Mrs. Kalpana Dharmesh Chheda vs Sebi

2. Mr. Utkarsh Dharmesh Chheda 15, Jal Darshan, Third Floor, J.K. Mehta Road, Santacruz (West), Mumbai - 400 054. ...Appellants

Versus

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

2. BSE Limited Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai - 400 001. ...Respondents

Mr. Prakash Shah, Advocate with Mr. Chinmay Paradkar, Advocate i/b Prakash Shah & Associates for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Abhiraj Arora and Mr. Harshad Vyas, Advocates i/b MDP & Partners for Respondent No. 1.

Mr. Anubhav Ghosh, Advocate with Ms. Rashi Dalmia, Advocate i/b The Law Point for Respondent No. 2.

2

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member

Per : Dr. C.K.G. Nair, Member

1. This appeal has been filed challenging the order of the

Adjudicating Officer ('AO' for short) of Securities and Exchange

Board of India ('SEBI' for short) dated March 28, 2019 whereby

the appellants have been found to have violated Regulations

3(a),(b),(c) and (d) and regulations 4(1) and 4(2)(a) and (e) of the

SEBI (Prohibition of Fraudulent and Unfair Trade Practices

relating to Securities Market) Regulations, 2003 ('PFUTP

Regulations, 2003' for short). Consequently, a penalty of

Rs. 45,00,000/- on appellant no. 1 and Rs. 5,00,000/- on appellant

no. 2 has been imposed under Section 15 HA of the SEBI Act,

1992.

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

Appellants are individual traders. Appellant No. 1 is the

mother of the Appellant No. 2. SEBI conducted an investigation

into trading in the scrip of Zodiac Ventures Ltd. ('Zodiac' for

short) for the period October 1, 2013 to December 22, 2014.

During part of this investigation period i.e. between October 1,

2013 and August 20, 2014 the price of the scrip of Zodiac

increased from Rs. 32.85 to Rs. 537.60 as on May 30, 2014 and

closed at Rs. 507.90 as on August 20, 2014. It was further noticed 3

that during the relevant period the appellants have executed

several trades, many of them in very small volume of one share

etc., at prices above the Last Traded Price (LTP). Therefore, it is

held in the impugned order that the appellants created a

misleading appearance of trading and was manipulating the price

of the scrip to help offload the shares they were holding.

3. Therefore, adjudication proceedings were initiated against

appellants and a show cause notice was issued on August 6, 2018

alleging violation of the stated provisions of the PFUTP

Regulations, 2003.

4. The details of the 52 trades executed by the appellants are

given in paragraph 4 of the impugned order. Most of the trades are

sell orders for one share each and a couple of trades each of 2,3,4

and 5 shares each, two trades of 1000 shares each and one trade of

2000 shares. In 4 of the sell orders of appellant no. 2 Utkarsh

Chheda, the other appellant, Kalpana Chheda was the

counterparty.

5. The crux of the charge against the appellants is, that the

appellants have placed sell orders in single shares or in very small

quantities at higher and higher price on 55 days during the

relevant period thereby contributed to a total of Rs. 320.45 to

market positive LTP through 52 trades. Therefore, it has been held 4

that appellants' trade had been of a market manipulative nature

and therefore appellants have violated the stated provisions of the

PFUTP Regulations, 2003.

6. It is the contention of the learned counsel for the appellants

Shri Prakash Shah that appellants in their capacity as individual

investors were trading in the scrip of Zodiac in their normal

course of business; appellant no. 1 was holding 15045 shares of

Zodiac prior to the investigation period which she inherited from

her father-in-law and bought another 1009 shares, all of which

were sold; appellant no. 2 was holding 1195 shares as on

September 30, 2013 and those shares were sold during the

investigation period. In any case, it is the contention of the learned

counsel for the appellants that the price of the scrip increased

before the investigation period and went up much above the price

at which they transacted their last sales on April 17, 2014 at the

rate of Rs. 425.80. For instance, the price went up further to

Rs. 537.60 on May 30, 2014 and even after the post-share split on

February 24, 2015 the price of the scrip effectively reached

Rs. 968/-. Therefore, the price of the scrip was continuously

increasing and appellants as sellers cannot be charged with any

violation for the price rise because they were placing sell orders

only on the basis of buy orders available in the system. It was also 5

contended that they were selling small quantities of shares in most

of the days because they found that the share price was on an

upward trend.

7. It was further contended by the learned counsel for the

appellants that appellants have no connection with the list of

connected entities nor with the company or its promoters; since

the scrip of Zodiac was traded in the 'T' group trades were settled

compulsorily by delivery and under the tight supervision of BSE

(Respondent No. 2) during the periodic call auction sessions. In

order to press their contention that sellers of shares cannot be

accused of impacting the LTP in the absence of any connection

with other entities or fund transfers etc. the learned counsel for the

appellant relied on the orders of this Tribunal in respect of M/s.

Nishith M. Shah HUF vs. SEBI (Appeal No. 97 of 2019 decided

on January 16, 2020) and Sapna Dilip Bombaywala vs. SEBI

(Appeal No. 219 of 2019 decided on January 28, 2020.

8. We have also heard Shri Kumar Desai, the learned counsel

for the respondent SEBI who contended that the appellants'

trading in the scrip of Zodiac is ex facie manipulative since

appellants were the only sellers during most of the days and

therefore but for the sell orders placed by the appellants, mostly in

single shares each, no transaction would have fructified and no 6

LTP would have been formed. The appellants mode of trading

was manipulative because instead of selling a large part of their

stock when demand was already available in the trading system

the appellants were offloading only one share each most of the

time and had benefited considerably from the LTP successively

created over a long period of time and therefore made a windfall

gain out of their transactions.

9. We do not find much merit in the submissions made by the

learned counsel for the appellants though generally it can be stated

that selling at a price higher than the LTP particularly when buy

orders are available in the system cannot be considered as

manipulative in itself. However, looking at the pattern of trading

done by the appellants and the fact that the appellants have

derived considerable financial benefit through that particular

scheme or nature of trading we are of the view that the trading

pattern adopted by the appellants is of a manipulative and unfair

nature and would squarely fall within the ambit of the PFUTP

Regulations. The pattern of trade clearly establishes this as it is on

49 occasions that the appellants sold 1 to 5 shares, mostly one

share, when in fact the buy orders available in the system was

much higher. This behavior cannot be justified in terms of normal

rational expectations of a seller. It is on record that the appellants 7

were among the top two net sellers during the relevant period.

Therefore, when the appellants were holding a large number of

shares (Appellant No. 1 - 15045 shares and Appellant No. 2 -

1009 shares), their selling miniscule quantity of one share each on

more than four dozen occasions is nothing but a strategy of

manipulation and unfairly benefiting by off-loading the entire

shareholding after raising the price to considerable levels. The

Appellant No. 1 was able to sell off 7000 shares on 17th, 18th, and

19th February, 2014 at prices ranging from 182.45 to 189.75.

Similarly, on 21st, 24th and 25th March, 2014 the appellants

together sold 10174 shares at prices in the range of 226.05 to

249.20.

10. We are also constrained to observe that this was a case

where the buy side of the transactions also deserved to be

analyzed in detail, which has not been done by the AO by just

observing that there were large numbers of buyers placing orders.

However, given that several years have gone by after the event we

do not propose to order a reinvestigation at this stage.

11. Further, we are of the considered view that the penalty

imposed on the appellants is on the higher side, particularly, when

the entire price rise in the scrip is not on account of the trading

done by the appellants. In fact, we note that even when the 8

appellants were not trading between December 24, 2013 to

February 17, 2014 the price of the scrip had gone up from Rs. 152

to 182. Similarly, on intermittent dates as well there were trading

by others which raised the price as the appellants traded on only

55 days out of the investigation period or even the relevant period

which runs into 14 months and 7 months respectively. Therefore,

while calculating the profits earned by the appellants and in

deciding the quantum of penalty based on the same these facts

should have been taken into account as mitigating factors beyond

what is apparently done by the AO.

12. In the result, while upholding the impugned order on merit

we reduce the amount of penalty on Appellant No. 1 from Rs. 45

lakh to Rs. 20 lakh and from Rs. 5 lakh imposed on the Appellant

No. 2 to Rs. 2 lakh. This is sufficient to meet the ends of justice

given the facts of the matter. Appellants are directed to pay the

amount of penalty within four weeks from the date of the order.

No order on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 25.02.2020 Prepared and compared by:msb