Manish Arvindbhai Waghela vs Sebi

Date of Decision : 15.03.2019

Appeal No. 156 of 2018

Manish Arvindbhai Waghela G/4, Rambuzarat Yadav Chawl, Ovripara, Ambawadi, S.V. Road, Dahisar (East), Mumbai - 400 068. ..... 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. Bankim Mehta, Advocate for the Appellant.

Mr. Karan Bhosale, Advocate with Mr. Kaushal Parsekar, Advocate i/b Legasis Partners for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member

Per : Dr. C.K.G. Nair, Member

1.

This appeal has been filed challenging the order of the

Adjudicating Officer ('AO' for short) of the Securities and 2

Exchange Board of India ('SEBI' for short) dated February

28, 2018. By the said order a penalty of Rs. 5 lakh has been

imposed on the appellant under Section 15HA of the SEBI

Act, 1992 for violating provisions of Sections 12A(a),(b),(c)

of the SEBI Act read with Regulation 3 (a), (b), (c), (d) and

4(1), 4(2) (a) and (g) of Securities and Exchange Board of

India (Prohibition of Fraudulent and Unfair Trade Practices

Relating to Securities Market) Regulations, 2003 ('PFUPT

Regulations of 2003' for short).

2. SEBI conducted an investigation into possible violation

of provisions of SEBI Act, Rules and Regulations relating to

trading in the scrip of M/s. Karma Industries Limited for the

period July 12, 2010 to January 9, 2012. A Show Cause

Notice (SCN) was issued to 23 entities on July 31, 2015 for

allegedly entering into synchronized trades / reversal trades /

self trades as applicable which resulted in creation of artificial

volumes and thereby violating certain provisions of the SEBI

Act and the relevant PFUTP Regulations, 2003. These entities

were found to be connected to each other based on their KYC

documents / common telephone number / common addresses /

common introducer etc. as spelt out in detail at page 3 of the

impugned order. The appellant was found to be connected 3

with several entities who entered into reversal of trades and

circular trade amongst themselves. On July 7, 2011 the

appellant entered into three reversal of trades to the tune of

18100, 10,000 and 5000 shares respectively. This trade was

also found to be in the nature of circular trade as there was no

change in the beneficial ownership but led only to creation of

artificial volume. Hence, the charge of violating provisions of

Sections 12A(a),(b),(c) of the SEBI Act read with Regulation

3 (a), (b), (c), (d) and 4(1), 4(2) (a) and (g) of PFUPT

Regulations, 2003.

3. After taking into account various submissions made by

the appellant in response to the show cause notice and after

affording an opportunity of personal hearing the impugned

order was passed on February 28, 2018 holding the appellant

guilty of violating the aforesaid provisions of SEBI Act and

PFUTP Regulations, 2003. For convenience the relevant

Sections are reproduced here:-

"SEBI Act, 1992 Section 12-A. Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control - No person shall directly or indirectly -

(a) use or employ, in connection with the issue, purchase or sale of any securities listed or 4

proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder;

(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange;

(c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder;

"PFUTP Regulations, 2003

Prohibition of certain dealings in securities

3. No person shall directly or indirectly--

(a) buy, sell or otherwise deal in securities in a fraudulent manner;

(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder;

(c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange;

(d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or 5

the rules and the regulations made there under.

4. Prohibition of manipulative, fraudulent and unfair trade practices

(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities.

(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:-

(a) indulging in an act which creates false or misleading appearance of trading in the securities market;

(g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security;"

4. Learned counsel for the appellant Shri Bankim Mehta

argued that the appellant was in no way associated with or

part of the so-called connected entities in the matter. It was

contended that a broker M/s. Kunvarji Finstock Pvt. Ltd.

forged the KYC documents of the appellant though the

appellant did not open any account with this broker. Though

PAN Card belongs to the appellant neither the e-mail nor the

phone number as given in the KYC documents belong to him

and he never traded with this broker M/s. Kunvarji Finstock

Pvt. Ltd. Instead the appellant had a demat account with

another broker M/s. BMA Wealth Creators Ltd. which was 6

opened on March 10, 2012, much after the impugned trade,

allegedly done on July 7, 2011. The appellant further

submitted that a cheque for Rs. 15,000/- received by him from

M/s. Kunvarji Finstock Pvt. Ltd. was returned by him since he

had no link with M/s. Kunvarji Finstock Pvt. Ltd.

5. The appellant also submitted that upon receipt of the

impugned order dated February 28, 2018 he initiated to file

police complaint / FIR against M/s. Kunvarji Finstock Pvt.

Ltd., Inani Securities Ltd. and Corporation Bank, Fort Branch

for forging his documents, signatures and opening

demat/trading/bank account. No evidence to this effect has

been submitted by the appellant.

6. We have also heard Shri Karan Bhosale, learned counsel

for the respondent and perused documents produced before

us. It is noted that given the submission of forging the

documents etc. made by the appellant the AO had summoned

the broker M/s. Kunvarji Finstock Pvt. Ltd. who submitted all

the KYC documents of the appellant. These documents

included copies of his PAN Card, photograph, ration card and

bank account details all of which would not have been

available to the broker unless the appellant had given the

same to the broker. Similarly, the mobile number, which is 7

claimed as not belonging to the appellant, was found to be a

common number with one Bakul Chaitalia and Multiplex

Trading Company Ltd. who/which are part of the connected

group entities. There are also evidences relating payment to

the appellant through the Corporation Bank account available

with M/s. Kunvarji Finstock Pvt. Ltd. in the name of the

appellant and it was further noticed that as per CDSL record

three demat accounts of the appellant were noted with three

different depository participants as given below:-

Sl. Depository Bank Details Nominee Details No. Participant 1 Kunvarji Finstock Corporation Bank NA (A/c. No. 29504) 2 BMA Wealth Bank of India (A/c. No. NA Creators Ltd. 016510110000783) 3 INANI Securities Corporation Bank Mrs. Leela Ltd. (A/c. No. 29504) Arvind Waghela

The above details clearly show that the appellant is not

truthful regarding his statement that he had only one demat

account with M/s. BMA Wealth Creators Ltd., Sr. No. 2 in

the above table. It is further stated in the impugned order that

as far as demat account at Sr. No. 3 in the above table is

concerned the nominee is the mother of the appellant, which

is also not disputed.

7. Given the above facts and the appellant now submitting

that a police complaint has been made three years after 8

receiving the SCN dated July 31, 2015 and the police

complaint reportedly made in 2018 (and that too without any

documentary evidence), we find that the same is an

afterthought and cannot be relied upon. Misusing the e-mail

id, mobile number and bank account etc. and trading in

securities market using the same is a serious issue. In such

matters one is expected to take immediate action soon after

knowing the same and that too through a SCN issued by SEBI

on July 31, 2015 and that too after replying to SEBI on

August 22, 2015.

8. Accordingly, we find no merit in the submissions of the

appellant and the appeal is dismissed. No order on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 15.03.2019 Prepared and compared by:msb