Shri Lakhi Prasad Kheradi vs Sebi

Date of Decision: 21.06.2018

Appeal No. 232 of 2017

Shri Lakhi Prasad Kheradi B-36, Ravalgaon, Building, 3rd Floor, J.B. Nagar, Andheri (East), Mumbai- 400 059 ...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. Ashok Bansal, Chartered Accountant, for the Appellant.

Mr. Aditya Mehta, Advocate with Mr. Shantanu Mitra and Mr. Anubhav Ghosh, Advocates i/b Desai & Diwanji for the Respondent.

CORAM: Justice J.P. Devadhar, Presiding Officer Dr. C.K.G. Nair, Member

Per: Justice J.P. Devadhar (Oral)

1.

This appeal is filed to challenge the order passed by the

Adjudicating Officer ("AO" for short) of Securities and Exchange Board

of India ("SEBI" for short) on 20.07.2017. By that order penalty of

` 7 lac is imposed on the appellant under Section 15HA of the Securities

and Exchange Board of India Act, 1992 ("SEBI Act" for short) for

violating Section 12A (a) to (c) of SEBI Act and regulations 3(a) to (d),

4(1) and 4(2)(a) & (e) of SEBI (Prohibition of Fraudulent and Unfair 2

Trade Practices relating to Securities Market) Regulations, 2003

("PFUTP Regulations" for short).

2. Dispute in the present case relates to the trading in the shares of

Out of the City Travel Solutions Limited ("Company" for convenience)

during the period from 27.07.2012 to 28.02.2013. During the said

investigation period it was noticed that while the Bombay Stock

Exchange Sensex moved from 16,839.19 to 18,861.54 registering an

increase of 2022.35 points (12.01%), whereas the price of the scrip of the

company moved from ` 10.19 to ` 187.40 registering an increase of

` 177.21 (1739.06%).

3. Investigation revealed that during the period from 16.01.2013 to

30.07.2013 appellant had purchased 157 shares of the company and sold

157 shares. It was also noticed that the scrip of the company was an

illiquid scrip and out of purchase and sale of 157 shares, some of the

trades of the appellant were self trades and some trades had influenced

the price of the scrip of the company by contributing the market net LTP

(Last Traded Price) and some trades had also contributed to the NHP

(New High Price). In these circumstances, proceedings were initiated

and by the impugned order it is held that the appellant has violated the

SEBI Act and the PFUTP Regulations. Accordingly, penalty of ` 7 lac is

imposed on the appellant. Challenging the said order dated 20.07.2017

present appeal is filed.

3

4. In the impugned order, the AO after setting out details of the trades

executed by the appellant has held in para 15, 16, & 17 as follows:-

"15. The details of the trades of the noticee is mentioned at Tables at afore-mentioned paras 1, 2, 4 & 5 and the same has not been disputed by the noticee. The allegation against the noticee is that he influenced the price of the scrip of OCTSL by contributing ` 85.35 (48.16%) to market net LTP of ` 177.21 and that it contributed to 9.17% of the market NHP in 9 trades with total volume of 9 shares.

16. Noticee has submitted that he is not connected with the persons whose names are appearing in the SCN and had no fraudulent intention when he dealt in the scrip of OCTSL. Noticee submitted that he deals in the shares of various companies in small quantities for as low as 1 share. It is noted that price of the scrip of OCTSL had risen from ` 10.19 to ` 187.40 i.e. by ` 177.21, a whopping 1739.06% increase during the investigation period. It is an illiquid scrip. Whereas during the same period Sensex had registered a growth of 12.01% only. Noticee bought 152 shares of OCTSL in 45 trades and these trades had the effect of net positive LTP of ` 85.35. It took 4062 trades in 48,48,281 shares of OCTSL to result in the increase of net LTP of ` 177.21 and Noticee's contribution in such increase was ` 85.35 through persistent trades in small quantity of 152 shares. Out of these trades as per table at para 2 above, Noticee contributed positive LTP of ` 87.25 in 25 trades itself 4

through which he bought 77 shares. The price of the scrip went up exorbitantly without any change in the fundamentals of the company. Against market capitalization of 2415.59 crore, the net assets were 31.47 crore only and it incurred losses in 2011-12 and 2012-13.

17. Further, when I examine the NHP analysis of the undisputed trades done by the noticee the details of which are given in the table at para 5 above, I note that by trading on 9 occasions (including 2 selftrades) for 1 share each for the total value of 9 shares within a span of two weeks i.e between February 13, 2013 to February 27, 2013, he contributed to 9.17 % of the total market NHP."

5. Aforesaid facts set out in the impugned order clearly show that the

trades executed by the appellant in small quantities coupled with self

trades/ LTP/ NHP were not the normal trades executed in the ordinary

course of business.

6. Representative of the appellant, however, submitted that the

impugned order cannot be sustained for the following reasons:-

a) Apart from the circumstantial evidence there is no

evidence to show that the appellant had indulged in

manipulative trades in violation of the SEBI Act and

the PFUTP Regulations.

5 b) Trades executed by the appellant were the normal

trades and in the absence of any connection

established between the appellant and the company or

the counter parties, SEBI is not justified in holding

that the appellant had indulged in manipulative trades.

c) In any event, penalty of ` 7 lac imposed on the

appellant is unreasonable and exorbitant.

7. Accordingly, it is submitted that the impugned order be quashed

and set aside. Alternatively, it is submitted that the penalty may be

reduced to the extent as this Tribunal deems it fit and proper.

8. We see no merit in the aforesaid contentions.

9. Facts recorded in paras 15 to 17 of the impugned order clearly

establish that the trades executed by the appellant had the effect of net

positive LTP of ` 85.35. Very fact that the appellant had indulged in

self trades/ LTP/ NHP without giving any justifiable reason, clearly

justifies the inference drawn by the AO that the trades executed by the

appellant were manipulative trades.

10. As held by the Apex Court in the case of SEBI V/s Kishore R.

Ajmera reported in (2016) 6 SCC 368, in the absence of direct evidence,

by taking into account immediate and proximate facts and circumstances

surrounding the events on which the charges/allegations are founded it is

open to an AO to arrive at a reasonable conclusion that the trades 6

executed were manipulated trades. In the facts of the present case, in our

opinion, no fault can be found with the decision of the AO that the trades

executed by the appellant were manipulative trades and hence, the

appellant was guilty of violating the SEBI Act and the PFUTP

Regulations.

11. Argument advanced by the Representative of the appellant that the

penalty imposed is excessively harsh is without any merit. Penalty

imposable under Section 15HA of SEBI Act for violating the PFUTP

Regulations is up to ` 25 crore. However, after taking into consideration

all mitigating factors the AO has imposed penalty of ` 7 lac which cannot

be said to be unreasonable or excessive.

12. In the result, we see no merit in the appeal and the same is hereby

dismissed with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 21.06.2018 Prepared & Compared By:PK