2019 (3) TMI 197 - SC - SEBI

SEBI penalties upheld for securities violations including manipulative trading and non-compliance with investigation notices

The SC upheld penalties imposed by SEBI for securities violations. In the first matter, the court affirmed a Rs. 3 lakh penalty under Section 15HB for ... Interpretation of Section 15J - Penalty u/s 15HB of SEBI Act - Penalty for failure to furnish information, return, etc - determining the quantum of penalty - test of preponderance of probability - HELD THAT:- Huge volume of trading between same set/group of brokers can in a given case reasonably point to some kind of a fraudulent and manipulative exercise with prior meeting of minds. Further, there is a difference between synchronized trading involving bulk quantities and negotiated trades as a result of consensual bargaining involving synchronization of buy and sell orders resulting in matching thereof as per permissible parameters which are programmed accordingly. Test of preponderance of probability applies for the adjudication and determination of civil liability for violation of the SEBI Act or the provisions of the Regulations framed thereunder (see RAKHI TRADING PRIVATE LTD. [2018 (2) TMI 580 - SUPREME COURT]). Keeping the aforesaid parameters in mind, the adjudicating authority had imposed penalty of ₹ 3,00,000/( Rupees three lakhs only) under Section 15HB of the SEBI Act, which has been upheld by the Appellate Tribunal being commensurate with the violation. No infirmity with the concurrent findings or with the quantum of penalty imposed and the same is upheld. Penalty for violation of Section 11C( 3) under Section 15A( a) of the SEBI Act - HELD THAT:- During the course of hearing by SEBI, most details as provided by the appellants were general in nature. In case there was no violation pertaining to mobilization of funds from the public under various schemes/arrangements, this could have been so stated in clear and categoric terms. Moreover, the contention that the offices were sealed which rendered them incapable to furnish information has been rejected for two good reasons. First, this stand is belated and held to be an afterthought when it could have been raised at the first instance when the reply dated 5th December, 2012 was furnished, given that the records were seized by the police on 5th May, 2011. Second, assertion was contradicted by their own conduct when during the proceedings they had submitted a few documents, which were incomplete and not as desired. They did not make any distinction as to the documents within their possession and as to those with the police. Appellate Tribunal had in these circumstances affirmed the finding that there was a lack of good faith and failure in complying with the aforesaid notices/letters/summons/emails. Adjudicating Officer had, therefore, rightly recorded that noncompliance of summons had hampered the further course of investigation. The failure was without any justification. Agreeing with the said findings, the Appellate Tribunal has observed that details were withheld with a view to delay the investigation being conducted by SEBI to the detriment of investors from whom funds were collected by the appellants in contravention of CIS Regulations. No fault with the reasoning given. We are of the opinion that the fault squarely lied with the appellants and, thus, penalty of ₹ 1,00,00,000/( Rupees one crore only) for violation of Section 11C( 3) under Section 15A( a) of the SEBI Act does not call for any interference. Issues Involved:1. Interpretation of Section 15J of the SEBI Act.2. Discretion of the Adjudicating Officer under Section 15J.3. Application of penalty provisions under Sections 15A to 15HA of the SEBI Act.4. Validity and quantum of penalties imposed on various appellants.Detailed Analysis:Issue 1: Interpretation of Section 15J of the SEBI ActThe primary issue was whether the conditions stipulated in clauses (a), (b), and (c) of Section 15J of the SEBI Act are exhaustive or merely illustrative. The court concluded that these conditions are illustrative. This means the Adjudicating Officer can consider other relevant factors beyond those specified in Section 15J when deciding the quantum of penalty.Issue 2: Discretion of the Adjudicating Officer under Section 15JThe court addressed whether the Adjudicating Officer's discretion under Section 15J is limited by the penalty provisions in Sections 15A to 15HA. It was held that the discretion under Section 15J is not eclipsed by these penalty provisions. The explanation added to Section 15J by Act No.7 of 2017 clarifies that the Adjudicating Officer always had the discretion to consider the factors under Section 15J while adjudicating penalties under Sections 15A to 15HA.Issue 3: Application of Penalty Provisions under Sections 15A to 15HAThe court emphasized that Sections 15A to 15HA should be read harmoniously with Section 15J to avoid any inconsistency. The explanation to Section 15J introduced in 2017 was meant to remove doubts created by previous judgments and confirm that the Adjudicating Officer's discretion was always intended to be exercised.Issue 4: Validity and Quantum of Penalties Imposed on Various AppellantsThe court reviewed several individual cases to determine whether the penalties imposed were justified.Case 1: Bhavesh Pabari and M/s Shree Radhe- Penalties of Rs. 20,00,000 each were imposed for synchronized/structured and reversed trades in the scrips of M/s. Gulshan Polyols Ltd.- The court upheld the penalties, noting that Bhavesh Pabari had traded in his personal name and as a sole proprietor, thus justifying separate penalties.Case 2: Ankur Chaturvedi, Siddharth Chaturvedi, and Jay Kishore Chaturvedi- Penalties were imposed for failing to make necessary disclosures under the SEBI (Probation of Insider Trading) Regulations, 1992.- The court upheld the penalties, rejecting the argument that the penalties were harsh given the mitigating factors considered by the Adjudicating Officer.Case 3: Akshat Tandon and Others- Penalties were imposed for violations of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.- The court upheld the penalties, noting that the quantum was not disproportionate to the violations.Case 4: Magnum Equity Broking Ltd.- Penalty of Rs. 3,00,000 was imposed for violation of the Code of Conduct for Stock Brokers.- The court upheld the penalty, citing the significant impact of synchronized trades on market integrity.Case 5: M/s Quantum Global Securities & Leasing Company Ltd.- Penalties of Rs. 60,00,000 and Rs. 15,00,000 were imposed for synchronized trades, circular trades, and reversal trades.- The court upheld the penalties, noting the appellant's involvement in a larger scheme that manipulated market prices.Case 6: Durga Prasad Yadav and Jai Hind Kumar- Penalty of Rs. 1,00,00,000 was imposed for failing to furnish information required by SEBI.- The court upheld the penalty, emphasizing the appellants' lack of good faith and the impact on SEBI's investigation.Conclusion:The court concluded that the conditions in Section 15J are illustrative, not exhaustive, and that the Adjudicating Officer's discretion under Section 15J is not limited by the penalty provisions in Sections 15A to 15HA. The penalties imposed in the individual cases were upheld, affirming the importance of maintaining market integrity and compliance with SEBI regulations.