Manish Mathur vs Sebi

Date of decision: 03/10/2016

Appeal No.246 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 in this appeal is aggrieved by the order dated 27th May,

2014 passed by the Whole Time Member ("WTM" for short) of Securities and

Exchange Board of India ("SEBI" for short) whereby the appellant and certain

other entities have been barred from accessing the securities market directly

or indirectly for the years specified therein. In respect of the appellant, the

period of restraint imposed is 5 years which is to commence after the

debarment imposed under another order of SEBI dated 6th September, 2013

has come to an end.

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2. The facts relevant to the case are the following: -

Based on alerts generated in the Integrated Market Surveillance

System of SEBI, investigation was done by SEBI relating to synchronized

trading and reversal of trade in the scrip of Asian Star Company Ltd. (ASCL)

during the period October 10, 2008 to November 20, 2008. During this

investigation, the following were noticed: -

(a) The price of the scrip went up by 18.57% in 28 trading days while the Sensex had declined by 19.73% during this period.

However, after the investigation period, the price of the scrip started declining.

(b) The quarterly result for the quarter ending September 30, 2008 showed a decline in profit which indicates that there was no favourable development in the company that would justify an increase in the price of the scrip.

(c) A group of related entities namely, Mehta Group entities were very active in trading in the scrip of ASCL during this investigation period. They engaged in substantial volume of trading in the nature of synchronized/structured/circular trades which created artificial volumes which favourably impacted the price of the scrip.

(d) There was fund flow between the Mehta Group entities which facilitated enhanced trading in the ASCL scrip.

3. The appellant - Manish Mathur, was the Chief Operating Officer of

Triveni Management Consultancy Pvt. Ltd. ("Triventi" for short) - a broking

firm and member of BSE, since August, 2006. In the Show-Cause Notice

("SCN") dated 9th March, 2011 issued to the appellant by SEBI, it was alleged

that Manish Mathur as Chief Operating Officer of Triveni was helping in the

manipulation of the scrip through the accounts of the Mehta Group entities

who were clients of Triveni. He, along with one Ajay Rungtha and Sunil

Mehta acted as major connecting links between the Mehta Group entities who

were trading in the scrip of ASCL amongst themselves in a manipulative

manner to create artificial volumes in the scrip.

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4. The impugned order relies on replies to the show-cause notice,

evidences adduced during the personal hearing, and other documents on

record as detailed in the order and based on the above, it is held that the

charges regarding connection between the appellant and the Mehta Group

entities, the fund-flow between the various Mehta Group entities, structured

and synchronized trading in the scrip of ASCL, the appellant using the

accounts of some of their clients, etc. are proved. In addition, the impugned

order relies on evidences gathered during the investigation of a similar case

in 12 scrips matter which also held the appellant guilty. In that matter, one of

the scrip is that of ASCL and some of the accused including the appellant

herein are common. The impugned order specifically details the trading

between the Mehta Group entities and three clients traded through Triveni

constituting substantial volume in the scrip of ASCL and also notes that the

manipulation in the scrip of ASCL started from September, 2006 soon after

the appellant started working as the COO of the broking firm Triveni in

August, 2006. It is also on record that trading was done by Triveni in the

account of one Mr. Dilip Rathore who did not have even any demat account.

Most of the evidences produced in the order relating to

synchronized/structured/circular trades, fund-flow between the various

entities and the role of Tiveni and its COO in abetting many of the

transactions are conclusive and no substantive evidence contrary to the same

has been produced by the appellant.

5. Based on the above, the impugned order held that the appellant

violated Regulations 4(i), 4(ii)(e) of the SEBI (Prohibition of Fraudulent and

Unfair Trade Practices relating to Securities Market) Regulations, 2003 (for -4-

short "PFUTP Regulations"). Similar charges were held against 10 other

entities also which are not dealt with in this order as this appeal is preferred

only by Manish Mathur.

6. For ease of reference, the relevant provisions of PFUTP Regulations 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;

-5- (c)............................................................

(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;

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

(f) .............................................................;

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

7. We have heard the learned Counsel Shri Faran Khan for the appellant.

It was argued that though the designation of the appellant was Chief

Operating Officer, he was only responsible for bringing in new clients and

did not play any active role in the day to day management of Triveni; he

never traded and therefore not indulged in manipulative trading practices;

main person behind the entire episode was a director of Triveni; he neither

knew nor helped the Mehta group entities except having some limited

financial dealing in the form of a loan with one of them. It was further

emphasized that the impugned order draws heavily from the findings and

charges framed under another investigation in the matter of 12 scrips which

was done subsequent to the investigation period in the instant case and since

the appellant was already punished under a subsequent investigation period

punishing again on a similar/related matter is tantamount to double

jeopardy. It is submitted that in respect of the very same violations, by an

adjudication order dated 29th November, 2012 a penalty of Rs.10 lakh was

imposed by the Adjudicating Officer against the appellant and this Tribunal

has reduced the said penalty to Rs.1 lakh vide its order dated 31st October, -6-

2013, and therefore, the benefit of doubt granted by that order be made

applicable in the instant case as well. It is further submitted that the appellant

also deserves leniency because, in the present case Triveni has not been

barred from the market and only monetary penalty was imposed on Triveni

which has been reduced by this Tribunal.

8. Learned Counsel for the Respondent-Shri Kumar Desai - stated that

though the order in respect of the present matter was issued later the offence

is independent of the 12 scrip matter which cannot be held as a shelter by the

appellant. Since the violation committed herein relates to the earlier period,

no fault can be found with the impugned order.

9. This Tribunal does not find merit in the argument advanced on behalf

of the appellant regarding the role played by the appellant in the impugned

violations. As Chief Operating Officer of Triveni, he was expected to have

considerable knowledge and understanding of the day to day functioning of

Triveni. It is also a fact that he has been with Triveni for about 10 years out of

which more than 2 years as Chief Operative Officer at the time of the

investigation period. We also find no reason to interfere with the findings

recorded in the impugned order relating to the substantive trading done by

the various entities named in the order and facilitated by the appellant as

Chief Operating Officer of Triveni. Data given in the impugned order relating

to synchronized/structured/reversed trades have not been disputed with

evidence and as such cannot be interfered with. However, we find merit in

the argument that the impugned order relies heavily on facts relating to the

12 scrip matter wherein, the appellant has been debarred from the securities

market for a period of 5 years vide SEBI order dated 6th September, 2013.

We also note that the said order was preceded by an ex parte order dated 27th -7-

May 2011. Thus, the appellant stands debarred from the securities market

since 27th May, 2011. We also note that the investigation in the 12 scrip matter

also included investigation in the scrip of ASCL and the investigation period

in that matter was from 1/3/2009 to 15/12/2009 while the investigation period

in the present matter is from 10th October, 2008 to 20th November, 2008. Thus,

in the facts of present case, since the appellant has already undergone

debarment for the trades in the scrip of ASCL along with the trades in other

scrips from 27th May, 2011, it would be just and proper to restrict the

debarment in the present case till 31st December, 2016.

10. Accordingly, while upholding the order of the WTM on merits, we

modify the impugned order by restricting the debarment imposed on the

appellant till 31st December, 2016.

11. 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 and compared by:

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