Vipul Mohan Joshi vs Sebi

Date of Decision : 07.11.2019

Appeal No. 105 of 2019

Vipul Mohan Joshi House No. 41, Dattani Apartment, 5/B Shivaji Road, Kandivali (West), Mumbai - 400 067. ..... 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. Harsh Kesharia, Advocate with Mr. Vikas Bengani, Advocate for the Appellant.

Mr. Kevic Setalvad, Senior Advocate with Mr. Abhiraj Arora and Mr. Vivek Shah, Advocates i/b ELP 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, Member (Oral)

1.

This appeal has been preferred against the order of the

Whole Time Member ('WTM' for short) of Securities and

Exchange Board of India ('SEBI' for short) dated January 31,

2019 whereby the appellant has been restrained from 2

accessing the securities market directly or indirectly for a

period of three years.

2. The appellant is the promoter director of a Company,

namely, Shreekrishna Biotech Ltd. ('SBL' for short). SEBI

conducted an investigation into trading in the scrip of SBL

from November 1, 2012 to July 31, 2015. The investigation,

among others, noted that trading in the shares of SBL was

suspended from November 22, 1995 till November 19, 2012.

Further, on November 20, 2012 the scrip opened for trading at

Rs. 10.83. By December 18, 2014, through just 201 trades,

the price of the scrip increased to Rs. 337.15. The

investigation could not find any fundamental reasons relating

to the Company for such a substantial increase in the price of

the scrip. It was also revealed in the investigation that the

Company SBL made a preferential allotment of 80 lakh

equity shares on January 27, 2014 @ Rs. 20 per share through

a conversion of warrants. Further, it was noticed that on May

23, 2014 the appellant transferred thousand shares of SBL off

market to two people - 300 shares to Chintan A Kapadia and

700 shares to Henal H Shah. It was also revealed in this

investigation that Chintan A Kapadia further transferred the

shares to some more people and all of them together were

instrumental in raising the price of the scrip of SBL to the 3

extent of Rs. 265.80 through positive LTP which resulted in

the abnormal increase in the price of the scrip from Rs. 10.83

to Rs. 337.15.

3. Accordingly, a common show cause notice was issued

on July 24, 2017 to nine noticees, including the appellant,

alleging that they are connected / related entities and by

acting in a concerted manner, they have manipulated the price

of the shares of SBL by repeatedly placing sell orders in very

small quantities at prices above the LTP. It was also alleged

that by their action they contributed to the artificial increase

in the price of the scrip and thereby violated Regulation

3(a),(b),(c),(d),4(2)(d) and (e) of SEBI (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities

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

4. The specific finding against the appellant is only to the

extent that he transferred thousand shares of SBL off market

to two persons; 300 to Chintan A Kapadia and 700 to Henal H

Shah.

5. The learned counsel Shri Harsh Kesharia, appearing on

behalf of the appellant submits that the appellant has admitted

that he knew Chintan A Kapadia and Henal H Shah for

several years and hence sold the shares of SBL to them off 4

market on May 23, 2014. He received a consideration also for

the same in cash which was deposited in his bank account

which is on record. There was nothing illegal in this entire

transaction as off market transactions are perfectly legal. It

was also contended that the appellant had no control

thereafter as to what Chintan A Kapadia and Henal H Shah

would do with those shares bought from him. They would

have traded as they wished; there may be others as well who

further traded in the scrip. The appellant had no role in any of

those transactions nor knew any of those entities other than

Chintan A Kapadia and Henal H Shah. It was also contended

that appellant had not only sold thousand shares to these

entities off market but had also sold 1 lakh shares to one

Rajendra Jain HUF for which the consideration was received

directly into his bank account. However, in the case of the

transaction relating to thousand shares to Chintan A Kapadia

and Henal H Shah because the consideration was received in

cash SEBI is doubting the veracity of the same and attributing

the responsibility of further transfers / transactions made by

other noticees on to the appellant. It was also submitted that

the sale consideration of these 300 + 700 shares was only

Rs. 25,000/- and the amount involved in either of the

transaction was less than Rs. 20,000/- which was the limit 5

allowed for the cash transaction and contended that the

appellant had not committed violation of any law in his entire

dealings. To support his submissions the learned counsel for

the appellant placed reliance upon a decision of this Tribunal

in the matter of Jatin Manubhai Shah & Ors. vs Securities

and Exchange Board of India in Appeal No. 16 of 2010

decided on March 1, 2011 and contended that off market

transactions are not illegal and if such transactions are made

by one party to others what others do with those shares is not

within the control of the appellant..

6. We have also heard learned senior counsel Shri Kevic

Setalvad appearing on behalf of respondent SEBI and perused

the records. We note from the show cause notice as well as

from the impugned order that beyond what is explicitly stated

that the appellant had transferred thousand shares (300 + 700)

off market to two other entities there is nothing on record to

show anything further to link the appellant to subsequent

transactions in the scrip made by other entities. The fact that

the appellant knew Chintan A Kapadia and Henal H Shah as

well as that the appellant transferred thousand shares to them

are admitted facts. It is also on record that the appellant had

deposited certain amount of money in his bank account on 6

May 26, 2014 soon after the off market transactions though

the amount deposited is higher than the admitted value of the

transactions. We also note that off market transactions was

not a violation of any Regulation and the stated cash

transactions is also within the limits allowed. Given these

facts which are admitted and in the absence of any further

evidence either linking the appellant to other entities who

traded further in the market in a manipulative manner or in

the form of some cash flow between the appellant and those

entities or any other reliable evidence indicating the

connection between them, we find it difficult to uphold the

impugned order purely on a suspicion that the appellant might

have some connection with those entities involved in market

manipulation. Though the respondent SEBI relied upon the

judgment of the Hon'ble Supreme Court in the matter of

Securities and Exchange Board of India vs Kishroe R.

Ajmera, (2016) 6 SCC 368 in support of their contention that

only circumstantial evidence or preponderance of probability

is sufficient to establish connection in such matters, we are of

the considered view that there is absolutely no evidence,

including circumstantial evidence, to bring the appellant

within the ambit of the PFUTP Regulations. Since the

appellant is a promoter director and transferred some shares 7

off market to two other entities in a scrip which was

subsequently found to have been manipulated by a group of

entities is sufficient to raise suspicion against all the parties

involved but such a suspicion alone is not proof enough to

prove violation of PFUTP Regulations by the appellant. Here

the ratio of the order of this Tribunal in Jatin Manubhai

Shah (supra) relied on by the appellant squarely applies.

Therefore, given the facts and circumstances of the matter the

appellant deserves benefit of doubt since the available

evidence does not prove connivance or collusion or fraud by

the appellant and thereby violation of PFUTP Regulations.

7. For the reasons stated aforesaid the impugned order

cannot be sustained insofar as the appellant is concerned. The

order is quashed insofar as it relates to the appellant. No

orders on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member 07.11.2019 Prepared and compared by:msb