M/S. Quantum Global Securities And ... vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date : 18/01/2017

Appeal No.320 of 2014

M/s. Quantum Global Securities and Leasing Company Ltd. A-89, 2nd floor, Lajpat Nagar-II, New Delhi - 110 024. ... Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No.C4-A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent

Mr. G.K. Mishra, Advocate a/w Mr. B.L. Aggarwal for Appellants.

Mr. Kumar Desai a/w Mr. Anubhav Ghosh, Advocates i/b The Law Point 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 Adjudicating

Officer ("AO" for short) of Securities and Exchange Board of India

("SEBI" for short) on 22nd July, 2014. By that order, penalty of Rs.60 lac

is imposed on the appellant under Section 15HA of the Securities and

Exchange Board of India Act, 1992 ("SEBI Act" for short) for violating

the provisions contained in the SEBI Act and SEBI (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities Market)

Regulations, 2003 ( "PFUTP Regulations" for short) and Rs.15 lac under 2 Section 15HB of the SEBI Act for violating the Code of Conduct for

Stock Brokers specified under the SEBI (Stock Brokers and Sub-Brokers)

Regulations, 1992 ("Brokers Regulations" for short).

2. Appellant is a registered stock broker and by the impugned order

penalty is imposed because, the appellant is found to have indulged in

synchronized trades, circular trades and reversal trades in the scrip of

M/s. Gangotri Textiles Ltd. ("Gangotri" for short) during the

investigation period with the entities who had contributed towards

Last Traded Price (LTP) variation in the scrip of Gangotri.

3. Counsel for the appellant fairly stated that the appellant does not

dispute the findings recorded by the AO that the appellant had

indulged in synchronized trades, circular trades and reversal trades in

the scrip of Gangotri. However, it is contended that there were no

malafide intention to violate the SEBI Act and the regulations framed

thereunder and therefore, the penalty imposed against the appellant is

wholly unjustified.

4. Arguments advanced by Counsel for the appellant that the

penalty imposed is exorbitant, unreasonable and excessive can be

summarized as follows:-

(a) It is submitted that various entities involved in the present

case had repeatedly indulged in such violations, whereas,

the appellant has committed such violation only once and, 3

therefore, the AO ought to have taken a lenient view and

ought not to have imposed penalty against the appellant.

(b) The AO failed to take into consideration various mitigating

factors set out under Section 15J of SEBI Act before

imposing penalty on the appellant.

(c) The annual turnover of the appellant for last several years

has been around Rs.5 lac per year and hence imposing

penalty of Rs.75 lac in the facts of present case is wholly

unjustified.

(d) In para 32 of the impugned order the AO has recorded a

finding that the appellant's contribution towards LTP was

not much. In view of the aforesaid finding recorded in the

impugned order, the AO could not have held that the

appellant has aided and abetted other entities in

committing LTP variation in the scrip of Gangotri during

the investigation period. Thus, the findings recorded in

para 32 being mutually inconsistent, the impugned order

deserves to be quashed and set aside.

(e) In any event, it is submitted that the trades executed by the

appellant being insignificant, it is a fit case for not

imposing penalty. Alternatively, it is submitted that after

considering all mitigating factors, nominal penalty which

this Tribunal deems fit and proper may be imposed on the

appellant.

4

5. We see no merit in the above contentions.

6. At the outset, it is relevant to note that the appellant as a

registered stock broker ought to have ensured that the trades were

executed in accordance with the SEBI Act and the regulations framed

thereunder. Instead, the appellant has not only indulged in reversal

trades but has also indulged in synchronized trades and circular trades

with the entities who had indulged in LTP variation in the scrip of

Gangotri. Indulging in synchronized trades, circular trades and reversal

trades constitute fraudulent and unfair trade practice under the PFUTP

Regulations and penalty imposable for such violations under Section

15HA of the SEBI Act is up to Rs.25 crore or three times the amount of

profits made out of those such practices, whichever is higher. Thus, in

the facts of present case, as against the penalty of Rs.25 crore imposable

for violating PFUTP Regulations, the AO after considering all

mitigating factors has imposed penalty of Rs.60 lac which cannot be

said to be unreasonable or excessive.

7. Similarly, failure on part of the appellant to adhere to the

standards required to be maintained by a registered stock broker and

indulging in synchronized trades, circular trades and reversal trades

constitutes serious violation of Brokers Regulations and for such

violation, penalty imposable under Section 15HB of the SEBI Act is up

to Rs.1 crore. However, after considering all mitigating factors, the AO,

as against the imposable penalty of Rs.1 crore, has imposed penalty of

Rs.15 lac which cannot be said to be unreasonable or harsh. 5

8. Argument of the appellant that various entities involved in the

present case have indulged in such violations repeatedly does not make

any difference to the case of the appellant. As noted earlier, the

appellant as a registered stock broker ought to have acted as a role

model for others. In the present case, the appellant has not only

violated PFUTP Regulations, but has also violated Brokers Regulations.

In any event, it is an admitted fact that penalty of Rs.1 crore has been

imposed on Shri Purshottam Khandelwal and individual penalty of

Rs.80 lac has been imposed on Cosmo Corporate Services Ltd and Ishita

Finstock Ltd., respectively who are the other entities involved in the

present case. Therefore, the argument of the appellant that compared to

other entities involved in the present case, penalty imposed against the

appellant is excessive and exorbitant cannot be accepted.

9. Argument of the appellant that the AO has failed to consider the

mitigating factors set out in Section 15J of the SEBI Act is also without

any merit. As noted earlier, as against the penalty of Rs.25 crore

imposable under Section 15HA of the SEBI Act, the AO after

considering all mitigating factors has imposed penalty of Rs.60 lac and

as against penalty of Rs.1 Crore imposable under Section 15HB of the

SEBI Act, AO after considering all mitigating factors has imposed

penalty of Rs.15 lac. Therefore, the argument of the appellant that the

AO has failed to consider the mitigating factors cannot be accepted. 6

10. Fact that the annual turnover of the appellant for several years

has been around Rs.5 lacs cannot be a ground to impose nominal

penalty against the appellant. Imposition of penalty under Section

15HA and Section 15HB of SEBI Act is based on the violations set out

therein and not on the basis of annual turnover. Having committed

serious violations under the PFUTP Regulations and Brokers

Regulations, the appellant is not justified in contending that the penalty

imposed is excessively harsh or exorbitant especially when penalty of

Rs.60 lac has been imposed as against the penalty of Rs.25 crore

imposable under Section 15HA of the SEBI Act and penalty of Rs.15 lac

has been imposed as against penalty of Rs.1 crore imposable under

Section 15HB of the SEBI Act.

11. Argument of the appellant that having recorded in para 32 of the

impugned order that the contribution of the appellant towards LTP was

not much, the AO ought not to have held that the appellant has aided

and abetted in LTP variation is also without any merit. What is held in

para 32 of the impugned order is, that even though the appellant has

not directly indulged in LTP variations, since the appellant has

indulged in synchronized trades and circular trades with those entities

who had also indulged in LTP variations, it is apparent that the

appellant had aided and abetted other entities in committing LTP

variations. In our opinion, in the facts of present case, the AO was

justified in arriving at the aforesaid conclusions, because, all the trades

in question were executed for manipulating the price of Gangotri scrip. 7

12. For the aforesaid reasons, we see no merit in the appeal.

Accordingly the appeal is dismissed with no order as to costs. SEBI is

directed to recover the penalty imposed under the impugned order

with interest as is permissible under the SEBI Act.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 18/01/2017 Prepared & compared by-ddg