Vishal Vijay Shah vs Sebi

Order Reserved: 11.1.2021 Date of Decision:22.3.2021

Appeal No.225 of 2020

Vishal Vijay Shah First Floor, Room No.112A, Stock Exchange Plaza, Dalal Street, Mumbai - 400 023. ...Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No.C4-A, G Block, Bandra Kurla Complex, Bandra (E), Mumbai-400051. ...Respondent

Mr. Nirman Sharma, Advocate i/b. Mr. Vikas Bengani, Advocate for the Appellant.

Mr. Anubhav Ghosh, Advocate with Mr. Ravishekhar Pandey, Advocate i/b The Law Point for the Respondent.

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

Per: Justice M.T. Joshi, Judicial Member 2

1.

Aggrieved by the order dated 8th July, 2020

cancelling the certificate of registration granted to the

appellant as a stock broker, the present appeal is

preferred.

2. Respondent Securities and Exchange Board of India

(hereinafter referred to as „SEBI‟) had initiated enquiry

proceedings against the appellant a registered stock

broker in terms of the Securities and Exchange Board

of India (Intermediaries) Regulation, 2008 (hereinafter

referred to as „the Regulations‟). Thereafter, a

Designated Authority under regulation was appointed

who made enquiry into the alleged violation committed

by the appellant and submitted the report to the

Designated Member cum Whole Time Member.

Designated Authority („DA‟ for short) had observed

that the appellant have violated the following

provisions of securities laws.

A. Sections 12A(a), (b) and (c) of the SEBI

Act and Regulations 3(a), (b), (c) and (d) 3

and Regulations 4(1), 4(2)(a), (b),(c), (d),

(e), (g) and (p) of the SEBI (Prohibition

of Fraudulent and Unfair Trade Practice

relating to Securities Market)

Regulations, 2003 ("PFUTP Regulations

2003")

B. SEBI Circular no.SEBI/MRD/SE/Cir-

33/2003/27 dated August 27, 2002 and

SEBI Circular no.MRD/DoP/SE/Cir-11/

2008 dated April 17, 2008 through

misutilization of clients‟ funds and

securities.

C. Clauses A(1), (2), (3), (4) and (5) of the

Code of Conduct for Stock Brokers as

specified in Schedule II of Regulation 9

of SEBI (Stock Brokers and Sub Brokers)

Regulations, 1992 ("Stock Brokers

Regulations"), for failure to adhere to the

prescribed Code of Conduct in respect of 4

high standard of integrity, due skill, care

and compliance with statutory

requirements, etc.

3. Thereafter, post enquiry the Designated Member

issued notice to the appellant calling upon him as to

why action recommended by the DA or any action of

higher nature should not be imposed on the appellant.

The appellant replied that he was already penalized by

respondent SEBI of Rs.18,23,028 and, therefore, he

should be pardoned. It was submitted that in the

circular and synchronized trades of Maharashtra

Polybutenes shares this penalty was imposed. As

regards two other violations, namely, ( i ) the appellant

in large number of buy transactions had given wrong

instruction to the clearing house for direct pay out to

92 front entities even when such entities had not traded

and ( ii ) the appellant had falsified record and issued

fictitious contract note to the 20 other front entities, the

appellant submitted that such mistakes would not be 5

repeated again and no more punishment shall be

imposed.

4. Thereafter, during personal hearing dated 9th April,

2019 and written submission dated 18th April, 2019 the

appellant submitted that as regards the illegalities

allegedly committed in the scrip of Maharashtra

Polybutenes, respondent SEBI had artificially divided

the investigation in two periods. In fact there could

have been a joint enquiry and both recommendations

should be in one single proceeding. As regards

executing circular/synchronized trades, the appellant

now contended that he had executed those trades on

behalf of the clients who had given proper power of

attorney to execute such trades and the appellant was

unaware as to the counter parties of such trades. The

clients were transacting trough the appellant for more

than five years and, therefore, the appellant had not

doubted their bonafides. The appellant therefore 6

cannot be penalized for the trades carried by the

clients.

5. As regards the two other violations as detailed supra

it was contended in the written submissions that the

relevant information was not available with the

appellant and, if any, violations were committed by

him it would have been on account of certain

inadvertence. It was again submitted that vide order

dated 14th September, 2015 a penalty of Rs.15 lakhs

was imposed and paid by the appellant he should not

be again further penalized.

6. The learned Designated Member however did not

agree with the submissions and the impugned order

came to be passed. Hence the present appeal.

7. We have heard Mr. Nirman Sharma, Advocate for

the Appellant and Mr. Anubhav Ghosh, Advocate

assisted by Mr. Ravishekhar Pandey, Advocate for the

Respondent.

7

8. Mr. Nirman Sharma, the learned counsel for the

appellant submitted that there was considerable delay

in launching the proceedings and, therefore, as can be

seen from the written submissions the appellant was

unable to defend the same. He submits that the order is

therefore liable to be quashed on this sole ground. To

buttress his argument the learned counsel relied on

number of decisions of this Tribunal Ashok Shivlal

Rupani & Anr. vs. SEBI, appeal no.417 of 2018

decided on 22nd August, 2019, Sanjay Jethalala Soni

& Ors. vs. SEBI, appeal no.102 of 2019 decided on

14th November, 2019 and the order of the Hon‟ble

Supreme Court affirming the order in the case of

Ashok Shivlal Rupani dated 15th November, 2019.

9. The learned counsel for the respondent, Mr.

Anubhav Ghosh on the other hand submitted that while

in the reply to the show cause notice the appellant had

admitted all the guilt, only during the personal hearing

he came with a case of delay in launching the 8

proceedings. He further pointed to the earlier

proceedings in which admittedly the appellant was

penalized of Rs.15 lakh. He submits that the said

penalty was imposed upon the appellant for non-

honouring of the five summonses to produce the record

earlier in the year 2011 itself and nothing further. This

act of the appellant delayed the proceedings and he

was aware long back that investigation in the subject

matter had started long back. The learned counsel

therefore submitted that the appellant is trying to take

advantage of his own wrong by taking shelter of plea

of delay in the present case.

10. Upon hearing both the sides in our view the delay,

if any, has not at all prejudiced the appellant. He

himself did not produce the material to the respondent

SEBI though five summonses one after another were

issued to him since January, 2011. He was therefore

ultimately penalized for non-compliance with the

summonses.

9

11. The learned counsel for the appellant further

submitted that while the personal hearing was

conducted by the learned Designated Member on 9th

April, 2019 the impugned order was passed on 8th July,

2020. This itself is sufficient to set aside the order.

12. Having heard the parties in our view, on the face of

of initial non traverse of the fact in reply to the show

cause notice , in fact there remains nothing to decide

for the learned Designated Member as regards the facts

involved in the proceedings and, therefore delay in

passing the order has not prejudiced the appellant as

none of his submissions could have been forgotten by

the Designated Member causing the prejudice.

13. Even otherwise, the order of the learned

Designated Member would show that large number of

synchronised and circular trades were caused by the

present appellant during the relevant period. The

group branded by the Designated Member as Vipul

Group who were the clients of the appellant were in 10

factct his uncle and two other relatives as close

relatives. This fact was already admitted by the

appellant vide his letter dated 19th April, 2010. The

details given in the order would show that the appellant

had transferred 26,23,376 shares of Maharashtra

Polybutenes which was a highly illiquid stock of this

group to total of 115 front entities which was again

retransferred to the three close relatives of the

appellant through the present appellant except 2 lakh

and odd figures. The details of the front entities, the

nature of the circular and synchronised trades had all

been detailed in the impugned order though the

appellant in reply to the show cause notice has not

denied the allegations. For this reason also delay in

passing the order by the learned WTM also would not

vitiate it.

14. Considering all the facts on record and finding out

the enormity of the violations committed by the

appellant that of engaging in circular and synchronized 11

trades in large amount, of giving wrong instruction to

the clearing house, for direct pay out to 92 front

entities without any transactions, of falsifying record

and issuing fictitious contract notes to 20 front entities,

we do not find it fit to interfere in the impugned order.

The alternative plea of the appellant to interfere in the

order of cancellation of order and award a lesser

penalty is therefore rejected. Hence the following

order.

The appeal is hereby dismissed without any order as to

costs.

15. 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 12

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 RAJALA Digitally signed

22.3.2021 by

KSHMI NAIR RAJALAKSHMI H

RHN Date: 2021.03.23 H NAIR 15:55:58 +05'30'