2016 (10) TMI 1308 - AT - SEBI

Appeal Dismissed for Violating SEBI Regulations in Synchronized Trades

M/s. Master Finlease Ltd. Versus Securities and Exchange Board of India, Mumbai

The appeal challenging the penalty imposed for violating SEBI regulations by engaging in synchronized trades with entities connected to Vishvas Group was ... Fraudulent and Unfair Trade Practices relating to Securities Market - synchronized order placement and circular trading - Violation of the PFUTP Regulations - Difference between buy order time and sell order time was less than 60 seconds and there was no difference between buy order rate and sell order rate as well as there was no difference between buy order quantity and sell order quantity - HELD THAT:- Finding recorded by the Adjudicating Officer that the pattern of synchronized order placement and circular trading clearly establish that the transactions were carried out with the intension that the orders of participating entities should match and that there was prior arrangement with respect to those of transactions cannot be faulted. The Adjudicating Officer is justified in holding that the very fact that the Vishvas group entities were trading continuously among themselves by placing orders in such pattern thereby contributing significantly to the total volume in the market cannot be faulted. Argument advanced by the counsel for the appellant that having common address and having shares of Vishvas Securities Ltd. could not be a ground to infer that the appellant was connected with the Vishvas Group is without any merit. In the present case, the Adjudicating Officer has not only established the connection of the appellant with the Vishvas Group but also demonstrated that the trading pattern among themselves resulted in synchronized trades and circular trades which were in violation of the PFUTP Regulations. Appellant had incurred loss by executing the trades in question cannot be a ground to infer that the said trades were not in violation of the PFUTP Regulations. Having violated the PFUTP Regulations, the appellant cannot escape the penal liabilities merely because the appellant chose to incur losses on account of the trades in question. Violations committed by the appellant fall under Section 15HA of SEBI Act and the penalty imposable thereunder was ₹ 25 crore, the Adjudicating Officer has imposed a penalty of ₹ 25 lac against the appellant which cannot be said to be exorbitant or excessively high. It is a matter of record that SEBI has proceeded against various entities of the Vishvas group entities for violating the PFTUP Regulations and has imposed varying penalties up to the extent of ₹ 1crore. In these circumstances, no fault can be found with the decision of the Adjudicating Officer in imposing penalty of ₹ 25 lac as against the appellant on ₹ 25 crore imposable under section 15ha of the SEBI act for violating the PFUTP Regulations. Issues:Violation of SEBI regulations leading to penalty imposition under Section 15HA of SEBI Act.Analysis:1. The appellant challenged the penalty imposed by the Adjudicating Officer for violating PFUTP Regulations. SEBI's investigation revealed synchronized, circular trades by the appellant and entities connected to Vishvas Group in Gangotri shares.2. The appellant denied belonging to Vishvas Group, but evidence showed common addresses and off-market transactions, establishing the connection. The appellant's trades exceeded what was claimed, indicating violations.3. The Adjudicating Officer found synchronized trades with Vishvas Group entities, where buy and sell orders matched within seconds, indicating manipulation. Circular trades were also identified, influencing Gangotri's share prices.4. The appellant's argument of incurring losses not justifying violations was dismissed. SEBI's failure to consider mitigating factors was deemed irrelevant once violations were established.5. The penalty of Rs. 25 lakh imposed on the appellant was justified, considering the violations and penalties imposed on other Vishvas Group entities. The Adjudicating Officer's decision was upheld.6. The appellant attempted to delay proceedings citing ongoing legal considerations, but the appeal was dismissed due to the counsel's conduct, with no additional penalties imposed on the appellant.