Vipul Virendrabhai Patel vs Sebi

Order Reserved On: 04.01.2021 Date of Decision : 22.03.2021

Appeal No. 537 of 2020

Vipul Virendrabhai Patel 08 Satyam Row House Own Asson, Opposite Sanskar Apartment, Near Railway Line, Satellite Road, Ahmedabad, Gujarat- 380 051 ...Appellant

Versus

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

Mr. Pratham Masurekar, Advocate i/b R V Legal for the Appellant.

Mr. Chirag Bhavsar, Advocate with Mr. Harshad Vyas, Advocate i/b MDP & Partners 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

1.

This appeal has been filed aggrieved by the order of the

Adjudicating Officer ("AO" for short) of the Securities and 2

Exchange Board of India ("SEBI" for short) dated July 31, 2020

whereby a penalty of Rs. 5,00,000/- (Rupees Five Lakh Only)

has been imposed on the appellant for violation of Section

12(a),(b) and (c) of the SEBI Act read with Regulation

3(a),(b),(c),4(1),4(2)(a) and (g) of the SEBI (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities

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

short).

2. Facts relating to the matter in brief are the following:-

a) SEBI conducted an investigation relating to

trading in the scrip of Parichay Investments

Ltd. ("Parichay" for short) during the period

July 21, 2010 to August 30, 2011. Pursuant to

this investigation it was alleged that a group of

entities who were connected/ related to and

referred to as 'Soni Group' were dealing in the

scrip of several companies and had contributed

to the price and/ or volumes manipulation and

passed a few orders by SEBI. The present

appeal is against the order in the scrip of

Parichay.

3 b) After the investigation, SEBI issued a common

show cause notice to 18 noticees including the

appellant herein on August 24, 2017.

Subsequently, on November 16, 2018 an order

was passed, including against the appellant.

That order was challenged by several parties

before this Tribunal and vide order dated

November 07, 2019 this Tribunal disposed of

those appeals, including the appellants' Appeal

No. 170 of 2019 (Vipul Virendra Kumar Patel

vs. SEBI), by quashing the order of the AO

dated November 16, 2018 and remitted the

matter back to SEBI to reconsider the matter

qua all the appellants, if necessary, by issuing a

fresh show cause notice within six weeks from

the date of the order.

c) Accordingly, a fresh show cause notice was

issued by SEBI within the time granted by this

Tribunal on December 10, 2019 to 16 noticees

including the appellant. After personal

hearing, written submissions etc. the order 4

impugned in this appeal was passed on July 31,

2020.

3. We have heard Shri Pratham Masurekar, the learned

counsel representing the appellant and Shri Chirag Bhavsar, the

learned counsel representing the respondent SEBI.

4. The contentions of the appellant are on two grounds: (1)

inordinate delay in issuing the show cause notice(s) and

initiating proceedings and (2) lack of connection with the 'Soni

Group' entities and respondent's approach of using a circuitous

connection between the appellant and an alleged member of the

'Soni Group' by the name Ashlesh Shah. On delay it is the

contention of the learned counsel for the appellant that the

alleged violation as attributed in the impugned order relates to

the period of 2010-2011 but the first SCN was issued on August

24, 2017 with a delay of six years and the second SCN after

eight years. Therefore, on account of this inordinate delay

itself the order is liable to be quashed. Further on the issue of

manipulative trades and consequent allegations of violation of

PFUTP Regulations it is the appellant's contention that there are

only a few matched trades on the basis of which these

allegations have been made in the impugned order; there is no

allegation of market manipulation by impacting Last Traded 5

Price ("LTP"), New High Price or Self Trade. The alleged

connection between the appellant and 'Soni Group' is neither

alleged in the show cause notice nor established in the

impugned order. The entire reasoning of connection is given in

terms of appellant's purported connection with one Ashlesh

Shah who is supposed to be connected with the 'Soni Group'

and the connection between the appellant and Ashlesh Shah is

through a common mobile number and some funds transfer.

Therefore, it is an indirect way of connecting the appellant with

a member of the 'Soni Group' only because there are some fund

transfers between the appellant and Ashlesh Shah and because

Ashlesh Shah had dealings with the 'Soni Group'. Further, the

impugned order relies on this Tribunal's order in Mr. Ashlesh

Shah vs SEBI (Appeal No. 265 of 2017 decided on 18.04.2018)

wherein, the connection of Ashlesh Shah to the 'Soni Group'

was upheld. Further, the appellant's buy trade was only about

1.93% of the total group trade and sell trade was about 1.85%

which is miniscule to the total market volume or even within the

so called 'Soni Group'. Moreover, the appellant traded only on

10 days spread over 37 days during the entire investigation.

5. In short, it is the contention of the appellant that the

appellant had no connection with the 'Soni Group'; his financial

dealing with one Ashlesh Shah cannot be used to attribute his 6

connection to the 'Soni Group' because Ashlesh Shah was

found to be connected to the 'Soni Group'; Ashlesh Shah was

not a noticee in these proceedings and a connection could not be

imposed on the appellant on indirect evidence; he had traded

only on 10 days with the buy order matching with two entities

of the 'Soni Group' to a limited extent and the sell order

matching to only a small percentage as in normal trades such

matching is possible.

6. Though, it is a fact that there was delay in issuing the first

show cause notice and in initiating proceedings, the appellant

cannot take shelter under the same at this stage because this

Tribunal in its order dated November 07, 2019 had allowed six

weeks' time to SEBI to issue a fresh show cause notice and

fresh show cause notice was issued within this time frame. No

question on delay in initiating proceedings was considered at

that time. Therefore belatedly, at this stage, the delay argument

in initiating the proceedings earlier cannot be invoked.

Subsequent to this Tribunal's order dated November 07, 2019

SEBI issued the show cause notice within the allotted time

frame and completed the proceedings in about 7 months leading

to passing the impugned order. Therefore, we reject the 7

arguments relating to inordinate delay as submitted by the

appellant.

7. As regards the volume of trade, number of trade etc. while

we appreciate the submissions made by the appellant it is also

important to note that the volume and magnitude are not that

small and matching with these 'Soni Group' entities in the case

of buy trades is substantial. However, we note that there is no

conclusive evidence relating to the connection between the

appellant and the 'Soni Group' directly or even indirectly

beyond the connection shown by means of some fund transfer

and a common mobile number with Ashlesh Shah who is

connected to the 'Soni Group'. Finding regarding connection

between the noticees, including that of the appellant, as given in

paragraph 30 of the impugned order is given as below:-

"30. In order to establish the fact that Noticees were connected to each other and to other entities of "Soni Group", it needs to be established that the Noticees were related to each other and acted in coordination with each other. Connection among Noticees as alleged at paragraph no. 5 in this order demonstrates how they are connected to each other. This is not refuted by the Noticees (except Vipul) since they 8

have failed to respond to the SCN, despite the publication of the same. The response of Vipul in this regard is confined to his relationship/ transactions with Ashlesh Shah and does not comment upon the relationship between other Noticees as alleged in the SCN. It is noted that the coordination behind placing trades and the intent behind the same is derived from several circumstances. The question first sought to be addressed is whether the Noticees were connected to each other i.e. whether they were known to each other sufficiently enough to impute a possible financial relationship or trading relationship between them. The factum of the aforesaid Noticees having common contact details and having placed orders through the Sonis is indicative of a possible connection between the said Noticees and the Sonis. This indication gets further strengthened especially in the cases of Dhiren Dharmdas Agarwal, Krunal Gopaldas Rana and Mahesh Somabhai Desai in whose cases there are records of fund transfer from Sanjay Soni. As can be seen from the records, several of the impugned trades were also entered into with other Noticees. Thus, I note that all the Noticees were either directly or indirectly related to Sanjay Soni and Krupa Soni through family relation (spouse), common residential/official address, email id and phone number, common 9

introducer, bank transactions within a year or during the investigation period or through a combination of these relations. These relations or a combination thereof squarely establishes the relationship between the Noticees and establishes them as a 'group' as held by the Hon'ble SAT in various cases such as Sparkline Mercantile Company Pvt Limited Vs SEBI (Appeal no. 171 of 2011) and Sunil Mehta Vs SEBI (Appeal No. 220/2012)."

8. The nature of relationship/connection described in the

above paragraph though clearly brings out the connection

between some of the noticees and the 'Soni Group' the said

connection is rather very weak as far as the appellant is

concerned. It is not only indirect but no further link could be

established relating to the flow of funds between Ashlesh Shah

and the appellant and whether those funds had travelled to

finance trading in the scrip of Parichay etc. Since no show

cause notice was issued to Ashlesh Shah himself in these

proceedings just because he was found to be a member of the

'Soni Group' in other matters we cannot come to the conclusion

that all entities dealing with him in any manner would get

indirectly connected to the 'Soni Group'. When it is an indirect

connection it needs to be corroborated with something more 10

than what is held in the above quoted paragraph for imposing

civil liability particularly in the case of the appellant herein who

had disputed any connection. Moreover, the appellant's trades

are on a few occasions only.

9. Given the above reasons, we give benefit of doubt to the

appellant. Accordingly, the impugned order is quashed qua the

appellant with no orders on costs.

10. 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

Dr. C.K.G. Nair Member

Justice M. T. Joshi Judicial Member 22.03.2021 RAJALAK Digitally signed by RAJALAKSHMI PK SHMI H HDate:

NAIR 2021.03.23 NAIR 16:01:19 +05'30'