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TMI Blog2020 (7) TMI 831X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and manipulative trading in the scrips of Polytex India Limited, Gemstone Investments Limited and KGN Enterprises Limited. 2. The Noticees preferred an appeal against the SEBI order before the Hon'ble Securities Appellate Tribunal (hereinafter referred to as "SAT"). SAT vide common order dated March 04, 2020 (hereinafter referred to as "SAT Order") upheld the findings in the SEBI order on merits; however, as regards the direction of disgorgement passed against the Noticees, SAT remitted the matter back to SEBI for fresh consideration of illegal gains made by the Noticees through the fraudulent and manipulative trades. SEBI was also directed to bring out the date-wise reversal of trades done by the trading Noticees and pass a fresh order within a period of three months after granting an opportunity of hearing. 3. An opportunity of personal hearing was granted to Noticees on July 14, 2020. Reply of the Noticee 4. Pursuant to the hearing, the Noticees submitted replies dated July 21, 2020 wherein they have made elaborate submissions. However, I would remain within the scope of the limited review directed by the Hon'ble Tribunal and consider only the submission related to issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d fallen post investigation period. vi. The expenses in course of the transactions have to be excluded from gains. This is settled position of law as held by the Hon'ble Supreme Court of the United States in Order dated 22-06-2020 in the matter of LIU ET AL. v. SECURITIES AND EXCHANGE COMMISSION. vii. It is an admitted position that the Trading Noticees could not return the entire fund provided by the financing Noticees due to heavy losses in the scrip of Polytex, Gemstone and KGN. Thus, the question of passing on of the profit from Trading Noticees to Financing Noticees does not arise. viii. The Trading Noticees had suffered huge losses in the scrip of Polytex which is evident from the Arbitration Awards passed by the Arbitrator wherein it is recorded that several Trading Noticees had suffered losses in the said scrips and had defaulted in honouring their payments. ix. As per SEBI's own judgement disgorgement is individual liability and person who suffered losses has to be let off by SEBI. x. Allegation have been made against 5 Noticees regarding Reversal of Trade in the scrip of Gemstone. However, after remanding back of the matter, no details has been provided of Rever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly one of those types do not cast away their violations. However, we agree with the contention of Dave that more disaggregated details are needed to prove reversal trade and in the impugned order only aggregates are given though we do not agree with their submission that reversal trade done on the same trading day only can be treated as reversal trades." 6. The matter is being taken up for consideration on a direction of limited remand. The relevant part of the SAT Order [para 34(b) (i) and (ii)] reads as: (i) Bring out date-wise details of reversal trades in respect of the trading Noticees. (ii) Bring out details of calculation of profits in respect of all the trading Noticees." Consideration 7. I note that SEBI in its order has held that six of the Noticees namely 1) Dilip Jain, 2) Kiran Bhanaes, 3) Kishan Shigvan, 4) Jigar Ghoghari, 5) Kiran Sheth and 6) Jinal Rawal had executed synchronized trades amongst themselves which resulted in creation of artificial volume in the market. Further, 8 Noticees, which included the 6 Noticees who had engaged in synchronised trades mentioned above, and Noticees Bhupesh Rathod and Janak Dave, had engaged in reversal trades amongst thems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is a vast difference between the quantity order and the quantity matched cannot be taken as a ground to prove the innocence of the appellant. In market manipulation perfect synchronization and exact matching of trades may not be available. In the present case matching / reversal, though of different quantities, has taken place consistently over a period of time... It is a process of continuous, periodical and conscious matching in several trades over a period of time." 11. I note that the Hon'ble Tribunal has observed in the remand order that the "interpretation of reversal trade is different from its standard /normal interpretation". The difficulty in adopting a straitjacket approach towards defining such manipulative practises is now well recognised by courts in India. The Hon'ble Supreme Court in the matter of SEBI v. Kanaiyalal [MANU/SC/1188/2017] had acknowledged the difficulty in defining such practises by making amendments to the FUTP Regulations. The Hon'ble Court had observed that,- "11. It is important to note that SEBI has amended the Regulation, a number of times, to keep up with the technology and times. .. 12. Although aforesaid amendments are made to the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,04,309 2 JANAK CHIMANLAL DAVE 5,91,428 13,49,01,303 228.09 5,60,947 12,97,56,403 231.31 30,481 76,75,349 Total 5,91,428 13,49,01,303 5,91,428 13,74,31,752 25,30,449 3 BHUPESH HARISHCHAN DRA RATHOD 12,58,640 22,95,75,527 182.39 11,72,846 21,49,45,454 183.26 85,794 2,16,44,084 Total 12,58,640 22,95,75,527 12,58,640 23,65,89,538 70,14,010 4 KISHAN BALARAM SHIGVAN 11,06,199 25,00,08,841 226.00 10,91,124 24,70,71,957 226.43 15,075 37,92,000 Total 11,06,199 25,00,08,841 11,06,199 25,08,63,957 8,55,116 5 KIRAN MADHUSUDA N SHETH 14,89,452 34,19,42,011 229.57 13,78,459 31,62,51,708 229.42 1,10,993 2,80,35,811 Total 14,89,452 34,19,42,011 14,89,452 34,42,87,519 23,45,508 6 JATIN SHANTILAL SHAH 2,96,196 5,21,42,414 176.04 4,05,608 7,04,99,388 173.81 1,09,412 1,47,84,773 Total 4,05,608 6,69,27,187 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above approach. 17. Now I will proceed to address the contentions put forth on behalf of the Noticees during the hearing and in the written submissions related to the calculation of profits. The first submission put forth on behalf of the Noticees was that it was imperative that at least for the purpose of disgorgement, the data for the entire period from 12-10-2010 to 10-05-2013 was provided. I note that the Noticees have sought data pertaining to the trading in the scrip which falls outside the investigation period in this matter and therefore it is outside the scope of the limited remand. I also note that the Hon'ble Tribunal in the remand order has already rejected the contention raised by the parties to club the investigation in this matter with another investigation carried out by SEBI in the same scrip for a different time period. I, therefore, note that there is no merit in this contention put forward on behalf of the Noticees. 18. The next submission on behalf of the Noticees was that the expenses incurred in course of the transactions have to be excluded while calculating ill-gotten gains. In this regard, I am of the view that while calculating the ill-gotten gains ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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