Kaushik Rajnikant Mehta vs Sebi

Date of Decision : 07.01.2021

Appeal No. 378 of 2020

Kaushik Rajnikant Mehta 149/4086 Saidham co-op Society, Pant Nagar, B.B. Lane, Ghatkopar (East), Mumbai - 400 075. ...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. Vikas Bengani, Advocate for the Appellant.

Mr. Suraj Chaudhary, Advocate with Ms. Nidhi Singh and Ms. Kinjal Bhatt, Advocates i/b. Vidhii Partners for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member

Per: Justice Tarun Agarwala, Presiding Officer

1.

The present appeal has been filed against the order dated

March 20, 2020 passed by the Adjudicating Officer ('AO' for

short) of Securities and Exchange Board of India ('SEBI' for 2

short) imposing a penalty of Rs. 5 lakh for violation of

Regulation 3 and 4 of SEBI (Prohibition of Fraudulent and

Unfair Trade Practices relating to Securities Market)

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

2. The facts leading to the filing of the present appeal is, that

a show cause notice was issued on November 20, 2013 alleging

that the appellant along with other connected entities indulged

in synchronized trading which showed that there was no change

of ownership and the trades only created artificial volume in the

scrip thereby giving a misleading appearance of trades. It was

alleged that these synchronized trades in the scrip of Well Pack

Papers & Containers Ltd. was deliberately manipulated with the

sole purpose of increasing the price of the scrip. It was also

alleged that the buy orders were placed at higher rates and

within a few minutes of the placing of the trades the sell orders

matched and thereby the trades were not only manipulative but

fraudulent.

3. The AO after considering the evidence on record passed

an order on February 16, 2015 finding the appellant guilty of the

charges leveled and imposed a penalty of Rs. 6 lakh. An appeal

was filed by the appellant which was allowed by this Tribunal

by an order dated March 14, 2016. The order of the AO was set 3

aside and the matter was remanded to the AO to pass a fresh

order in the light of the observation made in the order.

4. Thereafter the impugned order records that nothing was

done immediately and SEBI took its own sweet time in

appointing an AO on March 17, 2018, that is, after more than

two years to decide the matter afresh. The record further

indicates that nothing was done by this AO and a new AO was

appointed on March 18, 2019 who after nine months fixed a

date of hearing in December 2019 and thereafter the impugned

order was passed on March 20, 2020.

5. The impugned order holds that the appellant had indulged

in synchronized trading with other connected entities creating

artificial volume in the scrip. The trades executed by the

appellant were fraudulent and manipulative leading to an

artificial increase in the price and therefore violative of

Regulation 3 and 4 of PFUTP Regulations. The AO considering

the facts and circumstances and the factors contained in 15J

imposed a penalty of Rs. 5 lakh.

6. We have heard Mr. Vikas Bengani, the learned counsel for

the appellant and Mr. Suraj Chaudhary assisted by Ms. Nidhi 4

Singh and Ms. Kinjal Bhatt, the learned counsel for the

respondent through video conference.

7. Before the Tribunal the ground urged is, that there has

been an inordinate delay in the disposal of the matter. The

trades which are alleged to be synchronized trades were

executed in the year 2008-2010 and the impugned order has

been passed after a period of 10 years. Such delay has caused

prejudice. It was also contended that the Tribunal by an order of

March 14, 2016 had remanded the matter to AO to decide the

matter afresh but it took more than three and half years for the

AO to redecide the matter. Such delay pursuant to the remand

order has caused prejudice and, on this ground of inordinate

delay, the impugned order is liable to be quashed.

8. It was also contended that the relevant extract of the

investigation report and the complete trade and order logs were

not provided which is violative of the principles of the natural

justice. It was also alleged that the AO has travelled beyond the

show cause notice in as much as that there was no charge with

regard to increase in artificial volume of the scrip. It was also

contended that there is no connection with the other entities,

namely, the Walmiki Shah group and the finding that the 5

appellant was connected with them on the basis of an off market

transaction was wholly erroneous and in any case insufficient.

9. On the other hand, the respondent urged that the order of

the AO does not suffer from any manifest error of law and that

no prejudice was caused to the appellant on account of the delay

in the completion of the proceedings. It was contended that the

delay has not caused any harm or detriment to the interest of the

appellant and therefore on this ground the order cannot be set

aside. It was contended that the evidence on record clearly

indicated that the appellant was connected to the Walmiki Shah

group on the basis of off market transaction. It was also

contended that the evidence clearly indicated synchronized

trades between the appellant and the entities without any

intention of change of ownership. The trades executed by the

appellants created not only artificial volume in the scrip but also

led to the increase in the price. It was contended that the buy

orders were placed at a higher price and within a minute the

trades were executed which shows that there was a common

intention of mind.

10. Having heard the learned counsel for the parties and

having perused the record we are not satisfied with the

contention raised by the appellant with regard to non- 6

availability of the investigation report or the trade and order

logs. We are of the opinion that bald assertion has been made

without providing any relevant evidence on the subject in

question. Nothing has been brought on record to show as to how

the investigation report or the complete trade and order logs was

required for the purpose of the case. We also find from a perusal

of a show cause notice as well as from the impugned order that

AO has not travelled beyond the show cause notice. The show

cause notice is very clear and covers artificial volume of the

trading which is implicit as well as explicit.

11. Insofar as the allegation of connection with the Walmiki

Shah group is concerned we are satisfied that the appellant was

connected with this Walmiki Shah group. We find that the

appellant made an off market transaction with Vipul Hiralal

Shah who is one of the entities of the Walmiki Shah group and

therefore the finding that the appellant is connected with the

Walmiki Shah group does not suffer from any error.

12. Insofar as inordinate delay is concerned we find that after

the remand from the Tribunal by an order of March 14, 2016,

the respondent took no steps to decide the matter afresh. When

no steps were taken for more than two years it leads to a

presumption that the matter had been set at rest and that the 7

respondent does not wish to pursue the matter any further. We

are also of the opinion that when there is undue delay in the

disposal of the case it causes a prejudice to the person who is

being prosecuted against. Once a show cause notice has been

initiated it is incumbent upon the authority to decide the matter

at the earliest. Delaying the proceedings does not benefit the

respondent or the appellant. In fact, the delay in our opinion

causes a lot of prejudice to the appellant. Every person has a

right to arrange its affairs in a suitable manner. When there is a

delay in initiating the proceedings or there is undue delay in the

disposal of the case, the uncertainty creeps in which causes

prejudice. In the instant case,we find that the Tribunal remanded

the matter on March 14, 2016. No steps were taken by the

respondent for more than three years and it is only on March 18,

2019 that an AO was appointed who took another nine months

to issue a notice for hearing. This inordinate delay in the

disposal of the matter pursuant to a remand order is a mitigating

factor to be considered while deciding the quantum of penalty

under 15J of the Act. Considering this factor, we are of the

opinion that on account of the undue delay in the disposal of the

matter the imposition of penalty of Rs. 5 lakh becomes arbitrary

and excessive and is liable to be reduced.

8

13. Considering the aforesaid, we affirm the order of the AO

holding that the appellant had violated Regulation 3 and 4 of

PFUTP Regulations. We, however, reduce the penalty from

Rs. 5 lakh to Rs. 2.5 lakh to be paid by the appellant within four

weeks from today. The appeal is partly allowed with no order as

to costs.

14. 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

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 Digitally signed by Presiding Officer RAJALAKS RAJALAKSHMI H NAIR HMI H NAIR Date: 2021.01.07 15:49:21 +05'30' Dr. C.K.G. Nair Member

Justice M.T. Joshi Judicial Member 07.01.2021 msb