Mr. Chunnilal Jain & Anr. vs Sebi

17-Sep-2008: 25,000 Shares Bhupesh 01-Oct-2008: 2,25,000 Shares Anand Kalu Harishchandra Bhavesh Marathe Rathod 03-Oct-2008: 1,80,000 Shares Prakash Pabari

04-Sep-2008 42 Shares

Anil T Jain Hemant Madhusudan 17-Sep-2008 Sheth 2,25,000 Shares 22-Oct-2008: 25,000 Shares 16-Sep-2008 23-Oct-2008: 20,000 Shares 5,00,000 Shares 24-Oct-2008: 30,000 Shares 27-Oct-2008: 30,000 Shares DNG Yaminiben Rameshbhai V. Mercantile Pandya Pvt. Ltd. 23-Sep-2008 Parmar 15,000 Shares 16-Sep-2008 5,00,000 Amar Premchand 23-Sep-2008 Walmiki 80,000 Shares

23-Sep-2008 Himat 30,000 Shares Parshotambhai 23-Sep-2008 Jatania 20,000 Shares 23-Sep-2008 25,000 Shares Tushar Yeshwanti U Vipul Harilal Rameshbhai Anja Shah Patel

5. These shares were also later on traded in manipulative

manner. Further, though appellant Anil Jain was the

promoter of RFL he did not disclose the transfer of more

than 2% shares as required by SAST Regulations, 1997

and, therefore, the penalty was imposed.

6. Heard Mr. Saurabh Bachhawat, Advocate for the

Appellant in Appeal nos. 326,327 and 328 of 2020 and

Mr. Gaurav Joshi, Senior Advocate with Ms. Rishika

Harish, Mr. Aditya Bhansali, Mr. Jitendra Sharda, Ms.

Rakshita Poddar, Mr. Suyash Bhandari, Advocates and

Ms. Nirali Mehta, Practicing Company Secretary for the

Appellant in Appeal no.336 of 2018 and Ms. Poonam D.

Gadkari, Advocate for the Appellant in Appeal no.413 of

2018 and Mr. Vishal Kanade, Advocate with Mr.

Anubhav Ghosh and Mr. Ravishekhar Pandey, Advocate

for the Respondent.

7. Number of submissions were advanced before us by

each of the appellants separately. Mr. Saurabh

Bachhawat, learned counsel for appellants Bhavesh, 10

Hemant and Ankit submitted that there was no group as

such as alleged by respondent SEBI. These appellants in

usual course of their trading had traded in the scrip.

There is very miniscule percentage of reversal trades.

Further reversal trades in themselves are not illegal. So

far as synchronised trades are concerned it was submitted

by Mr. Bachhawat that the quantity of sell orders and buy

orders did not match and even the time gap is remarkable.

Mr. Bachhawat further submitted that while the alleged

transactions are of the year 2008, the show cause notices

were issued on November 16, 2017 after an inordinate

delay and, therefore, according to Mr. Bacchawat on this

sole ground the impugned order deserves to be quashed

as regard to them.

8. Mr. Gaurav Joshi, learned counsel for Jains submitted

that neither in the investigation nor in the impugned order

any connection of Jains with any of the so called two

groups is found. Appellant Anil had traded in the shares

in the normal course. Appellant Anil had sold 5000 11

shares in off market transaction to DNG. No connection

between the appellant Anil and DNG is found. Though

there is an allegation that in order to see that appellant

Anil would not be required to pledge additional shares,

share prices were being manipulated the price of the share

fell and the appellant was required to pledge additional

shares. He further submitted that while appellant was

holding 34,00,000 shares he had pledged only 1,00,000

shares and, therefore, the allegation did not hold any

water. In the circumstances, he submitted that the

allegation in this regard fails.

As regards the non-disclosure under the SAST

Regulations he submitted that in fact, the appellant has

made disclosure as required by PIT Regulations to BSE

Ltd. though the same was not pleaded during the

proceedings before SEBI. He filed one screenshot to that

effect and submitted that the appeal be allowed. As

regards Mr. Chunnilal Jain and Mrs. Nisha Jain he

submitted that except the fact that they are related to Anil 12

Jain there is nothing on record to rope in them, merely

because they have sold some shares. He therefore wanted

that the appeals be allowed.

Mr. Vishal Kanade learned Counsel for the respondent

SEBI took us through the material on record. He further

submitted that plea of delay with any prejudice caused to

them in defending the proceeding was never raised by the

parties before SEBI. He therefore submitted that the

appeals be dismissed.

9. So far as appellant Mr. Bhavesh, Mr. Hemant and Mr.

Ankit are concerned, the connection between themselves

is shown vide the connection table detailed at paragraph

29, of the impugned order. It would show that appellant

Bhavesh and appellant Ankit during the relevant period

shared a common telephone number. Bhavesh had

transferred shares in off market transaction to appellant

Hemant. Appellant Bhavesh and Hemant during the

relevant period were common directors of M/s. Rajnandi

Yarns Pvt. Ltd. Bhavesh has also transferred shares of 13

RFL to appellant Hemant. Similarly, appellant Ankit has

also transferred shares in off market to appellant Hemant.

The dealings of these appellants in the shares during the

investigation period along with group members has been

analysed by the adjudicating officer.

Appellant Hemant and appellant Ankit were amongst the

top 10 clients in gross buy and sell quantity. Appellant

Hemant‟s gross buy quantity was 3.97% and gross sell

quantity was 4.12% of the market volume of the days.

Appellant Ankit‟s gross buy quantity was 3.03% while

gross sell quantity was 3.33%. During this period,

appellant Bhavesh‟s gross buy quantity was 1.22% and

gross sell quantity was 1.72%.

10. So far as synchronised trades of the shares of RFL are

concerned on 12th August, 2008 five trades between

appellant Hemant and noticee no.15 Kishorebhai matched

within 0 second to 3 seconds as detailed in paragraph no

77 of the impugned order. Kishorebhai was connected to

the appellant Bhavesh. Both had a joint bank account in 14

Axis Bank, fort, Mumbai branch which account no. is

given in the connection table referred supra. Connection

between appellant Bhavesh and appellant Hemant is

already noted supra. There were 5 synchronised trades

between them on that day.

Besides this, numerous synchronised trades of the shares

of RFL between appellant Ankit, appellant Bhavesh,

appellant Hemant and other entities are detailed in para

no.79 of the impugned order. The adjudicating officer

therefore drawn the conclusion that these appellants along

with other entities had created an artificial volume by

indulging in synchronised trades.

11. So far as reversal of trades are concerned, amongst

group entities, paragraph no 81 of the impugned order

shows that there were reversal of trades between

appellant Ankit and noticee Rameshbhai on 7th August,

2008, appellant Hemant and Ankit on 11th August, 2008,

between Hemant and another noticee Amar, appellant

Ankit and appellant Hemant on 12th August, 2008, 15

between appellant Bhavesh and Ankit on 14th August,

2008, between appellant Ankit and one Prem on 14th

August, 2008. Further, on 25th August, 2008 and 27th

August 2008, appellant Ankit had reversal trades with

one noticee Amar. On 2nd September, 2008 there were

many reversal trades between appellant Ankit and noticee

Amar, as well between Appellant Hemant And this Amar.

On 11th September, 2008 (during second patch of

investigation) reversal trade for 49500 shares of RFL was

between appellant Ankit and Bhavesh.

12. So far as self trades are concerned in paragraph no. 83

of the impugned order the adjudicating officer has

detailed numerous self-trades of appellant Hemant and of

Ankit. Those were for 5 days and 9 days respectively and

value of the same is between Rs.3,61,24254 to Rs.

4,20,04558.

13. So far as contribution toward Last Traded price

analysis (LTP analysis) is concerned, the table at

paragraph no. 88 and onwards would show that appellant 16

Ankit has contributed to the positive LTP of Rs.43.15 in

buy and sell collectively. Appellant Hemant contributed

to 10.65 to the positive LTP. Group wise the

adjudicating officer found that the 14 entities contributed

significant amount of 152.10 positive LTP i.e. 8% of the

market positive LTP. The adjudicating officer finally

took the group transactions into consideration and also

dealing with the transactions of appellant Anil Jain in

para 93 observed as under:-

"I note that total connected group entities had altogether purchased 95,90,026 shares and sold 1,04,71,563 shares constituting 47.73% and 52.12% on buy and sell side respectively of the total traded quantity of 2,00,90,685 shares during the IP which is substantial. Further I also note these entities have also entered into synchronised, reversal of trades, self-trades and also contributed to LTP. And I conclude that the consolidated dealings of the connected entities in both off-market and market have facilitated Anil T Jain, Promoter and Managing Director to offload shares in the market at the highest market price and also facilitated in maintain the price of the script which enabled to get favourable price for the shares pledged by the promoters."

17 14. So far as dealings of Jains are concerned, besides

purchase and sell of shares in the market, the graph as

quoted above would show that appellant Anil Jain has off

market transferred 500000 shares on 16th September,

2008 to DNG. The appellant explained to the

adjudicating officer that he has transferred those shares

without receipt of any price on the spot and had agreed to

receive it in equal monthly instalment of Rs.1 crore. In

this regard upon query from the A.O. merely one email

purported to have send by one Mr. Kamal Aggarwal to

DNG was supplied as an evidence of this agreement.

While Appellant Anil resides at Chennai, DNG is situated

at Ahemadabad. DNG on the other hand explained that

those shares were received by it off market due to

mistake and, therefore, "on the direction of the person

who has transferred those shares", DNG had transferred

the same to Yaminiben Pandya - the another noticee.

Yaminiben Pandya in her reply to the SEBI however

submitted that she was totally unaware of this transaction. 18

Her son Hardik Pandya was working as a clerk in the

office of Paras Chaplot. She as well as Hardik were

directed by him to open account. Those accounts were

managed and operated by the said Mr. Chaplot. When

she came to know of all facts her son Hardik filed a

police complaint against Mr. Paras Chaplot. Even the

Income Tax authorities were informed.

15. Mr. Gaurav Joshi, learned senior counsel for

appellant Anil Jain submitted that legal notices were

issued to DNG when the consideration of shares was not

paid. Upon query from the Tribunal he however

submitted that besides issuing legal notice no further

steps were taken by appellant Anil in this regard. To note

DNG did not file any appeal though a penalty of Rs.2

lakhs was imposed upon it by the adjudicating officer

under the present common order.

16. The off market transfer of 500000 shares by appellant

Anil Jain ultimately landed with appellant Bhavesh,

appellant Hemant and their group members. Further these 19

three appellants Bhavesh, Hemant and Ankit were in both

patches of investigation found to be indulging in volume

manipulation by contributing to positive LTP, self trades,

synchronised and reversal trade. Besides this, one noticee

Anand Marathe on 4th September 2008 directly

transferred 42 shares in the account of Appellant Anil

Jain. This Anand had substantive fund movement

between his bank account and bank account of another

noticee Amar Walmiki. This Amar Walmiki had off

market share transfer transaction with the Appellant

Bhavesh Pabari. All these facts are borne out by the

connection table found in the impugned order. In view of

direct transfer of share by Anand Marathe in the account

of Appellant Anil Jain, A.O. inferred that Anand has

knowledge of his account number. Taking into

consideration all the above facts, the adjudicating officer

inferred that appellant Anil had connection with this

group .

20

17. Mr. Vishal Kanade, learned counsel for the

respondent SEBI submits that admittedly there was no

financial addition of strength or rise in profit of RFL

during the relevant period. On the other hand the

submissions of appellant Anil Jain himself as noted by

the A.O. in pargraph 18 of the impugned order shows that

net profit fell steeply by 77.26% in the year 2008-2009.

The record however would show that during the first

patch of the investigation its share prices rose

phenomenally. The manipulation in the same is proved

by the record as detailed supra. There was a price

manipulation, volume manipulation by synchronized

trades, reversal trades, self-trades, LTP contribution etc.,

within two groups. The connection between present

Bhavesh Pabari group with appellant Anil Jain is

reasonably clear from the record as detailed supra.

As regards the delay in launching the proceedings he

submits the impugned order would show that the group

members have opened numerous bank accounts, demat 21

accounts. There was fund movement between these

accounts on numerous occasions. At least 23 people

were found involved in the activity after scanning of

multitude of trades of numerous entities during

investigation. This naturally had taken time to unearth

the manipulative activities. He further submits that the

plea of delay is taken only during the appeal by

appellants Bhavesh, Hemant and Ankit. Further, there is

nothing on record to show that the delay has anyway

caused prejudice to any of the appellant in defending the

show cause notice.

18. As regards appellants Anil Jain, Chunilal Jain and

Mrs. Nisha Jain he submits that appellant Anil Jain was

Managing Director of RFL. Admittedly rest of the

appellants are his near relatives and all of them share a

common residential address that is 151/152, ( i.e. Old 151

New 152) Habibullah Road, T. Nagar, Chennai -

600017. The record would show that these appellants

had bought the shares during the investigation period and 22

sold them immediately as detailed in the impugned order.

Additionally, appellant Anil Jain in a dubious manner had

transferred 5 lakh shares off market to DNG situated at

Ahmedabad and did not even pursue for realization of the

proceeds of the same. His connection with the other

group members is reasonably brought on record. In the

circumstance, he submitted that no interference in the

order is warranted.

19. Taking into consideration all the facts on record, we

do not find any substance in any of the appeal. So far as

the case of appellant Anil Jain is concerned he was the

Managing Director of RFL. His own reply to the show

cause notice would show that there was decline in the

profit of RFL during the relevant period. During the

investigation period he had purchased 82,510 shares at an

average rate of Rs.26.81 and sold those shares at an

average price of Rs.287.44 (table A para 101of the

impugned order). In the process, he earned a profit of

Rs.2,15,04,581.30. So far as appellant Chunilal is 23

concerned he earned a profit of Rs.4,16,856. Appellant

Nisha earned 11,92,198. Only during the appeal,

appellant Anil Jain came with a case that he had made

disclosure of off market transfer of 5,00,000 shares to the

company. He himself was the Managing Director of

RFL. One screenshot to that effect was placed on record.

In the circumstances, the same cannot be relied. Further

admittedly no disclosure was made as required by the

relevant provisions of SAST Regulations, 1997. The

connection between the Jains, the fact that the RFL was

illiquid stock and that there was no correlation between

the performance of RFL and the movement of share

price, the connection between Bhavesh Pabari group and

the appellant Anil Jain having established on

preponderance of probability, the fact that the Jains share

a common residential address would show that no

interference in the reasoning of the adjudication officer is

warranted.

24

Appellants Anil Jain, Chunilal Jain and Nisha Jain were

jointly and severally directed to pay a penalty of Rs.1

crore by the A.O. on the ground that it would not be

possible to ascertain the disproportionate gain or unfair

advantage made by them. Taking into consideration the

facts and figures as detailed supra we do not find that the

penalty imposed is disproportionate.

20. As regards, the appeals of Bhavesh, Hemant and

Ankit, the artificial trades carried by them as detailed

supra along with the fact that the off market transfer of

5,00,000 shares by appellant Anil Jain ultimately landed

with them and other group members as detailed earlier

would establish that they in collusion with appellant Anil

Jain had carried all these activities. The defense of delay

is an afterthought and without any supporting reason like

the prejudice in defending the case before the

adjudicating officer. In the circumstances, the reliance

placed by them on the decisions of Ashok Rupani vs.

SEBI Appeal no.417 of 2018 decided by this tribunal on 25

20th October, 2019 and other decisions as referred in the

said judgment are not applicable in the present case.

21. We are also not equally impressed by the submissions

of Mr. Bachhawat learned counsel for the appellant

Bhavesh that the transactions of appellant were

miniscule. We have already found that appellant

Bhavesh was involved in self-trade, reversal trade and in

contribution to the LTP. In the circumstances, the

reliance placed by Mr. Bachhawat in the ratio of Ketan

Parekh vs. SEBI Appeal no.2 of 2004 dated 14th July,

2006 wherein in para no.11 it is observed "total volume

of the trade are to be taken into consideration to find out

as to whether the entity has really played any significant

role in increasing the volumes artificially" would not be

applicable. A circular dated 16th May, 2017 issued by

respondent SEBI that miniscule volume of the trade

carried by an entity requires to be considered has no

application for the above reasons.

22. In the circumstances the following order: 26

All the appeals are hereby dismissed without any order

as to costs.

Justice Tarun Agarwala Presiding Officer TARUN Digitally signed by TARUN AGARWAL DN: c=IN, o=PUBLIC WORKS DEPARTMENT UTTAR PRADESH, postalCode=221505, st=Uttar Pradesh, 2.5.4.20=30fcf68685192bbc53e6ff1608a83fb3881de7ac2

AGARWAL ab7954d509c85ed6e0f7c41, serialNumber=095f8b286bb0b1cd07ff676611f4f5e79997 27d404aa38ca422f9d3529bdb8a3, cn=TARUN AGARWAL Date: 2020.10.07 18:38:05 +05'30'

Justice M.T. Joshi Judicial Member

07.10.2020 RHN