Saurin Jayantilal Shah vs Sebi

Date of Decision: 22.02.2023

Misc. Application No. 157 of 2023 And Misc. Application No. 158 of 2023 And Appeal No. 201 of 2023

Ashlesh Gunvantibhai Shah HUF 9, Amramanjri Bunglows, Gala Gymkhana Road, Beside Celebration Centre, South Bopal, Ahmedabad- 380 058, Gajarat ...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

Ms. Rinku Valanju, Advocate i/b R V Legal for the Appellant.

Mr. Ravishekhar Pandey, Advocate with Mr. Nishit Dhruva, Ms. Shefali Shankar and Ms. Rasika Ghate, Advocates i/b. MDP & Partners, Advocates for the Respondent.

WITH Appeal No. 202 of 2023

Saurin Jayantilal Shah 401, Devansh Apartment, Opp. Pritam Nagar Akhada Paldi, Ahmedabad- 380 007, Gajarat ...Appellant

Versus 2

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

Mr. Vikas Bengani, Advocate i/b R V Legal for the Appellant. Mr. Ravishekhar Pandey, Advocate with Mr. Nishit Dhruva, Ms. Shefali Shankar and Ms. Rasika Ghate, Advocates i/b. MDP & Partners, Advocates for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member

Per: Justice Tarun Agarwala, Presiding Officer (Oral)

1.

The present appeal has been filed against a common order

dated November 28, 2022 passed by the Adjudicating Officer

("AO" for convenience) of the Securities and Exchange Board

of India ("SEBI" for convenience) imposing a penalty of Rs. 5

lakhs to be paid jointly and severally by the appellants.

2. The facts leading to the filing of the present appeal is, that

SEBI conducted an investigation in respect of alleged

manipulation in the scrip of Interactive Financial Services

Limited ("the Company" for convenience) for the period

November 01, 2020 to December 15, 2020. Based on the

investigation, a show cause notice dated August 24, 2022 was 3

issued. The charge levelled against the appellant and 5 other

noticees were that noticees no. 1 to 3 who were the promoters/

directors of the Company along with noticee no. 4 who was an

ex-employee of the Company orchestrated a scheme to

manipulate the price in the scrip wherein noticees no. 5 & 6 who

are the appellants in the present appeal manipulated the price of

the scrip of the Company by increasing the Last Traded Price

('LTP') and establishing New High Price ('NHP') by executing

first trades and that noticee no. 7 circulated bulk SMS

recommending buying in the scrip of the Company, thus

generating volume in the scrip of the Company. This provided

an exit opportunity to noticees no. 1 to 4 who sold their shares

at high price during Short Message/Messaging Service ('SMS')

period. The show cause notice thus alleged that noticees no. 1

to 7 violated the provisions of Regulation 3 and 4 of the SEBI

(Prohibition of Fraudulent and Unfair Trade Practices relating to

Securities Market) Regulations, 2003 ("PFUTP Regulations" for

convenience) read with Section 12A of the SEBI Act.

3. The AO after considering the material evidence on record

found that the appellants, being noticees no. 5 and 6, had

manipulated the price in the scrip by increasing the LTP and

establishing a NHP and executed first trades and, therefore, 4

found the appellants to have violated Regulations 3 and 4 of the

PFUTP Regulations and accordingly imposed penalty of Rs. 5

lakhs to be paid jointly and severally.

4. We have heard Ms. Rinku Valanju, the learned counsel

and Shri Vikas Bengani, the learned counsel for the appellants

and Shri Ravishekhar Pandey, the learned counsel for the

respondent.

5. We find from a perusal of paragraph 23 and 43 of the

impugned order that the basic charge levelled against all the 7

noticees has not been proved. A categorical finding has been

given by the AO in paragraph 23 of the impugned order that no

connection has been established between noticees no. 1,2,3 and

4 with noticees no. 5 and 6 i.e. the appellants. In paragraph 43

the AO found that noticee no. 7 has not circulated bulk SMS

recommending buying of shares of the Company and there was

no connection of noticee no. 7 with noticees no. 1, 2, 3 and 4.

In paragraph 44 of the impugned order the AO has given a

finding that in the absence of material evidence that noticees no.

1, 2, 3 had devised a scheme to sell the shares at higher prices,

the AO accordingly gave the noticees no. 1,2,3 and 4 a benefit 5

of doubt and exonerated them of the charge of Regulations 3

and 4 of the PFUTP Regulations.

6. The main plank in the show cause notice was that noticees

no. 1, 2 and 3 along with 4 had devised a scheme to manipulate

the price of the shares of the Company through noticees no. 5

and 6 and that noticee no. 7 issued SMS to gullible investors to

trade in the shares and during the period of SMS noticees no.

1,2,3 and 4 sold their shares and earned profits. This basic

charge has not been proved. No connection has been found

between noticees no. 1,2,3, and 4 with the appellants. There is

no finding that the noticees no. 1, 2,3 and 4 have gained by

selling their shares at higher prices. Once this finding has been

given, the question of the appellants being charged for

manipulating the price for the benefit of noticees no. 1,2,3 and 4

thus does not survive. If noticees no. 1, 2,3 and 4 by selling

their shares have not gained materially nor have been found to

have devised a scheme then the question of holding the

appellants guilty of manipulating the price for the benefit of

noticees no. 1,2,3 and 4 fails.

7. In the light of the aforesaid, the impugned order in so far

as it relates to the appellants cannot be sustained and is quashed. 6

The appeals are allowed with no order as to costs. Misc.

Applications are disposed off accordingly.

8. 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 22.02.2023 PRERNA by PRERNA Digitally signed

PK MANISH MANISH KHARE Date: 2023.02.24 KHARE 10:51:35 +05'30'