Tanuj Khandelwal vs Sebi

Date of Decision : 04.01.2021

Appeal No. 357 of 2020

Tanuj Khandelwal 212, Saket Colony, Makarwali Road, Vaishali Nagar, Ajmer, Rajasthan - 305 001. ...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. Vikas Bengani, Advocate for the Appellant.

Mr. Suraj Chaudhary, Advocate with Ms. Nidhi Singh and Ms. Kinjal Bhatt, Advocates i/b. Vidhii Partners for the Respondent.

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

Per: Justice Tarun Agarwala, Presiding Officer

1.

The present appeal has been filed against the order dated

August 31, 2020 passed by the Adjudicating Officer ('AO' for 2

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

short) imposing a penalty of Rs. 8 lakh for violation of

Regulation 3 and 4 of SEBI (Prohibition of Fraudulent and

Unfair Trade Practices relating to Securities Market)

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

2. We have heard Mr. Vikas Bengani, the learned counsel for

the appellant and Mr. Suraj Chaudhary assisted by Ms. Nidhi

Singh and Ms. Kinjal Bhatt, the learned counsel for the

respondent through video conference.

3. A show cause notice was issued in the trading of the scrip

of Malabar Trading Company Ltd. ('MTCL' for short). It was

alleged that the appellant had contributed to more than 5% of

the total market positive LTP though 63 trades for a total

quantity of 4304 shares during patch-1. It was further alleged

that the appellant placed sell orders in the range of 1 to 500

shares when the respective buy order quantity was in the range

of 100 to 3400 shares especially when more shares were

available, inspite of which the appellant on most of the dates

traded only on one share. It was, thus, alleged that the appellant

was manipulating the share price and created misleading 3

appearance of trading in the scrip by such trades thereby

violating Regulation 3 and 4 of PFUTP Regulations.

4. The AO after giving an opportunity of hearing and after

considering the material evidence on record found that the

appellant was guilty of the allegations made in the show cause

notice. The AO found that the appellant had no bonafide

intention to sell when sufficient buy orders were available and

despite having adequate holdings in the scrip of MTCL sold

only one share per transactions which resulted in creation of

positive LTP and thus created false misleading appearance of

trading in the securities market. The AO, thus, held that such

trading pattern amounts to manipulation of the price of the scrip.

5. The learned counsel for the appellant vehemently

contended that the controversy involved in the present appeal is

squarely covered by a decision of this Tribunal in M/s. Nishith

M. Shah HUF vs. Securities and Exchange Board of India

(Appeal No. 97 of 2019 decided on January 16, 2020) and also

Rajesh Marchya (HUF) vs. Securities and Exchange Board of

India (Appeal No. 496 of 2019 decided on February 7, 2020)

which are related to the trading in the same scrip, namely,

MTCL.

4

6. The learned counsel for the appellant also placed reliance

on the order passed by AO in the matter of Mr. Jayant Indulal

Sethna dated April 26, 2018.

7. Having heard the learned counsel for the appellant and

upon perusal of the impugned order we are of the opinion that

the case of the appellant is distinguishable and consequently the

decision in M/s. Nishith M. Shah HUF (supra), Rajesh

Marchya (supra) and Mr. Jayant Indulal Sethna (supra) cases

are not applicable and are distinguishable on facts. We find that

except on three occasions the appellant only sold one share at a

time on a daily basis. This trading pattern created misleading

appearance with intention to manipulate the market if not the

price. Thus, even if there is no connection with the buyer the

trading pattern shows a concerted effort to manipulate the

market and therefore we are of the opinion that the appellant

was not acting as a genuine seller. We also find that the

appellant had no bonafide intention to sell because inspite of

sufficient buy orders being placed with abundant quantity being

available in the market the appellant was only placing sell

orders of one share at a time. This clearly shows his intention of

manipulating the market for vested reasons.

5

8. Consequently, we are of the opinion that the finding of the

AO that the appellant had violated the provisions of Regulation

3 and 4 of PFUTP Regulations does not suffer from any error of

law.

9. We are, however, of the opinion that in the given

circumstances when the appellant was only selling miniscule

quantity the penalty of Rs. 8 lakh is harsh and excessive and

does not commensurate with the alleged violations. Given the

surrounding circumstances we are of the opinion that the

penalty of Rs. 1 lakh in the given circumstances shall be just

and sufficient.

10. In view of the aforesaid, the appeal is partly allowed. The

impugned order is affirmed with the modification that the

penalty of Rs. 8 lakh is reduced to Rs. 1 lakh which shall be

paid by the appellant within four weeks from today.

11. 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 6

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 RAJALAKS Digitally signed by RAJALAKSHMI H NAIR Presiding Officer HMI H NAIR Date: 2021.01.05 11:11:22 +05'30'

Dr. C.K.G. Nair Member

Justice M.T. Joshi Judicial Member 04.01.2021 msb