Shreenath Finstock Private Limited vs Sebi

Shreenath Finstock Private Limited A/120, Gokul Arcade, Sahar Road, Vile Parle (East), Mumbai - 400 057. ...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

Mr. Ankit Lohia, Advocate with Mr. Deepak Dhane, Advocate i/b Corporate Pleaders for the Appellant.

Mr. Vishal Kanade, Advocate with Ms. Nidhi Singh, Ms. Kinjal Bhatt, Mr. Hersh Choudhary, Advocates i/b Vidhi Law Partners for the Respondent.

WITH Appeal No. 187 of 2020

Gedalia Multitrading Private Limited 2B/16, Gee Bee Apartment, Sai Baba Road, Borivali (West), Mumbai - 400 092. ...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 2

Mr. Deepak Dhane, Advocate i/b Corporate Pleaders for the Appellant.

Mr. Vishal Kanade, Advocate with Ms. Nidhi Singh, Ms. Kinjal Bhatt, Mr. Hersh Choudhary, Advocates i/b Vidhi Law Partners for the Respondent.

WITH Appeal No. 188 of 2020 Bhavin Sureshbhai Thakkar 2B/16, Gee Bee Apartment, Sai Baba Road, Borivali (West), Mumbai - 400 092. ...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

Mr. Deepak Dhane, Advocate i/b Corporate Pleaders for the Appellant.

Mr. Vishal Kanade, Advocate with Ms. Nidhi Singh, Ms. Kinjal Bhatt, Mr. Hersh Choudhary, Advocates i/b Vidhi Law Partners for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member

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

1.

These three appeals have been filed to challenge the order of

the Adjudicating Officer ('AO' for short) of the Securities and 3

Exchange Board of India ('SEBI' for short) dated April 27, 2020.

By the said order a penalty of Rs. 15 lakhs on Shreenath Finstock

Private Limited ('Shreenath' for short) and Rs. 10 lakhs each has

been imposed on Gedalia Multitrading Private Limited ('Gedalia'

for short) and Bhavin Sureshbhai Thakkar ('Bhavin' for short)

respectively for violation of provisions of Section 12A(a), (b), (c)

of SEBI Act, 1992 and Regulation 3(a), (b), (c), (d), 4(1), (2) (a)

and (e) of SEBI (Prohibition of Fraudulent and Unfair Trade

Practices relating to Securities Market) Regulations, 2003

('PFUTP Regulations' for short). Since all the three appeals

emanate from the same impugned order and facts are similar, all

relating to trading in the scrip of Nutraplus India Ltd. ('Nutraplus'

for short) during the same investigation period, all appeals have

been heard together and decided by this common order taking

Shreenath as the lead matter.

2. SEBI conducted an investigation relating to trading in the

scrip of Nutraplus for the period January 1, 2015 to July 27, 2017.

Based on a prima-facie finding that the three appellants herein had

been instrumental in raising the price of the scrip of Nutraplus

through manipulative trading and therefore violating provisions of

Section 12A(a), (b), (c) of SEBI Act, 1992 and stated PFUTP

Regulations adjudication proceedings were initiated and a show 4

cause notice issued on February 14, 2020. The investigation

period was divided into four patches / phases as follows:-

Patch - 1 : January 1, 2015 to February 3, 2016 (Price rise patch) (pre-split)

Patch - 2 : February 4, 2016 to February 23, 2017 (Price fall patch) (pre-split)

Patch - 3 : February 27, 2017 to March 29, 2017 (Price fall patch) (post-split)

Patch - 4 : March 30, 2017 to July 27, 2017 (Price rise patch) (post-split)

3. Investigation revealed that during Patch-1 price of the scrip

had risen from Rs. 64.45 on January 1, 2015 to Rs. 472.10 on

February 3, 2016. Details relating to this patch are given in the

table at page 3 of the impugned order. Similarly, the detailed

trading done by 10 top clients during this patch are given in the

table at page 5 of the impugned order. This table shows that

Shreenath, Gedalia and Bhavin bought 12.3%, 6.45% and 3.83%

of the total trading in the scrip of Nutraplus and the same parties

sold 12.3%, 6.24% and 3.70% during the period. Therefore, the

appellants were the top three traders on both the buy side and sell

side during this period.

5

4. Connection between the appellants between themselves and

also with some other entities are explained in the table at page 6 of

the impugned order which indicates that appellants were

connected with each other and other entities through directorship

of appellants / connected companies common contact number,

common e-mail id and common address.

5. It is on record that during Patch - 1, the appellant Shreenath

bought 4497shares trading in just one share each generating more

than 25% market positive LTP. Similar buy order of one share

each on 2446 instances was done by Bhavin. These entities

contributed 44.75% of the total new high price during Patch -1,

details of which are given in the table at page 11 of the impugned

order. Similarly, during Patch-4, post-split price rise period

Shreenath and Gedalia placed large number of orders of one share

each (1765 and 872 orders) and generated substantial positive

LTP. It is also held that the appellants also facilitated exit of three

preferential allottees of Nutraplus.

6. It is the contention of the learned counsel Shri Ankit Lohia

and Shri Deepak Dhane appearing on behalf of the appellants in

different appeals that the appellants were jobbers / regular traders; 6

did their trades in the normal course of business; not traded when

volumes were high; matching of some trades between the

appellants and the three preferential allottees was just a

coincidence as in an anonymous trading system trades have to

match between certain parties and one of the noticees, namely,

ARG Management Solutions Private Limited ('ARG' for short),

which had also substantial number of trades and positive LTP

contribution and whose director was a preferential allottee, was

exonerated. It was further contended that appellant had been

trading in the scrip from February 2015 and continues to trade in

the scrip even now. Similarly, appellants also trade in a number of

other scrips in a similar fashion. There is no synchronized trading

or circular trading. There had been trades with positive LTP,

negative LTP and no LTP but only positive LTP has been

selectively taken by SEBI to charge the appellant. However, if

both negative and positive LTP are taken into account net positive

LTP is only marginal, it was contended. Connection of Ostwal to

Nutraplus as director in a related company of Nutraplus, named

CMI Ltd. was more than one year subsequent to the preferential

allotment. It was also contended by the learned counsel for the

appellants that the impugned order considers only two preferential

allotment while a third preferential allotment was also done on 7

December 8, 2015 at a premium of Rs. 224/- which implies that

the company was fundamentally strong and therefore the

allegation of artificial price raise against the appellants is not

correct. It was further contended that there is no finding of any

collusion or nexus between appellant and preferential allottees.

Moreover, preferential allottees were also buyers not only sellers.

The learned counsel also relied the order of SEBI dated March

20, 2020 on ARG wherein SEBI exonerated ARG despite having

trading pattern similar to the appellants.

7. The learned counsel Shri Vishal Kanade appearing for the

respondent SEBI, on the other hand, contended that the

connection between the appellants and some other entities is

clearly established in terms of directorship and connection to

Nutraplus as Mr. Kishor Ostwal was an additional director of

Nutraplus during September 2016 to May 2017, part of the

investigation period. Even if it is admitted that the said

appointment was subsequent to the preferential allotment it shows

the basic connection between the parties and in a case of

manipulative trading only preponderance of probabilities can be

established most of the time. Similar connection between

Shreenath and Gedalia was also established in terms of

directorship, common address and common mobile number etc. 8

Similarly, it was contended by the learned counsel for SEBI that

the pattern of trading conducted by the appellants i.e. a large

number of single share buy and sell, clearly establishes its

manipulative nature even as regular traders or jobbers a genuine

party does not put buy / sell order for one share on thousands of

occasions when the system was showing much larger number of

orders on the other side. As regards exit option to only three

preferential allottees it was contended that the nature of the

matching trades between the preferential allottees and the

appellants indicate that there is a meeting of minds and the

submission of the appellant that they did not provide any exit

option to the rest of the preferential allottees has no merit.

Therefore, it is the stand of the learned counsel for SEBI that the

impugned order clearly brings out the complete details; how the

price of the scrip of Nutraplus was raised in Patch-1 and Patch-4

and how the appellants by placing large number of single share

orders manipulated the price and created positive LTP including

new high price on a large number of trades. Therefore, there is no

doubt that the appellants had violated Section 12A(a), (b), (c) of

SEBI Act, 1992 and PFUTP Regulations as stated in the

impugned order. As regards the comparison between ARG (supra)

order and the impugned order the learned counsel submitted that 9

in the case of ARG no link could be established with any other

entity which means ARG was trading on its own in the normal

course of business unlike the appellants who were connected and

clearly manipulating the prices and helping the exit of some of the

preferential allottees.

8. Having heard the learned counsel for the parties and having

perused the documents placed before us we are of the considered

view that the pattern of trading conducted by the appellants clearly

establishes an attempt to manipulate the price of the scrip of

Nutraplus. While it can be argued that no law prevents a trader

from placing orders for one share, placing such orders thousands

of times repeatedly, as in the instant case, is clearly manipulative

in nature. A few such trades occasionally may not fall within the

ambit of such manipulation as under Section 12A(a), (b), (c) of

SEBI Act, 1992 and the PFUTP Regulations. But by no stretch of

imagination we can extend that benefit of doubt to the appellants

herein who have indulged in such single share trades a large

number of times (4497, 2446 and 1765 etc) times during a limited

period. Therefore, irrespective of the connection by the appellants

and others or providing exit to only three preferential allottees etc.

partly only these appeals do not have any merit. Nor these issues 10

are very relevant when it is clear that the pattern of trading

conducted by the appellants were clearly of manipulative nature

squarely falling under the provisions of the PFUTP Regulations.

Therefore, we have no doubt that the impugned order does not

suffer from any deficiencies in this regard.

9. The comparison made by the appellants between the

impugned order and order in ARG also does not come to the aid

of the appellants since we are told that in ARG the trading pattern

is distinguishable and no connections in the matter of ARG with

any other counter party or other entities involved in the matter

could be established. Only because substantial quantity of trading

has been done by an entity or a director of that entity was a

preferential allottee itself cannot be a ground for charging the

entity with violation unless violations falling under the regulations

can be established.

10. In the result, all the three appeals fail and are dismissed with

no order as to costs.

11. The present matter was heard through video conference due

to Covid-19 pandemic. At this stage it is not possible to sign a

copy of this order nor a certified copy of this order could be issued 11

by the registry. In these circumstances, 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. Parties will act on production of a digitally signed

copy sent by fax and/or email.

Justice Tarun Agarwala Presiding Officer

Dr. C.K.G. Nair Member

Justice M.T. Joshi Judicial Member 22.03.2021 RAJALA Digitally signed by RAJALAKSHMI KSHMI HDate:

NAIR

msb 2021.03.23 H NAIR 15:54:23 +05'30'