Ratio decidendi
The rule this decision rests on
Service of summons by affixation, where the appellant had been carrying on business at the same address and the affixation was not shown to be at a wrong address, is valid service, and a party so served who chooses not to appear cannot later complain of want of notice. Clubbing a single trade executed by the appellant with the trades of other noticees, on the ground that the appellant shares common email or address with them, is erroneous where no trade was executed between the appellant and those noticees; connection by common contact details is redundant in the absence of trades between them. A finding that a trading pattern is manipulative under Regulations 3 and 4 of the PFUTP Regulations cannot rest on the appellant's sale of a miniscule quantity in a single trade unless collusion between the seller and the buyer, or with other participants, is established by evidence; the selling of small quantities does not by itself amount to manipulation absent proved collusion. Price contribution by a seller's single trade cannot be attributed to that seller where no connection with the buyer is found, and the absence of proceedings against the buyer whose orders raised the price further undermines any finding that the seller contributed to the price rise. Application of the preponderance-of-probability standard cannot substitute for direct or proved evidence of collusion where the connection necessary to find manipulation is lacking.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
BEFORE THE SECURITIES APPELLATE TRIBUNALMUMBAIDate of Decision: 5.10.2020Misc. Application No.335 of 2020AndMisc. Application No.249 of 2020AndAppeal No.253 of 2020Indivar Traders Private LimitedOffice No.8, 5th Floor, BLOCK-A,Aidun Building, 1ST, Dhobi Taloa Lane,Mumbai - 400002. ...AppellantVersusWhole Time MemberSecurities and Exchange Board of IndiaSEBI Bhavan, C4-A, G Block,Bandra Kurla Complex, ...RespondentBandra (E), Mumbai - 400051.Mr. J.J. Bhatt, Advocate with Ms. Rinku Valanju and Ms.Hiral Shah, Advocate i/b. R.V. Legal for the Appellant.Mr. Anubhav Ghosh, Advocate with Mr. RavishekharPandey, Advocate i/b. The Law Point for the Respondent.CORAM: Justice Tarun Agarwala, Presiding OfficerJustice M.T. Joshi, Judicial MemberPer : Justice Tarun Agarwala, Presiding Officer21.The present appeal has been filed against the orderdated 30th July, 2020 passed by the Whole TimeMember restraining the appellant from accessing thesecurities market for a period of six months. By thesame order, the securities of the appellant in its demataccount has also been frozen for the same period.2. The facts leading to the filing of the appeal is, thatan investigation was conducted in the scrip of AadhaarVentures India Ltd, (hereinafter referred to as 'AVIL')for the period from 1st January, 2009 to 24th April,2015. It was noticed that the price was artificiallyraised fraudulently through a trading pattern which wasmanipulative. The Whole Time Member (WTM) afterconsidering the evidence found that 983 trades wereexecuted by 13 entities in patch one and that theappellant acted as one of the 9 counter parties in 49trades involving miniscule quantity of shares in eachtrade which resulted in positive contribution to the LTPof the scrip. The whole time member found that thetrading pattern indicated a potential to artificially3induce innocent investors to invest in the scrip and thatthe entities were taking turns on different trading daysto raise the price of the scrip during the investigationperiod by matching the prices of the pending sellorders with the buy orders.3. The appellant is a trader and investor in the capitalmarket. A show cause notice dated 3rd January, 2019was issued to show cause as to why an order undersection 11 and 11B of the Securities and ExchangeBoard of India Act, 1992 should not be passed forviolation of Regulations 3 and 4 of the Securities andExchange Board of India (Prohibition of Fraudulentand Unfair Trade Practices relating to SecuritiesMarket) Regulations, 2003 (hereinafter referred to as'PFUTP Regulations'). Inspite of service of notice theappellant did not appear and consequently the matterproceeded ex-parte and the WTM found that theappellant was a counter party seller which resulted inpositive LTP in the scrips which was manipulative and4fraudulent and violative of Regulations 3 and 4 of thePFTUP Regulations.4. We have heard Mr. J.J. Bhatt, Advocate with Ms.Rinku Valanju and Ms. Hiral Shah, Advocatefor the Appellant and Mr. Anubhav Ghosh, Advocatewith Mr. Ravishekhar Pandey, Advocate for theRespondent through video conference.5. The learned counsel for the appellant contended thatno notice was ever served upon the appellant and,therefore, on this short ground the impugned order isliable to be set aside. In this regard, we find that thesummons were served through affixation. This aspecthas not been denied, namely, that there was noaffixation or that the summons was affixed at thewrong address. We also find that at the time when theaffixation was made the appellant was doing businessfrom the same place and subsequently shifted toanother place. In the light of the aforesaid, we are ofthe opinion that the appellant was duly served but5chose not to appear for reasons best known to theappellant.6. On merits, we find that out of 983 trades that wereexecuted by 13 entities in patch one. The appellant wasonly a party to one trade which resulted in the positiveLTP of 25 paise. From a perusal of the record, wefind that the appellant was only a seller and hadexecuted one trade which was purchased by oneGajpal. There is no finding that appellant had anyconnection with the buyer or that it was premeditated.On the other hand, the whole time member has shownthat the appellant is connected with some of the othernoticees through common email, address etc.7. In the light of the aforesaid that the appellant hadonly executed one trade out of 983 trades, we are of theopinion that the penalty of debarring the appellant forsix months is wholly unwarranted and cannot besustained.8. The finding that 13 entities were acting as ahomogenous group and were connected to each other6and had executed the trades in a premeditated mannerwith a sole purpose of manipulating the price is notapplicable in so far as the appellant is concerned. Thefinding that other notices were taking turns on differenttrading days with a premeditated motive to raise theLTP of the scrip is not applicable in the appellant'scase as he had only executed one trade whereas theother 13 entities were executing several trades onvarious days in a premeditated manner. Thus, clubbingthe single trade of the appellant with the tradesexecuted by other 13 noticees on the ground that he isconnected to them is per se erroneous and baseless.9. We find that there is no finding to the effect that theappellant was trading either on the buy side or on thesell side with the other noticees. Thus, havingcommon email or address with some of them isredundant in the absence of any trades being executedbetween them.10. We also find that there is no finding that theappellant had any connection with the buyer, namely,7Gajpal. In the absence of any connection, no collusioncould be proved with regard to price manipulation orartificially increasing the price or its volume.11. We are also of the opinion that the analogy drawnby the WTM from the decision of the Supreme Courtin SEBI vs. Kishore R. Ajmera (2016) 6 SCC 366holding that the trading pattern of the appellant had amisleading appearance amounting to manipulation inthe price of the share and is therefore violative ofRegulations 3 and 4 of the PFUTP Regulations ispatently misplaced in as much as there was no tradingpattern of the appellant since he had executed onesingle trade. The Supreme Court itself has held thatselling miniscule quantity of shares does not mean tomanipulation by itself unless collusion with other arefound and proved. In the instant case, there is no directevidence of collusion or fraud between the appellant asa seller with that of buyer or with the other noticees inthe impugned order. Therefore, application of8preponderance of probability cannot be applied in theinstant case.12. We are also of the opinion that the appellant hasnot contributed to the LTP on the basis on one tradeexecuted on the sell side unless connection wasestablished with the buyer which in the instance case islacking. We find that no proceedings have beeninitiated against the buyer who had placed ordersabove the LTP and was thus responsible in the increasein the price of the scrip. Thus, we are of the opinionthat the appellant has not indulged in fraudulent orunfair trade practices in securities. In the absence ofany connection being found between the buyer and theseller and between the appellant and other entities thefinding of a trading pattern being premeditated tomanipulate the price is patently erroneous. The WTMhas misapplied the decision of the Supreme Court inAjmera's case in so far as the appellant is concerned.13. In the light of the aforesaid, the impugned ordercannot be sustained and is quashed in so far as it9relates to the appellant. The appeal is allowed. In thecircumstances there shall be no order as to costs. Misc.Application nos.335 and 249 of 2020 are disposed of.14. The present matter was heard through videoconference due to Covid-19 pandemic. At this stage itis not possible to sign a copy of this order nor acertified copy of this order could be issued by theregistry. In these circumstances, this order will bedigitally signed by the Presiding Officer on behalf ofthe bench and all concerned parties are directed to acton the digitally signed copy of this order. Parties willact on production of a digitally signed copy sent by faxand/or email.
Justice Tarun Agarwala Presiding Officer TARUN Digitally signed by TARUN AGARWAL DN: c=IN, o=PUBLIC WORKS DEPARTMENT UTTAR PRADESH, postalCode=221505, st=Uttar Pradesh, 2.5.4.20=30fcf68685192bbc53e6ff1608a83fb3881de7ac2ab
AGARWAL 7954d509c85ed6e0f7c41, serialNumber=095f8b286bb0b1cd07ff676611f4f5e7999727 d404aa38ca422f9d3529bdb8a3, cn=TARUN AGARWAL Date: 2020.10.07 16:20:52 +05'30'
Justice M.T. Joshi Judicial Member
