Dhananjay Kumar vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Decision : 28.06.2022 Appeal No. 316 of 2022 Dhananjay Kumar Village: Sanjhauli, Dist: Rohtas, Bihar - 802 220. ..... 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. Suraj Kumar Vishwakarma, Advocate i/b KarmaChakra FinLaw Group for the Appellant. Mr. Sumit Rai, Advocate with Mr. Abhiraj Arora and Mr. Shourya Tanay, Advocates i/b ELP for the Respondent. CORAM : Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member Ms. Meera Swarup, Technical Member Per : Justice Tarun Agarwala, Presiding Officer (Oral) 1. The present appeal has been filed against the order dated February 22, 2022 passed by the Adjudicating Officer ('AO' for short) of the Securities and Exchange Board of India ('SEBI' for short) wherein a penalty of Rs. 20 lakhs has been imposed for violating Regulation 3 and 4 of the SEBI 2 (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ('PFUTP Regulations' for short).

2. The facts, in brief, is that a show cause notice was issued to the appellant and group entities for entering into synchronized trades repetitively amongst themselves which contributed to artificial volume in the scrip of Kushal Tradelink Limited which in turn contributed to artificial price rise in the scrip in a fraudulent manner through Last Traded Price (LTP) contribution, New High Price (NHP) contribution and First Trade contribution which was all violative of Regulation 3 and 4 of the PFUTP Regulations. 3. The AO passed a common adjudication order dated December 22, 2017 holding that the group entities including the appellant had violated Regulation 3 and 4 of the PFUTP Regulations by entering into repeated synchronized tradings and accordingly imposed a penalty of Rs. 20 lakhs on each of the entities / noticees. 4. The appellant filed the Appeal no. 116 of 2021 which was allowed by order dated June 25, 2021. This Tribunal quashed the order of the AO holding that no notice or an 3 opportunity of hearing was provided to the appellant. The matter was remitted to the AO to pass a fresh order in accordance with law after serving a show cause notice and after giving an opportunity of hearing.

5. Accordingly, the show cause notice was served and the appellant filed its reply. The AO after considering the material evidence on record found the appellant to be connected with the other entities and further found that there was ample evidence to show that the appellant had entered into synchronized trades repeatedly with group entities and contributed to artificial volume as well as artificial price rise in the scrip of the Company which was fraudulent and violative of Regulation 3 and 4 of the PFUTP Regulations. 6. The contention of the appellant is, that he is a Class-IV employee and, at that relevant time, was not even employed and was a student. The appellant contended that in July / August 2014 he met one Mr. Avinash Kumar Rai, who was residing in the same building and introduced himself as an employee of BMA Wealth Creators Limited. It was alleged that this person lured the appellant to open a Demat and Trading Account for investment with Assured Guarantee Return and, acting in good faith, the appellant handed over his 4 personal identification documents, viz. photographs, identity proof, address proof, blank cheques of saving account, etc. It was alleged that soon thereafter he received a call letter from the Indian Railways appointing him as a Gateman and accordingly joined the services on August 28, 2014. It was also alleged that in January and February 2015 he noticed some unauthorized transactions in his bank.

It is alleged that he tried to reach Mr. Avinash Kumar Rai but found him untraceable. It was contended that only on July 9, 2021 the appellant lodged a complaint against Avinash Kumar Rai and other connected entities at a Police Station in Bihar. The appellant denied any connection with the alleged connected entities. 7. Having heard the learned counsel for the parties, we find that the appellant has contended that he was a victim of fraud and as an unemployed person he could not enter in such transaction which has been alleged. Further he had no financial means to execute such transactions. 8. We find that the AO has considered the material evidence which has come on record and has given a categorical finding that the appellant is connected with the other entities and repetitively entered into synchronized 5 trades. This not only raised artificial volume of trades but also increased the price of the scrip for vested reasons. These transactions have not been disputed by the appellant except alleging that he was unaware and that the account was fraudulently used by these entities. 9. We find that in this regard the appellant himself stated that he noticed unauthorized transaction in January and February 2015 but did nothing in this regard and only in July 9, 2021 he lodged a complaint.

No reason has been given as to why he could not initiate any steps earlier. 10. We also find that the alleged transactions have not been disputed by the appellant. The appellant, however, denies the connection with the alleged group entities. In this regard the AO has perused the bank statement of the appellant with the bank statements of the connected entities and found that transactions had occurred in all the accounts on the same dates, based on which the AO found connection between the appellant and other entities. We find that the said finding is based on evidence which cannot be disturbed. Thus, the violation committed by the appellant stands proved. 6 11. The appellant admits that he opened the trading account and in good faith gave the relevant details, blank cheque books to one Mr. Avinash Kumar Rai who allegedly made fraudulent transactions from his saving bank account. Be that as it may, the fact remains that at the end of the day the appellant is responsible for such act. 12. We, however, noticed that for the alleged transactions the monetary penalty imposed is high and excessive and does not commensurate with the transactions, coupled with the facts that the appellant contended that he was unemployed and was eventually employed as a Gateman which is equivalent to Class-IV employee status.

13. Admittedly, the transaction shown in his bank account statement was beyond his financial means. These facts have not been considered by the AO as well as other factors stipulated under 15J while quantifying the penalty. 14. Considering the aforesaid, we are of the opinion that the imposition of penalty is excessive and arbitrary and does not commensurate with the alleged violation. Thus, for the reasons stated aforesaid, while affirming the violation committed by the appellant we reduce the penalty from 7 Rs. 20 lakhs to Rs. 5 lakhs which shall be paid by the appellant within three months from today. 15. In view of the aforesaid the appeal is partly allowed. In the circumstances of the case, parties shall bear their own costs. 16. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges. Justice Tarun Agarwala Presiding Officer Justice M.T. Joshi Judicial Member Ms. Meera Swarup RAJALA Digitally signed Technical Member by RAJALAKSHMI 28.06.2022 KSHMI HDate: