Manish Mathur vs Sebi

Date of decision: 03/10/2016

Appeal No.332 of 2014

Manish Mathur

A-703, Vasant Sarita, 90 Feet Road,

Opp. HDFC Bank, Thakur Complex,

Kandivali (East),

Mumbai - 400 101. ... 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. Faran Khan a/w Mr. Rajendra Kookda, Advocates for the Appellant.

Mr. Kumar Desai a/w Mr. Saurabh Bachhawat, Advocates i/b K. Ashar & Co. for the Respondent.

CORAM : Justice J.P. Devadhar, Presiding Officer Jog Singh, Member Dr. C.K.G. Nair, Member

Per : Dr. C.K.G. Nair (Oral)

1.

The appellant is aggrieved by the order passed by the Adjudicating

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

for short) dated 18th July, 2014 whereby a penalty of Rs.3 lac has been

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

Exchange Board of India Act, 1992 (for short "SEBI Act"). The said penalty is -2-

imposed for violation of regulations 3(a), (b), (c) & (d) and 4(1), 4(2)(a), (b),

(d), (e), (f) & (g) of the SEBI (Prohibition of Fraudulent and Unfair Trade

Practices relating to Securities Market) Regulations, 2003 (for short "PFUTP

Regulations") read with Section 12A(a), (b) and (c) of the SEBI Act.

2. The appellant was the Chief Operating Officer of a brokerage firm

namely, M/s. Triveni Management Consultancy Services Ltd. during the

relevant period. Based on certain alerts, SEBI conducted an investigation into

the trading of the scrips of 12 companies by the appellant and certain other

entities during the period March 1, 2009 to December 15, 2009. The companies

whose trading in scrips were investigated, are the following:-

(i) Allcargo Global Logistics Ltd. (ii) Asian Star Company Ltd. (iii) KSL & Industries Ltd. (iv) Mavens Biotech Ltd. (v) Panoramic Universal Ltd. (vi) Rasi Electrodes Ltd. (Rasi), (vii) Sat Industries Ltd. (Sat) (viii) Ushdev International Ltd. (ix) KBS Capital Management Ltd. (x) Lotus Eye Care Hospitals Ltd. (xi) MVL Limited (xii) Anil Products Ltd.

3. Following the investigation, the appellant was issued show-cause

notice dated December 19, 2011. Subsequently, based on the appellant's

representations, written statements, and statements during personal hearing,

the AO of SEBI passed the impugned order on 18th July, 2014. In the order it

is held that the appellant, as Chief Operating Officer of M/s. Triveni

Management Consultancy Service Ltd. had traded/dealt in the shares of the

aforesaid companies and along with other entities ("Mehta Group"), abetted

in creating artificial volumes in the stated scrips by indulging in

synchronized/structured/circular trading.

-3-

4. For ease of reference, the relevant provisions of PFUTP Regulations

and the SEBI Act are extracted below:-

"3. Prohibition of certain dealings in securities 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 there under;

(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 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;

(b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss;

(d) paying, offering or agreeing to pay or offer, directly or indirectly, to any person any money or money's worth for inducing such person for dealing in any security with the object of inflating, depressing, maintaining or causing fluctuation in the price of such security;

-4- (e) any act or omission amounting to manipulation of the price of a security;

(f) publishing or causing to publish or reporting or causing to report by a person dealing in securities any information which is not true or which he does not believe to be true prior to or in the course of dealing in securities;

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

SEBI Act:-

Section 12A: No person shall directly or indirectly -

(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognised stock exchange, any manipulative or deceptive 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;"

5. Learned Counsel for the appellant argued that though the designation

of the appellant was Chief Operating Officer, he was responsible for only

bringing in retail clients and institutional business for the brokerage firm.

The management and control of the company was vested in one of the

Directors -Sunil Mehta. The appellant was never involved in trading and

hence no allegations of synchronized/structured/circular trading are relevant

in his case. As such, the charges are ill-founded and liable to be set aside.

6. Assuming that as the Chief Operating Officer, it was further argued by

the Counsel for the appellant, the appellant was responsible for the alleged

violations in any manner, the penalty imposed on him is excessive since the -5-

key person in charge of the brokerage firm as well as brokerage firm itself

were penalized only to the extent of Rs.1 lac and Rs.1.50 lac, respectively and

in the latter's case this Tribunal had reduced the penalty from Rs.1.50 lac to

Rs.50,000/-. As such, the penalty imposed on the appellant is excessive,

particularly when he was not the central figure in the alleged manipulative

trade practices. Given these factors, the penalty imposed is excessive and

should be reduced for granting justice to the appellant.

7. Counsel for the appellant sought leniency in the matter relying on the

order passed by the AO of SEBI in respect of Sunil Kumar Mehta in the

matter of synchronized trading by connected persons vide Adjudication

Order No.EAD-2/AO/57/2012 dated August 31, 2012 whereby a penalty of

Rs.1,00,000/- only was imposed on Sunil Kumar Mehta. The learned Counsel

for the appellant also relied on the order passed by this Tribunal in a related

matter that is in the scrip of Asian Star Company Ltd. in the matter of Manish

Mathur vs. SEBI (Appeal No.10 of 2013 decided on 31/10/2013) whereby a

penalty of Rs.10 lac imposed by SEBI was reduced to Rs.1 lac. Citing these

orders on similar/related matters whereby either the penalty imposed is

lower or the penalty has been reduced substantially by this Tribunal, the

learned Counsel for the appellant requested for leniency in the present

matter. Alternatively, it was requested that sufficient time may be given to

pay the penalty without interest.

8. Learned Counsel for SEBI argued that as the Chief Operating Officer of

the brokerage firm, M/s. Triveni Management Consultancy Services Ltd., the

appellant was the key managerial person in charge of the operations of the

firm; his connection with the "Mehta Group" has been proved by means of -6-

various evidences as detailed in the impugned order; there is substantive

proof about synchronized/structured trading; the argument that Sunil Mehta

was penalized only to the extent of Rs.1 lac is not fully correct as in the

related scrip of Asian Star Company Ltd. (ASCL), SEBI vide its order dated

27th September 2012 imposed a penalty of Rs.30 lac on him and that order was

upheld by this Tribunal vide its order dated 30th November, 2013.

9. We find no merit in the arguments put forth by the learned Counsel

for the appellant. It is not in dispute that the appellant was the Chief

Operating Officer of M/s. Triveni Management Consultancy Pvt. Ltd., since

2006. The investigation conducted by SEBI has provided considerable

evidence regarding the interconnection/link between the appellant and the

various entities collectively referred to as "Mehta Group". The relevant order

log/trade log showing synchronized trades are on record. For most of these

trades, the counter parties were entities belonging to the Mehta Group and

the trades have matched in many cases at zero or negligible price-time

difference. We find no ground to interfere with the evidence as provided in

the impugned order.

10. We also note that the penalty imposable under Section 15HA of the

SEBI Act is "25 crore rupees or three times the amount of profits made out of

such practices, whichever is higher". Given this provision, the AO has

considered the mitigating circumstances under Section 15J of the SEBI Act

and imposed a penalty of only Rs.3 lac. This cannot be stated to be excessive

by any means.

11. However, we agree to the request of the appellant for granting some

more time to pay the penalty. Accordingly, the appellant is directed to pay -7-

the penalty amount of Rs.3 lac to SEBI by 31st December, 2016. In case the

appellant fails to pay the penalty by 31st December, 2016, he shall be liable to

pay the penalty amount of Rs.3 lac along with interest @ 12% per annum from

the date of the impugned order i.e. 18th July, 2014 till the payment is made.

12. Appeal is disposed of in the above terms with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

Sd/-

Dr. C.K.G. Nair Member 03/10/2016 Prepared & compared by-ddg