Girish Kumar Agarwal & Ors. vs Sebi

Order Reserved on:15.3.2021 Date of Decision : 25.3.2021

Appeal No.55 of 2019

1.

Girish Kumar Agarwal

2. Girish Kumar Agarwal & Sons (HUF)

3. Sankalp Garg 8/219, Vidyadhar Nagar, Jaipur, Rajasthan-302023. ...Appellants

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No.C-4A, "G" Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400051. ...Respondent

Ms. Rishika Harish, Advocate with Ms. Rakshita Poddar, Advocate i/b. Mindspright Legal for the Appellants.

Mr. Suraj Chaudhary, Advocate with Mr. Abhiraj Arora, Ms. Rashi Dalmia, Mr. Karthik Narayan, 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 M.T. Joshi, Judicial Member 2

1. Aggrieved by the impugned order dated 20th

November, 2018 restraining each of the appellants for

a period of four years, from accessing the securities

market, in any manner, by the Whole Time Member of

Securities and Exchange Board of India (hereinafter

referred to as "SEBI") the present appeal is preferred.

2. It is alleged by respondent SEBI that the present

appellants have violated the provisions of Regulations

3(a), 3(b), 3(c), 3(d) and 4(1), 4(2)(a) and 4(2)(e) of

Securities and Exchange Board of India (Prohibition of

Unfair Trade Practices relating to the Securities

Market) Regulations, 2015 (hereinafter referred to as

„PFUTP Regulations).

3. In short the allegations are that the present appellant

had indulged into manipulating the share prices of

Partani Appliances Ltd. (hereinafter referred to as

„PAL/the Company‟). The defence of the appellants

that they did not indulge into the malpractices and that

their trading in the shares was in the natural course of

the business was not accepted. Hence the appeal. 3

4. Heard Ms. Rishika Harish, Advocate assisted by

Ms. Rakshita Poddar, Advocate for the Appellants and

Mr. Suraj Chaudhary, Advocate assisted by Mr.

Abhiraj Arora, Ms. Rashi Dalmia, Mr. Karthik

Narayan, Advocates for the Respondent.

5. Respondent SEBI received a list from Income Tax

Department wherein it was alleged that price

manipulation to generate bogus long term capital was

committed as regards securities of various companies

including the present PAL. Accordingly, SEBI

conducted investigation for alleged manipulation in the

price of the scrip of PAL.

6. Upon investigation it was found that for a period

between 20th October, 2014 to 31st March, 2015

manipulation in price of PAL was committed by 31

entities. These entities were grouped into three groups

by respondent SEBI. The present appellant and four

other entities were put into group one. Generally

against all these entities it was alleged that they had

purchased the shares of PAL in off market transactions 4

from the promoter or promoter group entities of PAL

and, thereafter, sold on the platform of the stock

exchange in very miniscule quantities for higher prices

thus raising the price of the share of the Company.

7. Shares of the PAL were listed earlier on Ahmedabad

Stock Exchange upon it‟s incorporation in 1985.

However, there was no trading in the scrip after 2001.

Thereafter, on 16th October, 2014 the scrip was listed

on the platform of BSE Ltd. However, with effect

from 14th September, 2015 the trading in the same was

suspended as a surveillance measure. SEBI found that

the price of the scrip opened at Rs.47.45 on 20th

October, 2014. It was the lowest during the

investigation period. By 19th December, 2014 it

reached high of Rs.172.3. There was net increase in

the Last Traded Price (LTP) of Rs.124.5 and market

positive LTP of Rs.133.05.

8. Out of the seven entities in the this common

proceedings of SEBI, so far as the present three

appellants are concerned, it is found that each of them 5

have purchased shares of the PAL from one of the

promoter of PAL, namely, Mrs. Margareta Alvares

and, thereafter, sold the shares on the stock exchange

platform in miniscule quantity of 2 to 5 shares each.

The shares were sold for higher price, in this miniscule

quantities, despite buy orders in large quantities for

same higher price were pending on the platform. The

details of the sale are given in para no.6(iv) of the

impugned order. The table annexed to the same gives

the detailed idea of above trades thereby increasing the

LTP of the same in allegedely manipulative manner.

9. The appellant replied that they had not purchased

the shares in off market from Mrs. Margareta Alvares

but from one entity by the name of Pavanaj Mercantile

Pvt. Ltd. (hereinafter referred to as PMPL). They had

also placed copies of supporting bank statements

showing payments made to PMPL and also copies of

the bill as procured from PMPL. They also claim that

there was significant time gap between the time when

the buy orders were placed and the sell orders were 6

punched in. Therefore, according to them there was no

collusion in jacking up the prices but the trading was

done in normal course of the business. Regarding

miniscule sale they contended that it was also normal

business practice.

10. The learned WTM scrutinised the bills, the bank

statement and the share transfer forms. The share

transfer form showed that the shares were transferred

by Mrs. Margareta Alvares and not by PMPL. The

appellant had argued that by way of blank transfer

forms they had purchased the shares and it is the

normal practice in the market to trade on the basis of

blank transfer form. The learned WTM however found

that this statement is against the provisions of section

2(i) of the Securities Contracts Regulations Act, 1956

which defined „spot delivery contract‟ as under.

"spot delivery contract" means a contract which provides for-

(a)actual delivery of securities and the payment of a price therefore either on the same day as the date of the contract or on the next day, the actual period taken for the despatch of the 7

securities or the remittance of money therefore through the post being excluded from the computation of the period aforesaid if the parties to the contract do not reside in the same town or locality;

11. The WTM also reasoned that as per the

submissions of the appellant the transaction of

purchase of the shares was completed only by way of

blank transfer form. The bills issued by PMPL

produced by the appellants were dated 27th July,

2013. Thus, according to rules the purported transfer

of shares should have been completed at the most by

26th July, 2013. As purported payment of

consideration is reflected in the copies of the bank

statements showing entries dated 25th July, 2013.

Further though the appellants claim that they made

payments on 25th July 2013, the invoices dated 27th

July 2013 do not give details of the same. The WTM

further found that PMPL is a company whose name

has been struck off from the register of the companies

as maintained by Registrar of Companies. The WTM

further found that the share transfer form would show 8

the date of execution as 20th August, 2013. This

contradiction was also highlighted by the WTM. It

was further reasoned that the handwriting and the ink

of the transfer form is one and same only. Thus, all

these factor according to the WTM indicate that the

shares were directly purchased by the appellant from

Mrs. Margareta Alvares and not from PMPL.

Lastly, it was also reasoned that in fact the shares sold

by Mrs. Margareta Alvares were issued to her by PAL

on 5th July, 2013. Thus, if the submission of the

appellant that they had purchased those shares on 25th

July, 2013 on the strength of blank transfer form is

accepted then it would mean that within a short period

of 20 days the share transfer form changed the hands

though the shares of PAL were infrequently traded and

thus not at all in demand. Taking into consideration all

these fact the WTM concluded that there was an off

market transaction of purchase of shares by the

appellant from the promoter of the PAL and, thereafter,

the sale of minuscule quantities on the exchange 9

platform was started by the appellant for higher price

though large buy orders were pending. Therefore the

order was passed.

12. Ms. Rishika Harish, learned counsel for the

appellant submits that the copies of the bills as well as

the bank statements would show the date of transaction

between the appellant and PMPL. Post hearing she

filed written submission wherein she relied on the ratio

of Howra Trading Co. Ltd ..Vs... Commissioner of

Income Tax, Central Calcutta ( AIR 1959 SC 775)

and other subsequent cases wherin the ratio was relied.

It was ruled in the case of Howra Trading that in case

of blank share transfer form duly signed by the

transferor, certain equities are created between the

transferor and the transferee. She therefore submitted

that the transaction cannot be branded as illegal and

cannot be brused aside. She further submitted that the

learned WTM ignored the fact that large buy order for

higher prices were pending but no enquiry against the

said buyer is made by the respondent. The appellant 10

whose sell order may be in miniscule quantities

matched with the buy orders which were already

pending in the market. No connection between the

buyer and present seller is shown. She, therefore,

submitted that the order be set aside.

13. Upon hearing both sides, in our view, the reasoning

of the WTM regarding the purchase of shares in off

market transaction from one of the promoter of PAL is

clearly proved by the documentary evidence. Even if

we ignore the reasoning of the learned WTM regarding

the legality of the transaction being on the strength of

Blank transfer form, the case of the appellant that

within 20 days of acquisition of shares by the

promoter, the transfer forms changed hands and were

sold like a hot cake, and ultimately they purchased

those shares on the strength of blank transfer form not

from the promoter but other entity is against the clear

fact that the shares were highly illiquid i.e. infrequently

traded.

11

The sudden rise of price despite the scrip being highly

illiquid as detailed supra would go to show that the

appellant had contributed in manipulative manner in

increase of the price. Though the connection between

the appellant and the buyer is not shown, in the present

case, in view of the connection of the appellant with

the promoter and sell in miniscule proportion on the

exchange platform in unusual manner as detailed

supra, clearly would indicate that the present appellant

has dealt in the shares in manipulative and fraudulent

manner against the provision of the PFUTP

Regulations.

14. In view of the above facts the following order.

Appeal is hereby dismissed without any order as to

costs.

15. 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 12

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

Dr. C.K.G. Nair Member

Justice M.T. Joshi Judicial Member

RAJALA Digitally signed

25.3.2021 by

KSHMI RAJALAKSHMI NAIR H

RHN Date: 2021.03.30 H NAIR 11:06:58 +05'30'