M/S Nishith M. Shah Huf vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Order Reserved on: 08.01.2020 Date of Decision : 16.01.2020

Appeal No. 97 of 2019

M/s Nishith M. Shah HUF 801, Satguru Tower, F.P. No. 162, Central and North Avenue Junction, Santacruz (West), Mumbai - 400 054. ..... 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 i/b Mr. Vikas Bengani, Advocate for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Abhiraj Arora and Mr. Vivek Shah, Advocate i/b ELP for the Respondent. AND Appeal No. 544 of 2019

M/s Nishith M. Shah HUF 801, Satguru Tower, F.P. No. 162, Central and North Avenue Junction, Santacruz (West), Mumbai - 400 054. ..... 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 2

Mr. Saurabh Bachhawat, Advocate i/b Mr. Vikas Bengani, Advocate for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Abhiraj Arora and Mr. Vivek Shah, Advocate i/b ELP for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member

Per : Justice Tarun Agarwala, Presiding Officer

1.

The appellant has filed Appeal No. 97 of 2019 against

the order dated January 8, 2019 passed by the Whole Time

Member ('WTM' for short) of the Securities and Exchange

Board of India ('SEBI') restraining the appellant from

accessing the securities market for a period of two years and

further prohibiting the appellant from buying, selling or

otherwise dealing in the securities directly or indirectly for a

period of two years. The appellant has also filed another

Appeal No. 544 of 2019 questioning the order of the

Adjudicating Officer ('AO' for short) dated June 25, 2019

whereby a penalty of Rs. 2 lakh was imposed for violation of

Regulation 3 and 4 of the SEBI (Prohibition of Fraudulent

and Unfair Trade Practices relating to Securities Market)

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

both the appeals are against the same violation of the PFUTP 3

Regulations and for the same transaction in question, the

same are being decided together.

2. For facility, the facts stated in Appeal No. 97 of 2019

are taken into consideration. The charge leveled against the

appellant is, that it had contributed to the positive Last Traded

Price (LTP) as the seller and that the trades made by the

appellant resulted in the manipulation in the price of the scrip

of Shree Shaleen Textiles Limited ('Company' for short)

thereby creating misleading appearance of trading in the

scrips of the said Company.

3. The WTM while issuing an order of debarment found

that miniscule shares were being sold by the appellant when

there was a demand for more shares and the appellant had a

substantive holding in that share. The WTM further held that

a prudent investor would have sold the entire shares at the

very first opportunity especially when the price quoted by the

purchaser was above the LTP and thus there was no reason to

sell miniscule amount of shares unless the motive was to

increase the price of the scrip. In this view, the WTM held

that selling miniscule shares indicate that the appellant was

not a genuine trader. The WTM taking note of the decision of 4

the Supreme Court in Securities and Exchange Board of

India vs Kishore R. Ajmera (2016) 6 SCC 366 held that the

trading pattern of the appellant had a misleading appearance

amounting to manipulation in the price of the share scrips and

were therefore violative of Regulation 3 and 4 of the PFUTP

Regulations. On the same analogy, the AO, by a separate

order passed an order imposing a penalty of Rs. 2 lakh.

4. We have heard Shri Saurabh Bachhawat, the learned

counsel for the appellant and Shri Kumar Desai, the learned

counsel for the respondent SEBI at some length. We are of

the opinion that the impugned order cannot be sustained for

the following reasons:-

(a) The investigative reports nor the WTM or the AO

found any connection between the buyer and the

seller. We also find that neither in the investigative

report nor in the impugned order any connection

has been found between the appellant with the

promoters / directors of the Company. Thus, no

causal connection has been established.

(b) The investigative report finds that no adverse

inference can be drawn against the buyer merely 5

because the buyer had placed buy orders above

LTP. On this basis, the buyer was exonerated from

the charge of manipulation in the price of the scrip

when admittedly the buyer was placing buy orders

above the LTP.

(c) Buy orders were placed at 9.15 hrs and sell orders

were placed during the course of the day but not

immediately after the buy orders nor the sell orders

of the appellants were placed before the buy

orders.

(d) There is no finding that the appellant has indulged

in fraudulent or unfair trade practices in securities.

(e) Selling miniscule amount of shares by itself is not

illegal nor manipulative nor violative of

Regulation 3 and 4 of the PFUTP Regulations

unless collusion with others is found.

(f) Allegation that the appellant has contributed to the

LTP cannot be upheld in the absence of any

collusion with the buyer or promoter / director of

the Company. One has to establish a connection 6

between a buyer and with the seller in order to

infer a manipulation in the price of the scrip.

(g) The authorities have misread and misapplied the

decision of the Supreme Court in Ajmera's case

(supra). In this regard Paragraph 27 of the

judgment is extracted here under:-

"27. Let us apply the aforesaid test to the facts of the present cases before us wherein admittedly there is no direct evidence forthcoming. The first relevant fact that has to be taken note of is that the scrips in which trading had been done were of illiquid scrips meaning thereby that such scrips though listed in the Bombay Stock Exchange were not a matter of everyday buy and sell transactions. While it is correct that trading in such illiquid scrips is per se not impermissible, yet, voluminous trading over a period of time in such scrips is a fact that should attract the attention of a vigilant trader engaged / engaging in such trades. The above would stand fortified by the note of caution issued by the Bombay Stock Exchange in the form of a notice/memorandum alerting its members with regard to the necessity of exercising care and caution in case of high volume of trading in illiquid scrips, as already noted."

In order to apply the aforesaid test, the facts of the

present case is, that there is no direct evidence of

collusion between the appellant as a seller with

that of the buyer. There is no finding that the

appellant was known to the directors or promoters

of the Company.

7 Since no direct evidence is forthcoming we have

to see the indirect connection which is that the

appellant was selling small quantities of scrips.

Trading in small quantities in scrips is per se not

impermissible as held in Ajmera's case (supra). If

trading in miniscule amount leads to an increase in

the price of the scrips one can presume or infer

that the trading is manipulative but such trading

cannot happen unilaterally. There must be

evidence to show collusion between the buyer and

the seller. In the instant case there is none. The

principle of preponderance of probability cannot

be exercised in the absence of any connection

between the seller and the buyer.

(h) The charge that the appellant had contributed to

the LTP as a seller which resulted in the

manipulation in the price of the scrips cannot be

sustained in the light of the glaring fact that the

same charge against the buyer had been dropped. 8

(i) In Jagruti Securities Limtied vs Securities and

Exchange Board of India (Appeal No. 102 of

2006 decided on October 27, 2008) and in Vikas

Ganeshmal Bengani vs Whole Time Member,

SEBI (Appeal No. 225 of 2009 decided on

February 25, 2010) the Tribunal held that the

charge of raising price artificially has to be

established and the element of collusion between

the buyer and the seller is a sine quo non. We are

in the entire agreement with the aforesaid

decisions and reiterate that in the absence of any

finding of collusion between the buyer and the

seller the charge contributing to the LTP cannot be

sustained.

5. In the light of the aforesaid, the impugned orders cannot

be sustained and are quashed. The appeals are allowed with

no orders as to costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Justice M.T. Joshi Judicial Member 16.01.2020 Prepared and compared by:msb