Fair notice and proof of manipulation are essential; unsupported sub-broker allegations and small trades could not sustain action.

A vague show cause notice and an impugned order that did not clearly state the alleged breach, or support the allegations that the appellant acted as a sub-broker or front entity, failed the requirement of fair notice and could not sustain adverse findings. The regulator also did not prove market manipulation: three small exchange-executed sell trades, without evidence of circular or synchronized trading, and without pursuing the counterparties, were insufficient to show a false or misleading appearance of trading or price manipulation. The regulatory order was therefore held unsustainable and relief was granted.

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Issues: (i) Whether the show cause notice and the impugned order validly disclosed and established the alleged violations of the securities law provisions, including the charge of acting as a sub-broker or front entity. (ii) Whether the three small sell transactions relied upon by the regulator were sufficient to prove manipulation of the price of the scrip or creation of a false or misleading appearance of trading.

Issue (i): Whether the show cause notice and the impugned order validly disclosed and established the alleged violations of the securities law provisions, including the charge of acting as a sub-broker or front entity.

Analysis: The notice was found to be deficient because it did not clearly disclose the cause of action or the precise manner in which the alleged regulatory breach had occurred. The charge that the appellant acted as a sub-broker was not supported by a corresponding finding in the impugned order, and the allegation that it functioned as a front entity was also found to lack a factual basis. The order proceeded without adequately confronting the appellant with the material relied upon for adverse inference, which offended the requirements of fair notice and opportunity.

Conclusion: The alleged violations were not validly established, and the adverse finding on these aspects could not be sustained against the appellant.

Issue (ii): Whether the three small sell transactions relied upon by the regulator were sufficient to prove manipulation of the price of the scrip or creation of a false or misleading appearance of trading.

Analysis: The appellant's trades were limited to three small sell orders of 50 shares each spread over a substantial period. The prices were executed through the exchange matching mechanism against pending buy orders, and no material was brought to establish circular trading or synchronized trading. The counterparties to the transactions were not pursued, and the record did not justify an inference that these trades, by themselves, could have manipulated the market or caused the price rise. The unsupported statement of a witness who later retracted his version was also declined reliance.

Conclusion: The charge of market manipulation was not proved.

Final Conclusion: The impugned regulatory order was unsustainable for want of a clear, fair and substantiated case, and the appellant was entitled to relief.

Ratio Decidendi: An adverse regulatory action based on a vague notice and unsupported allegations cannot be sustained, and small exchange-executed trades without proof of circular or synchronized dealing do not by themselves establish market manipulation.

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