Shri Manojbhai Rameshchandra Shah vs Sebi

Order Reserved on: 28.07.2017

Date of Decision : 01.09.2017

Appeal No. 419 of 2015

Shri Manojbhai Rameshchandra Shah C/o. Mr. Prakash D. Shah A-5, Vidyut Building 375, J.S.S. Road, Girgaum, Mumbai - 400 002. .....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. J.J. Bhatt, Advocate with Ms. Rinku Valanju and Ms. Nikita Hinger, Advocates i/b Ms. Rinku Valanju, Advocate for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Tomu Francis, Advocate i/b ELP for the Respondent.

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

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

1.

The appellant is aggrieved by the order passed by the Adjudicating

Officer ('AO' for short) of Securities and Exchange Board of India ('SEBI'

for short) on March 12, 2015 by which varying amounts of penalty has been

imposed against six entities including the appellant herein. Against the

appellant a penalty of Rs. 25 lakh has been imposed for violating certain 2

provisions of the Securities and Exchange Board of India (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities Market)

Regulations, 2003 ('PFUTP Regulations 2003' for short).

2. Shri J.J. Bhatt, Learned Counsel for the appellant submitted that his

client never indulged in any reversal trades as alleged in the impugned

order. In fact, no manipulation in the scrip of the company, M/s. Sky

Industries Limited ('SIL' for short) was possible because it was traded in the

'T' scrip category wherein 100% delivery was mandatory and 100% margin

has to be paid and there were 5% circuit filter applicable on the price

variations. Given these tight regulatory conditions no price manipulation

was possible. There was no reversal of trades as alleged because he sold the

shares many days after it was obtained by him. The charge of reversal trades

can be alleged only if the reversal takes place on the same day or nearby

days. In the instant case, not only the shares were sold in the open market

after many days of obtaining it but the shares were sold through multiple

transactions during 18 trading days covering 11 months (February 2009 -

January 2010). The appellant got the shares worth Rs. 1.59 crore from one

Mr. Vijay Vora because Mr. Vora had owed him Rs. 1.75 crore on account

of certain computer services provided by the appellant to Mr. Vora. Instead

of paying money he paid by means of shares of 35 companies including that

of SIL. The largest chunk of the shares given was that of SIL. He received

1,60,306 shares of SIL from Mr. Vora off market @ Rs. 88.80 on February

6, 2009 and sold 1,34,050 shares out of this at a weighted average price of

approximately Rs. 77.23 during the investigation period. This resulted in a

net loss of approximately Rs. 15.61 lakh to the appellant. Further, off-

market to on-market trade cannot be treated as reversal. The appellant was

not responsible for any fall in price because he was selling at near market 3

rates and that too in small tranches on multiple occasions spread through

almost a year.

3. It was further argued that the appellant was not party to the acquiring

of shares by Mr. Vora as held against Mr. Vora. The entire scheme of

Mr. Vora in acquiring large quantity of shares of the SIL was an offence

committed by Mr. Vora for which he has been punished in the impugned

order itself. The appellant was not connected to Mr. Vora and not aided in

any manner whatsoever in Mr. Vora acquiring large quantity of shares of

SIL thereby violating the provisions of the Securities and Exchange Board

of India (Substantial Acquisition of Shares and Takeovers) Regulations,

2011 ('Takeover Regulations 2011' for short).

4. The Learned Counsel for the appellant relying on this Appellate

Tribunal's order dated October 10, 2013 in the matter of Kapil Chatrabhuj

Bhuptani vs. Securities and Exchange Board of India (Appeal No. 95 of

2013) submitted that a meeting of minds between parties is needed for

reversal of trades to happen and in the instant case there was no such

meeting of minds. Reliance was also placed on the order of this Appellate

Tribunal in the matter of V.G. Capital Market Pvt. Ltd. vs. Securities and

Exchange Board of India (Appeal No. 135 of 2009 decided on 01.12.2009)

stating that the reversal of trade is not possible without manipulative

practices which in the case of the appellant is not proved.

5. Shri Kumar Desai, Learned Counsel for the respondent stated that the

charge in the impugned order against the appellant is that he had indulged in

multiple transactions of the nature of reversal of trades during the

investigation period to create false appearance of liquidity in the SIL scrip.

This impacted the price of the scrip considerably. This was done through 4

first transferring shares of Mr. Vora in the off-market mode to the appellant

herein (as well as to others) to circumvent detection of reversal of trade done

on-market.

6. We do not find merit in the arguments put forth by the Learned

Counsel for the appellant. Though he claims to have received the shares in

lieu of certain amount of money due from Mr. Vora for some past computer

services rendered, there is nothing on record to substantiate the nature of the

past services or the amount of Rs. 1.75 crore allegedly due to the appellant.

Further, when the claim amount was Rs. 1.75 crore why he accepted

Rs. 1.59 crore worth illiquid scrip which finally got him Rs. 1.42 crore by

selling it back to mainly Mr. Vora himself is also not explained. It is also

intriguing to note that while Mr. Vora had money to buy shares in the

on-market mode, he did not have money to repay his dues to others and

others were willing to accept illiquid scrip instead. It is also noticed that

many of the sell orders on-market were placed by the appellant at substantial

discount from the last traded price. Sell orders were also placed within a

minute from the buy orders of Mr. Vora which would indicate meeting of

minds. Given these evidences the argument of the appellant that there was

no meeting of minds between Mr. Vora and the appellant is not convincing

and hence not acceptable.

7. The argument by counsel for the appellant that the penalty imposed is

disproportionately high is also without any merit as the penalty imposable

under section 15HA of SEBI Act shall not be less than Rs. 5 lakh but which

may extend to Rs. 25 crore or three times the amount of profits made,

whichever is higher. Accordingly, the penalty of Rs. 25 lakh imposed, given

the facts and circumstances of the matter, cannot be held as excessive or

harsh.

5

8. For the aforesaid reasons, appeal is dismissed with no order as to

costs. Appellant is directed to pay the penalty within 30 days from the date

of this order.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

Sd/-

Dr. C.K.G. Nair Member

01.09.2017 Prepared and compared by:

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