V. Rajasekharan And Anr. vs Sebi

occurred in the scrip. The last date of trading was on 4th April,

2013. However, for a period from 8th August, 2013 till 20th

September, 2013 except appellant Mr. V.R. Venkatachalam

other three parties had either purchased or sold shares in

miniscule quantity of one to six shares between themselves by

bringing down the price 37.66% lower to the last traded price

(hereinafter referred to as 'LTP').

According to the respondent SEBI this activity was

carried out in order to facilitate appellant Vekatachalam to

purchase 10,24,503 shares of TCP during 16th August, 2013 to

21st August, 2013 at depressed prices ranging from

Rs.351.95/- to Rs.302.7/- i.e. the average price of Rs.323.34/-.

All these transactions between the other parties than appellant

Mr. V.R. Vekatachalam of sale and purchase were made on

the same day within two seconds to three minutes of this 5

illiquid scrip on the platform of NSE. Appellant Mr. V.

Rajashekharan is the husband of Mrs. Rajashekharan Devaki.

As already pointed out Mr. V. Rajashekharan was the

Executive Director of very same TCP of which the appellant

Mr. V.R. Venkatachalam was the promoter. Appellant

Srivatsan P was alleged to be in collusion with the other

appellants though he was not related with any of them.

During investigation this appellant stated that he knew some

of the friends of appellant Mr. V.R. Venkatachalam.

3. Appellant Mr. V. Rajashekharan, the Executive

Director of TCP in his reply before the respondent SEBI

submitted that he has for himself and on behalf his wife Mrs.

Rajashekharan Devaki had bought 8 shares and sold 7 shares

during the relevant period. According to them it would be

irrational that the trade in such miniscule percentage would in

any way affect the price movement in the scrip. They have

not traded with appellant Mr. V.R. Vekatachalam, the

promoter of TCP but with other persons. They further put a

query that if the price of the shares was brought down at the

lowest price by Rs.201/- by them in September, 2013

appellant Mr. V.R. Venkatachalam would not have purchased 6

the shares at the price between Rs.321.95/- and Rs.302.70/-

per share in August, 2013.

4. Appellant Srivatsan P replied that he had no connection

with any of the other parties. He had undertaken the

insignificant trades in very insignificant manner as alleged by

the respondent SEBI itself without any intention. During

hearing he submitted that he knew some of the friends of

appellant Mr. V.R. Venkatachalam.

5. Appellant Mr. V.R. Venkatachalam put a case before

the respondent SEBI that between 16th August, 2013 to 21st

August, 2013 he purchased 10,24,503 shares from Mr. E.

Shanmugam who was his brother-in-law as well as co-

promoter of TCP Ltd. The entire shareholding of Shri E.

Shanmugam was bought by him in pursuance of a family

arrangement with the promoters. The shares were purchased

at Rs.352.50 to Rs.302.70 while the lowest price of Rs.201

had reached two weeks thereafter i.e. only on 2nd September,

2013. He also therefore argued that had there been an

intention to manipulate the prices to purchase the shares by

him at a lower price he would have just waited for another two

weeks till the price fell to Rs.201/-.

7

As regards the allegation of insider trading he submitted

that he had not taken pre clearance for opposite transactions

executed within six months for 500 shares in January, 2014,

200 shares in July, 2014 and 214 shares in August, 2014 as it

was aggregating to less than Rs.10 lakhs as per the Model

Code of Conduct for Prevention of Insider Trading adopted by

TCP. Same submissions were made by Appellant Mr. V.R.

Rajeshakharan, the Executive Director of TCP who had traded

in three shares within three months.

6. The Adjudicating Officer had put the detailed table of

transactions as described supra in his impugned order. He

found that for a long period there was no trade in the scrip and

only movement was seen when these four entities had entered

into the trade. The trading pattern detailed by him shows that

the parties except Mr. V.R. Venkatachalma had entered into

sale or purchase of one to six shares just within a second or

minute of the same sale. There were no other buyers or

purchaser on the scene except two other buyers. He further

found that on 10th August, 2013 when the Last Traded Price

(hereinafter referred to as 'LTP') was Rs.454.64/-, appellant

Srivastan placed the buy order at Rs.431.95/- at 11:11:14 and

immediately within 20 seconds Mrs. Rajasekharan Devaki had 8

placed sell order for the same price. This orders matched with

each other. No other trade was at all there on that day.

On 13th August, 2013 Smt. Rajasekharan Devaki placed

a sell order for one share for a price of Rs.389.90 at 11:30:22

when the LTP was Rs.410.42/-. Appellant Srivatsan at

11:32:30 placed buy order at the same rate for one share and

thus the sell and buy orders were matched bringing down the

price of the share. Other instances of 14th August, 2013, 16th

August, 2013, 19th August, 2013 and 21st August, 2013 are

quoted by the Adjudicating Officer.

7. The Adjudicating Officer calculated that appellant Mr.

V.R. Venkatachalam was benefited to the extent of Rs.13

crores being able to buy share of TCP at reduced prices owing

to the trading of three other appellants as detailed supra.

8. The argument of the appellant Mr. V.R. Venkatachalam

that he could have waited for another two weeks to buy the

shares at the lowest price at Rs.201/- was not accepted by the

Adjudicating Officer by observing that the prior reduced price

had benefited the appellant by Rs.13/- crore.

9. As regards appellant Srivatsan, the Adjudicating Officer

observed that though he is not directly connected with other

parties, during hearing he admitted that he knew few friends of 9

Mr. Venkatachalam. Further, the trading pattern in view of

the Adjudicating Officer would show that appellant Mr. V.

Rajasekharan and his wife Mrs. Rajasekharan Devaki used to

put sell or buy order for lower prices which used to be

matched with the counter order of this appellant within

seconds or minutes while no other trade activity was noted on

that day.

10. In that view of the matter the following penalty was

imposed by the Adjudicating Officer.

Sl. Name of the Noticee Penal Provision under SEBI Act, Amount of Penalty No. 1992 1 Mr. V.R. Venkatchalam Section 15HA of SEBI Act, 1992 Rs.15,00,000,00/- (Rupees Fifteen Crores only)

Section 15HB of SEBI Act, 1992 Rs.3,00,000/-

(Rupees Three Lakhs only) 2 Mr. V. Rajasekharan Section 15HA of SEBI Act, 1992 Rs.1,00,000,00/-

(Rupees One Crore only) Section 15HB of SEBI Act, 1992 Rs.3,00,000/-

(Rupees Three Laksh only) 3 Ms. Rajasekharan Devaki Section 15HA of SEBI Act, 1992 Rs.1,00,000,00/-

(Rupees One Crore only) 4 Mr. Srivatsan P Rs.1,00,000,00/-

(Rupees One Crores only)

11. The learned counsels for the appellants countered the

finding of the Adjudicating Officer. Mr. Gaurav Joshi, Senior

Advocate submitted that appellant Mr. V.R. Venkatachalam

was not at all benefited by the alleged trade of the other 10

parties. As per the family arrangement between the appellant

and his brother-in-law, another promoter of TCP, he had

purchased the shares. He submitted that had there been any

intention in depressing the prices of the shares in collusion

with other parties the appellant would have waited as per the

plan for two weeks to purchase the shares at more reduced

price. As regards the breach of Model Code of Conduct the

learned counsel submitted that some bonafide mistake is

committed by Mr. V. R. Venkatachalam for not seeking

permission for purchasing miniscule shares as detailed by the

Adjudicating Officer in the order and hence he wanted that the

order be set aside.

12. Mr. Paras Parekh, the learned counsel for the appellant

Mr. V. Rajasekharan while supporting the above argument

submitted that trade logs and order logs on which the

allegations were leveled were not provided to these appellants.

Only during the pendency of the present appeal upon making a

specific request the same is provided to them by the

respondent on 30th April, 2018. The trade logs would show

that during the relevant period there were many orders

pending in the system placed by third parties which did not

match. Merely because the order of the appellants matched 11

with the order of another appellant Srivatsan the same cannot

be doubted. The trade logs would show that there was a

steady decline in the price of the scirp even after 12th August,

2013 and the trade matched with some other parties than the

present appellant. It was further argued that since Mr.

Venkatachalam - the another appellant - had bought the

substantive shares pursuant to family arrangement with Mr. E.

Shanmugam the price did not matter and, therefore, the charge

would not hold any water.

13. Mr. Anant Upadhyay, Advocate in appeal of Mr.

Srivatsan submitted that the appellant had no connection with

any of the other parties and only on the statement of the

appellant during enquiry that he knew some friends of Mr.

Venkatachalam it was observed by the Adjudicating Officer

that this appellant was privy to a conspiracy.

14. On the other hand, Mr. Mustafa Doctor, Senior

Advocate on behalf of respondent submitted that the evidence

on record would clearly show that the TCP stock was an

illiquid stock. There used to be no trade other than miniscule

transactions carried out by the respective parties. The only

answer of the appellants except Mr. V.R. Venkatachalam was

that we traded in miniscule proportion while affidavit in reply 12

of Srivatsan would show that he had traded out of curiosity.

He further submitted that infact these miniscule trades

matching within seconds or minutes had depressed the price of

the share as detailed by the Adjudicating Officer and therefore

the argument of Venkatachalam that he could have waited for

two more weeks is merely an afterthought.

15. Mr. Mustafa Doctor further submitted that though it is

the case of the appellant Venkatachalam that as a result of

family settlement he had purchased the shares, the copy of the

memorandum of undertaking in this regard filed at Exhibit E

by the appellant in his appeal would show that so called family

arrangement was executed much after the transactions i.e. on

13th September, 2013 as an afterthought. He further submitted

that for the transfer without approval, finding that purchase of

the shares in small quantity were made, penalty of Rs.3 lakhs

only was imposed and, therefore, no interference in the

impugned order is warranted.

16. In reply Mr. Gaurav Joshi learned senior counsel

submitted that respondent SEBI did not challenge the factum

of oral family settlement which is permissible in law.

17. Learned counsel for Mr. V. Rajasekharan and Smt.

Rajasekharan Devaki, Mr. Paras Parekh submitted that even 13

after stopping of trade by this appellant the price fell further.

Not only the appellant but three others had traded as can be

seen from the trade logs. The trade volume of these persons

also was very miniscule which would have caused no effect on

the price of this illiquid share.

The learned counsel Mr. Anant Upadhyay for appellant

Srivatsan submitted that merely because the appellant during

enquiry told that he knew few friends of Mr. Venkatachalam

he was roped in. He had no connection with other appellants.

The record would show that the appellant was a jobber and

used to do intraday trading in other shares also.

18. Upon hearing both sides in our view the trading pattern

of the parties except Mr. R. Venkatachalam would show that

these parties entered into buy and sell order of the shares in

miniscule proportion for a price much lower than LTP on the

given date within seconds to three minutes. Further, within

seconds or minutes their orders matched. Three other persons

had transacted only on four occasions out of 18 transactions.

Appellant Mrs. Rajasekharan Devaki is the wife of appellant

Mr. Rajasekharan and are admittedly connected to Mr.

Venkatachalam. Though appellant Mr. Srivatsan has no direct

connection it is a fact that not only he knew some friends of 14

Mr. Venkatachalam, the trading pattern as detailed supra

would on preponderance of probabilities, show that there was

meeting of minds between the parties. The impugned order of

the Adjudicating Officer in this regard therefore cannot be

faulted with. As regards the violation of the PIT Regulations

it is an admitted fact that the said regulation has been violated

though for small quantity of shares. The Adjudicating Officer

has taken note of this and therefore the penalty of Rs.3 lakhs

on this count was imposed. Considering all these facts on

record we do not find any reason to interfere in the impugned

order. The appeals are therefore dismissed without any order

as to costs. In view of the dismissal of the appeals, all Misc.

Applications for interim relief has become infructuous and are

dismissed as such.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member 12.7.2019 Prepared and compared by RHN