2021 (3) TMI 757 - AT - SEBI

Securities Appellate Tribunal Mumbai: Appeal partly allowed, penalty set aside for violating securities regulations

The Securities Appellate Tribunal in Mumbai partly allowed the appeal by the appellants against a penalty imposed by SEBI for violating securities ... Violation of the provisions of PFTUP Regulations - artificial trades - manipulative trading - there was a pattern of trading and the price of the shares went up in pre-planned manner by engaging in small trades sometimes of one share each but no explanation of the same was offered - HELD THAT:- This Tribunal held that the placing of orders in a very small number generally may point towards the possible violation of the provisions of PFTUP Regulations still it is possible that an investor observing the movement of the scrip could be placing orders in the system without any intention to manipulate the market. Finding that there is no connection of the appellants therein either with the company or with the group connected with the company it was found that merely irrational behaviour of the investor, for want of connection, it cannot be said that they were trading in manipulative or fraudulent manner Finding that the scrip of Mapro was not a miracle scrip and taking into consideration the doubtful pattern of the trades carried out by the appellant therein this Tribunal though set aside the direction to pay penalty imposed upon the appellant therein, it was held that warning to the appellant that repetition of trading of similar nature as impugned one will lead to penal consequences. All the appellants are small investors. They are admittedly close relatives. However, they are not found to be connected with any other parties involved are not anyway connected to the group entities as described in the appeal of Bharti Goyal [2020 (8) TMI 843 - SECURITIES APPELLATE TRIBUNAL MUMBAI] In the circumstances, the present appeal is partly allowed without any order as to costs. The direction of the adjudicating officer to pay penalty against each of the appellants is hereby set aside. Instead the appellants are warned that repetition of trading of similar nature may lead to penal consequence. The appeal is accordingly disposed of. Issues:Violation of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 by the appellants.Analysis:1. The appellants were aggrieved by the order of the adjudicating officer, Securities and Exchange Board of India (SEBI), directing them to pay a penalty for violating specific regulations.2. The investigation revealed that the prices of shares of a company had significantly increased due to artificial means involving multiple entities, including the present appellants.3. The trades of the appellants were analyzed, showing a specific pattern in their transactions related to the company's shares.4. The adjudicating officer concluded that the appellants engaged in manipulative trading, despite their claims of acting in good faith as small investors.5. During the hearing, the appellants cited a previous Tribunal decision involving similar manipulative trading accusations in the same company's shares.6. The Tribunal differentiated between manipulative trading and investor behavior, considering the lack of connection between the appellants and the company or related entities.7. Given the lack of evidence connecting the appellants to any fraudulent activities or group entities, the Tribunal partly allowed the appeal and set aside the penalty, issuing a warning against engaging in similar trading practices in the future.8. The Tribunal emphasized that the appellants, being small investors and close relatives, were not linked to any other involved parties or group entities.9. Due to the Covid-19 pandemic, the order was digitally signed, and all concerned parties were directed to act upon the digitally signed copy.This detailed analysis of the judgment highlights the key legal issues, findings, and conclusions reached by the Securities Appellate Tribunal in Mumbai regarding the violation of securities regulations by the appellants.