2019 (11) TMI 1120 - AT - SEBI

Appeals dismissed, penalties upheld for securities violations.

Jinesh D. Bhatt, Tarun Kumar Brahambhatt, Krishnakumar Brahambhatt And Prarthana Brahambhatt Versus Adjudicating Officer, Securities and Exchange Board of India, Mumbai

The appeals were dismissed, affirming the Adjudicating Officer's findings of violations of PFUTP, SAST, and PIT Regulations by the appellants. Penalties ... Acquisition of 5 per cent and more shares or voting rights of a company - manipulative orders in a short time - the appellant’s strategy was to purchase bulk of the shares at a lesser market price. Thereafter, he used to place buy orders on the opening of the market at much higher price than the LTP for small number of shares some time one share only. Once that order got executed then he used to sell his stock at a higher price - Violation of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (‘SAST Regulations’) and Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (‘PIT Regulations’) - whether the transfer of shares were infact acquisition attracting the provisions of SAST Regulations and eventually PIT Regulations or the transaction was merely a pledge ? - HELD THAT:- the issue of effect of exoneration of the counter parties is immaterial. It is true that synchronized trades or self trades in itself without any motive may not be called manipulative trade practices. In the present case, however the pattern as highlighted above would go to show that the present appellant Tarun Kumar with a view to gain, indulged into trading in a fraudulent manner as detailed supra. In our view the order of the Adjudicating Officer in this regard therefore cannot be faulted. Acquisition of shares accounted for 16.77% of the total shareholding - The case of all the appellants in this regard is that they had not “acquired” shares. - They executed agreement for pledge of the shares with these two appellants as a security towards finance to be raised. - Held that:- Regulation 7 provides for disclosures even in case of pledge to private individual, the transaction in question for public in general and market was change in the shareholding pattern. The term pledge was nowhere put either in the transfer account of the promoters or depository account. In that view of the matter, the violations of the Regulations is clearly ruled. As regards the quantum of penalty the learned counsel for the appellant submits that the magnitude of the ‘offence’ is required to be considered while awarding compensation in criminal cases. He further submitted that the appellant ought to have been heard on quantum of compensation. On the other hand, learned counsel for the respondent rightly submits that the present case cannot be branded as criminal case. He points to the reasoning forwarded by the Adjudicating Officer in the impugned order in this regard. He submits that the fraudulent practices of appellant Tarun Kumar in trading the shares of Rajratan and not making disclosure as well as nondisclosure of acquisition of shares of Velan Hotels Ltd. and public announcement to acquire the shares would amount to deprivation of fair treatment of the shareholders who are affected by the change in control. In the circumstance, he submitted that the penalty of ₹ 15 lakhs imposed upon appellant Tarun Kumar for violation of PFUTP Regulations, ₹ 25 lakhs on the appellants jointly and severally for violation of Regulation 10 read with Regulation 14 of the SAST Regulation and of ₹ 6 lakhs on appellant Tarun Kumar and Jinesh for violation of Regulation 13(1) of PIT Regulations and Regulation 7(1) of the SAST Regulations was justified. He further supports the penalty imposed upon the appellant Jinesh of ₹ 4 lakhs for violation of Regulations 13(3) and 13(5) of the PIT Regulations. Considering all the material on the record, in our view the discretion exercised by the Adjudicating Officer needs no interference in this regard also. In the circumstances, the appeals are hereby dismissed. Issues Involved:1. Violation of PFUTP Regulations by Tarun Kumar Brahambhatt.2. Violation of SAST Regulations by Jinesh Bhatt and others.3. Violation of PIT Regulations by Jinesh Bhatt and others.4. Quantum of penalty imposed.Issue-wise Detailed Analysis:1. Violation of PFUTP Regulations by Tarun Kumar Brahambhatt:The appellant Tarun Kumar Brahambhatt was found in violation of Regulations 3, 4 (2) (a), (b), (e), and (g) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations). SEBI conducted an investigation into the trading pattern in the scrip of Rajratan Global Wire Ltd. (Rajratan) for the period from 1st June 2009 to 26th November 2009. It was found that the appellant had manipulated the prices by placing buy orders at higher prices and then selling the stock at increased prices. The Adjudicating Officer concluded that these trades were manipulative and not genuine, leading to a penalty of Rs. 15 lakhs under Section 15HA of the SEBI Act, 1992.2. Violation of SAST Regulations by Jinesh Bhatt and others:The appellants held 12,99,949 shares of Velan Hotels Ltd., accounting for 16.77% of the total shareholding, which was more than the 15% threshold. No public announcement was made regarding the transfer of these shares, violating Regulation 10 of the SAST Regulations. The appellants argued that the shares were pledged as security for a loan, not acquired. However, the Adjudicating Officer found that the transfer was recorded as a change in beneficial ownership, not as a pledge, and thus violated the SAST Regulations.3. Violation of PIT Regulations by Jinesh Bhatt and others:The transfer of shares also invoked the provisions of the PIT Regulations. The appellants argued that they were not 'persons acting in concert' and that no acquisition of shares took place. However, the Adjudicating Officer found that the appellants acted together with a common objective, thus violating the PIT Regulations.4. Quantum of Penalty Imposed:The appellants argued that the magnitude of the offense should be considered while awarding penalties and that they should have been heard on the quantum of compensation. The respondent SEBI argued that the fraudulent practices and nondisclosure deprived shareholders of fair treatment. The penalties imposed were Rs. 15 lakhs for violation of PFUTP Regulations, Rs. 25 lakhs jointly and severally for violation of Regulation 10 read with Regulation 14 of the SAST Regulations, Rs. 6 lakhs on Tarun Kumar and Jinesh for violation of Regulation 13(1) of PIT Regulations and Regulation 7(1) of the SAST Regulations, and Rs. 4 lakhs on Jinesh for violation of Regulations 13(3) and 13(5) of the PIT Regulations. The tribunal found no reason to interfere with the discretion exercised by the Adjudicating Officer and dismissed the appeals.Conclusion:The appeals were dismissed, upholding the findings of the Adjudicating Officer regarding the violations of PFUTP, SAST, and PIT Regulations, and the penalties imposed were deemed justified.