Jignesh Shah vs Sebi

Date of Decision: 20.12.2017

Appeal No. 155 of 2016

Jignesh Shah 18, Dhoot Papeshwar Building, 3rd Floor, Mangalwadi, Mumbai- 400 004 ...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

Ms. Akansha Jain, Practicing Company Secretary i/b Amit R. Dadhhech and Associates for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Rohan Agrawal, Advocate i/b MDP & Partners for the Respondent.

CORAM: Justice J.P. Devadhar, Presiding Officer Dr. C.K.G. Nair, Member

Per: Justice J.P. Devadhar (Oral)

1.

Appellant is aggrieved by the order passed by the Whole Time

Member ("WTM" for short) of Securities and Exchange Board of India

("SEBI" for short) on January 15, 2016. By the said order 10 entities

including the appellant have been restrained from accessing the securities

market and prohibited from buying, selling or otherwise dealing in

securities, directly or indirectly, in any manner whatsoever, for a period

of three years from January 15, 2016.

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2. Except the appellant none of the parties who are restrained by the

impugned order dated January 15, 2016 have chosen to file appeal

against the said order.

3. SEBI conducted investigation in the scrip of IQMS Software

Limited ("Company" for convenience) for the period from November 14,

2000 to December 15, 2000. Based on the investigation report, show

cause notice was issued to the appellant and other entities alleging that

they had indulged in pre-meditated reversal trades in the scrip of the

company which resulted in the increase in price of the scrip from ` 19 to

` 41.80 during the investigation period. It was alleged in the show cause

notice that the noticees had acted in concert with each other to create a

false market or misleading appearance of trading and that their

transactions were not genuine but were done with the intention not to

effect transfer of beneficial ownership but to operate as a device to inflate

or cause fluctuation in the market price of the scrip. Accordingly, all

entities mentioned in the show cause notice including the appellant were

called upon to show cause as to why action should not be taken against

them for violating the provisions contained in the Securities and

Exchange Board of India (Prohibition of Fraudulent and Unfair Trade

Practices relating to Securities Market) Regulations, 1995 ("PFUTP"

Regulations, 1995" for short) read with regulation 13(2) of the Securities

and Exchange Board of India (Prohibition of Fraudulent and Unfair

Trade Practices relating to Securities Market) Regulations, 2003

("PFUTP" Regulations, 2003" for short).

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4. Appellant filed his reply to the show cause notice and also availed

the personal hearing offered to him.

5. By the impugned order, the WTM of SEBI has rejected the

contention raised by the appellant and has inter alia restrained the

appellant from accessing the securities market for three years.

Challenging the impugned order the appellant has filed the present

appeal.

6. Basic argument advanced by counsel for the appellant is that the

appellant has traded in the shares of the company in the ordinary course

of business and that he was not connected to any of the parties set out in

the impugned order. It is submitted that merely because in some of the

trades counter parties happened to be the same parties it could not be

alleged that the appellant had indulged in reversal trades. In support of

the aforesaid contention reliance is placed on the decision of this

Tribunal in case of HB Stockholdings Limited v/s SEBI (Appeal No. 114

of 2012 decided on 27.08.2013) and decision of this Tribunal in case of

S.P.J. Stock Brokers Pvt. Ltd. v/s SEBI (Appeal No. 52 of 2013 decided

on 04.09.2013). It is also contended that the investigation carried out by

SEBI was basically against the allottees under the Initial Public Offering

(IPO) and the appellant being not an IPO allottee, the WTM of SEBI is

not justified in passing the impugned order against the appellant.

7. We see no merit in the above contentions.

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8. Findings recorded in para 14 of the impugned order which sets out

the reversal trades executed by the appellant has been succinctly

summarized by SEBI in its additional affidavit as follows:-

a) On 15th November 2000 between 11.30.19 am to

11.32.54 am, appellant bought 2000 shares of the

company through Networth Stock Broking Limited

("Networth") from a known counter party Darshan P.

Desai who sold through broker Geojit Securities

("Geojit"), through 11 trades. On the same day at

2.50.23 pm, the appellant sold the said 2000 shares of

the company through the broker Networth to the same

known counter party Darshan P. Desai who bought

the same through the broker Geojit, through 10 trades.

In short, the appellant bought 2000 shares in the

morning from Darshan P. Desai and sold the same

back to Dashan P. Desai in the afternoon and thereby

the appellant and Darshan P. Desai executed reversal

trades for 2000 shares.

b) On the same day i.e. 15th November 2000, the

appellant between 11.52.20 am to 11.57.30 am bought

3000 shares of the company through Networth from a

known counter party Sai Investcorp who sold through

broker Bipin R. Vora, through 10 trades. On the same

day, at 1.12.04 pm, the appellant sold 2000 shares out

of the said 3000 shares of the company through broker 5

Networth to Sai Investcorp who bought through

broker Bipin R. Vora, through 7 trades. In short, the

appellant bought 3000 shares in the morning from Sai

Investcorp and sold 2000 shares out of the said 3000

shares back to Sai Investcorp in the afternoon and

thereby executed reversal trades of 2000 shares.

c) On the same day i.e. 15th November 2000, the

appellant in the afternoon at 1.11.10 pm sold balance

1000 shares out of the said 3000 shares purchased by

him in the morning as stated herein above to a known

counter party Darshan P. Desai who bought the same

through broker Geojit, through 4 trades. In short, the

appellant routed 1000 shares amongst a group of

entities known to each other, as stated hereinabove.

d) On 24th November 2000, the appellant alternatively

sold and brought back 2000 shares of the company

from known counter parties by executing 40 trades, as

stated hereinbelow. On 24th November 2000, the

appellant initially sold 2000 shares to known counter

parties M/s AD Investments (500 shares, through 5

trades), Darshan P. Desai (500 shares, through 5

trades) and M/s Goldmist Equifin Pvt. Ltd. (1000

shares, through 10 trades) from 10.14 am to 10.43 am

and thereafter bought back 2000 shares in the

afternoon from known counter parties viz. M/s. Sai 6

Investcorp (1000 shares, through 10 trades) and M/s.

Harvic Management (1000 shares, through 10 trades)

between 12.13 pm and 1.27 pm. The appellant

thereby rotated the said 2000 shares of the company

between known counter parties as stated hereinabove.

e) On 12th December 2000, the appellant initially bought

2000 shares through the broker Networth from known

counter party M/s Harvic Management at around

10.07 am, through 10 trades. Thereafter, these trades

were reversed by the appellant at around 12.35 pm

when the appellant sold 1800 shares to M/s Harvic

Management, through 9 trades. The remaining 200

shares were sold by the appellant to unconnected

parties. In short, the appellant and the said M/s

Harvic Management executed reversal of trades for

1800 shares, as stated hereinabove.

f) Similarly on 29th November 2000 transactions were

matched and reversed between the appellant on one

side and M/s Harvic Management being the counter

party, on the other side. Similarly, on 13 th December

2000 transactions were matched and reversed between

the appellant on one side and Milan Vora being the

counter party on the other side. Thereafter, once

again on 15th December 2000 transactions were

matched and reversed between the appellant on 7

one side and Sai Investcorp being the counter party on

the other side.

g) Thus, on numerous occasions there were transactions

where the appellant and the same parties were

involved in reversal trades. Evidently, all those

entities were known to each other and it is apparent

that the consistent reversal trades were pre-meditated

and synchronized trades executed with an intention to

fraudulently influence the volume and price of the

scrip of the said company.

9. Aforesaid facts on record, in our opinion, establish beyond any

doubt that the appellant had indulged in reversal trades with the

connected entities and, therefore, the inference drawn by the WTM of

SEBI that the trades in question were not genuine and fraudulent trades

executed to create false market or misleading appearance of trading

cannot be faulted.

10. Reliance placed by counsel for appellant on the decision of this

Tribunal in case of HB Stockholdings Limited (supra) is misplaced. In

that case, in respect of trades that took place in the year 2000 show cause

notice was issued in the year 2005 and the same was adjudicated in the

year 2012. In those circumstances, this Tribunal quashed the order of

SEBI on ground of delay. Apex Court in the case of Commissioner of

Central Excise v/s Bhagsons Paint Industries reported in 151 ELT 129

(SC) has held that in the absence of any statutory bar contained in the 8 Central Excise Act, delay in deciding the show cause notice cannot be a

ground to set aside the order passed on the show cause notice. Even the

SEBI Act does not contain any provision prescribing time limit for

disposing of the show cause notice. Moreover, the Apex Court in the

case of State v/s R. Vasanthi Stanley reported in AIR 2015 SC 3691 has

held that a serious economic offence or the offences that has the

potentiality of creating a dent in the financial health of the institution

cannot be quashed on the ground that there is delay in the trial. In the

present case, the appellant has indulged in reversal trades which are

prohibited under the securities laws. Therefore, in view of the aforesaid

Apex Court decisions appellant is not justified in seeking relief based on

the decision of this Tribunal in the case of HB Stockholdings Limited

(supra).

11. Reliance placed by counsel for the appellant on the decision of this

Tribunal in case of S.P.J. Stock Brokers Pvt. Ltd. v/s SEBI (Appeal No.

52 of 2013 decided on 04.09.2013) is also misplaced. That case related to

synchronized trades, whereas, the case in hand relates to reversal trades.

Moreover, in that case neither the names of the persons forming the

group with whom the appellant therein had traded were disclosed nor

their connection was disclosed. In the present case, the impugned order

sets out in detail the names of the persons forming the group and the

trades executed by them within the time set out therein. Thus, the

decision of this Tribunal in case of S.P.J. Stock Brokers Pvt. Ltd. (Supra)

does not support the case of the appellant and is distinguishable on facts. 9

12. The Apex Court in the case of SEBI v/s Kishore Ajmera reported

in (2016) SCC 368 has held that the proximity of time between the buy

and sell orders may not be conclusive in an isolated case, however, if

such trades take place over a period of time then such trades could be

considered to have been executed by way of fraudulent/ manipulative

exercise with prior meeting of minds. In the present case, facts on record

clearly reveal that hundreds of reversal trades were executed between a

group to which the appellant was a party. In these circumstances, in our

opinion, the inference drawn by the WTM of SEBI that the trades

executed by the appellant were violative of the PFUTP Regulations

cannot be faulted. Consequently, the direction issued against the

appellant, restraining him from accessing the securities market for a

period of three years from the date of the impugned order cannot be

faulted.

13. Apart from the above, in para 5.11 of the Memorandum of Appeal

the appellant has stated that since last twelve years he had not carried out

a single transaction in the stock market. Thus, it is apparent that the

impugned order has not in any way prejudicially affected the appellant.

14. In these circumstances, we see no merit in the appeal and the same

is hereby dismissed with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 20.12.2017 Prepared & Compared By: PK