2023 (5) TMI 1419 - AT - SEBI

Three noticees penalized for fraudulent trading practices involving artificial price inflation through synchronized orders under Section 12A

Sangeeta Kailash Purohit, Ajmera Share Trading And Private Limited, Amit Mahesh Bhatt, NSK Stocks & Commodities Private Limited, Arun Kochar, Rahul Kumar Versus Securities and Exchange Board of India, Mumbai

Sangeeta Kailash Purohit, Ajmera Share Trading And Private Limited, Amit Mahesh Bhatt, NSK Stocks & Commodities Private Limited, Arun Kochar, Rahul Kumar ... 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether noticees no. 1, 2, and 3 engaged in manipulative practices to create a misleading appearance of trading and manipulated the price of shares through minuscule trades and structured trades.Whether the off-market transactions conducted by noticees no. 1, 2, and 3 were without consideration and in violation of the Securities Contract (Regulation) Act, 1956 (SCRA) and SEBI regulations.Whether noticees no. 9, 11, and 12 were involved in structured trades that created artificial volumes and misleading appearances of trading, thereby violating SEBI regulations.Whether the penalties imposed by the Adjudicating Officer (AO) were justified and proportionate to the violations committed by the noticees.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Manipulative Practices and Misleading Appearance of TradingRelevant legal framework and precedents: The relevant legal framework includes the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations), particularly Regulations 3 and 4, which prohibit manipulative and deceptive practices in securities trading.Court's interpretation and reasoning: The tribunal found that noticees no. 1, 2, and 3 engaged in manipulative practices by trading in small quantities to create a New High Price (NHP) and misleading appearance of trading. The trades were structured in a manner that suggested a pre-determined plan and collusion among the parties.Key evidence and findings: The AO's findings showed that the buy and sell orders were placed within close proximity, indicating a structured trade pattern. The tribunal agreed with the AO's conclusion that such trading patterns could not occur by accident.Application of law to facts: The tribunal applied the PFUTP Regulations to conclude that the trading activities of noticees no. 1, 2, and 3 were manipulative and intended to create artificial volumes, thereby violating the regulations.Treatment of competing arguments: The tribunal rejected the appellants' arguments that there was no manipulation or structured trades, emphasizing the evidence of coordinated trading patterns.Conclusions: The tribunal affirmed the AO's findings that noticees no. 1, 2, and 3 manipulated the price of the scrip through small trades and structured trades.Issue 2: Off-Market Transactions Without ConsiderationRelevant legal framework and precedents: The relevant legal provisions include Section 2(i) of the SCRA, which requires spot delivery contracts for legal transactions, and the PFUTP Regulations.Court's interpretation and reasoning: The tribunal found that noticees no. 1, 2, and 3 received shares without consideration, violating Section 2(i) of the SCRA. The tribunal also noted that false information was provided by noticee no. 1, claiming the transaction was a loan.Key evidence and findings: The AO found no proof of payment for the off-market transactions, and the tribunal affirmed this finding as no arguments were made against it.Application of law to facts: The tribunal applied the SCRA and PFUTP Regulations to conclude that the off-market transactions were illegal and intended to manipulate the market.Treatment of competing arguments: The tribunal noted that no arguments were made contesting the AO's findings on this issue.Conclusions: The tribunal affirmed the AO's findings that the off-market transactions were without consideration and violated the SCRA and PFUTP Regulations.Issue 3: Involvement of Noticees no. 9, 11, and 12 in Structured TradesRelevant legal framework and precedents: The PFUTP Regulations, particularly Regulations 3 and 4, were relevant to this issue.Court's interpretation and reasoning: The tribunal found that noticees no. 9, 11, and 12 were involved in structured trades that created artificial volumes and misleading appearances of trading.Key evidence and findings: The trading pattern showed that buy orders were placed in close proximity to sell orders, indicating a coordinated effort to manipulate the market.Application of law to facts: The tribunal applied the PFUTP Regulations to conclude that the trading activities of noticees no. 9, 11, and 12 were manipulative and violated the regulations.Treatment of competing arguments: The tribunal rejected the appellants' arguments that the trades were coincidental and not synchronized.Conclusions: The tribunal affirmed the AO's findings that noticees no. 9, 11, and 12 were involved in structured trades that violated the PFUTP Regulations.Issue 4: Justification and Proportionality of PenaltiesRelevant legal framework and precedents: The SEBI Act and the principles of proportionality in imposing penalties were relevant to this issue.Court's interpretation and reasoning: The tribunal found that the penalties imposed by the AO were justified given the severity of the violations and the intent to manipulate the market.Key evidence and findings: The tribunal noted the structured trading patterns and the lack of consideration in off-market transactions as significant factors justifying the penalties.Application of law to facts: The tribunal applied the principles of proportionality to conclude that the penalties were appropriate for the violations committed.Treatment of competing arguments: The tribunal rejected the appellants' arguments that the penalties were excessive, noting the seriousness of the violations.Conclusions: The tribunal upheld the penalties imposed by the AO as justified and proportionate.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The trading pattern leads to an inference that there was a meeting of minds with a pre-determined plan and, therefore, there was a collusion between the parties.'Core principles established: The judgment reinforces the principle that structured trades and manipulative practices in securities markets are prohibited under the PFUTP Regulations and that off-market transactions must be conducted with consideration to be legal.Final determinations on each issue: The tribunal affirmed the AO's findings on all issues, concluding that the noticees engaged in manipulative practices, conducted illegal off-market transactions, and participated in structured trades that violated SEBI regulations. The penalties imposed were upheld as justified and proportionate.