Mr. Babubhai Desai vs Sebi

DATE : 15.02.2016

Appeal No. 81 of 2014

Mr. Babubhai Desai Rabari Vasahat, Nava Vadaj, Ahmedabad : 380 016. ..... 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

With Appeal No. 82 of 2014

Mr. Govindkumar Varma D-176, Padmavati Society, Nikol Road, Naroda, Ahmedabad : 382 330. ..... 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

With Appeal No. 83 of 2014

Mr. Sunitadevi Nanwal D-176, Padmavati Society, Nikol Road, Naroda, Ahmedabad : 382 330. ..... 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

With 2

Appeal No. 84 of 2014

Mr. Sajjankumar Nanwal D-176, Padmavati Society, Nikol Road, Naroda, Ahmedabad : 382 330. ..... 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

With Appeal No. 85 of 2014

M/s. Vishu Enterprise D-176, Padmavati Society, Nikol Road, Naroda, Ahmedabad : 382 330. ..... 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

With Appeal No. 86 of 2014

Mr. Sagar Sanghvi A-14, Trirthbhumi Apartments, Law Garden, Ellisbridge, Ahmedabad : 380006. ..... 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

With Appeal No. 87 of 2014

Dhirajlal Sanghvi HUF A-14, Trirthbhumi Apartments, Law Garden, Ellisbridge, Ahmedabad : 380006. ..... Appellant 3

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ...... Respondent

With Appeal No. 88 of 2014

Ashik Sanghvi A-14, Trirthbhumi Apartments, Law Garden, Ellisbridge, Ahmedabad : 380006. ..... 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

With Appeal No. 89 of 2014

Sanghvi Fincap Ltd. B-54, Dhaval Avenue, Behind Associated Petrol Pump, C. G. Road, Ahmedabad : 380 006. ..... 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

With Appeal No. 90 of 2014

Rameshbhai Vaghjibhai Shah 19, Pancharatna Society, Taluka - Visnagar, Mehsana. ..... Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), 4

Mumbai - 400 051. ...... Respondent

Mr. Gaurav Joshi, Senior Advocate with Mr. Saurabh Pakle, Advocate i/b Mr. Deepak R. Shah for the Appellants in Appeal Nos. 81, 86 to 88 of 2014. Mr. Deepak R. Shah, Advocate for the Appellants in Appeal Nos. 82 to 85, 89 and 90 of 2014. Mr. Shiraz Rustomjee, Senior Advocate with Mr. Mihir Mody, Mr. Saurabh Bachhawat, Mr. Harekrishna Ashar, Advocates i/b K. Ashar & Co. for the Respondent.

CORAM : Justice J. P. Devadhar, Presiding Officer Jog Singh, Member

Per : Jog Singh, Member (Oral)

1.

In this bunch of ten appeals, the appellants have challenged order

dated January 20, 2014 by which a consolidated monetary penalty of ` 5

crore has been imposed on the appellants by the learned adjudicating officer

under Section 15HA of the Securities Exchange Board of India Act, 1992

(for short 'SEBI Act'). The appellants are alleged to have violated Section

12A(a), (b) and (c) of the SEBI Act read with Regulations 3(a), (b), (c) (d);

4(1) and 4(2)(a) of the Securities and Exchange Board of India (Prohibition

of Fraudulent and Unfair Trade Practices relating to Securities Market)

Regulations, 2003 [in short 'PFUTP Regulations'].

2. Briefly stated, the facts of the case are that the Respondent conducted

an investigation in respect of trading activities of an alleged Sanghvi Group

in the matter of scrips of four companies, namely; Nakoda Textiles India

Limited (NTIL), Gayatri Projects Limited (GPL); Nandan Exim Limited

(NEL) and Trimurthi Drugs and Pharmaceuticals Limited (TDPL) for a 5

period ranging between July 10, 2009 to January 19, 2010, hereinafter

referred to as the 'Investigating Period'. By a show cause notice dated May

15, 2013, all the appellants, who were termed as Sanghvi Group by the

respondent, allegedly indulged in fictitious and artificial trading activities

such as Self trades, Intra-trades, Multiple First Trades and even

Synchronized Trades. The respondent, thus, charged the said alleged

Sanghvi Group for contributing in the increase in price of the four scrips.

Some of the groups within the alleged Sanghvi Group are stated to have

contributed to artificial volume in certain scrips whereas some of the

appellants have been charged with the violation of the above mentioned

various PFUTP Regulations and the corresponding provision of the SEBI

Act. Yet some of the appellants have been alleged to have created New

High Price (NHP) in the process of their trading activity in the four scrips

in question. Certain charts in the tabular form have been incorporated in

the show cause notice itself by the respondent to bring home the charge

against the appellants and relied upon in the impugned order. The

appellants seem to have presented almost identical, and rather stereotyped,

replies before the learned adjudicating officer denying the charges. The

appellants have not categorically admitted or denied the existence of

alleged Sanghvi Group, whose members are alleged to have acted in

connivance with each other in the matter. While denying the charges in

question, the appellants did submit before the learned adjudicating officer

in the said replies that the price movements in the four scrips was

dependent upon various factors such as market condition, performance of

the company, trend of the market and sentiments of the investors. The

appellants also pointed out that the trades which were undertaken by them

were purely based on commercial considerations and there was no intention

to hike the price or manipulate the market in any manner. Learned 6

adjudicating officer did not find the reply satisfactory and passed the

impugned order imposing the monetary penalty of ` 5 crore on the

appellants under Section 15HA of the SEBI Act to be paid jointly and

severally.

3. Since the dispute emanates from the common show cause notice

issued to all the appellants and common order dated January 28, 2014 is

passed in penalizing the appellants jointly and severally, the appeals are

heard together with the consent of the parties. We have taken the facts of

Appeal No. 81 of 2014 (Babubhai Desai Vs. SEBI) as the lead case with the

consent of the parties, although, the learned senior counsel for the

respondent, Shri Rustomjee, pointed out certain differing facts in respect of

certain appellants involved in these ten appeals.

4. We have heard the learned senior counsel, Shri Gaurav Joshi, who

appeared with Shri Deepak R. Shah, learned counsel, and Shri Rustomjee,

learned senior counsel for the respondent, who appeared with Ms. Shruti

Chinivar, learned counsel.

5. It is, inter-alia, contended by Shri Gaurav Joshi, learned senior

counsel that there was/is no Sanghvi Group, as alleged in the show cause

notice. The appellants cannot be held guilty of the charges merely on the

basis of a common telephone number or a common e.mail ID. It is a

common feature of joint family staying together to have a common landline

or e.mail ID. A common mobile number was undoubtedly provided by

some of the appellants to respective brokers and the same belongs to the

accountant, who manages records of most of the appellants. An additional

affidavit dated April 15, 2014 was filed by the appellants on December 11,

2014 categorically denying the existence of any Sanghvi Group. 7

6. It is also argued on behalf of the appellants that there was no

sale/purchase transaction within the alleged Sanghvi Group. Therefore,

synchronization of trades was not possible. In fact, the show cause notice

is also silent on this aspect. Therefore, the conclusion arrived at by the

learned adjudicating officer in this regard, particularly, in paragraph 12, are

without any basis/evidence.

7. The next contention urged by the appellants is that a trading above

the Last Traded Price (LTP) is not per-se illegal. There is no specific

evidence in respect of each of the appellants in this regard. Some of the

appellants have not at all executed a single self-trade, still they are being

punished jointly and severally.

8. It is further submitted that some of the appellants have suffered

losses while others have made certain profits. This aspect has also been

ignored by the learned adjudicating officer in the impugned order. In fact,

the argument of the appellants in this regard is that they had no control over

the market forces which control the price prevailing at a given point of

time. Similarly, the learned senior counsel for the appellants has argued, to

bring home the point, that the learned adjudicating officer has not

considered the case of each and every appellant individually so as to prove

specific charge / role by specific evidence against each one of the

appellants. The basis on which certain charts have been relied upon by the

learned adjudicating officer while passing the impugned order has not been

disclosed. The Inspection Report conducted by the respondent or even the

relevant extracts were not supplied to the appellants beforehand. It is, thus,

contended by Shri Joshi, learned senior counsel, that the impugned order is

liable to be quashed and set aside.

8

9. On the other hand, Shri Rustomjee, learned senior counsel for the

respondent, has contended that various details of the transactions in

question have been given in the show cause notice and, therefore, there was

no need to provide separate copy of the inspection report to the appellants

or its extracts. It is also pointed out that on behalf of the respondent that in

the reply to the show cause notice, the appellants did mention about the

existence of the Group, i.e., the alleged Sanghvi Group. Therefore, in view

of this admission by the appellants, the learned adjudicating officer was not

required to deal with this aspect any more. The findings in the impugned

order are based on reasons and do not require interference by the Tribunal.

Although, there is a reference to the Inspection Report in the show cause

notice and reliance was placed by the learned adjudicating officer while

passing the impugned order but in the absence of any request by the

appellants in this connection, it was not deemed necessary to provide the

appellants with a copy thereof.

10. After hearing the learned counsel for the parties at length and

perusing the pleadings, we are convinced that the findings in the impugned

order are based more on presumption than evidence. The conclusions

arrived at in the impugned order are based on certain facts which are partly

correct and partly incorrect. No privy or concert is shown to exist in the

impugned order, which could prove the charge of acting jointly by the

appellants. There has to be unambiguous and clear evidence in respect of

the connection sought to be established among the ten appellants by the

learned adjudicating officer in the impugned order. The guilt or culpability

of each of the appellants has to be analyzed and established separately

before holding them guilty of forming an alleged group to manipulate the

price or volume in a given case. Mere common landline number or that of 9

the accountant of the appellants would not by itself convert certain entities

into a group or concert who could have jointly traded in a design. It is a

serious charge and hence cogent and convincing evidence is required to be

brought on record before the said charge could be proved against the

appellants.

11. The learned adjudicating officer has also not examined the fact that

all the transactions in question which were undertaken by the appellants at

the prevailing market price are screen based and delivery was duly effected

after making/receiving payments by the appellants. Some of the appellants

did make profit whereas others suffered losses. Further, in the show cause

notice, admittedly, there is a charge of making profit by the appellants to

the tune of ` 1.10 crore whereas in the impugned order the same is

computed over ` 2.25 crore. The reason of such a finding is hardly to be

noted in the impugned order. Alternatively, it has been specifically argued

by Shri Gaurav Joshi, learned senior counsel, that even if certain charge is

proved against some or all the appellants, the question of proportionality of

the punishment has not been looked into and a consolidated penalty of ` 5

crore is imposed by the learned adjudicating officer, to be paid jointly and

severally.

12. Similarly, a copy of the Inspection Report or its relevant portions,

though relied upon by the learned adjudicating officer in the process of

passing the impugned order has never been supplied to the appellants. This

is in violation of the principles of natural justice in as much as it deprives a

person to make an effective and proper reply to the show cause notice. All

these aspects, discussed hereinabove, are required to be looked into by the

learned adjudicating officer before passing the impugned order penalizing

the appellants.

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13. Therefore, keeping in view the totality of the facts and circumstances

of the case and also the fact that the appellants have filed an affidavit before

us to the effect that there was no alleged group as Sanghvi Group, we quash

and set aside the impugned order and restore the matter to the file of the

learned adjudicating officer to be adjudicated afresh after taking on record

fresh replies to the show cause notice from the appellants; and in according

with law. The respondent may also bring on record the Inspection Report

or extracts thereof, in support of its case before the learned adjudicating

officer, who will consider the same after supplying a copy thereof to the

appellants and pass appropriate orders in the light of the observations and

discussions made hereinabove as per law expeditiously and preferably

within a period of four months from today.

14. All the appeals are, accordingly, disposed of with no order as to

costs.

Sd/-

Justice J. P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

15.02.2016 Prepared & Compared by PTM