2025 (11) TMI 1355 - AT - SEBI

Delay condoned; conditional stay on SEBI disgorgement and penalty over YouTube alleged market tips granted

Gaurav Gupta & Ors. Versus Securities and Exchange Board of India

The AT condoned a 12-day delay in filing the appeal concerning SEBI's disgorgement and penalty order related to alleged market manipulation via ... Condonation of delay - No reasons recorded while computing disgorgement - date of commencement for the alleged illegal activities/ operation - modus operandi - spurt in the trading volume and concomitant increase in the price of the scrip - Appellants submitted that SEBI ought to have considered the date on which the YouTube videos were uploaded and calculated from that date or day or two prior thereto, whereas the SEBI has considered the price as it existed prior to the investigation period commencing from March 4, 2022. HELD THAT:- Delay of 12 days is condoned. We are at the stage of admission of the appeal and passing an interim order. There are several appeals arising out of the order impugned in this appeal. In all other cases we have directed to deposit 50% of the penalty and disgorgement amount as a condition to stay of recovery. Thus, we are prima facie of the view that there is no reason for us to deviate in this case. Accordingly, we direct that there shall be stay of recovery subject to deposit of 50% of the penalty and disgorgement amount within four weeks from today. Stay is disposed of. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the delay of 12 days in filing the appeal warranted condonation. 1.2 Whether exemption sought in the connected application should be granted. 1.3 For the purpose of interim relief, what is the appropriate benchmark date/period for computation of disgorgement in a case involving alleged stock price manipulation through misleading YouTube videos and related trading activity. 1.4 Whether, at the admission stage, recovery of the penalty and disgorgement amount should be stayed, and if so, on what conditions. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Condonation of delay in filing the appeal (Issue 1.1) Legal framework 2.1.1 The Tribunal proceeded on the basis of its statutory power to condone delay in filing an appeal upon being satisfied with the reasons furnished, applying the general principles governing 'sufficient cause' for condonation of delay. Interpretation and reasoning 2.1.2 The Tribunal recorded that it had considered the reasons stated in the application for condonation of delay and found them adequate to justify condonation of a 12-day delay in filing the appeal. 2.1.3 The short duration of the delay and the Tribunal's terse order indicate that the delay was treated as neither inordinate nor prejudicial and that the explanation met the threshold of 'sufficient cause'. Ratio vs. Obiter 2.1.4 The finding that the reasons were sufficient to condone a 12-day delay constitutes the ratio for allowing the condonation application in this matter, though the order is fact-specific and does not lay down any broader proposition. Conclusions 2.1.5 Delay of 12 days in filing the appeal was condoned and the application for condonation of delay was allowed; the related miscellaneous application was disposed of. 2.2 Grant of exemption in the connected application (Issue 1.2) Legal framework 2.2.1 The Tribunal exercised its procedural jurisdiction to grant exemption as sought in a miscellaneous application (nature of exemption not elaborated in the order). Interpretation and reasoning 2.2.2 Upon considering the application, the Tribunal allowed the exemption without recording detailed reasons, indicating that the relief was procedural and uncontroversial at this stage. Ratio vs. Obiter 2.2.3 The decision is confined to the facts and does not expound any general rule; it forms a narrow ratio restricted to the permissibility of the specific exemption in this appeal. Conclusions 2.2.4 The exemption application was allowed and the corresponding miscellaneous application was disposed of. 2.3 Benchmark date/period for computation of disgorgement: prima facie assessment at admission stage (Issue 1.3) Legal framework 2.3.1 The controversy pertains to the proper basis for computation of disgorgement in a case of alleged market manipulation, particularly the selection of the relevant period and reference price of the scrip. The Tribunal considered this only at a prima facie level for the purpose of interim relief. Submissions of the appellant 2.3.2 The appellant argued that: (a) No reasons were recorded in the impugned order while computing disgorgement. (b) Appellant No. 1 had not traded in 'Patch-1'. (c) The charge in the show cause notice was that the modus operandi involved posting misleading videos/content on specified YouTube channels to induce investors to invest in shares of a particular company, which led to increased trading volume and price. (d) On this basis, disgorgement should have been computed by reference to the date when the YouTube videos were uploaded (14 July 2022, as per SEBI), taking the share price on that date or a day or two prior, up to 30 November 2022. (e) SEBI, however, computed disgorgement by considering the price as it existed before the investigation period commencing on 4 March 2022, when the price was as low as Rs. 2.76, which the appellant contended was impermissible and disconnected from the alleged manipulative activity linked to the YouTube videos. (f) Reliance was placed on the graph described in paragraph 15 of the impugned order to support the contention that March 2022 prices should not have been taken as the base. Submissions of the respondent (SEBI) 2.3.3 The respondent contended that: (a) As per paragraphs 49 to 60 of the impugned order, the alleged illegal activities commenced from March 2022. (b) Paragraph 50 recorded that Rs. 10 lakh was transferred from one individual to another to start the operation, indicating that preparatory and trading activities related to the alleged manipulation began in March 2022. (c) Between March and July 2022, the promoter group traded with entities associated with one of the alleged operators and other promoter-related entities. (d) Accordingly, SEBI's selection of March 2022 as the starting point for computing the relevant base price for disgorgement was supported by recorded findings in the impugned order. Tribunal's prima facie assessment 2.3.4 The Tribunal examined paragraph 50 of the impugned order and acknowledged that it recorded the transfer of Rs. 10 lakh as the seed money to start the operation, thereby supporting SEBI's case that the alleged operation commenced in March 2022. 2.3.5 The Tribunal identified the central point for consideration as whether the value of shares for disgorgement purposes should be taken as it existed in March 2022 or July 2022, i.e., before the alleged preparatory/related-party trades or around the date of uploading of the YouTube videos. 2.3.6 It noted that SEBI had recorded reasons for computing the value of shares as it existed in March 2022 and that these findings were strongly contested, thereby revealing a substantial, arguable issue on the merits of the disgorgement computation methodology. Ratio vs. Obiter 2.3.7 The Tribunal expressly stated that it was at the stage of admission and interim order, and confined itself to a prima facie appreciation. It did not render a final determination as to which benchmark date or method was legally correct. 2.3.8 Any observations regarding the commencement of the alleged operation in March 2022, or the competing contentions on March 2022 versus July 2022 pricing, are prima facie and in the nature of obiter for interim purposes, not a binding ratio on the merits. Conclusions 2.3.9 The Tribunal held that there exists a contestable and substantial issue as to whether the March 2022 share price or a date closer to the YouTube uploads in July 2022 should be adopted for calculating disgorgement, which will require detailed examination at the final hearing. 2.3.10 This contested issue, read with SEBI's recorded reasons in the impugned order and the appellant's contrary arguments, justified granting conditional interim protection rather than any immediate interference with the methodology of disgorgement computation. 2.4 Interim stay of recovery of penalty and disgorgement - conditions imposed (Issue 1.4) Legal framework 2.4.1 The Tribunal exercised its incidental and inherent powers to grant interim relief pending appeal, balancing the principles of: (a) Existence of a prima facie case; (b) Balance of convenience; and (c) Irreparable harm or prejudice, along with considerations of parity and consistency with orders in connected matters. Precedent / Consistency with connected matters 2.4.2 The Tribunal recorded that several other appeals arise from the same impugned order. 2.4.3 In all such connected cases, the Tribunal had already directed the appellants to deposit 50% of the penalty and disgorgement amount as a condition for stay of recovery. 2.4.4 The Tribunal noted that, having regard to these prior conditional stay orders, there was, prima facie, no justification to deviate in the present appeal, given the commonality of the impugned order and similarity of the relief sought. Interpretation and reasoning 2.4.5 After hearing both sides and considering the contested nature of the disgorgement computation (see Issue 2.3), the Tribunal recognized the existence of an arguable case on merits. 2.4.6 However, in view of the ongoing regulatory proceedings and the need to maintain consistency and protect the regulatory interest, the Tribunal balanced the competing equities by: (a) Granting a stay of recovery of the penalty and disgorgement; but (b) Making such stay conditional upon the appellant depositing 50% of the penalty and disgorgement amount within a specified period. 2.4.7 To safeguard the appellant's interest during pendency of the appeal, the Tribunal directed SEBI to place the deposited amount in an interest-bearing account, thereby preserving the value of the deposit and providing a measure of restitution if the appellant ultimately succeeds. Ratio vs. Obiter 2.4.8 The core ratio decidendi is that, in appeals arising from a common impugned order involving serious regulatory allegations, conditional stay of recovery upon partial deposit (50% of the amount) is an appropriate interim arrangement when a prima facie case exists but the issues are contested and require full hearing. 2.4.9 The reference to prior orders in connected appeals serves primarily as a consistency and parity rationale, functioning as supporting reasoning rather than an independent ratio. Conclusions 2.4.10 The Tribunal admitted the appeal. 2.4.11 Recovery of the penalty and disgorgement amount was stayed, subject to the appellant depositing 50% of the total penalty and disgorgement within four weeks. 2.4.12 SEBI was directed to keep the deposited amount in an interest-bearing account. 2.4.13 The miscellaneous application for stay was disposed of accordingly, and the matter was posted for further hearing on a specified future date by consent.