence to show any direct or indirect involvement in the execution of the scrips or any manipulation of the price of the scrips. 7. It was thus urged that in the present case there is no clinching evidence to lead to the conclusion that the appellant had indulged in fraudulent activities in the securities market. It was contended that in the absence of mens rea, the appellant cannot be found guilty and consequently the imposition of penalty should be set aside. 8. On the other hand, Shri Gaurav Joshi, the learned Senior Counsel assisted by Shri Mihir Mody and Mr. Sushant Yadav, Advocates contended that in the first instance the Supreme Court had itself found that on the basis of modus operandi the appellant had sensiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders were placed by either KB or Passport. There were a total of 8 calls made to/received from DP during trading hours by KB. Similarly there were such 4 instances when calls made to or received by KB were within the span of time during which Buy/Sell orders were placed by either KB or Passport. The high frequency of calls exchanged between the appellant, KB and DP suggest that DP were regularly in touch with both the appellant and KB and passed on crucial information about the dealings of Passport. The higher percentage of matching trades of KB with Passport leads to an inference that KB had received prior information from the appellant about the forthcoming large institutional trades that enabled KB to square off his initial transactions. 10. Annexure-E to the show-cause notice is a chart showing details of the calls exchanged between DP and KB and the appellant. A perusal of this chart indicates that the appellant was speaking to AB on his mobile during the time when the trades were being carried out by KB on the internet and, therefore, leads to an inescapable conclusion about the involvement of the appellant in the entire modus operandi and also leads to an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een in the nature of loan or repayment or withdrawal from capital account. No details were furnished in this regard and, therefore, an irresistible conclusion drawn by the Adjudicating Officer that there was a sharing of profits cannot be faulted. 12. In Securities and Exchange Board of India v. Kishore R. Ajmera (2016) 6 SCC 368, the Supreme Court held that, 26. It is a fundamental principle of law that proof of an allegation leveled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and leveled. While direct evidence is a more certain basis to come to a conclusion, yet, in the absence thereof the Courts cannot be helpless. It is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erandi which can lead to an inference regarding the conduct of the parties while manipulating the securities market and thereby arrive at a conclusion of manipulation. Circumstantial evidence could be sufficient to raise a presumption with regard to the existence of a fact which is sought to be proved. Where a transaction has been executed with the intention to manipulate the market or defraud its mechanism will depend on the intention of the parties which could be inferred from the attending circumstances since direct evidence in such cases are not available. As held in SEBI vs. Kanaiyalal Baldevbhai Patel (supra), the Supreme Court held that it is between inducement and criminal law and the wider meaning thereof under the SEBI Act is that to make inducement an offence. The intention behind the representation or misrepresentation of facts must be dishonest whereas in the latter category of cases the element of dishonesty needs not be present or proved. Further in the latter category of cases (under SEBI Act) a mere inference rather than proof that the person induced would have acted in a manner that he did for the inducement was sufficient. The element of dishonesty or bad faith i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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