Sunil Bhandari vs Sebi

Kaushik Rajnikant Mehta Building No.149, Saidham Cooperative Housing Society, Pant Nagar, Surrounding Vallabh Bagh Cross Lane, Ghatkopar -(E), Mumbai-40075. ...Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (E), Mumbai-400051. ...Respondent

Mr. Vikas Bengani, Advocate for the Appellant.

Mr. Suraj Chaudhary, Advocate with Mr. Abhiraj Arora, Karthik Narayan and Ms. Rashi Dalmia, Advocates i/b. ELP for the Respondent.

With Appeal No.103 of 2019

CGF Mercantile P. Ltd. (Formerly Known as Benko Trading Private Limited) Shop No.45, Handloom Market, Gandhibagh, Nagpur-440 002. ...Appellant 2

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (E), Mumbai-400051. ...Respondent

Mr. Vikas Bengani, Advocate for the Appellant.

Mr. Suraj Chaudhary, Advocate with Mr. Abhiraj Arora, Karthik Narayan and Ms. Rashi Dalmia, Advocates i/b. ELP for the Respondent.

With Appeal No.161 of 2019

Sunil Bhandari B-301, Wembley Estate, Opp. Rose Wood City, Sector 49-50, Gurgaon, Haryana-122001. ...Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (E), Mumbai-400051. ...Respondent

Mr. Vikas Bengani, Advocate for the Appellant.

Mr. Suraj Chaudhary, Advocate with Mr. Abhiraj Arora, Karthik Narayan and Ms. Rashi Dalmia, Advocates i/b. ELP for the Respondent. 3

CORAM: Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member

Per: Justice Tarun Agarwala, Presiding Officer

1.

Three appeals have been filed against a common

order dated 10th September, 2018 passed by the

Adjudicating Officer ('AO' for short) imposing

separate penalties.

2. The facts leading to the filing of the present appeals

are that investigation in the irregularities in the trading

of the scrip of Shakti Pumps (India) Ltd. for the period

from 1st February, 2010 to 30th July, 2010 for possible

violation of the Securities and Exchange Board of

India (Prohibition of Fraudulent and Unfair Trade

Practices relating to Securities Markets) Regulations,

2003 (hereinafter referred to as 'PFUTP Regulation')

was carried out by Securities and Exchange Board of

India (hereinafter referred to as 'SEBI'). Pursuant to

the investigation report, a show cause notice was

issued to 35 entities which included the three 4

appellants contending that the 56 entities were

connected with each other and had dealt with the scrip

in a fraudulent manner by creating artificial volume by

way of synchronised trades, reversal trades and self

trades which contributed in the price rise of the scrip

fraudulently by trading among themselves at a price

above the Last Traded Price ('LTP' for short),

manipulating the first trade of the day and established a

new high price which were all violative of Regulations

3 and 4 of the PFUTP Regulations.

3. The charges were denied by the appellants

contending that they had no connection with the other

entities nor they had indulged in synchronised trades or

reversal trades or self trades nor created artificial

volumes by any such trades.

4. The AO after considering the material evidence on

record imposed a penalty on all the entities except two

of them. In the case of Mr. Sunil Bhandari and Mr.

Kaushik Mehta a penalty of Rs.4 lakhs each was 5

imposed. In the case of CGF Mercantile a penalty of

Rs.8 lakhs was imposed.

5. We have heard Mr. Vikas Bengani, Advocate for

the Appellant and Mr. Suraj Chaudhary, Advocate

assisted by Mr. Abhiraj Arora, Karthik Narayan and

Ms. Rashi Dalmia, Advocates for the Respondent.

6. Various submissions were made on the issue that

there was no connection with other entities and,

therefore, there cannot be a charge of synchronised

trades nor there can be a charge of reversal trades.

Further, proceedings were initiated belatedly. The

trades were of the year 2010 whereas the show cause

notice was issue after seven years in September, 2017

and, accordingly, on account of this inordinate delay

the proceedings should be quashed.

7. It was further contended that whereas the data of 56

entities have been used in showing connection, total

volume of trades and percentage of trades and on the

other hand the show cause notice was only issued

against 35 entities. It was contended that such 6

connection with 56 entities was erroneous and at best

the connection with 35 entities ought to have been

taken into consideration.

8. On the other hand, the stand of the respondent was

that the impugned order does not suffer from any error

of law and that the AO has analysed the case of each of

the 35 entities and had come to the conclusion that the

appellants as well as the other entities had violated

Regulation 3 and 4 of the PFUTP Regulations.

9. Having heard the learned counsel for the parties, we

are of the opinion that the analysis against the

appellants had not been done correctly for the reasons

stated hereunder.

10. In the first instance, we find that the AO has found

that there is a connection between each of the entities

on the basis of a table shown in para 5 of the impugned

order. A perusal of the table shown in the para 5 of the

impugned order shows that the connection has been

established between 56 entities whereas the show

cause notice was issued to 35 entities. In our opinion, 7

a connection has to be drawn between the 35 entities

only and not against the 56 entities in as much as the

charge is one of synchronised trades and reversal

trades and if one of the entities who is not charged in

the show cause notice is a link for synchronised trading

then that charge cannot be proved.

11. Further, we find that in the case of Mr. Sunil

Bhandari the connection is off market transfer with

self. No connection has been established of this

appellant with any other entities. In case of Mr.

Kaushik Mehta, the connection has been established on

the basis of off market transfer with self and one

noticee no.6 Mr. Vipul Hiralal Shah and in the case of

CGF Mercantile the connection has been established

on the basis of off market transfer with self and with

noticee no.9 Mr. Bharatkumar Baldevbhai Parmar and

one Mr. Samir Sureshchandra Shah who is not a

noticee. Thus, we are not satisfied with the findings

that the appellants are connected with the other parties.

We are of the opinion that a connection is required to 8

be established between the appellant and the counter

party in the case of synchronised trading which has to

be established with the 35 entities. In the case of CGF

Mercantile we find that the Company is connected with

Mr. Bharatkumar Parmar. If certain trades are

executed by the CGF Company which are

synchronised then the onus is upon the AO to first

prove the connection with the synchronised counter

party.

12. We also find that the AO has taken into

consideration the total trades of 56 entities and the

percentage of the buy trades of the 56 entities and has

also taken into consideration the percentage of transfer

of the 56 entities which in our opinion would be

different and distinct in the volume and percentage of

the trades executed by the 35 entities. Therefore, such

comparison is odious.

13. The common charge against the three appellants is

synchronised trades and, in the case of CGF Mercantile

the additional charge is of reversal and self trades. In 9

the case of Mr. Sunil Bhandari the synchronised trades

is 2972 buy orders. The contention of the appellant is

that he had executed 5000 buy orders which matched

with ten entities and the charge is only in relation to

synchronised trading with one entity totalling 2972

shares which had a trade percentage of 0.01 percentage

against the total volume which is too miniscule to

influence the market or could amount to manipulation

in the price. In the case of CGF Mercantile total buy

orders were 1918 shares which also had a total

percentage of volume of 0.01% which is also being

miniscule.

14. In this regard, namely, synchronised trading we

find from the impugned record that the charge against

Mr. Ashok Kumar was that there were 1,25,868

synchronised trades and in the case of Mr. Narendra

Pawar there were 1,31,439 and in the case of Mr.

Kochale Santosh there were 1,24,530 synchronised

trades. These entities have been let off whereas the

appellant Mr. Sunil Bhandari traded 2972, CGF 10

Mercantile 1918 and Mr. Kaushik 30,000 shares whose

percentage is less than 0.01 percent of the total trades

have been charged for synchronised trades.

15. In the light of the aforesaid, we are of the view that

the AO has not taken into consideration the individual

stand of the appellants. Consequently, the impugned

order cannot be sustained for the aforesaid reasons and

is set aside. The appeals are allowed. The matter is

remitted back to the AO to pass a fresh order in the

light of the observation made above in accordance with

law after giving an opportunity of hearing to the

appellants.

16. We also direct that the AO should decide the

matter within a period of six months from today as the

matter is an old one. It would also be open to the

appellants to raise the ground of delay and such other

grounds as permissible in law which, if raised, would

be dealt with appropriately by the AO.

17. In the circumstances of the case, parties shall bear

their own costs.

11

18. 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 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

Justice M.T. Joshi Judicial Member

Digitally signed

5.5.2021 RAJALA byRAJALAKSHMI RHN KSHMI HDate:

NAIR

H NAIR 2021.05.12 17:18:58 +05'30'