Shri Nagad Sarvar vs Sebi

Order Reserved On: 24.07.2019 Date of Decision : 06.08.2019

Appeal No. 336 of 2017

Shri Nagad Sarvar 1/4025, Behind Old Civil Hospital Chawk Bazaar, Surat- 395 001 ...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. Nagad Sarwar, Appellant in Person.

Mr. Vishal Kanade, Advocate with Mr. Chirag Bhavsar, Advocate i/b MDP & 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

1.

This appeal has been filed challenging the order of the

Adjudicating Officer ("AO" for short) of the Securities and

Exchange Board of India ("SEBI" for short) dated November

27, 2015. By the said order a penalty of ` 16 lakhs has been

imposed on the appellant under Section 15 HA of the Securities 2

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

for violation of Regulation 3 and Regulation 4(2) of SEBI

(Prohibition of Fraudulent and Unfair Trade Practices relating to

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

short).

2. SEBI conducted an examination relating to trading in the

scrip of Vamshi Rubber Limited ("VRL" for short) during the

period January 01, 2011 to June 30, 2011. The shares of VRL

were traded on 124 days on BSE Limited during this

examination period. The impugned order records that the

appellant had indulging in wash trades/ self trades on multiple

days during the examination period. The total number of shares

of VRL bought and sold by the appellant during this period

comes to 19727 shares. Trading was in small quantities of

shares in the range of 2 shares to 2000 shares on the buy side

and 1 to 2016 shares on the sell side during these days. It is also

stated in the impugned order that these quantities though appear

small, are substantive percentage of the overall volumes in the

scrip given its relative illiquid nature as given in the show cause

notice. In conclusion, it is noted in the impugned order that the

appellant had executed 187 self trades involving 19727 shares in

47 days and thereby violated Regulation 4(2)(g) of the PFUTP 3

Regulations. For facility, Regulation 4(2)(g) is extracted

hereunder:-

"4. Prohibition of manipulative, fraudulent and unfair trade practices (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:-

(g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security;"

3. Appellant, appearing in person submitted that he is a small

investor who used to invest in small quantities as a day trader;

traded in the VRL without having any knowledge or intention to

violate any laws; his buying and selling small quantities were on

different days or after substantive time on the same day in the

open market. The appellant also states that he incurred losses

also on several occasions. Further, the appellant strongly

pitched for appropriate amount of compensation for issuing a

highly arbitrarily order devoid of any merit by SEBI and

thereby causing both financial and mental agony to the

appellant.

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4. The learned counsel Shri Vishal Kanade appearing on

behalf of the respondent SEBI on the other hand contended that

self trades or wash trades are trades without any change in

beneficial ownership and as such when the same entity is

indulging in such trades on a repetitive basis it is clearly

violation of PFUTP Regulations and hence the penalty imposed

on the appellant is just and fair. The learned counsel for the

respondent also relied on the judgment of this Tribunal in the

matter of Angel Broking Private Limited vs. SEBI (Appeal No.

25 of 2013 decided on 22.10.2013) to emphasise that if

violation is established penalty must follow.

5. We have gone through the documents produced before us

and taken note of the submissions made by both the parties. We

note that, on many of the days the appellant has bought and sold

the shares and on some of those days the quantities bought and

sold also matched. However, there were also several days on

which there was only either a buy trade or a sell trade.

6. Generally, only when trades placed by the same party are

matched within a short period of time it can be categorized as

self trades. Here, it is on record that the appellant did not do

multiple trades on the same day. There are a few days when 5

both buy and sell orders of the same quantity were placed. Even

on those days when perfect matching is noticed there is nothing

on record to show that those trades were entered within a short

time interval. In the absence of which, we are constrained to

accept the submission of the appellant that being a day trader,

on some days, he was placing orders in both the directions with

substantive time gap. It is also claimed by the appellant that on

some of the days he actually did take delivery and therefore the

beneficial ownership also got changed. The impugned order

does not indicate the timing of the alleged trades nor it goes into

change in beneficial ownership nor does it bring out any

element relating to how it adversely affected the market. Even

though preponderance of probability is sufficient to prove

PFUTP violations still fraudulent and unfair trade has to be

established with some degree of confidence. Given the absence

of such findings and given the undisputed fact that the appellant

was a day trader we are constrained to give benefit of doubt to

the appellant. However, given the facts and circumstances of

the matter, we do not find any reason to award cost to the

appellant though the appellant has made a high pitched demand

for exemplary costs.

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7. In the result, the appeal is allowed and the impugned order

is quashed. No orders on costs

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M. T. Joshi Judicial Member 06.08.2019 Prepared & Compared By: PK