Market manipulation requires concrete proof of a false market, not merely trades above the last traded price.
Market manipulation under the PFUTP Regulations cannot be inferred merely because some trades were placed above the last traded price. Where the scrip was illiquid, the trades were few, delivery based, and executed in the market, the record had to show concrete evidence of a manipulative scheme, circular trading, self-trading, or other reliable proof of false market creation. On that material, the allegation of fraudulent and unfair trade practice was not established. Because the alleged breach of the sub-broker Code of Conduct was wholly derivative of the manipulation charge, that allegation also failed and the penalties could not survive.
Issues: (i) Whether the appellant's trades in the scrip, including purchases above the last traded price, amounted to fraudulent and unfair trade practices and manipulation of price under the SEBI regulations. (ii) Whether the alleged conduct established violation of the Code of Conduct applicable to sub-brokers and justified the penalties imposed.
Issue (i): Whether the appellant's trades in the scrip, including purchases above the last traded price, amounted to fraudulent and unfair trade practices and manipulation of price under the SEBI regulations.
Analysis: The material showed that the scrip was illiquid and that the appellant's trades were few in number, delivery based, and executed in the market. The finding of manipulation could not rest merely on the fact that some orders were placed above the last traded price. The record did not establish concrete proof of a manipulative scheme, circular trading, self-trading, or other reliable evidence showing that the appellant alone caused the price rise or created a false market. In the overall circumstances, the alleged conduct was not proved to the level required for sustaining a finding of fraudulent or unfair trade practice.
Conclusion: The allegation of manipulation under the PFUTP Regulations was not established against the appellant.
Issue (ii): Whether the alleged conduct established violation of the Code of Conduct applicable to sub-brokers and justified the penalties imposed.
Analysis: The alleged breach of the sub-broker code was entirely founded on the supposed market manipulation. Once the charge of manipulation was found unsubstantiated, the derivative allegations under the Code of Conduct also failed. In the absence of proof of the primary misconduct, the penalties imposed under the SEBI Act could not survive.
Conclusion: The violation of the sub-broker Code of Conduct was not proved and the penalties were unsustainable.
Final Conclusion: The impugned order could not be sustained on the evidence and the appeal succeeded, with the penalties set aside.
Ratio Decidendi: A finding of market manipulation cannot be sustained merely because trades were executed above the last traded price; concrete evidence of a manipulative design, market distortion, or false market is required, especially where the scrip is illiquid and the trades are delivery based.
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