2023 (11) TMI 67 - AT - SEBI

Securities Appellate Tribunal overturns SEBI's four-year market ban finding insufficient evidence of share manipulation through disguised trading

Securities Appellate Tribunal Mumbai allowed the appeal, overturning SEBI's order that had restrained appellant from securities market for four years. The ... Manipulative and unfair trade practices - disgorgement - acting in concert - open offer obligation under the SAST Regulations - perverse finding / want of evidence - interest on disgorged amount and double interestManipulative and unfair trade practices - perverse finding / want of evidence - Validity of the WTM's finding that Arvind Babulal Goyal adopted a modus operandi to accumulate shares and disposed of them pursuant to a false SMS, and that he effected manipulative trades (self-trades, synchronized and reversal trades) creating artificial volume. - HELD THAT: - The Tribunal held that the finding in paragraph 4.11 of the impugned order that Arvind Goyal had a modus operandi to accumulate shares and dispose them pursuant to the SMS was patently erroneous and based on surmises and conjectures; there is no evidence to establish such modus operandi (paras 12, 17). Tables relied on in the impugned order show no trades by Arvind Goyal after the SMS of January 11, 2011, and thus the finding that he sold pursuant to the SMS is contrary to the material on record (para 13). The impugned order also misidentified the SMS sender (Prem Agarwal instead of Prem Gudiya) and no nexus between the sender and Arvind Goyal was established; available material indicates the SMS originated from persons linked to noticee no.1 (paras 14-16). Given the absence of trades by Arvind Goyal or Pooja Goyal after the SMS, the Tribunal concluded that the finding of manipulative trading and violation of Regulations 3 and 4 of the PFUTP Regulations could not be sustained (paras 22-23). [Paras 15, 16, 17, 22, 23]The WTM's findings that Arvind Goyal adopted a modus operandi to accumulate and dispose of shares pursuant to the SMS and that he engaged in manipulative trades are set aside for being unsupported by evidence.Disgorgement - interest on disgorged amount and double interest - perverse finding / want of evidence - Sustainability of the disgorgement direction and the interest ordered by the WTM. - HELD THAT: - The Tribunal observed that the impounding order figure could not supplant the disgorgement amount crystallised by the show cause notice. The show cause notice had crystallised disgorgement at a lower amount, and the WTM could not rely on the impounding-order figure (para 24). Further, the direction to pay interest at 12% per annum was impermissible insofar as the disgorged amount already included a component of interest, and thus would amount to double interest (para 24). In view of the Tribunal's conclusion that there was no violation of the PFUTP Regulations by Arvind Goyal, the disgorgement order could not be sustained. [Paras 24]Disgorgement order against Arvind Goyal is set aside; the WTM erred in considering the impounding-order figure instead of the show-cause crystallised amount and in directing interest that led to double interest.Acting in concert - open offer obligation under the SAST Regulations - perverse finding / want of evidence - Whether the finding that the noticees were acting in concert and thereby triggered the obligation to make an open offer under Regulations 10 and 11 of the SAST Regulations is sustainable. - HELD THAT: - The Tribunal found that the WTM's conclusion that Arvind Goyal had traded from Abhay Javlekar's account was not supported by a sound appreciation of documentary evidence (paras 18-21). Material on record-letters from the broker, disputed trade communications, call records and admissions-indicate that Abhay Javlekar was aware of trades from his account and had placed orders, and there were internal inconsistencies in his statements; consequently, it is difficult to accept that Arvind Goyal was using Abhay Javlekar's account as alleged (paras 19-21). Because the finding of trading from Abhay Javlekar's account is set aside, the basis for treating the parties as acting in concert fails. However, the Tribunal noted that the parties did acquire shares in their individual capacities and that whether any of them (individually or, as husband and wife, jointly) crossed the thresholds under Regulations 10 and 11 requires fresh determination. The Tribunal directed that the AO consider afresh whether Arvind and Pooja Goyal (as husband and wife) and Abhay Javlekar individually triggered the open offer obligation, and if so, to impose penalty commensurate with the acquisition. [Paras 19, 20, 21, 25, 26]The finding of acting in concert is not proved and cannot be sustained; the question whether individual or joint holdings triggered the open offer obligation is remitted to the AO for fresh consideration and determination.Final Conclusion: The WTM orders insofar as they relate to Arvind Babulal Goyal and Pooja Arvind Goyal are set aside; the disgorgement and debarment/penalty findings against them are quashed for lack of supporting evidence and for errors in computation of disgorgement/interest. The remaining issues relating to whether the acquisitions by Arvind and Pooja Goyal (as husband and wife) and Abhay Javlekar individually triggered open offer obligations under Regulations 10 and 11 are remitted to the Adjudicating Officer for fresh consideration and, if required, levy of penalties proportionate to any acquisitions found to trigger those obligations. Parties to bear their own costs. Issues Involved:1. Restraint from accessing the securities market and disgorgement orders.2. Allegations of synchronized trades, self-trades, and reversal of trades.3. Requirement of making an open offer under SAST Regulations.Summary:Issue 1: Restraint from accessing the securities market and disgorgement ordersFive appeals were filed against different orders by the Whole Time Member (WTM) and the Adjudicating Officer (AO) concerning the same issue and facts. The WTM restrained Arvind Babulal Goyal from accessing the securities market for four years and directed him to disgorge Rs. 7,08,51,405/- along with interest. Similarly, Pooja Arvind Goyal was debarred for three years. The Tribunal found that the WTM's finding that Arvind Goyal accumulated shares through Abhay Javlekar's trading account and disposed of them after circulating misleading SMS was erroneous and based on conjectures. No evidence supported that Arvind Goyal had a modus operandi to accumulate shares or that he traded after the issuance of the SMS.Issue 2: Allegations of synchronized trades, self-trades, and reversal of tradesThe WTM alleged that Arvind Goyal was trading from the accounts of Abhay Javlekar and Pooja Goyal and engaged in synchronized trades, self-trades, and reversal of trades. However, the Tribunal found that the evidence did not support the claim that Arvind Goyal was trading from Abhay Javlekar's account. The Tribunal noted that the WTM relied on contradictory statements and did not properly verify the ownership of the mobile number used for trading. The Tribunal also found no connection between Arvind Goyal and the SMS sender, and BSE's investigation indicated no manipulative intent.Issue 3: Requirement of making an open offer under SAST RegulationsThe WTM concluded that Arvind Goyal, Pooja Goyal, and Abhay Javlekar acted in concert, triggering the requirement to make an open offer under Regulations 10 and 11 of the SAST Regulations. However, the Tribunal found that the combined holding was incorrectly considered and that the evidence did not support the claim of acting in concert. The Tribunal directed the AO to reconsider whether Arvind Babulal Goyal and Pooja Goyal collectively, and Abhay Javlekar individually, triggered the obligation to make an open offer and to impose appropriate penalties if necessary.ConclusionThe Tribunal set aside the impugned orders against Arvind Babulal Goyal and Pooja Goyal, allowing their appeals. The appeals by Pooja Arvind Goyal, Arvind Babulal Goyal, and Abhay Dattatray Javlekar were also allowed, and the matters were remitted to the AO for fresh consideration. Each party was ordered to bear their own costs.