2023 (8) TMI 1702 - AT - SEBI

Market manipulation requires specific evidence of collusion or orders above prevailing LTP; mere buying does not suffice, appeal allowed.

Whether trading in a listed scrip constituted market manipulation under Section 12A(a),(b),(c) of the SEBI Act read with Regulations 3 and 4 PFUTP: the ... Trading in the scrip - Market manipulation - making misleading appearance of trading - failure to prove collusion or motive - connection through fund transfers - Violation of Section 12A(a),(b),(c) of the SEBI Act, 1992 read with Regulation 3 and Regulation 4 of the SEBI. Market manipulation - making misleading appearance of trading - Regulations 3 and 4 of PFUTP Regulations - Whether the trading activity of the appellants amounted to manipulation or creation of a misleading appearance of trading in violation of Regulations 3 and 4 of the PFUTP Regulations. - HELD THAT: - The Tribunal examined the material on record and the AO's findings that the eight appellants were net buyers, contributed significantly to positive Last Traded Price and New High Price, and had acquired a substantial shareholding. The Tribunal held that mere continuous buying on the exchange, even if it results in increased prices or a high share of buy quantity, is not itself a crime or proof of manipulation. The AO had not established that the appellants placed buy orders above LTP or otherwise executed trades that directly created the positive LTP/NHP; the finding that appellants 'contributed' to LTP/NHP was held to be based on surmise and conjecture. Further, the AO's asserted motive - that appellants were creating artificial demand to provide exit to certain large shareholders - was unsupported by evidence. In the absence of cogent evidence of manipulative conduct, meeting of minds, or a proven transactional mechanism producing the alleged misleading appearance, the Tribunal concluded that the material did not establish violations of Regulations 3 and 4. [Paras 14, 15, 16, 18, 19] The trading activity of the appellants did not establish market manipulation or creation of a misleading appearance of trading under Regulations 3 and 4. Connection through fund transfers - failure to prove collusion or motive - HELD THAT: - The Tribunal accepted that noticees 1 to 5 had loan and fund transactions with the Company and promoters, and that noticees 1 to 5 had fund transactions with noticees 6 to 8. However, the Tribunal found no material to show that noticees 6 to 8 were connected to the Company or its promoters; any indirect linkage through noticees 1 to 5 was insubstantial. The AO's reliance on broader allegations involving many other noticees (not party to the impugned order) lacked specific findings and evidence and was therefore odious and irrelevant. The allegation that funds transferred to noticees 1 to 5 were forwarded to brokers to settle trading, a central plank of the collusion theory, was not examined or substantiated by the AO. In the absence of proof of meeting of minds, collusion, or a transactional chain demonstrating motive, the purported connections and fund transfers did not establish culpability. [Paras 6, 12, 13, 17] The asserted connections and fund-transfer evidence do not establish collusion or intent to manipulate; the AO's reliance on those linkages is unsustainable. Final Conclusion: The material before the AO did not establish manipulative trading, misleading appearance of trading, or collusion by the appellants; the impugned adjudication finding violations of Regulations 3 and 4 is quashed and the appeals are allowed. Issues: Whether the appellants, by their trading in the scrip of PMC Fincorp Ltd., violated Section 12A(a),(b),(c) of the SEBI Act, 1992 read with Regulation 3 and Regulation 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.Analysis: The Tribunal examined the material relied upon by the Adjudicating Officer including trading volumes, price rise, holdings, alleged fund transfers and the AO's findings on connection and motive. The Tribunal found that mere continuous buying on the exchange, acquisition of large public shareholding and accounting for a significant portion of buy quantity do not per se constitute fraudulent conduct under the PFUTP Regulations. The AO's findings that the appellants contributed to positive last traded price and new high price were held to be speculative in the absence of specific findings that buy orders were placed above the prevailing LTP or evidence of collusion or meeting of minds with exiting shareholders. The Tribunal also found that alleged connections to other entities relied upon by the AO were either irrelevant to the appellants or unsupported by findings, and that the asserted motive (to provide exit to large shareholders at inflated prices) was not established by admissible evidence.Conclusion: The material on record does not establish violation of Section 12A(a),(b),(c) of the SEBI Act, 1992 read with Regulation 3 and Regulation 4 of the PFUTP Regulations by the appellants. The impugned order is quashed and the appeals are allowed; no order as to costs.