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 circumstances, leading to a finding that Stuti, Siwana and Vital formed part of the promoter group; on that basis, Riddhi Siddhi was held not to have met minimum public shareholding norms. In the second issue, the trading pattern, low liquidity, inter se trades among connected persons and timing around the delisting exercise supported an inference of fraudulent trading to project the scrip as liquid, assessed on preponderance of probability. The regulatory findings were substantially sustained, while debarment was moderated for some appellants.

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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.

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