Indira B Bhalla vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Order Reserved on: 20.12.2019 Date of Decision : 29.01.2020

Appeal No. 26 of 2019

Labhu Gohil 804, B-Wing, Ambika Nagar, J.N. Road, Opp. Titan Showroom, Mulund (W), Mumbai - 400 080. ...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. Nishant Upadhyay, Advocate with Mr. Chintan Sheth, CA i/b Chintan Sheth & Associates for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.

WITH Appeal No. 27 of 2019

Sweta Ramesh Rabadiya Matrubhumi Society, Babu Jagjivan, Ram Dindayal Upadhyay Marg, Mulund (West), ...Appellant Mumbai - 400 080.

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

Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.

WITH Appeal No. 28 of 2019

Deepak Narshibhai Javiya 401, Jagruti Hsg, Vithal Nagar, S.L. Road, Mulund (W), Mumbai - 400 080. ...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. Chintan Sheth, CA i/b Chintan Sheth & Associates for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.

WITH Appeal No. 29 of 2019

Nila Deepak Javiya 401, Jagruti Hsg, Vithal Nagar, S.L. Road, Mulund (W), Mumbai - 400 080. ...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 3

Mr. Chintan Sheth, CA i/b Chintan Sheth & Associates for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent. WITH Appeal No. 56 of 2019

Premila Someshwar Joshi Shiv Shankar Estate, Opp. Saraswat Wadi, Zaver Road, Mulund (West), Mumbai - 400 080. ...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. Nishant Upadhyay, Advocate with Mr. Vijay Tiwari, PCS for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.

WITH Appeal No. 57 of 2019

Sneha Chavda 5, Joshi Chawl, Zaver Road, Mulund (West), Mumbai - 400 080. ...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 4

Mr. Nishant Upadhyay, Advocate with Mr. Vijay Tiwari, PCS for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent. WITH Appeal No. 64 of 2019

Walbai Barot 42, Hansraj Meghji Laddha Chawl, Zaver Road, Near Saraswat Wadi, Mulund (West), Mumbai - 400 080. ...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. Nishant Upadhyay, Advocate with Mr. Vijay Tiwari, PCS for the Appellant. Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.

WITH Appeal No. 65 of 2019

Neela R Padhiyar H-140, Akharben Chawl, Anna Nagar, Mahadeo Desai Road, Kandivali (East), Mumbai - 400 101. ...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 5

Mr. Nishant Upadhyay, Advocate with Mr. Vijay Tiwari, PCS for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.

WITH Appeal No. 66 of 2019

Indira B Bhalla 21, Adenwala CHS, P.K. Road, Mulund (West), Mumbai - 400 080. ...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. Nishant Upadhyay, Advocate with Mr. Vijay Tiwari, PCS for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent. WITH Appeal No. 67 of 2019 Chetan Vasant Ganatra 28, Kamal Kunj, Zaver Road, Mulund (West), Mumbai - 400 080. ...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 6

Mr. Nishant Upadhyay, Advocate with Mr. Chintan Sheth, CA i/b Chintan Sheth & Associates for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.

WITH Appeal No. 175 of 2019

Vasant Ganatra (HUF) 28, Kamal Kunj, Zaver Road, Mulund (West), Mumbai - 400 080. ...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. Nishant Upadhyay, Advocate with Mr. Chintan Sheth, CA i/b Chintan Sheth & Associates for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.

WITH Appeal No. 176 of 2019

Taraban Vasant Ganatra 28, Kamal Kunj, Zaver Road, Mulund (West), Mumbai - 400 080. ...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 7

Mr. Nishant Upadhyay, Advocate with Mr. Chintan Sheth, CA i/b Chintan Sheth & Associates for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.

WITH Appeal No. 177 of 2019 Ajit Vinod Tank 4, Parmanand Terrace, Near Cama Lane, Kirol Road, Ghatkopar (West), Mumbai - 400 086. ...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. Nishant Upadhyay, Advocate with Mr. Vijay Tiwari, PCS for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.

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 13 appeals have been filed challenging the order of

the Adjudicating Officer ('AO' for short) of Securities and 8

Exchange Board of India ('SEBI' for short) dated November 30,

2017. By the said order 16 entities are found to have violated the

provisions of Regulations 3(a), (b), (c) and (d) and Regulation

4(1), 4(2)(a) and (e) of SEBI (Prohibition of Fraudulent and

Unfair Trade Practices relating to Securities Market) Regulations,

2003 ('PFUTP Regulations' for short). Therefore, varying amount

of monetary penalties in the range of Rs. 5 lakh to Rs. 10 lakh

have been imposed on them under Section 15HA of the SEBI Act,

1992.

2. Basic facts relating to the matter are the following. Based on

certain suspicious trading in the scrip of M/s. Aarya Global Shares

and Securities Ltd. ('Aarya' for short) SEBI conducted an

investigation relating to the trading in the scrip of Aarya for the

period from May 21, 2010 to December 31, 2011. Further, the

said period of investigation was divided into three phases /

patches: May 21, 2010 to September 22, 2010 (P-1), September

23, 2010 to June 16 2011 (P-2) and June 17, 2011 to December

30, 2011 (P-3). Shares of Aarya were traded in BSE Limited

('BSE' for short) at the relevant time. During the investigation it

was observed that 16 noticees connected to one another, traded

among themselves and contributed to positive Last Traded Price

Variation (LTPV) and to New High Price (NHP) and 9

consequently violated the stated provisions of the PFUTP

Regulations.

3. Thereafter, vide order dated May 8, 2015 an Adjudicating

Officer was appointed following the SEBI (Procedure for Holding

Inquiry and Imposing Penalties by Adjudicating Officer) Rules,

1995 and subsequently, because of transfer of personnel, a new

AO was appointed vide order dated May 18, 2017. A common

show cause notice dated May 10, 2016 was issued to all the

noticees by the first AO. The said show cause notice was

delivered to all the noticees, except noticees no. 7,8 and 14,

though noticees 7 and 8 also replied to the show cause notice.

Thereafter personal hearing was granted on September 7, 2017 by

the second AO which was availed by some of the noticees through

their authorized representative while some of the noticees sought

adjournment. Therefore, a second opportunity of hearing was

granted on November 9, 2017 during which also some more

noticees were represented by authorized representatives. After

taking into account the replies filed by the noticees and the

statements made by the authorized representatives the order

impugned in these appeals was passed on November 30, 2017.

4. Shri Nishant Upadhyay, the learned counsel for the appellant

raised a preliminary objection to the impugned order because of 10

substantial delay in the proceedings. It was contended that though

the period of investigation relate to May 2010 to December 2011

the show cause notice was issued only on May 10, 2016 and no

reason is given either in the show cause notice or in the impugned

order for such considerable delay. Therefore, it was contended

that this Tribunal's order in respect of Ashok Shivlal Rupani &

Ors. vs. SEBI (Appeal No. 417 of 2018 decided on August 22,

2019) is squarely applicable in the instant proceedings as the delay

in these matters are of a similar nature of about 7 years.

5. Shri Nishant Upadhyay, the learned counsel for the appellant

further submits that SEBI carried out a malicious investigation in

these matters. The investigation period of 20 months was divided

into three phases / patches; the impugned order covers only the

first patch because the continued rise in the price and volume of

the scrip during Patch - 2 and Patch - 3 itself would have nullified

SEBI's finding against the appellant with respect to Patch - 1.

Further, the entire relationship between the entities (appellants) is

sought to be proved through a cell phone number but how a mere

cell phone number can prove such relationship is unexplained in

the impugned order. Similarly, the impact of the stock split and

the continued increase in the price and volumes in the scrip are

also not considered in the impugned order and therefore the 11

impugned order is unsustainable as no evidence against the

appellant has been brought on record to prove the alleged

violation of the stated provisions of PFUTP Regulations.

6. Learned counsel for the appellant further sought to

distinguish the role of each of the appellant in terms of their

contribution to LTP and NHP using appellant-wise details on

these parameters. It was contended that individual contribution of

each appellant is very negligible, very often Rs. 3 to Rs. 5; in

many cases no contribution to NHP; the number of trades

involved is very small - all in single digits - and in any case there

is no finding for the Patch - 2 and Patch - 3 of the investigation

period. In any case, it was contended that for every scrip there will

be LTP, NHP and a first trade and therefore these are no

conclusive evidence relating to price, volume or any other

manipulation as the appellants had been just trading in the scrip

like any other investors as the appellants found the scrip to be

beneficial for investment. Further, the fact that some of the

appellants are related and staying together is not a ground to hold

the appellants guilty of violating PFUTP Regulations as held in

Tribunal's order Narendra Ganatra vs SEBI (Appeal No. 47 of

2011 decided on July 29, 2011). It was further contended that it

was in public domain that the Company had published a few price 12

sensitive information during Patch - 1 of the investigation period.

The company's announcement to start new business on April 16,

2010; stocks split on July 27, 2010; acquisition of controlling

stake in the Company by M/s. Kuvan International Fashions Ltd.

on September 8, 2010 etc were all in public domain.

7. Learned counsel Shri Kumar Desai appearing for respondent

SEBI, on the other hand, contended that this is a case of a group of

entities trading amongst themselves creating LTPs, NHPs and

even placing first trade in the scrip on a number of days. One of

the noticees (Ms Hasti Pradeep Sheth) at the relevant time was

only eight months old and is still a minor. Further, the relationship

has been established through multiple factors such as sharing the

same address being relatives, sharing a common mobile number,

residing in the same area etc. Table 6.2 in the impugned order

gives the details of all the LTPs created / contributed by each of

the appellant / noticees. It shows that together they added

Rs. 117.70 to the LTP by means of just 72 trades. Similarly,

appellants / noticees had contributed Rs. 22 NHPs in 11 trades

which was 19% of the total market NHP. Further, they contributed

36 first trades out of a market total of 88 such trades. It was

further submitted by the learned counsel for the respondent that

the appellants did not provide any meaningful replies in their 13

statement and simply stated that they did not provide any contact

number in the KYC forms etc. because it was not a requirement

and in any case usage of a phone number is not sufficient to prove

any involvement in insider trading. However, during personal

hearing also many of the appellants sought adjournment and only

authorized representatives of some of them appeared for the same.

Effectively, it was contended that the noticees did not given

reasonable answers to the queries raised by AO though they were

given a number of opportunities. It was also submitted that all the

noticees except notice no. 14 furnished more or less same replies

such as "during the time of opening the account that they did not

have any contact number, due to which they had left the contact

number column empty and the sub-broker or any other person

may have filled his/her own number" or "common mobile

numbers is just a coincidence". It was, therefore, argued that the

nature of trading conducted by the appellants thereby creating

artificial LTP, NHP and creating a high price in the first trade of

the day itself are sufficient to prove that they have violated the

stated provisions of PFUTP Regulations given the findings /

evidence of trading as an inter-connected group. Therefore, the

findings in the impugned order as well as the penalty imposed in

the range of Rs. 5 lakh to Rs. 10 lakh, after considering the 14

mitigating factors under Section 15J of the SEBI Act, is just and

fair.

8. We have heard the learned counsel for the parties and

perused the documents placed before us.

9. Given the facts of the matter we do not find merit in the

submissions of an inordinate delay in the proceedings since we

note that SEBI was doing investigation during the interim and

some delay though has happened on account of change in the AO.

10. We note that though the impugned order deals with trading

in the name of the minor, no action has been rightly contemplated

against the minor. As regards the other noticees / appellants on

appeal before us we note that though their relationship through

common address, common mobile numbers etc. are matters of

record and proved no motive has been attributed to their trading

pattern. It is a fact that new LTP, NHP and a few first trades in the

scrip have been created / done by these appellants which would

prima facie points towards a manipulative effort. At the same

time, it is on record that the scrip was progressively doing well

during the investigation period with substantial increase in both

prices and volumes. No connection with the promoters of the

Company or with the Company itself has been attributed to the 15

appellants. There is no evidence or even any discussion on any

fund transfer between the appellants or the appellants with any

other entities in the absence of which motive for a collusive or

manipulative effort becomes blunt. Moreover, when a group of 16

entities themselves becomes parties to each other's trade in a

circular fashion, though to a limited extent, the net amount of

profits or losses also become negligible and only to the extent of

their trades getting matched with entities outside the group.

11. Just by looking at the trading pattern of the appellants; the

LTP, NHP, first trades etc. it may be possible to arrive at a prima

facie conclusion regarding violation of PFUTP Regulations.

However, in the facts and circumstances of the matter, particularly

the fact that the scrip involved was reasonably liquid and

continued to become more liquid and hence increase in volume

and prices and with no evidence of any fund transfer, motive for

manipulation etc. we are of the considered view that no penalty

can be imposed on the appellants. Without any other evidence, we

are constrained to give some weight to the submissions of the

appellant that they were trading in the scrip in a normal way

because of the scrip itself being attractive through various public

announcements supported by the fact of increase in volume of

trading and rise in prices. Therefore, given these factors imposing 16

a penalty becomes too harsh. At the same time since the trading

behavior exhibited by these appellants is not normal and is

amenable to invoking suspicion of a PFUTP violation, we would

warn the appellants from indulging in similar trading practices in

future.

12. In the result, the direction imposing penalty by the impugned

orders is modified and the appeals are disposed of with warning to

the appellants which would meet the ends of justice in these

matters. No orders on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member 29.01.2020 Prepared and compared by:msb