Bp Fintrade Pvt. Ltd. vs Sebi

Date of Hearing : 07.09.2020 Date of Decision : 20.11.2020

Appeal No. 189 of 2020

BP Comtrade Pvt. Ltd. 24/26, Cama Bldg., 1st Floor, Dalal Street, Fort, Mumbai - 400023. ..... Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent

With Appeal No. 190 of 2020

BP Fintrade Pvt. Ltd. 3, Mint Road, 3rd Floor, Room No. 45, Fort, Mumbai - 400 001. ..... Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent 2

With Appeal No. 191 of 2020

BP Comtrade Pvt. Ltd. 24/26, Cama Bldg., 1st Floor, Dalal Street, Fort, Mumbai - 400023. ..... Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent

With Appeal No. 192 of 2020

BP Fintrade Pvt. Ltd. 3, Mint Road, 3rd Floor, Room No. 45, Fort, Mumbai - 400 001. ..... Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent

Mr. Ravi Vijay Ramaiya, Chartered Accountant with Mr. Sahebrao Buktare, Advocate i/b Shah & Ramaiya Chartered Accountants for the Appellants. Mr. Kumar Desai, Advocate with Mr. Anubhav Ghosh, Advocate i/b The Law Point for the Respondent. 3

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C. K. G. Nair, Member Justice M. T. Joshi, Judicial Member

Per : Dr. C. K. G. Nair, Member

1.

These four appeals are filed challenging the order dated May

28, 2020 passed by the Whole Time Member (hereinafter referred

to as „WTM‟) of Securities and Exchange Board of India

(hereinafter referred to as „SEBI‟) whereby the appellants have been

debarred for a period of four weeks and order dated May 5, 2020

passed by the Adjudicating Officer (hereinafter referred to as „AO‟)

of SEBI whereby a joint and several penalty of Rs. 5 lacs have been

imposed on the appellants. Appeal No. 189 and 190 of 2020

challenges the WTM order and Appeal Nos. 191 and 192 of 2020

challenges the order of the AO. Since the issues in all the 4 appeals

are common, by consent of parties, they are heard together and is

disposed of by this common order.

2. The matter relating to all the appeals emanates from trading in

the scrip of M/s. Blue Blends (India) Ltd. (hereinafter referred to as the

company / Blue Blends). SEBI conducted an investigation into trading

in the scrip of this company during the period September 1, 2015 to

April 1, 2016. However, the relevant period in respect of these

appeals is from February 2, 2016 to April 1, 2016. It is the case of 4

respondent SEBI through the impugned orders that during these two

months period, the appellants herein have unilaterally manipulated the

price of the scrip of Blue Blends by employing / adopting a strategy of

trading called „Advancing the Bid‟. According to this strategy, a

person on one side of the trade places orders above or below the last

traded price (LTP) resulting in an adverse impact on the market but the

collusion / connection between the person concerned and the opposite

party/ counter party is not established.

3. It is on record that the price of the scrip of Blue Blends

increased from Rs. 15.65 on September 1, 2015 to Rs. 115 on February

1, 2016. Similarly, in phase II of the investigation period from

February 2, 2016 to April 1, 2016 the prices fell from Rs. 110 to

Rs. 82.50. Further, it is held in the impugned order that the appellants

contributed Rs. 30.30 to the decline in price during the relevant period.

4. It is the stand of the learned authorized representative Shri

Ravi Ramaiya appearing on behalf of the appellants that the appellants

are big traders/jobbers dealing in several hundred scrips worth several

crores; they are not related / connected entities; were trading in the

scrip of Blue Bends even prior to the investigation period; executed

genuine trades in both phase I and phase II of the investigation period

without any intention to manipulate the price/market; during both

phases some trades of the appellants impacted LTP negatively; 5

appellants trades resulted in both positive and negative LTP but SEBI

cherry picked some trades only to show negative impact; appellants

followed a strategy called "momentum trading" i.e. being a big trader

taking advantage of the movement in prices by placing large number

of orders; on connection between the appellants SEBI never sought

any explanation from the broker who filed the KYC forms which are

used to conclude connection between the appellants; the volumes of

trades of the appellants (even if they are combined) are not substantial

as a percentage of the total market volume because the scrip was a

liquid one; no meeting of the mind has been established and no other

party has been debarred from the market. The authorized

representative also produced on record to show a few instances of the

appellants‟ trades which fall in both the territories i.e. impacting LTP

positively and negatively. Therefore, the authorized representative

submitted that the totality of the picture has to be taken to arrive at the

conclusion and if such a picture is taken rather than cherry picking as

done in the impugned order, it would be clear that the appellants were

only doing trading in the normal course of business. The authorized

representative also relied on the orders of WTM of SEBI in Jayendra

Chandulal Sheth, in support of his stand that selling in miniscule

quantity below the LTP itself does not prove manipulation. He also

relied on a number of orders of this tribunal to canvas that the penalty

imposed on the appellants herein is disproportionate. 6

5. Shri Kumar Desai, the learned counsel for the respondent

SEBI, on the other hand, submitted that the strategy employed by the

appellants in manipulating the market/price of the scrip is a unique one

called „Advancing the Bid‟ which is found to be manipulative not only

in the Indian jurisdiction but also in foreign jurisdictions like the

European Union (EU). He also submitted the relevant regulations in

the EU and examples of such market manipulation as found in the

documents of the Technical Committee of the International

Organization of Securities Commissions (IOSCO). It was further

contended by the learned counsel for the respondent that in such kind

of unilateral price manipulation, establishing connection with the

counter-party is difficult as well as not needed because the trades

themselves are manipulative. For instance, the appellants sold the

shares of Blue Blends in small quantities below the LTP on 166

occasions and thereby manipulated the price downwards. Selling

below the LTP and that too on a large number of occasions is contrary

to the normal market behavior and therefore, it stands on its own legs

as violative of the stated provisions of Securities and Exchange Board

of India (Prohibition of Fraudulent and Unfair Trade Practices relating

to Securities Market) Regulations, 2003.

6. The learned counsel for the respondent SEBI also sought to

establish the connection between the appellants, BP Fintrade and BP 7

Comtrade, through common e-mail ID, common mobile number etc. as

obtained from the broker. He further submitted that even without the

connection being established the trading pattern / strategy of the

appellants itself was violative of PFUTP Regulations. It was further

contended that the submissions of the appellants that they were

following „momentum strategy‟ also cannot be accepted since by their

strategy the appellants themselves were creating the momentum. It is

a clear case of impacting the market in the scrip both in terms of

volumes and prices and, therefore, violative of stated provisions of

PFUTP Regulations.

7. The learned counsel for the respondent SEBI also relied on the

decisions of this Tribunal as well as the Hon‟ble Supreme Court in

Kalpana Dharmesh Chheda & Anr. vs. SEBI (Appeal No. 454 of

2019, decided on February 25, 2020), Shri Lakhi Prasad Kheradi vs.

SEBI (Appeal No. 232 of 2017, decided on June 21, 2018), Giriraj

Kumar Gupta HUF vs. SEBI (Appeal No. 420 of 2019, decided on

February 25, 2020), Jayprakash Bohra vs. SEBI (Appeal No. 162 of

2019, decided on November 5, 2019), Saumil Bhavnagari vs. SEBI

(Appeal No. 28 of 2014, decided on March 21, 2014), Shailesh Jain

vs. SEBI (Appeal No. 15 of 2012, decided on May 1, 2012),

Systematix Shares & Stocks (India) Limited vs. SEBI (Appeal No. 21

of 2012, decided on April 23, 2012), SEBI vs. Kanhaiyalal

Baldevbhai Patel [(2017) 15 SCC 1], SEBI vs. Kishore R. Ajmera 8

[(2016) 6 SCC 368], N. Narayanan vs. Adjudicating Officer, SEBI

[(2013) 12 SCC 152], SEBI vs. Rakhi Trading Private Limited

[(2018) 13 SCC 753].

8. Summary of the analysis of trades carried out by the connected

entities as sellers during the relevant period is as follows :-

9. The above table taken from the impugned WTM Order clearly

brings out the pattern of trading done by the appellants where in

through 166 trades [109 by BP Fintrade and 57 by BP Comtrade] a

gross LTP difference of Rs. 183.30 and a net LTP difference of Rs

33.90 had been generated.

10. Having heard the learned counsel / authorized representative

for the parties at reasonable length and having perused the documents 9

placed before us, we are of the considered view that the nature /

pattern of trading adopted by the appellants is not in the nature of what

a rational investor would do. A large number of sell orders were

placed repeatedly on several trading dates at less than the LTP; it is

illogical. Therefore, the contention of the appellants that it was

following momentum trading has no meaning as by placing a large

number of orders below the LTP the appellants themselves were

creating a momentum. Of course we notice that a number of orders of

the appellants were placed on or marginally above LTP, but that is the

rational behaviour expected from a seller and no fault can be found for

SEBI in not considering such trades as violative of the PFUTP

Regulations. Appellants submission of a small list of trades in which

they impacted LTP both positively and negatively on a few days also

does not help the appellants since the overwhelming evidence is

clearly towards placing sell orders below the LTP. When such trades

are done on a large number of occasions, such as 166 times, one

cannot but come to the conclusion that such trades are manipulative in

nature. Given such large number of instances of trades in these

appeals, judgments relied on by the appellants are distinguishable.

11. Further, it is also on record that in 124 out of 166 times sell orders

were placed in single digits of 1, 2, 3 etc shares, which defies the

submission of the appellants that they were placing orders below the

LTP because only if sell orders are placed a bit below the LTP large 10

quantities could be sold in a falling market. Therefore, clearly the

strategy of trading [momentum trading] adopted by the appellants was

creating its own momentum inimical to the interest of the securities

market. Even if it affected only about 10 % of the market volume in

the scrip of Blue Blends, as contended by the appellants, it is no

consolation since influencing 10% of the market by 2 entities is a

significant deviation from market equilibrium. Therefore, dehors the

connectivity issue itself the appellants are in violation of the PFUTP

regulations by the very nature of their trading strategy and trading

pattern.

12. Mitigating factors are inbuilt in the given punishments. 4 weeks

restrain from the securities market as directed by the WTM and Rs. 5

lakhs joint and several penalty imposed by the AO are not harsh or

disproportionate in the given facts and circumstances for us to interfere

with the impugned orders. However, if the appellants so desire they

may pay Rs.2.5 lakh each.

13. For the aforesaid reasons, all 4 appeals fail and are dismissed with

no orders on costs. Appellants are directed to pay the penalty within 30

days from the date of this Order.

14. The present matter was heard through video conference due to

Covid-19 pandemic. At this stage, it is not possible to sign a copy of

this order nor a certified copy of this order could be issued by the 11

Registry. In these circumstances, this order will be digitally signed by

the Presiding Officer on behalf of the bench and all concerned parties

are directed to act on the digitally signed copy of this order. Parties

will act on production of a digitally signed copy sent by fax and/or

email.

TARUN Digitally signed by TARUN AGARWAL DN: c=IN, o=PUBLIC WORKS DEPARTMENT UTTAR PRADESH, postalCode=221505, st=Uttar Pradesh, 2.5.4.20=30fcf68685192bbc53e6ff1608a83fb3881de7ac2ab

AGARWAL 7954d509c85ed6e0f7c41, serialNumber=095f8b286bb0b1cd07ff676611f4f5e7999727 d404aa38ca422f9d3529bdb8a3, cn=TARUN AGARWAL Date: 2020.11.20 13:32:57 +05'30'

Justice Tarun Agarwala Presiding Officer

Dr. C. K. G. Nair Member

Justice M. T. Joshi Judicial Member 20.11.2020 PTM