G. Moorthi vs Sebi

Securities Appellate Tribunal7 August 2019Tarun Agarwala

CitationAppeal No.166 of 2017

Ratio decidendi

The rule this decision rests on

The Tribunal's reasoning rests on the following principles, in the order the court takes them: Where a transfer of shares is made off-market without consideration, and the surrounding conduct shows it was not intended to transfer beneficial ownership, the transfer is not a genuine transfer and may be treated as part of a scheme of price manipulation under the PFUTP Regulations, notwithstanding the transferor's claim that he was defrauded by the transferee. Trades between connected parties that are matched in quantity and executed within a minute of each other, and that form a substantial proportion of the daily traded volume, are not a coincidence and may be inferred to be non-genuine synchronised trades; such inference of an intended manipulative pattern may support a finding of violation against a party to the group, even where that party is not shown to be a blood relative of the others.

Written by Miss Lucy from the judgment below, not taken from a headnote.

Judgment

As delivered

BEFORE THE SECURITIES APPELLATE TRIBUNALMUMBAIOrder Reserved on:18.6.2019Date of Decision: 7.8.2019Appeal No.166 of 2017G. MoorthiPlot No.3, Janki Kutir, JuhuChurch Road, Juhu, Mumbai - 400049. ..... AppellantVersusSecurities & Exchange Board of IndiaSEBI Bhavan, C-4A, G Block,Bandra Kurla Complex,Mumbai 400051. ...... RespondentMr. Shashikant D. Chandak, Advocate with Ms. Kanchan S.Chandak, Advocate for the Appellant.Mr. Karan Bhosale, Advocate with Mr. Santanu Mitra,Advocate i/b. Desai & Diwanji for the Respondent.WithAppeal No.190 of 2017Ritika Sushil Jhunjhunwala41, Meghna Apartments, S.V. Road,Santacruz (West), Mumbai-400054. ..... AppellantVersusThe Adjudicating OfficerSecurities & Exchange Board of IndiaSEBI Bhavan, C-4A, G Block,Bandra Kurla Complex, Bandra (E),Mumbai 400051. ...... Respondent2Mr. Vinay Chauhan, Advocate with Mr. Nikhil Shah and Mr.Mit Shroff, Advocate i/b. Joby Mathew & Associates for theAppellant.Mr. Karan Bhosale, Advocate with Mr. Santanu Mitra,Advocate i/b. Desai & Diwanji for the Respondent.CORAM: Justice Tarun Agarwala, Presiding OfficerDr. C.K.G. Nair, MemberJustice M.T. Joshi, Judicial MemberPer : Justice M.T. Joshi1.Aggrieved by the order of the Adjudicating Officer ofSecurities and Exchange Board of India (hereinafter referredto as 'SEBI') dated 16th June, 2017 imposing penalty in theamount of Rs.15 lakhs so far as appellant Ms. RitikaJhunjhunwala is concerned and Rs.25 lakhs so far as appellantMr. G. Moorthy is concerned under Section 15HA of theSecurities and Exchange Board of India Act, 1992 (hereinafterreferred to as 'SEBI Act') for violation of the provisions ofSecurities and Exchange Board of India (Prohibition ofFraudulent and Unfair Trade Practices relating to SecuritiesMarket) Regulations, 2003 (hereinafter referred to as 'PFUTPRegulations'), the present appeals have been preferred againstthe common order.2. The record would show that the respondent SEBI hadreceived various complaints against one Mr. Sudhir3Jhunjhunwala, one Mr. Sanjay Talati and present appellantMr. G. Moorthi that they were indulging in rigging the pricesof the shares of M/s. Gemini Communication Limited(hereinafter referred to as 'GCL/Company').In the year 2007-2008, the investigation was started.Respondent SEBI also came to know during investigation thatcomplaints were filed with the police by Mr. SudhirJhunjhunwala as well as his wife Mrs. Madhu Jhunjhunwalaand the appellant Mr. G. Moorthi against each other. In thosecircumstances, the respondent SEBI conducted price andvolume analysis of the scrip of the Company of pre-investigation period i.e. July 1, 2006 to December 31, 2006and of the investigation period from January 1, 2007 to April30, 2008.Upon analysis of the transactions, the respondent SEBIformed an opinion that the present appellant Ritika, Mr.Sudhir Jhunjhunwala and his wife Mrs. Madhu Jhunjhunwala,one Mr. Sanjay Talati had during the first patch ofinvestigation i.e. January 1, 2007 to May 15, 2007 hadpurchased 5,63,695 shares from the platform of BSE Ltd(hereinafter referred to as 'BSE') and 2,58,473 shares from theplatform of National Stock Exchange of India Ltd. (hereinafter4referred to as 'NSE'). Thereafter, during the rest of the periodthey had purchased shares in miniscule quantity and in facthad sold those shares which included intra group tradesamongst the group. There were also sychronised deals andself trades between the groups on various occasions as notedin the order from para 12 to 21 of the impugned order.3. The defense of Mr. Sudhir Jhunjhunwala and Mrs.Madhu Jhunjhunwala was that one Mr. Sanjay Talati was thekey person who had transferred money and shares to his andhis wife's demat account only for collateral and marginpurposes for the shares to be purchased from the market.They were only financiers to the entire deal in which they hadincurred huge losses and, therefore, a suit is filed in theHon'ble Bombay High Court against the recovery of losses.The couple further informed SEBI that Mr. Sanjay Talati andappellant Mr. G. Moorthi were interested in only in rigging theprice of the shares of GCL. When the couple found thisintention they stopped purchasing the shares of the Companyand the shares were sold during that period.SEBI in the initial notice had alleged that the presentappellant Ms. Ritika is the daughter of the couple. In her replybefore the SEBI she denied the said relationship or any5connection with the group branded as Jhunjhunwala group bythe respondent SEBI. She explained that during the relevantperiod she not only traded in the GCL but also in several othercompanies during the period. Her trades in GCL were notsubstantial and in fact she had made loss. She pointed out thatin March 19, 2007 and April 20, 2007 she traded only for tendays and once in June, 2007 for 100 shares in the GCL. Asthe price of GCL was increasing she had purchased the sharesand she had nothing to do with the so called Jhunjhunwalagroup.Appellant Mr. G. Moorthi submitted before theAdjudicating Officer that in fact he was the victim of the fraudcommitted by one Mr. Sanjay Talati and Mr. Sudhir and Mrs.Madhu Jhunjhunwala. Based on their guarantee he hadtransferred Rs.5.87 crores from his own source to them inMarch, 2007 and thereafter he transferred three lakh shares ofGCL from his holdings to Jhunjhunwalas. It was arelationship of lender and borrower for an interest of 24percent and also to arrange a good buyer for the bulkplacement of shares of GCL belonging to him and appellantMr. G. Moorthi assured of 15 percent commission on saleconsideration. However, neither the money was returned nor6any sale proceeds of the shares were given to him. Thereafter,after much persuasion Mr. Sudhir and Mrs. MadhuJhunjhunwala entered into an MOU on 6th February, 2008 forthe repayment. However, as no money was paid he filed acomplaint and the case was pending in the Hon'ble MadrasHigh Court during that period. He therefore pleaded that hewas not part of any Jhunjhunwala group. He transferred thefunds and shares to Mr. Sudhir and Mrs. Madhu Jhunjhunwalain good faith which was held by him for the period of morethan one year earlier. He denied entering into anysynchronized trading and as such he also wanted to beexonerated.4. The Adjudicating Officer accepted the plea of theappellant Ritika that she was not the daughter of Mr. Sudhirand Mrs. Madhu Jhunjhunwala. However, the AdjudicatingOfficer concluded that in view of the synchronized tradeevident from the analysis, she was close relative of Mr. Sudhirand Mrs. Madhu Jhunjhunwala. In view of this fact, theimpugned order came to be passed against her. So far as theappellant Mr. G. Moorthy is concerned the AdjudicatingOfficer found that the appellant had on his own admission hadtransferred three lakh shares of GCL and also an amount of7Rs.5.83 cores to Mr. Sudhir and Mrs. Madhu Jhunjhunwala.The submission of appellant Mr. G. Moorthy that hetransferred shares in the account of Mr. Sudhir and Mrs.Madhu Jhunjhunwala to arrange a good buyer for the bulkplacement of shares and also transferring substantial amountwould according to the Adjudicating Officer show that it was

not a normal transaction of transfer of shares. It was a transfer

without any consideration and not a genuine transfer and as

such finding that all these activities were carried out for

rigging the price the Adjudicating Officer imposed the

penalty. Hence the present appeals.

5. We have heard Mr. Shashikant D. Chandak, Advocate

assisted by Ms. Kanchan S. Chandak, Mr. Vinay Chauhan,

Mr. Nikhil Shah and Mr. Mit Shroff, Advocates for the

Appellants and Mr. Karan Bhosale, Advocate assisted by Mr.

Santanu Mitra, Advocate for the Respondent. Learned

counsel for the appellant Ritika emphatically submitted that

the appellant was wrongly described as daughter of Mr. Sudhir

and Mrs. Jhunjhunwala and, thus, on this wrong footing the

whole proceedings continued. Upon pointed query, the

learned counsel made a statement at the bar that the appellant

Ritika is the niece of Mr. Sudhir jhunjhunwala. He however 8

submitted that some documents sought by the present

appellant were never produced. Investigation report was never

supplied to the appellant though the proceedings were initiated

after ten years. The record Annexure 'A' to the appeal would

show that during the period the appellant had traded in various

scrips and Annexure 'B' would show that in GCL trading she

had actually suffered loss. In the circumstance, he submitted

that the appeal be allowed.

6. Learned counsel for the appellant Mr. G. Moorthi

submitted that the appellant is a victim of fraud committed by

Mr. Sudhir and Mrs. Madhu Jhunjhunwala. The appellant had

innocently transferred the shares as detailed supra to Mr.

Sudhir and Mrs. Madhu Jhunjhunwala who managed the

same. They have however misused the same and, therefore,

the Adjudicating Officer ought not to have passed order

against the present appellant.

7. On the other hand, learned counsel for the respondent

SEBI took us through the trading pattern, the submissions of

the appellant on record, the conclusion of the Adjudicating

Officer and submitted that no interference in the appeal is

warranted.

8. Upon hearing both sides in our view both the appeals

are liable to be dismissed for the following reasons:-

a. In so far as the appellant Mr. G. Moorthi is

concerned his own submission would show that he

had transferred substantive shares to Mr. Sudhir

and Mrs. Madhu Jhunjhunwala off market without

any consideration for management of portfolio by

promising a commission of 15 percent. The record

would show that Mr. Sudhir and Mrs. Madhu

Jhunjhunwala had another story to tell. Be that as

it may. It is clear from the records that the share

were not transferred with an intention to transfer

the beneficial ownership. The record would show

that during the same period Mr. Sudhir and Mrs.

Madhu Jhunjhunwala as well as the present

appellant Ritika had purchased bulk of shares from

the platform of BSE and NSE and thereafter the

same were sold in different quantities. More

notably the percentage of trading of this group

would show that they have contributed

substantially in the buying and selling during that 10

period i.e.8,34,472. Similarly, the sale was also of

the substantive proportion i.e. 14,55,160.

b. Most important factor is the intra group transfers

between appellant Ritika and Mr. Sudhir and Mrs.

Madhu Jhunjhunwala on BSE platform, which

occurred within less than a minute which has been

highlighted by the Adjudicating Officer as under:

Buyer Seller Moorthi Madhu Ritika Sudhir Total Madhu 24999 52226 77225 Ritika 335 20693 21028 Sudhir 39975 6953 1256 48184 Total 39975 7288 26255 72919 1,46,437

c. Further, the details of the synchronized trade and

some of the instances of trading for a specific

period is highlighted as under:

Date Date BSE Jhunjhunwala group Sync Sync Total Total Day's No.of Sync trades as trades as no. of traded Buy + Sync trades % of % of trades quantity Sell trades (No.of daily clients shares) traded Buy + qty at Sell BSE 13-Feb-07 288 83,934 21,953 6 6,953 8.28% 63.34% 8-Mar-07 189 56,976 35,342 1 5,000 8.78% 28.29% 12-Mar-07 49 27,116 26,000 1 10,000 36.88% 76.92% 13-Mar-07 72 69,312 60,197 2 24,975 36.03% 82.98% 19-Mar-07 104 22,133 30,165 1 8,696 39.29% 57.66% 20-Mar-07 96 18,255 17,233 1 1,256 6.88% 14.58% 21-Mar-07 222 31,481 39,023 1 335 1.06% 1.72% 22-Mar-07 140 54,226 87,744 7 33,420 61.63% 76.18% 23-Mar-07 207 46,209 62,182 2 10,000 21.64% 32.16% 26-Mar-07 171 27,272 40,205 3 18,303 67.11% 91.05% 30-Mar-07 18 25,167 50,000 2 24,999 99.33% 100.00% 14-May-07 98 26,599 23,556 1 2,500 9.40% 21.23% 1,654 4,88,680 4,93,600 28 1,46,437 29.97% 59.33% 11

d. Similar is the case regarding similar trading on the

NSE platform which are detailed as under:-

Buyer Seller Sudhir Ritika Total Sudhir 5,000 5,000 Madhu 57,785 25,000 82,785 Ritika 14,500 14,500 GrandTotal 72,285 30,000 1,02,285

Further, synchronized trades were observed on the

following dates:

Date Date NSE Jhunjhunwala group Sync trades Sync Total Total Day's No.of Sync as % of trades as no. of traded Buy + Sync trades daily traded % of trades quantity Sell trades (No.of qty at NSE clients shares) Buy + Sell 20-Mar-07 55 19,641 36,202 5 5,000 25.46% 27.62% 21-Mar-07 112 12,634 14,043 1 2,500 19.79% 35.60% 22-Mar-07 77 44,285 86,000 9 43,000 97.10% 100.00% 23-Mar-07 30 11,073 20,000 2 10,000 90.31% 100.00% 26-Mar-07 76 24,863 37,786 3 16,785 67.51% 88.84% 30-Mar-07 36 29,927 58,000 2 25,000 83.54% 86.21% Total 386 1,42,420 2,52,031 23 1,02,285 71.32% 81.17%

e. This analysis of the trading of Mr. Sudhir and Mrs.

Madhu Jhunjhunwala with appellant Ritika would

clearly show that it cannot just be a coincidence

that exact quantity of buy and sell would match

within a time difference of less than one minute.

The trades also points toward the one and only fact

that the trades entered into by the appellant

alongwith other group members was not a genuine

transfer. In that view of the matter, the order of the 12

Adjudicating Officer in this regard requires no

interference. Both the appeals are thereby

dismissed with no order as to costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member

7.8.2019 Prepared and compared by RHN

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