2020 (7) TMI 324 - AT - SEBI

SEBI Tribunal upholds dismissal of appeal, finding wrongful gain and market manipulation; rejects delay and exoneration claims.

Rajesh Jayantilal Shah Versus Securities and Exchange Board of India, Mumbai

The appeal was dismissed, affirming SEBI's findings of wrongful gain and market manipulation by the appellants in collusion with Nirmal Kotecha. The ... Guilty of causing false media report causing the rise in the price of the scrip - temporary prohibitory order - WTM directing the present appellants to disgorge an amount of ₹ 22,69,461/-along with interest at the rate of 12% per annum from December 22, 2008 - HELD THAT:- Appellants submitted that there is a delay in the proceeding, the documents filed by the appellants themselves would show that before the WTM they were pressing time and again for more documents from the respondents before filing reply to the show cause notice. Even though a compact disk was supplied to them the demand continued which ultimately led to filing of reply belatedly. Though the practice of keeping temporary prohibitory order continuing for a long period cannot be accepted, it is to be noted that ultimately the said order is revoked. Therefore, the issue does not survive. WTM had taken into consideration the earlier dealing of the appellants in the scrip of PSTL wherein the appellants were charged for last traded price manipulation. The appellants and deceased noticees were exonerated from the charges and only charge remained for trading of the appellants and deceased noticees for a period from December 17 to 22, 2008. The trading of period of December 16 is also taken into consideration by the WTM. However, finding that there was sudden increase in purchase of the shares of PSTL by the appellants and the deceased noticees during December 17-19, 2008 as detailed and off-loading of all those shares on December 22 before 10:30 am the order was passed. It is an admitted fact that Nirmal Kotecha had close relations with the appellants. Many business transactions as well as gratuitous transactions of advancing interest free loan between them is an admitted fact. Out of interest free loan granted by Nirmal Kotecha to the appellants, admittedly appellants utilized some portion for the business purpose. Admittedly, they always had telephonic conversation. Admittedly, the appellants form a family group as further explained in the paragraph 1 of the synopsis itself. The appellants had pleaded before the WTM that the proceedings against them be kept in abeyance till the proceedings against Nirmal Kotecha would come to an end i.e. appeal filed by Nirmal Kotecha in this Tribunal is decided. Judicial notice can be taken that the appeal filed by Nirmal Kotecha, is finally dismissed by this Tribunal on merit holding him guilty of causing false media report causing the rise in the price of the scrip. In the circumstances, the findings recorded by the learned WTM needs no interference. Issues Involved:1. Disgorgement order by SEBI against the appellants.2. Interim prohibitory order and its revocation.3. Allegations of market manipulation and wrongful gain.4. Connection with Nirmal Kotecha.5. Delay in SEBI proceedings.6. Exoneration from certain charges by WTM.7. Appellants' trading pattern and business relations with Nirmal Kotecha.Issue-wise Detailed Analysis:1. Disgorgement Order by SEBI Against the Appellants:The appellants were directed by SEBI to disgorge an amount of Rs. 22,69,461/- along with interest at the rate of 12% per annum from December 22, 2008 onwards. This order was based on findings that the appellants, in collusion with Nirmal Kotecha, made wrongful gains by selling shares of Pyramid Saimira Theater Limited (PSTL) on December 22, 2008, after accumulating them between December 17 to 19, 2008.2. Interim Prohibitory Order and its Revocation:SEBI initially issued a temporary prohibitory order against the appellants and two deceased noticees, restraining them from buying, selling, or dealing in the securities market. This order was revoked in the final order after approximately nine years, as the interim order was deemed to have lasted too long.3. Allegations of Market Manipulation and Wrongful Gain:The WTM exonerated the appellants from charges of Last Traded Price (LTP) manipulation but found that they accumulated and sold large quantities of PSTL shares in a manner that indicated market manipulation. The appellants were found to have made a wrongful gain of Rs. 24,39,602.91 from these transactions.4. Connection with Nirmal Kotecha:The appellants were found to be closely connected with Nirmal Kotecha, who was involved in publishing a false media report to manipulate PSTL share prices. Evidence showed regular communication and financial transactions between Kotecha and the appellants, indicating collusion.5. Delay in SEBI Proceedings:The appellants argued that the delay in SEBI's proceedings should lead to the quashing of the order. However, the Tribunal noted that the delay was partly due to the appellants' continuous demands for more documents, which led to the belated filing of their reply. The interim prohibitory order was eventually revoked, rendering the delay issue moot.6. Exoneration from Certain Charges by WTM:The WTM exonerated the appellants from charges related to LTP manipulation and found no direction regarding market volume manipulation by one appellant on December 5, 2008. However, the WTM held that the appellants' trading pattern from December 17 to 22, 2008, indicated collusion and wrongful gain.7. Appellants' Trading Pattern and Business Relations with Nirmal Kotecha:The WTM found that the appellants' trading pattern—accumulating large amounts of PSTL shares before December 22, 2008, and off-loading them on December 22, 2008—along with their close business relations with Kotecha, indicated a violation of Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. The Tribunal upheld these findings, dismissing the appeal without any order as to costs.Conclusion:The appeal was dismissed, affirming SEBI's findings of wrongful gain and market manipulation by the appellants in collusion with Nirmal Kotecha. The Tribunal found no merit in the appellants' arguments regarding the delay in proceedings and their exoneration from certain charges.