Minal Bharat Patel & Ors. vs Sebi

1. The appellants are noticee nos.1, 2, 3, 4, 8, 9, 10 and

11 and have challenged the order dated 27th October,

2020 whereby a penalty of Rs.2 lakhs each has been

imposed upon noticee nos.1, 2, 4 and 9 for violation of

Regulations 13(1) and 13(3) read with Regulation 13(5)

of the Securities and Exchange Board of India

(Prohibition of Insider Trading) Regulations, 1992

(hereinafter referred to as 'PIT Regulations') and Rs.5

lakhs has been directed to be paid jointly and severally

by the appellants for violation of Regulations 29(1) and

(2) read with (3) of the Securities and Exchange Board

of India (Substantial Acquisition of Shares and

Takeovers) Regulations, 2011 (hereinafter referred to

as 'Takeover Regulations').

2. The facts leading to the filing of the present appeal

is, that a show cause notice dated 11th March, 2020 was

issued alleging that the appellants had indulged in 4

synchronized trades contributing to artificial volumes in

the scrip of Transpek Industry Ltd. and further the

noticee nos.1, 2, 4 and 9 failed to make necessary

disclosures regarding their shareholding in the scrip of

the Company thereby violating Regulation 13 of the

PIT Regulations.

3. The Adjudicating Officer (hereinafter referred to as

'AO') after considering the material evidence on record

held in paragraphs 60 of the impugned order that there

is insufficient evidence to conclude with any

convincing degree of probability that the appellants

have entered into premeditated synchronized trades or

were engaged in fraudulent synchronized trades and

created artificial volumes. The AO accordingly

discharged the appellants from the charge pertaining to

violation of Regulations 3 and 4 of the PFUTP

Regulations.

4. The AO found that the Appellant no.1 in three

instances, Appellant no.2 in four instances, Appellant 5

no.4 in two instances and Appellant no.6 in three

instances failed to make disclosure for acquiring shares

in excess of 5% and, consequently, change in their

shareholding by 2% in the scrip of the Company and,

therefore, violated Regulation 13 of the PIT

Regulations and 29 of the SAST Regulations. The AO

accordingly imposed a penalty of Rs.13 lakhs for the

aforesaid violations.

5. The appellants being aggrieved by the aforesaid

imposition of penalty has filed the present appeal.

6. We have heard Mr. Neville Laskhari, Advocate with

Mr. Rihal Kazi, Advocate for the appellant and Mr.

Vishal Kanade, Advocate with Mr. Ravishekhar

Pandey, Ms. Shefali Shankar and Ms. Rasika Ghate,

Advocates for the respondent.

7. It was urged that there has been an undue delay in

the initiation of proceedings and, therefore, on the

ground of undue delay the impugned order should be

quashed. In support of their submission, the learned 6

counsel for the appellant has relied upon the decision of

Ashok Shivlal Rupani decided on 22nd August, 2019 in

Appeal no.417 of 2018 and in Barat J. Patel vs. SEBI

decided on 8th September, 2020 in Appeal no. 154 of

2020. It was also urged that there is no evidence on the

part of the respondent to show that the appellants had

not made disclosures to the stock exchange or to the

Company and in the absence of any evidence the

penalty for non-disclosure was wholly erroneous. In

the end, it was also urged that in some of the

transactions the appellants shareholdings did not exceed

2% and, consequently, there was no violation of the

PIT Regulations.

8. Having heard the learned counsel for the parties and

having perused the record we find that there is no

undue delay in the initiation of the proceedings.

Admittedly, the transactions were from December,

2012 to March, 2015 by various appellants. 7

9. SEBI received joint examination report from BSE

and NSE dated 24th February, 2014 on bulk

synchronized trades undertaken by Bharat Patel group

entities between the period from 1st December, 2011 to

31st May, 2013 in 17 scrips. Transpek Industry was one

such scrip.

10. Preliminary examination was carried out and

wherein price fluctuations were observed over extended

period of time in the scrip when some of the appellants

herein were also observed to have carried out trades in

the scrip. The aforesaid observations along with the

relevant documents were forwarded to the investigation

department on 3rd November, 2015 to carry out detailed

investigation in the matter for possible contravention of

provisions of PIT Regulations, SAST Regulations and

PFUTP Regulations.

11. Thereafter, separate investigation was being carried

out sequentially in the 17 scrips. Further, it is

noteworthy that the Respondent was also occupied with 8

investigation of several 254 LTCG cases during this

period based on the references received by it and alerts

generated by surveillance department. In order to

expedite investigation, Investigation Authority was

appointed on 15th July, 2016. The investigation could

finally conclude only on 6th February, 2019 as it

involved policy deliberations on several aspects

including, but not restricted to, initiation of other

proceedings against the appellants herein as multiple

violations were identified against the appellants in

several scrips. The AO was thereafter appointed and a

communique was issued on 5th August, 2019. The SCN

was issued on 11th March, 2020 and the final order was

passed on 27th October, 2020.

12. In view of the aforesaid, that the investigation

concluded on 6th February, 2019, in our opinion, the

issuance of the show cause notice on 11th March, 2020

is not belated. We are of the view that there is no 9

undue delay and proceedings cannot be quashed on this

ground.

13. The transactions executed by the appellants

triggered the requirement of disclosure under

Regulation 13 of the PIT Regulations and Regulation

29 of the SAST Regulations. On account of the

purchase or sale of shares, the percentage of the

shareholding exceeded 2% which required the

appellants to disclose it to the Company as well as to

the stock exchange. No evidence has been brought on

record by the appellant to show that they had filed the

necessary disclosure to the Company or to the stock

exchange. On the other hand, SEBI has received

confirmation from the stock exchange that no such

disclosure was made by the appellants.

14. In view of the aforesaid, it is clear that the

appellants having acquired more than 5% of the shares

of the Company and then transacted in the shares of the

Company so as to effect the shareholding of more than 10

2% of the total shareholding of the Company the

appellants were required to make the disclosure to the

Company as well as to the stock exchange in terms of

Regulations 13(1), 13(3) and 13(5) of the PIT

Regulations and having failed to make the appropriate

disclosures the appellants committed violation of

Regulation 13 of the PIT Regulations.

15. For the aforesaid violations, the penalty that can be

imposed under Section 15A(b) is Rs.1 lakh which was

extended to Rs.1 lakh for each day during which such

failure continues to a maximum of Rs.1 crore.

16. Considering the aforesaid, penalty of Rs.2 lakhs

imposed by the AO for violation of Regulations 13(1),

13(3) and 13(5) of the PIT Regulations is proper and

does not suffer from any error of law.

17. Similarly, the appellants were persons acting in

concert and acquirer in terms of the SAST Regulations

and failed to make the necessary disclosure in terms of

Regulation 29(1) and (2) read with (3) of the SAST 11

Regulations. The fact that they were persons acting in

concert has not been denied and, consequently, a

penalty of Rs.5 lakhs has been imposed to be paid

jointly and severally is neither arbitrary nor excessive.

18. In view of the aforesaid, the appeal fails and is

dismissed with no order as to costs.

19. This order will be digitally signed by the Private

Secretary on behalf of the bench and all concerned

parties are directed to act on the digitally signed copy

of this order. Certified copy of this order is also

available from the Registry on payment of usual

charges.

Justice Tarun Agarwala Presiding Officer

Ms. Meera Swarup Technical Member RAJALAK Digitally by signed

SHMI RAJALAKSHMI HARISH NAIR HARISH Date:

15.5.2023 NAIR 2023.05.18 12:10:19 +05'30'

RHN