Jayprakash Bohra vs Sebi

Order Reserved On: 14.10.2019 Date of Decision : 05.11.2019

Appeal No. 162 of 2019

Jayprakash Bohra Panchvati 1, Wing C, Flat No. 601, Raheja Township, Malad East, Mumbai- 400 097 ...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. Saurabh Bachhawat, Advocate with Mr. Jitendra Sharda, Advocate i/b Mindspright Legal for the Appellant.

Mr. Abhiraj Arora, Advocate 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: Dr. C.K.G. Nair

1.

This appeal is preferred aggrieved by the order of the

Whole Time Member ("WTM" for convenience) of Securities

and Exchange Board of India ("SEBI" for convenience) dated

October 30, 2018 whereby the appellant, among others, has 2

been restrained from dealing in the securities market, directly or

indirectly, for a period of five years from the date of the ad-

interim ex-parte order issued on February 20, 2015. The said

direction is following the finding in the impugned order that the

appellant (and other noticees) has violated Regulations

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

Exchange Board of India (Prohibition of Fraudulent and Unfair

Trade Practices Relating to Securities Market) Regulations,

2003 ("PFUTP Regulations" for convenience).

2. The relevant background of the matter is as follows. The

scrip of M/s Gromo Trade & Consultancy Ltd. ("Gromo" for

convenience), a listed Company was suspended from trading for

a long period till 2012. As on September 30, 2013 Gromo had a

share capital of ` 5,00,000 (rupees five lakh) with 50,000 equity

shares of ` 10 each. It made 3 preferential allotments of equity

shares whereby allotting a total of 2,83,40,000 equity shares to

137 persons/ entities for about ` 42 crores on three dates,

November 09, 2013, February 17, 2014 and June 24, 2014.

These preferential allotments had a lock-in period of one year.

However, soon after the 1st preferential allotment the price of

the scrip stated increasing significantly. For instance from

January 15, 2014 to January 27, 2015 the price increased from 3

` 10.20 to ` 656, an increase of about 64 times. Investigation

also revealed that during the examination period the total

volume of trading was only 1385 shares as against the total

2,83,90,000 subscribed shares of the company. The average

daily trading volume was only 9 shares consisting of 2-4 trades

per day. Given these and other findings, the impugned order

holds that it was a case of market manipulation by a few entities

in raising the price of the shares of Gromo by putting extremely

small orders of 1 or 2 shares at far away prices from the Last

Traded Price ("LTP" for convenience), thereby violating the

provisions of PFUTP Regulations, 2003.

3. The investigation also revealed that the non-independent

directors of Gromo in connivance with a group of entities

known as Kamalakshi Group indulged in price manipulation

and thereby created false/ misleading appearance of trading in

the scrip at inflated prices. It was also revealed that there was

no perceptible change in the fundamentals of the company

which would support even a feeble rise in the price of the scrip.

4. Shri Saurabh Bachhawat, the learned counsel for the

appellant submits that in January 2014 the appellant purchased

1,050 shares of Gromo off-market from one Mr. Ramnarayan 4

who in turn got the same from one Mr. Kushal Jain. Since

Mr. Ramnarayan is from the Appellants' native place and was in

need of money he took the shares by paying the consideration of

` 10,500, though the shares were in the name of Mr. Kushal

Jain. On March 20, 2014 the said shares were dematerialized,

Mr. Kushal Jain was not one of the preferential allottees and

hence the shares were out of the original allotment of 50,000

shares by Gromo. It was also submitted that between April 17,

2014 and January 22, 2015, as and when buyers were available

the appellant sold the said 1,050 shares in the open market. As

regards his off-market transactions with Gromo in the scrip of

Ojas Asset Construction Company Ltd. ("Ojas" for

convenience), it was submitted that those shares were also

brought on the recommendation of Mr. Ramnarayan and on the

same person's suggestion he transferred ` 60,000 to the account

of Gromo and Gromo, in turn, transferred 6000 shares of Ojas to

him on June 23, 2014. The appellant did not have any direct

connection with the promoters/ directors of Gromo and did not

belong to the Kamalakshi Group.

5. In short, the learned counsel for the appellant submits that

he had no connection with Gromo or its promoters/directors;

shares of both Gromo and Ojas were purchased on the 5

recommendation of a person from his native place; transfer of

money and shares between the appellant and Gromo does not

indicate any connection and he did not belong to the

Kamalakshi Group or any link established in the impugned

order.

6. It was further contended that just because some of his

trades have impacted the LTP it cannot be called market

manipulation under PFUTP Regulations. In order to emphasise

this contention the learned counsel relied on the judgements of

this Tribunal in the matters of Ms. Smitaben N. Shah vs. SEBI

(Appeal No. 37 of 2010 decided on 30.07.2010, M/s. Jagruti

Securities Ltd. vs. SEBI (Appeal No. 102 of 2006 decided on

27.10.2008) and Shri Nagad Sarvar vs. SEBI (Appeal No. 336

of 2017 decided on 06.08.2019).

7. Shri Abhiraj Arora, the learned counsel for the respondent

SEBI took us through the complete picture regarding the

scheme or artifice employed by multiple entities which included

the directors of Gromo and entities collectively called the

Kamalakshi Group. The modus operendi, according to the

learned counsel, is to revive, on paper, a dormant listed

company with very little share capital; go for a preferential 6

allotment and by trading in very small number of shares at

inflated prices or far away prices from LTP between the group

entities to show considerable activity of trading in the scrip and

thereby induce the retail/other investors and thereby provide an

exit route to the group entities, including the preferential

allottees. All these symptoms are present in this matter. The

Company's (Gromo) share capital was only ` 5,00,000 (rupees

five lakh) with 50,000 shares; it was suspended from trading for

a long period, then came the preferential allotment and soon

afterwards small size trading in the scrip at higher and higher

prices for a period of time thereby taking the price from just

about ` 10 in January 2014 to 656 in January 2015. However,

in the instant case, the preferential allottees could not off-load

any fresh allotment since SEBI started investigation in 2014 and

the ex-parte order was passed on February 20, 2015. Moreover,

the preferential allotments had a lock-in period. Therefore only

part of the shares belonging to the original allotment could be

transacted since the free float was only about 1300 shares.

8. We are in complete agreement with the contentions of the

learned counsel for the respondent that the submission of the

appellant that he was not in any way connected to Gromo or to

the Kamalakshi Group is totally unfounded as the connection is 7

writ large ex-facie in the matter. There are off-market

transaction between Gromo and the appellant in other shares

and the off-market purchase of the shares of Gromo by the

appellant is clouded in mystery as the appellant is not disclosing

any facts relating to the same. The impugned order itself gives

the connection between the appellant and Gromo in clear terms

in Table 2 of paragraph 14. Moreover, appellants' explanation

regarding receipt of 1,050 shares of Gromo off-market when

Gromo itself has a limited floating stock of only about 1300

shares has no veracity. The submission that all the holdings of

the appellant are in normal course of business has no merit as

the entire issue in the matter is not normal course of business.

An unknown company suspended from trading for long; off-

market buying of 1,050 shares of the said company which

constitutes more than 2% of its share capital and which is in the

name of an unknown person (Kushal Jain) on the

recommendation of a person from the native place of the

appellant with no prior connection etc. can be treated as only a

fiction rather than normal business. Coupled with the finding

that the appellant had other transactions off-market with Gromo

as given in Table 2 page 13-14 of the impugned order is

sufficient evidence to prove the connection between Gromo, the

appellant and entities in the Kamalakshi Group, many of whom 8

are inter connected in the matter as explained in the said table.

Moreover, out of 1,050 shares of Gromo obtained off-market in

an inexplicable way by the appellant more than half of it was

sold in small tranches; most of the time placing sell order at far

away prices than LTP. The said trading pattern and the other

connections as explained above is sufficient enough to prove

that the appellant was part of the group that created the artifice/

scheme and therefore finding in the impugned order that the

appellant has violated the stated provisions of the PFUTP

Regulations cannot be faulted.

9. Further, the five year restraint imposed on the appellant

has been in operation since February 20, 2015. However, the

appellant never challenged the ex-parte interim order and filed

this appeal belatedly with a delay of 101 days only on March

25, 2019 when there was hardly 1 year left to complete the

restraint period.

10. The orders relied on by the appellant are distinguishable in

the facts of the present matter and in law since subsequent

Judgements of the Hon'ble Supreme Court in the matter of

Securities and Exchange Board of India vs. Kishore R.

Ajmera (2016) 6 SCC 368 and SEBI vs. Rakhi Trading (P) 9

Ltd., 2018 (13) SCC 753 etc., whereby it has been conclusively

held that preponderance of probability is sufficient in

confirming violations like market manipulation as direct

evidence in such matters may not be forthcoming.

11. Given the above reasons, we find no merit in the appeal.

Therefore, appeal is dismissed with no orders on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M. T. Joshi Judicial Member 05.11.2019 Prepared & Compared By: PK