2026 (3) TMI 1255 - AT - SEBI

Promoter-group status and connected trading can support minimum public shareholding breach and fraudulent market conduct findings.

Promoter-group classification under the ICDR Regulations was ined by statutory definitions, shareholding links, connected fund movements and surrounding ... Fraudulent trading in illiquid scrip - Promoter group - Minimum public shareholding (MPS) norms - proportionality of debarment - low liquidity of the scrip, the large volume of inter se trades among connected persons, and the timing of the trades around the delisting exercise were treated as indicia of a scheme to project the scrip as liquid - principle of preponderance of probability. Promoter group - minimum public shareholding - HELD THAT: - The Tribunal held that, in the context of a listed company, the statutory definition of promoter group under the ICDR Regulations could not be displaced by the pleaded family arrangement. On the admitted shareholding figures, the common group of promoter shareholders held more than 20% in Stuti and Siwana while also holding more than 20% in the issuer, thereby bringing those entities within the promoter group. The Tribunal further held, on a preponderance of probability, that Vital was controlled by Ganpatraj through his sister's son, having regard to the sequence and matching of fund transfers for its acquisition. Once the holdings of these entities were included, the public shareholding fell below the prescribed threshold, and the company was therefore in breach of MPS norms. [Paras 36, 37, 38] The finding that MPS norms were violated was upheld. Fraudulent trading in illiquid scrip - reverse book building - HELD THAT: - The Tribunal accepted SEBI's case that the scrip was inherently illiquid and that a substantial part of the trading during the relevant period was inter se among connected entities. It noted that the admitted trades, particularly the large volume between Creelotex and Ganpatraj and the overall concentration of trades among the connected noticees, did not support a case of genuine market activity. Applying the principle of preponderance of probability, the Tribunal held that trading by connected persons in an illiquid scrip reasonably led to the inference that the trades were undertaken to create an appearance of liquidity and to facilitate the delisting process. [Paras 40, 41, 43] The finding of fraudulent and illegal trading for the purpose of projecting the scrip as liquid was affirmed. The Tribunal declined to reduce the consequences for those appellants whose role in the impugned trades was significant, particularly in view of the substantial inter se trading reflected in the record. However, for the remaining connected noticees, it considered the comparatively lower quantity of shares traded and the fact that the delisting had not ultimately taken place. On that basis, limited relief was granted by reducing the period of debarment. [Paras 44, 45] The debarment period was reduced for specified appellants, while the rest of the impugned findings were left undisturbed. Final Conclusion: The Tribunal upheld the findings that Riddhi Siddhi had failed to maintain minimum public shareholding and that the connected appellants had engaged in fraudulent trading to project liquidity in the scrip for delisting purposes. The penalty order in one appeal was sustained, the principal directions of the WTM were maintained, and only the period of debarment was reduced for specified appellants on proportionality. Issues: (i) Whether Riddhi Siddhi complied with the minimum public shareholding requirements; and (ii) Whether the appellants indulged in fraudulent trading in the scrip for the purpose of reverse book building.Issue (i): Whether Riddhi Siddhi complied with the minimum public shareholding requirements.Analysis: The determination turned on whether Stuti, Siwana and Vital formed part of the promoter group under the ICDR Regulations. The Court applied the definition of promoter group, including immediate relatives and body corporates holding at least 20% in the issuer and in the other entity. On the shareholding material, the promoter-linked entities held more than 20% in Stuti and Siwana, and the promoter holding in Riddhi Siddhi exceeded the prescribed threshold if those entities were included. Vital was also treated as part of the promoter group on the basis of connected fund movements and surrounding circumstances, assessed on preponderance of probability.Conclusion: Riddhi Siddhi did not comply with the minimum public shareholding norms, and this issue was decided against the appellants.Issue (ii): Whether the appellants indulged in fraudulent trading in the scrip for the purpose of reverse book building.Analysis: The trading pattern, the low liquidity of the scrip, the large volume of inter se trades among connected persons, and the timing of the trades around the delisting exercise were treated as indicia of a scheme to project the scrip as liquid. The Court held that, once the connections and trades were established, the inference of fraudulent conduct was justified on the standard of preponderance of probability. The proportionality plea was accepted only to a limited extent for some appellants, given the quantity of trades and the absence of completed delisting.Conclusion: The appellants were found to have indulged in illegal trades to project the scrip as liquid, and this issue was decided against the appellants.Final Conclusion: The challenge to the regulatory findings substantially failed, but the debarment directions were moderated for certain appellants, resulting in only partial relief.Ratio Decidendi: For determining promoter-group status and market misconduct in securities matters, the Court may rely on statutory definitions and surrounding circumstances, and may infer control or fraudulent design on the basis of preponderance of probability where the transaction pattern and connected dealings support that inference.