2025 (8) TMI 1232 - Board - SEBI

Board clears guest expert; finds multiple noticees violated SEBI Act and PFUTP Regulations, orders disgorgement, debarment, penalties

The Board found insufficient evidence to sustain allegations against one guest expert and disposed of proceedings against that individual without penalty. ... Sharing non-public stock recommendations in advance - Non-provision of documents - non-adherence to principles of natural justice - high correlation between the trading done by the profit makers with the help of the enablers and the stock recommendations given by the guest experts - fraudulent scheme - SCN issued against 15 entities under the provisions of Sections 11(1), 11(4), 11(4A),11B(1) and 11B(2) - penalty under Section 11B (2) and 11(4A) read with Section 15HA - violations of SEBI Act, 1992 and PFUTP Regulations - Disgorgement, joint-and-several liability and effect of settlements - whether Mr. Himanshu Gupta was involved in sharing of non-public information with the other ‘guest experts’ and with the ‘profit makers’ before the same was aired on Zee Business. HELD THAT:- To support the allegation levelled against Mr. Himanshu Gupta, neither the evidence of execution of trades in the scrips of (Tata Motors and Indiacem) on the date of the recommendation, nor the evidence of communication regarding the scrip ‘PNB 42 CE’ from Mr. Himanshu Gupta to SCPL and MSPL is available. The SCN also does not bring forth any prior arrangement between Mr. Himanshu Gupta and other entities be it Profit Makers, Enablers or Guest Experts. Thus, considering the totality of the facts and circumstances, I am constrained to disagree with the findings in the SCN against Mr. Himanshu Gupta for the reason that the material available on record is insufficient to prove the allegations against Mr. Himanshu Gupta. Thus the proceedings initiated against him are liable to be disposed of without any direction or penalties. It is noted that both Partha Sarathi Dhar and Manan Sharecom initiated their Buy orders at 10:35:24 Hrs and 10:39:47 Hrs, respectively, just before the broadcast of the recommendation on Zee Business at around 10:42 AM. Further, the limit sell orders were placed by Partha Sarathi Dhar at 10:41:56 Hrs and by MSPL between 10:41:35 Hrs and 10:44:13 Hrs i.e. around the time when the relevant recommendation was being aired on the news channel. Thus, they knew about the impending recommendation and also knew that once recommendation is made, share price would go up. Hence, limit sell order(s) was strategically placed at higher price which were executed after the recommendation was telecast and price rose following the recommendation. The systematic artifice to exploit the impact of the recommendations of Guest Experts on a nationally broadcasted news channel by taking prior positions and subsequently squaring them off at beneficial prices, cannot, by any reasonable standard, be characterized as rooted in good faith. The profit makers did not make profits out of good fortune but by malicious design. Accordingly, the arguments in this regard are rejected as being without merit and contrary to the established facts. In response to the allegations made in the SCN, the Noticees in their submissions, have merely made unsubstantiated denials without bringing out any specific material to dispute the veracity of the evidences brought out in the SCN. This, in my view, in the totality of the facts and circumstances discussed hereinabove, leads to an indubitable conclusion that the conduct of the Noticees was fraudulent in terms of regulation 2(1)(c) of the PFUTP Regulations and in violation of the provisions of law mentioned in the SCN. Thus, the necessary ingredients to attract the rigour of said regulation are inducement, dealing in securities and artificially interfering in the price/volume of the securities through any means. As, it is already established above, the act of sharing of advance information by the guest experts and the subsequent trading by the profit makers, had all the necessary ingredients to attract the provisions of Regulation 4(2)(d). Hereby direct that the Noticees namely, Partha Sarathi Dhar, SAAR Commodities Private Limited, Manan Sharecom Private Limited and Kanhya Trading Company are debarred from accessing the securities market and are prohibited from buying, selling and otherwise dealing in the securities market, directly or indirectly, in any manner whatsoever, for a period of two years. The said debarment period shall be reckoned from the date of the Interim Order dated February 08, 2024. To conclude, based on the discussion above, I find that Partha Sarathi Dhar, SCPL, MSPL and KTC have violated provisions of Sections 12A(a), 12A (b), 12A(c) and 12A(e) of SEBI Act, Regulations 3 (a), 3(b), 3(c), 3(d), 4(1) and 4(2)(d) of SEBI (PFUTP) Regulations. Hereby impose the penalties on the Noticees. ISSUES PRESENTED AND CONSIDERED 1. Whether principles of natural justice were violated by denial/partial provision of inspection material and whether the documentary record furnished was adequate for adjudication. 2. Whether the guest expert (remaining Noticee) was culpable of sharing non-public recommendations in advance and thereby liable under Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations (fraud/market abuse). 3. Whether the Profit Makers and associated entities (including corporate accounts) engaged in dealing while in possession of non-public information, inducement or fraud and thereby violated Sections 12A(a)-(e) of the SEBI Act and Regulations 3(a)-(d), 4(1) and 4(2)(d) of the PFUTP Regulations. 4. Whether the alleged unlawful gains/disgorgement direction remains actionable given concurrent settlement by certain co-noticees and whether joint-and-several impounding/disgorgement against multiple noticees is maintainable. 5. Appropriate remedial measures and quantum of penalty/directions (debarment, monetary penalty) to be imposed under Sections 11, 11A/11B and 15HA read with Section 15J factors. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Natural justice / Document inspection Legal framework: Principles of natural justice require provision of documents/materials relevant to allegations; reliance on T. Takano and Reliance Industries decisions for extent of disclosure in SEBI proceedings. Precedent treatment: The Court applied the standards in T. Takano and Reliance - inspect and supply documents relevant to the charge while protecting confidential third-party material. Interpretation and reasoning: SEBI provided the Investigation Report and annexures relating to the noticee and conducted two inspections; documents relating solely to third parties, search/seizure panchnamas and confidential extracts were withheld for confidentiality and non-relevance. The noticee failed to demonstrate how any non-provision caused prejudice or to justify a roving/fishing inquiry. Ratio vs. Obiter: Ratio - adequate disclosure is measured by relevance to the noticee's defence and non-disclosure of unrelated third-party confidential material does not breach natural justice. Obiter - list-by-list justification for withheld documents. Conclusion: No violation of principles of natural justice; inspection contention rejected. Issue 2 - Liability of the guest expert (single remaining noticee) Legal framework: Sections 12A of SEBI Act and Regulations 3, 4 of PFUTP; concept of 'non-public' or material information and definition of 'fraud' under Regulation 2(1)(c); standard of proof by preponderance for civil regulatory action. Precedent treatment: Reliance on Supreme Court authority (Kanaiyalal Baldevbhai Patel) for scope of PFUTP, definition of inducement, and standard of proof; prior SEBI/SAT orders referenced regarding high threshold for fraud allegations in some contexts. Interpretation and reasoning: The SCN relied largely on circumstantial material (third-party chats, limited references to the noticee, a WhatsApp mention of show timings and one recommendation sample). The Court examined timing, call records, trade logs and found absence of (a) identifiable flow of information from the noticee to profit makers; (b) proximate trades executed by profit makers in the scrips linked to the noticee's broadcast; and (c) direct evidence of profit-sharing or receipt of kickbacks. Professional acquaintance among guest experts was held to be expected and not determinative. Where the SCN lacked evidence of communication or causation for key instances (e.g., PNB 42 CE, Tata Motors/Indiacem date), the circumstantial matrix was insufficient to meet the requisite civil standard taking into account the defence presented. Ratio vs. Obiter: Ratio - where allegations rest primarily on circumstantial evidence, regulatory findings require sufficient and probative linkage (communication + trading consequence) to fasten liability; mere mention in third-party chats or professional association is insufficient. Obiter - observations on expected professional networking and limits of inference from sparse call history. Conclusion: Material is insufficient to establish violation against the guest expert; proceedings disposed without directions or penalties and interim directions ceased to operate. Issue 3 - Liability of Profit Makers and corporate accounts (four remaining noticees) Legal framework: Sections 12A(a)-(e) SEBI Act; Regulations 3(a)-(d), 4(1) and 4(2)(d) PFUTP; definition of fraud (inclusive) and inducement; SEBI's power to prohibit and impose monetary penalties under Sections 11, 11B and 15HA; Section 15J factors to be considered when quantifying penalties. Precedent treatment: Reliance on Kanaiyalal (Supreme Court) regarding object/purpose of PFUTP, inducement analysis, mens rea not indispensable and standard of proof by preponderance; regulatory authorities' prior practice on disgorgement and joint liability acknowledged. Interpretation and reasoning: SEBI adduced: (a) contemporaneous WhatsApp chats showing advance sharing by guest experts (other than the excused guest expert) to profit makers; (b) trade logs showing buy orders initiated shortly before broadcast and sell orders executed around/after broadcast; (c) statistical analyses showing pronounced price and volume movements at broadcast times; (d) evidence of interconnections between entities (common directors, shared trading terminals, enabler support); and (e) chats/admissions and artifacts indicating profit-sharing among participants (excluding the exonerated guest expert). The Court found a natural and reasonable inference that profit makers would not have entered those trades but for the advance information, and that the arrangement created systematic information asymmetry that induced investors and disrupted ordinary market forces. The acts fell within the inclusive definition of 'fraud' and Regulation 4(2)(d) (inducement/artificially affecting price by paying/offering money). The preliminary disgorgement computation became academic because the aggregate unlawful gains were already impounded/deposited pursuant to settlement by other parties; but individual unlawful gains remained a relevant factor for penalty assessment per Section 15J(a). Ratio vs. Obiter: Ratio - proven sharing of advance non-public recommendations coupled with proximate trading by profit makers and market impact satisfies PFUTP fraud/inducement provisions without requiring proof of deceit; mens rea is not essential. Obiter - comments on breadth of 'dealing in securities' and fiduciary expectations of media-facing experts. Conclusion: The four noticees violated Sections 12A(a),(b),(c),(e) and Regulations 3(a)-(d), 4(1) and 4(2)(d). Appropriate directions (two-year debarment) and monetary penalties imposed in exercise of statutory powers, considering disgorgement already effected and other mitigating factors. Issue 4 - Disgorgement, joint-and-several liability and effect of settlements Legal framework: SEBI's impounding/disgorgement powers under Section 11(4)/(4A)/11B and settlement regulations; effect of settlements on continued enforcement; use of disgorged amounts in assessing penalty under Section 15J. Precedent treatment: Settlements accepted by SEBI resulted in deposit of alleged unlawful gains in escrow; settled parties obtained closure of proceedings against them. Interpretation and reasoning: Because aggregate unlawful gains were impounded/deposited via settlement orders for multiple co-noticees, further direction for disgorgement against the remaining noticees on the same amount would be infructuous. Nonetheless, quantum of individual unlawful gain (as earlier calculated) remains relevant as a factor for penalty assessment. Joint and several impounding was directed earlier by SEBI but where settlement has led to payment, redundant disgorgement orders need not be pursued; the Court declined to re-open settled obligations but treated prior deposits as mitigating in penalty determination. Ratio vs. Obiter: Ratio - settled disgorgement renders further identical disgorgement claims against remaining parties academic; settled payments are a mitigating factor for penalty. Obiter - observations on joint/several impounding mechanics in multi-party schemes. Conclusion: Disgorgement direction qua the already settled aggregate became infructuous; settlements considered mitigating in penalty calculation for remaining noticees but do not preclude imposition of independent penalties on those found culpable. Issue 5 - Remedial measures and quantum of penalty Legal framework: Sections 11(1), 11(4), 11B(1), 11(4A), 11B(2), read with Section 19 and Section 15HA (penalty range) and Section 15J (factors) of the SEBI Act empower restraint, disgorgement and monetary penalties. Precedent treatment: Application of Section 15J factors (disproportionate gain, loss to investors, repetitiveness) and two-year market access prohibitions as proportionate remedies to protect market integrity. Interpretation and reasoning: Having established violations by the four noticees, the Court balanced aggravating factors (magnitude of unlawful gains per SCN, market impact, systematic scheme) and mitigating factors (disgorgement already effected via settlement, partial settlements by authorized signatories, debarment period already ongoing since the interim order). The Court imposed two-year debarment (from interim order date) and monetary penalties in specified amounts that reflect the statutory range and Section 15J considerations; the guest expert was exempted from any direction or penalty. Ratio vs. Obiter: Ratio - where fraud/inducement causing market impact is established, SEBI may impose debarment and monetary penalties calibrated by unlawful gains and mitigating circumstances under Section 15J; settlements and prior disgorgement are mitigating. Obiter - administrative directions regarding implementation and payment mechanics. Conclusion: Two-year debarment and specified penalties imposed on the culpable Profit Makers; directions regarding payment timing and operational compliance ordered; proceedings against the exonerated guest expert disposed of without penalty.