2019 (5) TMI 2003 - Board - SEBI

SEBI bans nine entities for seven years over market manipulation through artificial price inflation schemes

In Re: Radison Properties Private Limited,  Natural Housing Private Limited,  Topwell Properties Private Limited,  South Asia Portfolios Private Limited,  Kingfisher Properties Private Limited, Janvi Tanvi Share Traders Private Limited,  Safed Sales Private Limited,  Shivkhori Construction Private Limited,  Spice Merchants Private Limited,  Turbotech Engineering Limited

SEBI found nine entities guilty of market manipulation in scrip trading during October 2012 to June 2013. The entities executed trades with connected ... Market manipulation - violations of the provisions of SEBI Act and SEBI-PFUTP Regulations - off-market transaction - pattern of buying at a higher price on subsequent days was repeated throughout its trading in the scrip during patch-1 with the connected entities - Whether the Noticees by trading with connected entities have manipulated the price in the scrip of TEL during the period October 18, 2012 to June 17, 2013? - HELD THAT:- sell order quantity was known to Kingfisher but Kingfisher did not buy all the available quantity at the prevailing price. Kingfisher bought only a part of the available quantity and then on subsequent trading days bought more shares at a much higher price. For instance, on February 13, 2012, Kingfisher bought 250 shares at ₹ 381.5/- when the available quantity was 8,000 shares. Then on the next trading day, Kingfisher bought 12,500 shares at an average price of ₹ 392.16/-. This pattern of buying at a higher price on subsequent days was repeated throughout its trading in the scrip during patch-1 with the connected entities. Kingfisher's first trade in the scrip during the patch was for ₹ 381.5/- and with the exception of 3 trades, which were executed at ₹ 375/- (all trades were executed on one day), all its other trades with the connected entities during the patch were within the range of ₹ 393.3/- to ₹ 496/-. Thus, if the Kingfisher was a genuine buyer, it would not have bought shares consistently at higher prices than its previous buy, over a period of four months. It is also noted from the order log trade log that during the entire investigation period of 27 months that Kingfisher had executed 1 sell trade in the scrip. This when seen in light of the fundamentals of the company, does not justify its buying pattern in the scrip. Taking support of the observations of Hon'ble Apex Court in Kishore R Ajmera matter [2016 (2) TMI 723 - SUPREME COURT] we note that in cases of market manipulation, admittedly, no direct evidence would be forthcoming / available. Manipulative transactions are to be tested on the conduct of parties and abnormality of practices which defy normal logic and laid down procedures. What is needed, is to prove that in a factual matrix, preponderance of probabilities indicate a fraud. In the instant matter, the findings that have been gathered from various circumstances for instance connection between the Noticees and the counter parties, overall trading in the scrip before the Noticees started trading during patch-1, particulars of the buy orders and sell orders, absence of any explanation from the Noticees for behaving opposite to that of a reasonable buyer who buys the scrip at a low price, lack of fundamentals of the company etc., leads to the conclusion that the trades executed by the Noticees with the connected entities, are manipulative in nature. In view of the significant positive LTP contribution by the aforesaid 9 Noticees by trading with the connected entities, it is concluded that the said 9 Noticees have manipulated the price of the scrip by contributing to the price rise. Whether the Noticees have violated the provisions of PFUTP Regulations? - In view of the conclusion arrived at paragraph 22 wherein it has been held that the trades executed by the 9 Noticees with the connected entities has contributed significantly to the positive LTP in the scrip are manipulative in nature, it is also held that such trades are fraudulent in nature and would operate as deceit upon any person trading in the extant scrip.Therefore, find that Radison Properties Private Limited, Natural Housing Private Limited, Topwell Properties Private Limited, South Asia Portfolios Private Limited, Kingfisher Properties Private Limited, Janvi Tanvi Share Traders Private Limited, Safed Sales Private Limited, Shivkhori Construction Private Limited and Spice Merchants Private Limited have violated Regulations 3(a), (b), (c), (d) and Regulations 4(1), 4(2) (a) and (e) of PFUTP Regulations. Directions, to be issued against the Noticees - Section 11 of SEBI Act casts a duty on the Board to protect the interests of investors in securities and to promote the development of and to regulate the securities market. For achieving such object, it has been authorised to take such measures as it thinks fit. Thus, power to take all measures necessary to discharge its duty under the statute which is a reflection of the objective disclosed in the preamble has been conferred in widest amplitude. Pursuant to the said objective, PFUTP Regulations have been framed. The said Regulations apart from other things aims to preserve and protect the market integrity in order to boost investor confidence in the securities market. By executing manipulative trades, as has been executed by the aforesaid 9 Noticees in the instant matter, the price discovery system itself is affected. It also has an adverse impact on the fairness, integrity and transparency of the stock market. In view of the same and considering the violations committed by the said 9 Noticees, as find that it becomes necessary for SEBI to issue appropriate directions against them. In exercise of the powers conferred upon me in terms of Section 19 read with Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992, hereby restrain Radison Properties Private Limited, Natural Housing Private Limited, Topwell Properties Private Limited, South Asia Portfolios Private Limited, Kingfisher Properties Private Limited, Janvi Tanvi Share Traders Private Limited, Safed Sales Private Limited, Shivkhori Construction Private Limited and Spice Merchants Private Limited from accessing the securities market for a period of seven years from the date of this order and further prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of seven years, from the date of this order. Needless to say, in view of prohibition on sale of securities, it is clarified that during the period of restraint, the existing securities holding, including units of mutual funds, of the aforesaid entities shall remain frozen. Issues Involved:1. Whether the Noticees by trading with connected entities have manipulated the price in the scrip of TEL during the period October 18, 2012, to June 17, 2013Rs.2. If the answer to issue No. 1 is affirmative, whether the Noticees have violated the provisions of PFUTP RegulationsRs.3. If the answer to issue No. 2 is affirmative, what directions, if any, should be issued against the NoticeesRs.Issue-Wise Detailed Analysis:Issue No. 1: Whether the Noticees by trading with connected entities have manipulated the price in the scrip of TEL during the period October 18, 2012, to June 17, 2013Rs.The investigation revealed that five Noticees (Radison Properties Private Limited, Natural Housing Private Limited, Topwell Properties Private Limited, South Asia Portfolios Private Limited, and Safed Sales Private Limited) were connected to each other and to the company, Turbotech Engineering Ltd. (TEL). Additionally, Janvi Tanvi Share Traders Private Limited, Kingfisher Properties Private Limited, Shivkhori Construction Private Limited, and Spice Merchant Private Limited were found to be connected to these five Noticees. The company issued 2,27,30,000 convertible equity warrants on a preferential basis to 14 allottees during 2009-2010, which were later converted into equity shares and transferred to 1,565 unique entities via off-market transfers.The nine Noticees contributed significantly to the positive Last Traded Price (LTP) during the investigation period. The analysis showed that these Noticees executed trades with 295 connected entities, contributing Rs. 1161.70 (23.24% of market positive LTP) to the market's positive LTP. Kingfisher Properties Pvt. Ltd., for example, consistently bought shares at higher prices despite available lower-priced shares, indicating manipulative intent.The cumulative effect of the connections among the Noticees, the trading pattern, the lack of company fundamentals, and the absence of any rational explanation from the Noticees led to the conclusion that they manipulated the price of the scrip by contributing to the price rise.Issue No. 2: If the answer to issue No. 1 is affirmative, whether the Noticees have violated the provisions of PFUTP RegulationsRs.The relevant provisions of PFUTP Regulations prohibit fraudulent and manipulative practices in securities trading. The trades executed by the nine Noticees with connected entities were found to be manipulative and fraudulent, creating a false or misleading appearance of trading in the securities market. Therefore, the Noticees violated Regulations 3(a), (b), (c), (d), and Regulations 4(1), 4(2)(a), and (e) of PFUTP Regulations.Issue No. 3: If the answer to issue No. 2 is affirmative, what directions, if any, should be issued against the NoticeesRs.Given the manipulative and fraudulent trades executed by the Noticees, SEBI deemed it necessary to issue appropriate directions to protect the interests of investors and maintain market integrity. The order restrained the nine Noticees from accessing the securities market for seven years and prohibited them from buying, selling, or dealing in securities, directly or indirectly, during this period. Their existing securities holdings were also ordered to remain frozen.Order:The order, effective immediately, restrains Radison Properties Private Limited, Natural Housing Private Limited, Topwell Properties Private Limited, South Asia Portfolios Private Limited, Kingfisher Properties Private Limited, Janvi Tanvi Share Traders Private Limited, Safed Sales Private Limited, Shivkhori Construction Private Limited, and Spice Merchants Private Limited from accessing the securities market for seven years and prohibits them from dealing in securities in any manner during this period. Compliance with this order is to be ensured by all recognized Stock Exchanges, Depositories, and the Registrar and Share Transfer Agents.