Monika vs Sebi

(hereinafter referred to as 'SEBI') imposing a penalty of Rs. 5 lacs

each for violation of Regulation 12A(a), (b), (c) of the Securities and

Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI

Act') read with Regulations 3 and 4 of Securities and Exchange

Board of India (Prohibition of Fraudulent and Unfair Trade Practices

relating to Securities Market) Regulations, 2003 (hereinafter referred

to as 'PFUTP Regulations'). Since the issue is common, all the

appeals are being decided together.

2. The shares of Swan Energy Ltd. (hereinafter referred to as

'Company') were listed on BSE Ltd. (hereinafter referred to as

'BSE') and National Stock Exchange of India Ltd. (hereinafter

referred to as 'NSE'). An investigation was conducted by SEBI

regarding the trading activities in the scrip of the company during the

period January 1, 2015 to March 5, 2015. It was observed that 13

entities including the appellants had conducted synchronized and

reversal trades on BSE and NSE platform. Accordingly, a show

cause notice dated July 16, 2020 was issued to all the noticees 4

including the appellants to show cause as to why an inquiry should

not be held and why penalty should not be imposed upon them. The

appellants did not appear and accordingly an ex-parte order was

passed against them by the AO imposing a penalty of Rs. 5 lacs each

for violating Section 12A(a), (b) and (c) of the SEBI Act and

Regulations 3 and 4 of the PFUTP Regulations.

3. The AO found that there was a meeting of minds amongst the

appellants alongwith the other noticees who were connected to each

other and the trading by the appellants alongwith other entities

showed a pattern of synchronized trades which resulted in no change

in beneficial ownership and such non-genuine trades created

misleading appearance of the trading in the scrip of the company.

Further, artificial volume was generated through execution of trades

by the appellants including the connected entities on the platform of

BSE and NSE. Such pattern of reversal trades also showed that there

was no change in the beneficial ownership and such non-genuine

trades created artificial volume and misleading appearance of trading

in the scrip.

4. We have heard Mr. Sanjeev Kumar Chaudhary, the learned

counsel for the appellants and Mr. Sumit Rai, the learned counsel 5

with Ms. Karishma Motla, Mr. Aditya Sarangarajan, the learned

counsel for the respondent.

5. The contention of the learned counsel for the appellants is

that the impugned order was passed ex-parte without hearing them

and was violative of principles of natural justice. Further, the traded

volume of the appellants was miniscule vis-a-vis the total market

volume and, therefore, the trades of the appellants had no impact on

the market and consequently, the monetary penalty imposed was

excessive.

6. On the issue of service, we find that the show cause notice

was sent to Menika vide speed post acknowledgment due on July 16,

2020 on her residential address which is the same as indicated in the

memo of appeal. Since the acknowledgement card was returned with

a remark "No Status", the respondent served the show cause notice

vide email on the email I.D. "menika124@gmail.com" and also at

"deepakkgrade@gmail.com". The show cause notice was delivered

on the aforesaid email address, which, in our opinion, is sufficient

service as per the proviso to Rule 7(b) of the Securities and Exchange

Board of India (Procedure for Holding Inquiry and Imposing

Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred 6

to as 'Rules of 1995'). In addition to the aforesaid, the show cause

notice was also published on March 2, 2021 in various newspapers,

namely, Times of India (Chandigarh and Varanasi edition), The

Hindustan Times (Delhi edition), Navbharat Times (Delhi edition),

Dainik Jagran (Ghaziabad and Varanasi edition) and Dainik Bhaskar

(Chandigarh edition). In addition to the aforesaid, the hearing notice

was again served through newspapers publication vide Times of

India, Nav Bharat Times, Dainik Jagran and Ajit newspapers dated

February 15, 2022.

7. Similarly, a show cause notice was served to Monika through

speed post acknowledgment due on July 16, 2020 on her residential

address which is the same as indicated in the present memo of

appeal. In spite of service, the show cause notice was again served

through email ID on "deepakkgrade@gmail.com". Service was also

done through various newspapers as indicated in the previous

paragraph as well as the notice for hearing.

8. Similarly, a show cause notice was served to Akash vide

speed post acknowledgement due on July 16, 2020 and thereafter a

show cause notice was served through email on the email ID

"kumarakash@gmail.com" which was delivered on January 11, 7

2021. Substituted service vide newspaper publication was also done

as indicated in the previous paragraph.

9. The aforesaid facts have not been disputed by the appellants.

We are of the opinion, that in view of the glaring evidence that has

been filed by the respondent, service of the show cause notice, etc.

was properly done by the respondent under the Rules of 1995. We

are satisfied that the appellants were duly served with the show cause

notice and as well as the notice for hearing. In spite of service, the

appellants chose not to appear.

10. On merits, we find that connection between the appellants

and other noticees as indicated in table no. 3 of the impugned order

has not been disputed. The appellants have a common mobile

number and also have a common email. Thus, the appellants are

inter-se connected with each other.

11. From the evidence which has come on record, we find that

the appellants made the following synchronized trades on NSE and

BSE platform as under :-

8

NSE

Name Gross (buy + sell) % of traded qty Traded No. of to the total Qty Synch. synch. Traded Trades quantity Menika 160089 176 11.52% (Noticee No. 8) Akash 12460 121 8.97% (Noticee No. 11) Monika 70907 93 5.10% (Noticee No. 12)

BSE

Name Gross (buy + sell) % of traded qty to the total synch. Traded quantity Traded No. of Qty Synch.

Trades Menika 141299 161 10.57% (Noticee No. 8) Akash 174440 619 13.05% (Noticee No. 11) Monika 144892 177 10.84% (Noticee No. 12) 9

12. A perusal of the aforesaid indicates that the synchronized

trades were not miniscule and that synchronized trades were not a

mere co-incidence. It was deliberate synchronized trades with proper

meeting of minds in which there was no change in the beneficial

ownership and were non-genuine trades and created misleading

appearance of trading in the scrip of the company.

13. Similarly, the number of reversal trades on NSE and BSE

platform by the appellants are as under :-

NSE

Name Artificial No. of Qty Reversal trades Menika (Noticee No. 176648 225

8) Akash (Noticee No. 125344 133

11) Monika (Noticee 70664 102 No. 12)

BSE

Name Artificial No. of Qty Reversal trades 10 Menika (Noticee No. 154136 202

8) Akash (Noticee No. 180880 207

11) Monika (Noticee 154054 208 No. 12)

14. The aforesaid charts indicate that artificial volume generated

through execution of such reversal trades was substantial and not

miniscule. The aforesaid volume of trades is not disputed by the

appellants. It was only contended that the volume of trades by the

appellants as compared to the total market volume was miniscule

and, therefore, it had no impact on the market. This aspect is totally

erroneous in as much as we find that individual trading in case of

synchronized trading is not to be considered. The trades of all the

entities involved in the reversal trades are to be considered which

when considered in totality, leads to high volume of trading and high

percentage compared to the total market volume.

15. In the light of the aforesaid, we do not find any manifest error

in the conclusion arrived at by the AO. The imposition of penalty

commensurate with the alleged violation committed by the 11

appellants. We consequently do not find any error. The appeals are

dismissed with no order as to costs.

16. 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 05.01.2023 PRAMILA Digitally signed by PRAMILA TANAJI MISAL PTM TANAJI MISAL Date: 2023.01.06 17:11:32 +05'30'