2025 (8) TMI 1232 - Board - SEBI

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

In Respect of: Partha Sarathi Dhar, SAAR Commodities Private Limited, Manan Sharecom Private Limited, Kanhya Trading Company and Himanshu Gupta

In Respect of: Partha Sarathi Dhar, SAAR Commodities Private Limited, Manan Sharecom Private Limited, Kanhya Trading Company and Himanshu Gupta - TMI 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.