Appellant cleared of market manipulation charges due to lack of evidence, penalty overturned

The appellant was accused of being connected with Mehta group entities through Sunil Mehta, engaging in circular/reversal synchronized trades, and violating PFUTP Regulations. The appellant denied direct involvement in manipulation, claiming ignorance of trades in his account. The AO imposed a penalty under Section 15HA of SEBI Act, but the Tribunal found the AO's approach inappropriate and allowed the appeal, setting aside the order due to lack of substantial evidence of the appellant's direct involvement in manipulating the scrip of ASCL.

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Issues Involved:
1. Connection of appellant with Mehta group entities.
2. Allegations of circular, reversal, synchronized, and structured trades.
3. Violation of PFUTP Regulations.
4. Quantum of penalty under Section 15HA of SEBI Act.
5. Analysis of findings by Adjudicating Officer (AO).

Summary:

1. Connection of appellant with Mehta group entities:
The appellant was alleged to be connected with the Mehta group entities through Sunil Mehta, who opened the appellant's account with Triveni. The appellant denied any connection with other entities in the Mehta group except for Sunil Mehta, who was a friend of his son.

2. Allegations of circular, reversal, synchronized, and structured trades:
The appellant was accused of engaging in circular/reversal synchronized trades with the Mehta group, which created artificial volume and influenced the price of ASCL's scrip. The investigation revealed that the appellant's trades were synchronized and structured, contributing to 2.9% of the market volume.

3. Violation of PFUTP Regulations:
The appellant was found to have violated Regulations 3(a), (b), (c) & (d) and 4(1), 4(2)(a), (b), (e) & (g) of PFUTP Regulations. The trades executed by the appellant were not isolated incidents but part of a repeated pattern of manipulation over a period of time, leading to artificial price rise and volume in the scrip of ASCL.

4. Quantum of penalty under Section 15HA of SEBI Act:
The AO imposed a penalty of Rs. 5,00,000 u/s 15HA of SEBI Act, 1992, considering the repetitive nature of the default and the impact on market integrity. The Hon'ble Supreme Court in SEBI v. Shri Ram Mutual Fund emphasized that penalty is attracted as soon as the contravention is established, irrespective of the intention.

5. Analysis of findings by Adjudicating Officer (AO):
The Tribunal noted that the AO adopted a generic approach in dealing with all entities of the Mehta group, which was not appropriate. The appellant, a 73-year-old retired individual, claimed ignorance of the trades executed in his account and did not report unauthorized trading by Sunil Mehta. The Tribunal concluded that there was no substantial evidence of the appellant's direct involvement in manipulating the scrip of ASCL. The appeal was allowed, and the impugned order was set aside.

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