Symphony Merchants Pvt. Ltd. vs Sebi

Order Reserved On: 16.04.2019 Date of Decision : 12.07.2019

Appeal No. 418 of 2015

1.

Sandeep Paul

2. Sandeep Paul (HUF)

3. Green Field Infrastructure Pvt. Ltd.

10 B, Bougain Villa Marg, DLF Phase II, Gurgaon-122002 ...Appellants

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. Shyam Mehta, Senior Advocate with Mr. Vinay Chauhan, Mr. K. C. Jacob, Advocates i/b Corporate Law Chamber India for Appellants.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Abhiraj Arora, Mr. Vivek Shah, Advocates for the Respondent.

WITH Appeal No. 396 of 2015

Order Reserved On: 23.04.2019 Date of Decision : 12.07.2019

Symphony Merchants Pvt. Ltd.

16, Netaji Subhas Road, 4th Floor, Kolkata- 700 001 ...Appellant

Versus 2

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. Vinay Chauhan, Advocate with Mr. K. C. Jacob, Advocate i/b Corporate Law Chamber India for the Appellant.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Abhiraj Arora, Mr. Vivek Shah, Advocates for the Respondent.

AND Misc. Application No. 312 of 2015 And Appeal No. 441 of 2015

Order Reserved On: 23.04.2019 Date of Decision : 12.07.2019

Seminary Tie-up Pvt. Ltd.

H-108 C, Connaught Circus, New Delhi- 110 001 ...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. Vinay Chauhan, Advocate with Mr. K. C. Jacob, Advocate i/b Corporate Law Chamber India for the Appellant.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Abhiraj Arora, Mr. Vivek Shah, Advocates for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M. T. Joshi, Judicial Member 3

Per: Dr. C.K.G. Nair

Misc. Application No. 312 of 2015 In Appeal No. 441 of 2015

There is a delay of 85 days in filing the present appeal.

Cause shown is sufficient. The delay in filing the appeal is

condoned.

The delay condonation application is allowed.

Appeal Nos. 418, 396 and 441 of 2015

1. These three appeals have been filed to challenge the order

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

Exchange Board of India ("SEBI" for short) dated April 24,

2015. By the said order 14 entities, including the appellants in

these appeals, have been directed to pay varying amount of

penalties for violation of Section 12A (a),(b),(c) of the SEBI

Act, 1992 read with various provisions of (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities

Market) Regulations, 2003 ("PFUTP Regulations" for short).

Since all these appeals challenge the same impugned order they

are decided together by this common order.

2. Facts relevant to all the matters are the following:- 4

SEBI conducted an investigation into trading in the scrip of four

companies by a group of entities collectively called Shyam

Sunder Gupta and related/ connected entities as follows:-

Name of the Scrip Period of Investigation Areva T&D India Ltd. July 28- 29, 2010 Tata Teleservices (Maharashtra) Ltd. August 23, 2010 Power Grid Corporation of India Ltd. April 28, 2010 Mahanagar Telephone Nigam Ltd. July 28-29, 2010

During this investigation, based on trading in cash segment of

the National Stock Exchange of India Limited ("NSE" for

short), it was noticed that the prices of these scrips increased

substantially during the last few minutes before closing of trade.

Thereafter some of the entities in the Group had exercised

substantial quantities of call options and made profits. In this

background a show cause notice dated September 26, 2013 was

issued to various entities directing to show cause as to why an

inquiry should not be initiated and penalty not imposed under

Section 15HA of the SEBI Act for the alleged violations stated

in the show cause notice. Appellants in the 3 appeals before us

had been associated with trading in 3 scrips out of the 4 scrips in

the aforesaid table, except that of Areva T&D India Ltd. They,

along with certain other entities traded in the scrips in the stated

manner on the expiry date of the Options Contracts for the

relevant months. Since the central issue is relating to the nature 5

of these trades the same is analyzed along with the stand taken

by each appellant as below.

Appeal No. 418 of 2015 (Sandeep Paul & Ors.)

3. During the investigation period it was noted that Shyam

Sundar Gupta and Green Field Infrastructure Pvt. Ltd. one of

the appellants in this appeal (Noticee No. 1 and Noticee No. 12)

were amongst the top clients on gross, net buy and net sell basis

between 15:16:13 and 15:29:09 in the scrip of Power Grid

Corporation of India Limited ("Power Grid" for short) on April

28, 2010. The orders placed by Noticee No. 12 are as under:

a) Sell order for 5 lakh shares at 15:16:13 at a

limit price of ` 118.95 which was subsequently

modified at 15:21:45 when the limit price was

increased to ` 119.95.

b) At 15:16:25 appellant placed a stop loss buy

order for 7 lakh shares at a limit price of

` 119.00 with a trigger price of ` 118.65 which

was subsequently modified at 15:21:53 at a

limit price of ` 120 and trigger price of

` 119.65. Thus, it was observed that Noticee 6

No. 12 increased the price of the sell order by

` 1 and then within 8 seconds increased the

limit price of the buy order as well as the

trigger price by ` 1.

c) Another buy order was placed at 15:29:01 for

9.90 lakh shares (even though there was a

pending buy order for 7 lakh shares) at a price

of ` 120 which was 10.60% above LTP of

` 108.50. This buy order executed all the

available sell orders at price of ` 119.95 or less

and a total of 9,90,000 shares were traded

between 15:29:01 to 15:29:02. It was noted that

Noticee No. 12 had a sell order for 5 lakh

shares at a limit price of ` 119.95 and thus

1,26,425 shares got matched.

d) Further, as the trigger price (i.e., ` 119.65) of

the earlier order (i.e., of 7 lakh shares) which

was pending in the system with a limit price of

` 120 at 15:29:03 got triggered, this buy order

swept all the available sell orders at price of

` 120 or less during that instance and a total of 7

7, 00, 000 shares were traded between 15:29:03

to 15:29:08. In this case also Noticee No. 12

had sell order for remaining shares of 3,73,505

shares at a limit price of ` 119.95 and thus

these orders were matched.

e) It is evident from the above, that the trading

done by Noticee No.12 resulted in the price of

the scrip moving from ` 108.50 to ` 120. The

closing price of the scrip (average of the last

half an hour trading prices) due to the aforesaid

price rise was ` 114.90. Excluding the

aforesaid buy and sell trades of the client in the

last half an hour, the close price would have

been ` 111.14 and if the markets had closed at

15:29:00 (15:29:01 is the time when first trade

of Noticee No. 12 was executed during the last

half hour) the closing price would have been

` 109.25.

f) Also, the trading pattern of the Noticee No. 12

also reveal that they have indulged in self

trades. Appellant placed a sell order of

5,00,000 shares at 15:16:13 at ` 118.95 and 8

then placed a buy order of 5,00,000 shares at

15:29:03 at ` 119.95. Thus, Noticee No. 12

executed self trade.

g) Appellants trades in the cash segment had

contributed to the price rise from ` 108.50 to

` 120 in 10 seconds towards the close of

trading hours. Subsequently they traded in the

derivative segment taking advantage of the

increased price. All three appellants in this

appeal exercised call options of 37.73 lakh

shares (81.67% of total exercises). Had the

cash market trades been excluded, the closing

price would have been ` 111.14 and the clients

would have made losses on contracts with

strike price of ` 110. Thus, these entities

earned an additional positive square off

difference of ` 1.34 crores because of the rise

in the closing price of the scrip. Further,

Noticee No. 12 was both the buyer and seller

for 5,00,000 shares and has thus executed self

trades.

9

4. The appellants replied to the show cause notice on January

27, 2015 and further an opportunity of personal hearing was

given on various dates. The appellants, however, did not avail

the same stating that the appellants had already given their

written submissions and the AO may proceed with to examine

the brokers concerned and pass suitable order.

5. Shri Shyam Mehta, learned senior counsel for the

appellants contended that the allegation that the appellants

jacked up the price of the scrip of the Power Grid is patently

wrong, because, the Appellant No. 1, (Sandeep Paul) who was

managing all three appellants in this appeal, (other two

appellants being his HUF and Company) was not even in India

on April 28, 2010, the alleged trading day. Though, a power of

attorney was given to their broker it was for conducting normal

trading, no permission was granted for any trade violating any

provisions of securities laws. Further, it was contended that the

allegation that appellants were connected to another entity

(Noticee No. 1) is not true and SEBI has not produced any

evidence to this effect. SEBI has not made any investigation

into the role of the broker who has done the trading misusing

the power of attorney given by the appellants and getting

involved in allegedly manipulative trades in the scrip of Power 10

Grid. In short it was the broker who took advantage of the

power of attorney when the appellant was not in the country and

possibly traded in the manner as alleged and the appellants had

no role in this matter.

Appeal No. 396 of 2015 (Symphony Merchants Pvt. Ltd.)

An analysis of the orders placed by Noticee Nos. 3 and 10

(Appellant in this Appeal) on August 23, 2010 in Tata

Teleservices (Maharashtra) Ltd. ("Tata Tele" for short) reveals

the following:-

a) Noticee No. 10 placed a stop loss buy order for

10 lakh shares at 14:56:28 at a limit price of

` 25 with a trigger price of ` 24.95 when the

Last Traded Price (LTP) was ` 24.50.

b) Subsequently, Noticee No. 10 placed three sell

orders, for 1 lakh shares at 14:57:13, 8 lakh

shares at 15:00:00 and 2 lakh shares at

15:00:05 at a limit price of ` 24.95.

c) At 15:04:32 Noticee No. 10 placed a buy order

for 3.50 lakh shares at a limit price of ` 24.95

when the LTP was ` 24.65. This buy order

cleared the available sell orders at price of 11

` 24.95 or less and a total of 3.50 lakh shares

were traded.

d) Since the LTP reached the threshold of

` 24.95, the buy order of 10 lakh shares placed

at 14:56:28 by Noticee No. 10 got triggered.

This swept all the available sell orders at price

of ` 24.95 including the sell order of Noticee

No. 3 (an entity in the Group) for 1 lakh shares

and 8 lakh shares.

e) At 15:04:36 Noticee No. 3 placed a buy order

for 8 lakh shares at a limit price of ` 24.95 and

this order swept the available sell orders

including the sell orders of Noticee No. 3 for

the remaining shares.

f) Noticee Nos. 10 and 3 had bought 26.50 lakh

shares and sold 20.73 lakh shares between

15:04:32 to 15:06:21. Thus, 78% of the buy

quantity and 100% sell quantity of Noticee No.

10 and Noticee No. 3 were matched between

themselves.

12

6. Shri Vinay Chauhan, learned counsel for the appellant

submitted that appellant's trades were independent of anyone

else as they were not acting in concert with anybody. Appellant

has been trading in both cash and Futures & Options (F&O)

segments in the ordinary course of business. Further this

appellant did not exercise any call options and therefore the

allegation of making profits by taking position in call options

fails. Moreover, the appellant had been trading in the scrip of

Tata Tele for a long time, not only on August 23, 2010, and

even on this day their trades were not confined to the last half an

hour of trading as it traded throughout the day. Therefore, SEBI

is picking up an arbitrary time slot to draw adverse inferences.

There has been no manipulation in the prices as alleged. On

August 23, 2010 the highest price was ` 25 and the fluctuation

was only between ` 24.65 to ` 25 which is not at all abnormal.

The appellant has no connection with another noticee (Noticee

No. 3) as alleged nor was aware of trading by Noticee No. 3 as

trading is done on the anonymous trading system and some

matching as alleged would have happened only by co-incidence.

Moreover, there was no self-trades as alleged since the reversal

trades got executed after a long time gap of more than half an

hour, which cannot be treated as self-trades. 13

Appeal No. 441 of 2015 Seminary Tie-up Pvt. Ltd. (Formerly known as Felex Enterprises Pvt. Ltd.).

7. An analysis of the trading activity of Noticee No. 10

(Appellant in Appeal No. 396 of 2015) and 11 (Appellant

herein) in the MTNL scrip between January 1, 2010 and July

28, 2010 in cash segment revealed that these clients had traded

only from July 28, 2010 and that too in the post closing session.

Noticee Nos. 10 and 11 have not traded in this scrip in the

derivatives segment also between January 1, 2010 and July 28,

2010.

8. On July 29, 2010, between 15:29:00 to 15:29:30 Noticee

Nos. 10 and 11 sold 2,50,000 shares and 1,50,000 shares

respectively in the cash segment. Counter parties to their trades

were Noticee Nos. 3, 5 and 6 in the group. On the same day,

Noticee Nos. 10 and 11 bought the same quantity of shares from

these entities in the post closing session.

9. Appellant bought 2,50,000 shares of MTNL on July 28,

2010, trading for the first time in the scrip of MTNL since

January 2010. Thereafter they sold 2,50,000 shares to other

Noticees Nos. 3, 5 and 6 on July 29, 2010. On the same day,

Appellant once again bought 2,50,000 shares from other 14

Noticee Nos. 3, 5 and 6 in the post closing session. The inter-se

transfer of shares on July 29, 2010 between the aforesaid

entities show that there was no change in beneficial ownership

of the shares, which were bought and sold between them.

10. Shri Vinay Chauhan, learned counsel for the appellant

submitted that appellant had no connection with other entities in

the so called group and traded independently in normal course

of business in the scrip of MTNL on July 28-29, 2010 and

further till August 19, 2010. The appellant traded post-closing

hours as the prices were lower compared to the pre-closing

prices and therefore could not have impacted the closing price

of the day. It also did not exercise any call options and

therefore there was no question of making profits as alleged.

Appellant is a day trader and, therefore, liked the volatility in

the scrip of MTNL and therefore traded in the scrip between

July 28, 2010 and August 19, 2010 and incurred a total loss of

` 7.72 lakhs.

11. We have heard the learned senior counsel Shri Pradeep

Sancheti appearing for the respondent SEBI in all these three

appeals. We have also perused the documents placed before us.

We also note that a related appeal by which the same impugned 15

order was challenged by 8 other Noticees has been dismissed by

this Tribunal on account of inordinate delay and one of the

parties in the matter, Shyam Sunder Gupta who is Noticee No. 1

and stated to be central figure in these matters has not appealed

against the impugned order. We were also told that he neither

filed any reply to the show cause notice issued by SEBI nor

availed any opportunity of personal hearing etc. These basic

facts are stated upfront since the link between various entities is

provided in terms of their connection as explained at Para 21 of

the impugned order. Some are linked in terms of their

relationship and some are linked in terms of their trading

activities and KYC documents.

12. Further, we note that the following provisions of Section

12A(a), (b), (c) of the SEBI Act, 1992 read with regulations

3(a),(b),(c),(d) and 4(1), (2)(a),(b),(e) and (g) of PFUTP

Regulations, 2003 relied on by the AO are the following:-

12A. No person shall directly or indirectly--

(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder;

16 (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange;

(c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder;

3. Prohibition of certain dealings in securities No person shall directly or indirectly--

(a) buy, sell or otherwise deal in securities in a fraudulent manner;

(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under;

(c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange;

17

(d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.

4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities.

(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:--

(a) indulging in an act which creates false or misleading appearance of trading in the securities market;

(b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss;

(e) any act or omission amounting to manipulation of the price of a security;

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

18

13. Given the aforesaid facts and provisions of the SEBI Act

and PFUTP Regulations, we do not agree with the contentions

of the appellants in all three appeals. Volume of trading,

percentage of the market share traded by the appellants, timing

of trades etc. are so glaring to ignore the manipulative nature of

transactions concerned. For instance appellant in Appeal No.

396 of 2015 (Symphony Merchants Pvt. Ltd.) bought and sold

9,73,449 shares of Tata Tele, which constituted 41.88% of the

gross market volume and 59.01% of the net market volume on

August 23, 2010 between 15:04 and 15:06 hours. Between

August 9 and August 23, 2010, this appellant had accounted for

91% of the buy quantity. The appellant and another Noticee

No. 3 were the major traders on the market wherein substantial

trades matched between them and sizable quantity of self-trades

also happened. Though, the appellant had traded in some other

time slot as well in moderate quantity as contended, substantive

volume of trade was carried out during the closing half an hour

of trading clearly demonstrate that the objective was in

manipulating the volume and prices though the rise in prices

happened to be moderate (1.21%). In any case, volume

manipulation is also a market manipulation under PFUTP

Regulations, 2003. So the appellant (along with Noticee No. 3)

had bought a total of 26.05 lakh shares and sold 20.73 lakh 19

shares between 15:04 and 15:06 hours on August 23, 2010 and

matched 78% of buy quantity and 100% of sell quantity of

appellant with Noticee No. 3. Such a huge matching cannot

happen without prior meeting of minds. Therefore, the

contention that appellant had no connection with Noticee No. 3

does not have any merit.

14. Similarly, in the case of Green Field Infrastructure Pvt.

Ltd. (Appellant No. 3 in Appeal No. 418 of 2015 and Noticee

No. 12), and Noticee No. 1 were the top clients on gross and net

sell basis between 15:28:59 and 15:29:09 on April 28, 2010

during which the price in the scrip of Power Grid increased

from ` 108.10 to ` 120.50 (i.e. 11% in 10 seconds) during

which 17.06 lakh shares were traded which were 34% of the

days total market volume. Appellant along with other two

appellants in the same appeal and Noticee No. 1 had taken large

positions in call options on the same day i.e. April 28, 2010 with

a total quantity exercised as 37,73,000 and an amount of

` 1,90,65,200 profit made. The submission by appellant in

Appeal No. 418 of 2015 (Sandeep Paul & Ors.) that appellant

Sandeep Paul was abroad and not even in India and it is the

broker misusing the power of attorney that the impugned trades

have been conducted is without any merit since the appellant 20

had not taken any action on the issue. On the contrary, we note

that the appellant had continued to deal with the same broker for

almost a month thereafter and the appellant also availed the

payouts credited to his account. In any case, the responsibility

of giving a power of attorney lies with the person who gives the

same and in this case we notice that it was a blank power of

attorney which was given and that too along with an advance

credit amount of ` 5 crores.

15. As regards the alleged manipulation in the price volumes

of MTNL on July 28, 2010 a similar picture of trading is

available between appellants in Appeal No. 396 of 2016

(Symphony Merchants Pvt. Ltd.) and Appeal No. 441 of 2015

(Seminary Tie-up Pvt. Ltd.) whereby a substantial volume of

trading between these entities happened between 15:29:24 and

15:58:25 hours. Therefore, the same set of buyers and sellers

who were repeatedly buying and selling and creating artificial

volumes without even changing the beneficial ownership. Such

artificial trades is clearly violation of PFUTP Regulations, 2003.

Similarly, the contention by the appellants in Appeal Nos. 396

of 2015 and 441 of 2015 that they did not take positions in the

F&O Segment and, therefore, did not make any profit is also

without merit since manipulating the market always need not 21

result in making profits to all parties concerned. The quantity of

trade, its timing and the nature of trade is sufficient to prove

market manipulation and does not matter whether the said

manipulation result in profit to all entities involved. Their

trading pattern in the scrip at the relevant time period clearly

reflect their intention. They cannot escape from the

consequences simply by stating that they have incurred losses in

other scrips/ other time periods. Similarly, the submission that

the appellants traded post trading hours and, therefore, did not

impact the market price also does not stand to scrutiny in view

of the nature and high volume of transactions whereby the

market equilibrium was disturbed. Though post trading hour

trading may not impact closing price of that day it would

certainly have impact on the market.

16. Therefore, the contention in the impugned order that the

appellants in these appeals, along with certain other noticees

were instrumental in creating artificial volumes and at times

prices also involving synchronized trading and self trades in

these three scrips (Tata Tele, MTNL and Power Grid) cannot be

faulted. Given the magnitude of the volumes during the few

seconds before closing time and the magnitude of matched trade

and self trades in all these three scrips between parties are clear 22

evidences of manipulation in trade/ market. Therefore, the

submission that some of the entities are not known or related to

others lack any merit, because, substantial evidence is so

overwhelming. Trading of this nature and in such huge volumes

could not have happened between the parties at such short time

intervals of just a few seconds without some prior meeting of

their minds. In view of this, we cannot find fault in the findings

in the impugned order that the appellants in these appeals have

violated Section 12A (a), (b), (c) of the SEBI Act, 1992 and

various stated provisions of PFUTP Regulations, 2003.

17. Accordingly, penalty is imposed on Appellants in all these

Appeals under Section 15HA of SEBI Act, 1992 for violation of

Section 12A (a),(b),(c) of SEBI Act read with various

provisions of PFUTP Regulations, 2003. The penalty

imposable under Section 15HA of the SEBI Act, 1992 for

violations relating to fraudulent and unfair trade practices at the

relevant time was twenty-five crore rupees or three times the

amount of profits made out of such practices, whichever is

higher. In the instant matters wherever there is findings to the

effect that profits are made a higher penalty has been imposed

while in other cases a lower/ nominal penalty has been imposed

by taking the mitigating factors under Section 15J of the SEBI 23

Act into account. Therefore, the submission that the penalties

imposed are too harsh also has no merit. Accordingly, this

Tribunal does not want to interfere with the penalty amount

imposed on the appellants.

18. For all the above reasons, all three appeals are dismissed.

Appellants are directed to pay the penalty amounts to SEBI

within 30 days from the date of this order. No orders on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M. T. Joshi Judicial Member 12.07.2019 Prepared & Compared By: PK