Dhvani Darshan Kothari & Anr. vs Sebi

Date of Hearing : 11.01.2021 Date of Decision : 21.01.2021

Appeal No. 198 of 2020

Almondz Entertainment Pvt. Ltd. F-10, Rajouri Garden, New Delhi - 110027. ..... 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. Sachin Mittal, Advocate for the Appellant. Mr. Vishal Kanade, Advocate with Mr. Abhiraj Arora, Ms. Rashi Dalmia, Advocates i/b ELP for the Respondent.

With Appeal No. 199 of 2020

Nitin Chadha F-10, Rajouri Garden, New Delhi - 110027. ..... Appellant 2

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. Sachin Mittal, Advocate for the Appellant. Mr. Vishal Kanade, Advocate with Mr. Abhiraj Arora, Ms. Rashi Dalmia, Advocates i/b ELP for the Respondent.

With Appeal No. 200 of 2020

Nitin Chadha F-10, Rajouri Garden, New Delhi - 110027. ..... 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. Sachin Mittal, Advocate for the Appellant. Mr. Vishal Kanade, Advocate with Mr. Abhiraj Arora, Ms. Rashi Dalmia, Advocates i/b ELP for the Respondent.

With Misc. Application No. 283 of 2020 (Delay Application) 3

And Appeal No. 276 of 2020

1.

Dhvani Darshan Kothari

2. Darshan Jayendra Kothari

203B, Harmony, Damodarwadi, A.C. Road, Ashok Nagar, Kandivali (East), Mumbai- 400 101. ..... Appellants

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. Vikas Bengani, Advocate for the Appellants. Mr. Vishal Kanade, Advocate with Mr. Abhiraj Arora, Ms. Rashi Dalmia, Advocates i/b ELP for the Respondent.

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

Per : Justice Tarun Agarwala, Presiding Officer

1. The present appeals have been filed against a common order

dated April 30, 2020 passed by the Adjudicating Officer (hereinafter

referred to as 'AO') of Securities and Exchange Board of India 4

(hereinafter referred to as 'SEBI') imposing penalties for violation of

Regulations 3 and 4 of Securities and Exchange Board of India

(Prohibition of Fraudulent and Unfair Trade Practice relating to

Securities Market) Regulations, 2003 (hereinafter referred to as

'PFUTP Regulations'). Since a common issue is involved, all the

appeals are being decided together.

2. The dispute in all these appeals relate to the trades executed

by the appellants in the scrip of Richa Industries Ltd. during the

period December 1, 2008 to December 31, 2009. In the investigation

period, it was observed that the scrip rose from Rs. 61.10 on

December 1, 2008 to Rs. 161.80 on November 16, 2009 and closed at

Rs. 110.20 on December 31, 2009. The show cause notice was

issued on February 6, 2014 to 60 entities on the charge of

synchronized trading and there being no change in real beneficial

ownership resulting in artificial increase in the volume of trades

which were fraudulent and manipulative in nature. The AO after

considering the matter passed an order dated May 19, 2015 imposing

penalties to the noticees. 25 such noticees including the appellants

challenged the order of the AO before this Tribunal. This Tribunal 5

by an order dated June 22, 2016 allowed the appeals and quashed the

order of the AO in so far as it related to the appellants and remitted

the matter again to the AO for fresh consideration in the light of the

observation made in the order.

3. Subsequently, a fresh show cause notice in June 2018 was

issued reiterating the same charges, based on which after considering

the replies of the appellants, the AO passed the impugned order

imposing penalties. The appellants being aggrieved by the impugned

order have now filed the present appeals.

4. We have heard Mr. Sachin Mittal and Mr. Vikas Bengani,

the learned counsel for the appellants and Mr. Vishal Kanade, the

learned counsel alongwith Mr. Abhiraj Arora and Ms. Rashi Dalmia,

the learned counsel for the respondent through video conference.

5. The contention raised by the learned counsel for the

appellants is, that the AO had divided the investigation period into

two groups, namely, group 1 and group 2. It was contended that

pursuant to the remand order by this Tribunal, SEBI appointed two

AOs and one AO decided the matter against the six entities and the

present AO decided the matter against the remaining entities 6

including the appellants. It was urged that the AO by an order of

November 24, 2019 exonerated these six entities holding that no

charge of synchronization or artificial increase in volume of trades or

fraudulent and manipulative trading was found and accordingly

discharged the six noticees. It was further urged that in so far as the

present appeals are concerned, on the same charge and on the same

trading pattern and being in the same group, the appellants have been

penalized and penalties have been imposed. It was contended that

the two orders of the AO analyzing the same trades, same patterns of

trading and for the same group have given contradictory findings and

on this short ground the impugned order should be set aside even

though, it was urged that on merits the appellants have also made out

the case for quashing of the impugned order.

6. The fact that another AO passed an order dated December

24, 2019 on some of the noticees who were in the same group as that

of the appellants had not been disputed by the learned counsel for the

respondent. In this regard, it thus, become essential to see what

findings have been given against the appellants and how it is

contradictory to the findings given by the other AO who exonerated

these six entities.

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7. In the impugned order, the AO has given a finding that the

appellants and other noticees are connected with each other on the

basis of the common mobile number which were mentioned in the

KYC forms and only on this basis, the AO came to the conclusion

that the appellants and other entities are connected to each other and

made synchronized trades which were manipulative in nature. The

AO while coming to this conclusion did not consider the submission

of the appellants that all KYC forms were not on record and that

main person Mr. Anjani who was the mastermind and who had

opened the demat accounts fraudulently and operated the demat

accounts of the appellants was not accepted. On the hand, the other

AO found that Mr. Anjani and five other entities had different

residential addresses and were residing in different cities and held

that merely because some mobile number were found common in the

KYC forms was not sufficient to connect them. The AO in the order

of December 24, 2019 held that on the basis of a common mobile

numbers in the KYC forms was not sufficient to connect them

especially when the entities were residing in the different cities.

8. In this regard, we find that the findings of the two AOs are

contradictory to the same set of facts. The appellants are also 8

residing in the different cities and have different residential

addresses. Further, a specific assertion was raised that all KYC

forms are not on record. Therefore, in our opinion, the appellants are

also entitled for a similar relief. Since the appellants as well as the

six entities who were in the same group and were charged with the

same violation of trading in the synchronized and fraudulent manner

without any real change in the beneficial ownership creating artificial

volume of trades we are also of the opinion that merely on the basis

of a common mobile numbers in KYC forms is not sufficient to hold

the appellants are being connected with the other entities.

9. In the impugned order, the AO found that the time difference

between the buy order and sell order was less than 60 seconds and,

therefore, the trades were synchronized trades. On the other hand,

the AO exonerated the six entities on this issue holding,

"thus, the structured trades would not have been said to be intentional. In this regard, while 10 seconds is a very small time difference between orders, I find the arguments on time difference in order price acceptable, as a trade cannot be intended to match in a structured manner with difference in order price".

10. Thus, we find that whereas the appellants have been found

guilty of executing synchronized trades on the basis of time

difference between the buy order and sell order the six entities on the 9

same charge were exonerated. In our opinion, if the six entities were

exonerated, the appellants are entitled for the same relief.

11. In this manner, the impugned order holds that the

appellants had indulged in circular trades, synchronized trades, self-

trades creating artificial volume of trades which were manipulative

and fraudulent. On the other hand, the AO exonerated the six entities

on the same charge.

12. We are also of the opinion that synchronized trading can only

happen between connected persons having common intentions. Since

connection between the appellants and other entities have not been

established, the charge relating to synchronized trading automatically

fails.

13. In the light of the aforesaid, we are of the opinion that it is

not necessary to dwell on the merits of the case as contradictions in

the findings given by two AO's are sufficient to set aside the findings

given in the impugned order.

14. In so far as the appeal of Dhvani Darshan Kothari & Anr. is

concerned, who are in the second group, the said appellants have

been penalized on the charge that they are connected on the basis of a 10

common mobile number. This charge is apparently common and,

therefore, we are of the opinion that the appellants cannot be found

connected on the basis of a common mobile number which is

insufficient.

15. The appellants have been charged and found guilty on the basis of

purchasing the scrip off-market from Bahar Paper Pvt. Ltd. and was

found to have sold the same shares online to the same counter party

and, therefore, came to the conclusion that these trades are

fraudulent. We find that the appellant Dhvani Kothari purchased

10,000 shares off-market on June 30, 2009 and had sold the same on

July 7, 2009. Her husband the second appellant purchased 50,000

shares on June 16, 2009 and sold 40,000 shares online.

16. This Tribunal while allowing the appeals of the said

appellants by its earlier order dated June 22, 2016 found as under :-

"8. In the Table set out in para 16 of the impugned order, it is recorded that the appellant-Dhvani Kothari is related to her husband Darshan Kothari. Apart from the above, nowhere in the impugned order it is stated that the appellant was connected with Bahar Paper Pvt. Ltd. or any of the entities set out in the impugned order. Fact that the appellant purchased shares of RIL from Bahar Paper Pvt. Ltd. in off market and sold the said shares on market, wherein, Bahar Paper Pvt. Ltd. happens to be the counter party, no doubt raises strong 11

suspicion that the said trade may not be a genuine trade. However, without recording any reasons as to how the said trade could be said to be fraudulent and manipulative trade or the basis on which the appellant could be said to be connected to Bahar Paper Pvt. Ltd., merely on the basis of certain general observations the AO could not have arrived at a conclusion that the trades executed by the appellant were fraudulent and manipulative trades.

9. Apart from the above, from the impugned order it is not possible to ascertain as to whether the AO has held that the trades executed by the appellant were circular trades or synchronized trades or structured trades. Assuming that the trades executed by the appellant were synchronized trades or circular trades, the AO is not justified in treating the appellant who has executed a single trade on market to be on par with other persons who have been executed several circular trades, synchronized trades, structured trades and self trades on market and impose uniform penalty of ` 5 lac on all such persons including the appellant.

10. It is relevant to note that indulging in a fraudulent and unfair trade practice relating to securities is a serious offence and therefore, under Section 15HA of SEBI Act, maximum penalty of ` 25 crore is imposable on any person indulging in such practices. In such a case, the AO without considering the merits of individual case of the appellant could not and ought not to have held that the trade executed by the appellant was a fraudulent trade."

17. This Tribunal held that purchasing off-market from Bahar

Paper Pvt. Ltd. and selling online to the same counter party may raise

strong suspicion that the transfer may not be genuine. The Tribunal 12

found that no reasons were recorded as to how the said trades are

manipulative and fraudulent and that one transfer cannot make it

synchronized, circular or reversal and execution of one trade cannot

be treated at par with the trades executed by the other entities which

were large in number.

18. In this regard, we find that the appellant Dhvani and

Darshan executed one trade and since it was sold to the same counter

party, the AO held that it was fraudulent. There is no finding as to

how the trades executed by these appellants were synchronized or

circular or reversal. There is no consideration or reasoning given as

to how the execution of one trade could make it synchronized,

circular or reversal and how they are treated at par with the other

entities. We find that the AO has not considered the directions given

by this Tribunal in its earlier order. We are further of the opinion

that this set of appellants is also entitled for the same relief as other

appellants on the basis of contradictory findings.

19. For the reasons stated aforesaid, the impugned order passed

by the AO cannot be sustained in so far as the appellants are

concerned and is quashed. The appeals are allowed with no order as

to costs.

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20. 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

Registry. In these circumstances, 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.

Parties will act on production of a digitally signed copy sent by fax

and/or email.

Justice Tarun Agarwala Presiding Officer RAJALAK Digitally signed by RAJALAKSHMI SHMI H HDate:

NAIR 2021.01.24 NAIR 19:57:47 +05'30' Dr. C. K. G. Nair Member

Justice M. T. Joshi Judicial Member

21.01.2021 PTM