2025 (8) TMI 813 - Board - SEBI

SEBI Bars Noticees for Fraudulent Price Manipulation, Freezes Rs. 11.37 Crore Illicit Gains Under PFUTP and RA Rules

In Re. : Sanjiv Bhasin And Others

In Re. : Sanjiv Bhasin And Others - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether there is a prima facie case that the conduct of the Guest Expert (Noticee No.1) and connected entities constituted manipulative, fraudulent and unfair trade practices in contravention of Section 12A of the SEBI Act, Regulations 3 and 4 of the PFUTP Regulations, and provisions of the RA Regulations. 2. Whether non-public/price-sensitive information about impending public recommendations was communicated or misused to create pre-recommendation positions and post-recommendation opposite trades, thereby attracting prohibition under Section 12A(e) of the SEBI Act and related PFUTP provisions. 3. Whether the Research Analyst / person making public recommendations violated Regulation 16(2) and Regulation 21(2) of the RA Regulations by dealing in recommended securities and failing to make required disclosures. 4. Whether dealers, trading member, advisors and the identified profit-maker entities aided, abetted or participated in the alleged scheme and thus are jointly and severally liable. 5. Whether, on the material collected, interim ex-parte relief (including impounding of alleged unlawful gains, market access restraints and preservation directions) is warranted under Sections 11, 11B and Regulation 11 of the PFUTP Regulations. 6. If interim relief is warranted, the quantum and apportionment of the amount to be impounded prima facie and the persons against whom directions ought to be issued. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Prima facie manipulation / fraud (SEBI Act §12A; PFUTP Regs 3 & 4) Legal framework: Sections 11, 11B and 12A SEBI Act; Regulations 3 and 4 PFUTP (prohibiting manipulative, deceptive, fraudulent and unfair trade practices); inclusive definition of 'fraud' under PFUTP Regulation 2. Precedent treatment: The Order relies upon and applies the guiding principles from Supreme Court and SAT jurisprudence recognizing market manipulation as interference with supply-demand, effecting artificial price/volume, and the need to protect market integrity (citing N. Narayanan, Rakhi Trading and SAT dictum on joint liability). The precedents are followed for purpose of assessing market-abuse and justifying interim measures. Interpretation and reasoning: The Investigating Authority assembled corroborative contemporaneous evidence - call / WhatsApp transcripts, CTCL/order logs, trade/price-volume charts, KYC and entity-ownership data, email/Telegram dissemination timing, client-dealer mappings and seized device data. The consistent pattern: (i) pre-recommendation accumulation in identified trading accounts via dealers; (ii) public recommendation by Guest Expert on media/communication platforms producing immediate surge in price/volume; (iii) near-immediate sell/square-off instructions to same dealers to liquidate positions; and (iv) mirror trades in dealers'/related persons' personal/associated accounts. Multiple illustrative instances (LTTS, PARAGMILK, INDIGO, SAIL, GODREJCP) provide replicable factual sequences with direct matching of call instructions to order entry times and executed trades. The activity satisfies PFUTP concepts of employing a scheme to defraud, deceptive conduct, inducing trading to artificially affect price/volume, and misuse of non-public information. Ratio vs. Obiter: Ratio - the facts establish prima facie manipulative and fraudulent conduct under Section 12A and Regulations 3 & 4 for purposes of interim action. Obiter - broader policy observations on investor trust and deterrence (though persuasive, not decisive for liability). Conclusions: Prima facie violation of Section 12A SEBI Act and Regulations 3 & 4 PFUTP by the Guest Expert and participating entities, warranting regulatory intervention. Issue 2 - Misuse/communication of non-public information (SEBI Act §12A(e)) Legal framework: Section 12A(e) (prohibits dealing while in possession of material/non-public information or communicating such information); call/CDR analysis; RA Regulations obligations for research analysts. Precedent treatment: Consistent with SEBI's supervisory approach and SAT/Supreme Court recognition that insider/NPI misuse and pre-public positioning can constitute market abuse; applied here to aggregated evidential facts. Interpretation and reasoning: Evidence shows advance clandestine placement of orders in accounts mapped to dealers and controlled/connected entities prior to public broadcast. Calls/WhatsApp demonstrate direct instruction to dealers before broadcast and direction to square-off immediately after broadcast; IIFL/Yobee/Telegram dissemination timestamps corroborate timing. Dealers and authorised signatories were privy to instructions and mirrored trades. This constitutes possession and transmission of material non-public information and its use to trade for profit, contrary to §12A(e). Ratio vs. Obiter: Ratio - prima facie NPI misuse established by temporal and transactional linkage; Obiter - discussion on technical modalities of NPI dissemination. Conclusions: Prima facie breach of §12A(e) by those who took positions on advance knowledge and those who received or acted on such information. Issue 3 - Research analyst / public recommender obligations (RA Regulations 16(2), 21(2)) Legal framework: Definition of 'research analyst' (Reg.2), limitation on trading by research analysts (Reg.16(2)), requirements for disclosures on public media (Reg.21(2)). Precedent treatment: The Regulations are applied strictly to prevent conflicts where research/recommendations are used to profit by the recommender or associates; the Order treats the Guest Expert as falling within the regulatory scope despite being engaged as consultant/guest. Interpretation and reasoning: The Guest Expert was associated with a registered Research Analyst entity and routinely gave buy/sell recommendations on media and IIFL platforms. Evidence shows he either instructed or placed trades through dealers before recommendations and sold after broadcast, without making required disclosures or observing blackout restrictions. Thus prima facie contravention of Reg.16(2) (dealing in recommended securities within prohibited window) and Reg.21(2) (failure to disclose status/financial interest when making public recommendations). Ratio vs. Obiter: Ratio - prima facie contraventions of RA Regulations by the recommender; Obiter - policy comments about reputation and investor reliance. Conclusions: Guest Expert prima facie violated RA Regulations; associated intermediaries and authorised persons who enabled the trades are implicated. Issue 4 - Liability of dealers, trading member, advisors, profit-makers; joint & several liability Legal framework: SEBI Act §11B (power to direct disgorgement), §27 (company officers' liability), PFUTP Regulation 4(2)(d) (inducing others to deal), and general principles of joint tortfeasor liability. Precedent treatment: SAT authority recognizing joint and several liability where actors combine in a common manipulative scheme is applied (SRSR Holdings v. SEBI). The Order follows that approach for prima facie allocation. Interpretation and reasoning: Ownership/control/shareholding analyses, client-dealer mapping, CTCL terminal assignments, call records, WhatsApp/chats, profit sheets, and evidence of fund transfers/meetings link advisors, promoters, dealers and profit-maker entities to coordinated conduct. Some directors/promoters acted as enablers by authorising trades in controlled entities and by permitting dealers to accept instructions from the Guest Expert. Dealers misused access to client trading information and mirrored trades for personal profit. The Accounts of profit-makers show concentrated trading through the trading member, consistent with facilitation. Given the common plan, joint and several liability is prima facie appropriate for impounding unjust gains. Ratio vs. Obiter: Ratio - prima facie joint and several responsibility of actors in the scheme for disgorgement/impounding; Obiter - on degrees of culpability among nominal directors where no evidence of active participation exists. Conclusions: Dealers, trading member and connected advisors/beneficiaries are prima facie joint tortfeasors and potentially liable for disgorgement/other regulatory directions. Issue 5 - Necessity and scope of interim ex-parte relief (impounding, market access restraints, preservation) Legal framework: SEBI Act §§11, 11B (interim directions/disgorgement), Regulation 11 PFUTP (interim measures), SEBI's power to protect investors and prevent dissipation of alleged unlawful gains pending inquiry. Precedent treatment: Prior SAT decisions and judicial guidance (e.g., Amalendu Mukherjee v. SEBI) endorse interim impounding to preserve assets and prevent frustration of eventual relief - relied upon and followed. Interpretation and reasoning: The Order finds urgency: (i) demonstrable, substantial alleged ill-gotten gains (aggregate ~Rs.11.37 Crore) traceable to matching trades; (ii) covert profit-sharing and cash/non-banking fund transfers between principal actors; (iii) risk of dissipation of proceeds if no interim restraint; (iv) strong public interest in market integrity and investor protection. Given the cogent prima facie evidence and difficulty in tracing funds across informal channels, an impounding direction by requiring fixed deposits with lien, market access restraints for identified persons, preservation of records and prohibition on debits/transfers (subject to permitted closings and settlement) is proportionate and necessary. Ratio vs. Obiter: Ratio - interim ex-parte directions are justified to preserve amounts and prevent dissipation pending adjudication; Obiter - broader statements on deterrence and investor education. Conclusions: Interim ex-parte measures (impounding of Rs.11,37,19,170 jointly and severally by named noticees; market access restraints; preservation and non-debit directions; limited exceptions for client funds and position square-offs) are warranted prima facie and proportionate. Issue 6 - Quantum and apportionment of impoundment; calculation methodology Legal framework: SEBI's disgorgement and disgorgement-adjacent powers under §11B (including the statutory explanation authorising disgorgement directions) and Regulation 11 PFUTP. Precedent treatment: SAT jurisprudence on joint tortfeasor apportionment and the use of prima facie calculations to determine interim impoundment is applied; the Order follows accepted practice of computing gains from matching trades for interim relief. Interpretation and reasoning: The Investigating Authority computed ill-gotten gains based on matching trades (pre-recommendation accumulation and post-recommendation square-off) across cash and derivatives, using exchange trade logs and executed prices. The aggregate amount of matching-trade gains identified is Rs.11,37,19,170. The Order apportions joint-and-several impounding based on role (mastermind, enablers, dealers, profit-makers) and the trading/ownership structure; the table sets out prima facie allocation for interim fixation (subject to final adjudication). Ratio vs. Obiter: Ratio - the amount identified is a reasoned prima facie computation for interim impounding; Obiter - detailed apportionment is provisional and subject to audit/defence at inquiry. Conclusions: The impounded quantum and the listed joint-and-several apportionment are justified on the evidence for interim preservation; final disgorgement and precise allocation remain subject to due process. OVERALL CONCLUSION On the preponderance of the collected factual and documentary material, the Court/Tribunal concluded there is a strong prima facie case that the Guest Expert and multiple connected persons: (i) created pre-public positions, (ii) induced market impact by public recommendations, (iii) directed opposite trades to monetise the induced movement, and (iv) shared and received proceeds - conduct amounting prima facie to manipulation, fraud and misuse of non-public information, and contravening RA Regulations. Interim ex-parte relief (impounding of identified unlawful gains, market access restraints and preservation directions) is warranted and proportional to protect investors and preserve assets pending adjudication; the findings and calculations are provisional and serve as the basis for issuance of show-cause directions and further proceedings.