M/S. Amrapali Capital And Finance ... vs Sebi

M/s. Amrapali Capital and Finance Services Ltd. 19/20/21, 3rd Floor, Narayan Chambers, Behind Patang Hotel, Ashram Road, Ahmedabad, Gujrat - 380009. ...Appellant Versus National Stock Exchange of India Limited Exchange Plaza, Plot No. C/1, G - Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent

Mr. Prakash Shah, Advocate with Mr. Kushal Shah, Chartered Accountant i/b Prakash Shah and Associates and Mr. Nirav Basheri, Compliance Officer of the Appellant.

Mr. Venkatesh Dhond, Senior Advocate with Mr. Vikram Trivedi, Mr. Rashid Boatwalla and Mr. Pruthvi Dhinoja, Advocates i/b Manilal Kher Ambalal & Co. 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 2

1.

This appeal has been filed challenging the order of the

Member and Core Settlement Guarantee Fund Committee

(„MCSGFC‟ for short) of National Stock Exchange of India

Limited („NSE‟ for short) dated February 28, 2020. By the said

order a monetary penalty of Rs. 1,01,67,582/-, which is 15% of

the value of profit earned by the appellant from the alleged non-

genuine trades carried out by the appellant in its proprietary

account, has been imposed on the appellant, in addition to

warning to desist from such practices in future.

2. The main charge against the appellant, who is a stock

broker and a member of NSE, is that the appellant had engaged

in synchronized trading with one entity, namely, Affluence

Gems Private Limited („Affluence Gems‟ for short) and the said

trades are in the nature of "fraudulent and unfair practices"

under Regulation 4.6.2 (1)(b) of the F&O Regulations.

3. It is the contention of the learned counsel for the appellant

Shri Prakash Shah that the appellant executed large volume of

transactions during the financial year 2018-19 in the F&O

segment of NSE to the tune of Rs. 14,640 crore. Therefore, the

alleged non-genuine trades has no meaning, particularly, since

the appellant was trading in liquid and frequently trades scrips 3

only and that too on the stock exchange platform. Therefore, the

appellant was not having any knowledge about the identity of

the counter party. Moreover, it is the stand of the learned

counsel that the complete trade log was not given to the

appellant nor the identity of the counter party was revealed nor

the counter party in question was called upon to furnish details

or to be cross-examined. Moreover, there were only nine scrips

in which trades executed by the appellant has significant

matching with Affluence Gems and only the summary was

provided to the appellant instead of detailed trade data including

that of matched quantity with Affluence Gems. Moreover, the

charging provisions quoted in the impugned order such as

Regulation 4.6.2(3)(f) and paragraph 8(e) and paragraph 8(f) of

the impugned order are not contained in the show cause notice

(SCN) and therefore the impugned order has traveled beyond

the SCN. Therefore, it was contended that the impugned order

suffers from serious defects and therefore cannot be sustained.

4. Shri Venkatesh Dhond, the learned senior counsel

appearing for respondent NSE, on the other hand, submits that

there is sufficient evidence to show that the appellant had

indulged in fraudulent and unfair trading practices; the penalty

imposed is 15% of the profit made is neither disproportionate or 4

excessive; all relevant details relating to the trades in question

were given to the appellant and not providing the details of the

counter party or not questioning the counterparty did not violate

the principles of natural justice in the facts of the case.

5. Quoting from the SCN dated February 27, 2019 the

learned senior counsel for the respondent submits that the SCN

is very clear in directly charging the appellant for indulging in

synchronized trading involving artificial prices and large

volumes. The SCN further adverts to two parties only and full

particulars of the synchronized trades such as date, time, volume

and price etc., except the name of the counter party, were

annexed to the SCN. Moreover, the appellant never asked for

the details of the counter party except in this appeal under

consideration which would indicate that the appellant was

always aware of the counter party and is now asking for these

details as an afterthought.

6. The learned senior counsel for the respondent also relied

on the order of this Tribunal in the matter of Sunita Gupta vs.

Securities and Exchange Board of India (Appeal No. 269 of

2018 decided on September 19, 2019) which held that a large

number of synchronized trades, circular trades and reversal 5

trades in themselves is sufficient to prove violation of PFUTP

Regulations irrespective of any connection with the opposite

side. The learned senior Counsel also relied on this Tribunal‟s

order dated 21st August 2019, in Basic Clothing Pvt. Ltd. v.

Securities and Exchange Board of India, Appeal no. 301 of

2019. Further, it was contended that as per Regulation

4.6.2(1)(b) no person shall indulge in market manipulation. The

Learned senior counsel also cited the applicable provisions of

the byelaws and F&O Regulations in emphasising his

contentions.

7. We have heard the learned counsel for the parties through

video conference and perused the documents placed before us.

We note that the respondent investigated the trades executed by

the appellant in its proprietary account during February 2019. It

came out in the investigation that out of the 130 scrips in which

the appellant was trading during the said period trading in 9

scrips of the appellant matched significantly with one counter

party i.e. Affluence Gems. Moreover, such trades accounted for

more than 60% of the total trading activity of the appellant

during the investigation period. Further, appellant‟s trade in the

said nine scrips matched with the Affluence Gems traded to the

extent of more than 90% and the said trades resulted in a profit 6

of Rs. 6.78 crore by the appellant. Details relating to these

trades are given in the impugned order and since those trades

are not in dispute we do not propose to go into the details.

8. We note the relevant provisions in the F&O Regulations as

quoted below for convenience:

"4.6.2 Without prejudice to generality of the provisions contained in the above clause, no person shall indulge in market manipulation, namely:

(1).(b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities / derivatives market or, results in reflection of prices of securities / derivatives contracts based on transactions, which are not genuine trade transactions; or..."

Similarly, Regulation 4.6.2.3 (f) and 3.1.17 of the F&O is

reproduced as under:

"3. No trading member shall

(f) either take opposite position to an order of a constituent or shall execute opposite orders which he is holding in respect of two constituents except in the manner laid down by the F&O Segment of the Exchange..."

3.1.17 The Trading Member/Participant shall continue to be liable for all trades executed on the system for orders entered on his behalf. Trading 7

Member/Participant shall be responsible for all the actions of their authorised persons."

9. On the contention of proportionality and legality of the

penalty imposed, NSE vide circular relating to

"Abnormal/Non-genuine trades" dated 13 December,

2018, Members/Brokers had been directed to refrain from

such trades, also stating the possible actions, including

penalty, in failing to comply. Subsequently, Circular

bearing no. NSE/INVG/43435 dated 4th February 2020,

was issued amplifying the penalty provision which reads

as under:-

"the Exchange shall levy a penalty of minimum of 15% upto a maximum of 100% profit earned/loss incurred on the trading members for both profit and loss making abnormal / non-genuine transactions after following the due process and providing necessary opportunity to the trading member for clarification in the matter."

10. In addition to the aforesaid provisions in the F&O

Regulations/Circular, we also note that the appellant is a broker

and a public limited company who has been a member of the

stock exchange since 1995 and operates in all segments of the

stock exchanges and therefore, is fully aware of the laws

relating to proprietary trading in addition to trading on behalf of 8

clients as a broker. The appellant is under obligation to

discharge its functions including the proprietary trading

functions with utmost care and diligence. Matching of more

than 90% of the appellant‟s trading with one counter party on

multiple trading days and that too in liquid stock futures

contracts cannot be just chance even though the trading has been

done through the anonymous trading platform of the stock

exchange, and would indicate some meeting of minds as the

ratio of the Apex Court‟s Judgment in Kishore Ajmera puts

forth. Since such matching with one counter party is not

disputed and the data relating to the same have been given to the

appellant not giving the name of the counter party per se has not

prejudiced the appellant in any manner. It is immaterial whether

the said counter party is A, B or C; the only relevant question is

whether a significant proportion of trading by the appellant has

matched with one counter party. Appellant‟s contention that

since out of 130 scripts in which it traded and trading in only 9

scrips had any concentration and hence there is no wrong-doing

is also devoid of any merit since only trading of scrips in which

significant concentration has been found to be violative of the

relevant provisions.

9

11. We further note that as per relevant provision in the NSE

Circulars dated 13 December 2018 and 04 February 2020 the

exchange is empowered to impose monetary penalty in the

range of 15% to 100% of the profit earned by an entity through

such non-genuine trades. In the present case only the minimum

penalty at the rate of 15% has been imposed; which is in

accordance with applicable law and does not suffer from dis-

proportionality or harshness.

12. In the light of the aforesaid reasons appeal lacks merit and

is therefore dismissed with no order as to costs.

13. 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 Presiding Officer 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 Presiding Officer 10

Dr. C.K.G. Nair TARUN Digitally signed by TARUN AGARWAL DN: c=IN, o=PUBLIC WORKS DEPARTMENT UTTAR PRADESH, postalCode=221505, st=Uttar Pradesh, 2.5.4.20=30fcf68685192bbc53e6ff1608a83fb3881de7ac2ab7954 Member AGARWAL d509c85ed6e0f7c41, serialNumber=095f8b286bb0b1cd07ff676611f4f5e7999727d404 aa38ca422f9d3529bdb8a3, cn=TARUN AGARWAL Date: 2020.11.19 13:14:32 +05'30'

Justice M.T. Joshi Judicial Member 19.11.2020 msb