AI Drafter 
TaxTMI 
TaxTMI 
2013 (10) TMI 1520
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....erred to as 'PFUTP Regulations'). FACTS OF THE CASE:-- Respondent conducted investigation in trading of scrip of Asian Star Company Limited (hereinafter referred to as 'ASCL') for period October 10, 2008 to November 20, 2008 (hereinafter referred to as 'Investigation Period' or 'IP'). Shares of ASCL are listed at Bombay Stock Exchange ('BSE'). It was observed that during investigation period price of scrip went up from Rs. 1,240.00 on October 10, 2008 to Rs. 1,306.15 on November 20, 2008 (18.57% rise in 28 trading days), and during same period Sensex had fallen by 19.73% (i.e. from 10,527.85 to 8,451.01). Subsequent to investigation period price of scrip started falling and closed at Rs. 905 on January 30, 2009. 2. Role of brokers and their clients, who traded in scrip of ASCL on BSE, was scrutinized, and it was observed certain entities found connected had allegedly indulged in circular/reversal synchronized trading, in such a manner that led to creation of artificial volume in scrip. 3. It was alleged that one of the connected entities viz., appellant trading through broker Triveni Management Consultancy Services (hereinafter re....
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.... trades thereby making the allegation of reversal/circular trades as completely baseless and fallacious. i. I strongly deny being linked with the alleged other parties who traded in the scrip of ASCL through Sunil Mehta, Ajay Roongta, Manish Mathur or Triveni and forming the alleged group i.e. Mehta group and entering into synchronized/reversal trades with these entities. My relationship with Sunil Mehta is on the basis of my submission that Sunil Mehta has opened my account with Triveni. On the basis of this relationship I am linked to various other clients of Triveni and others who have traded in the scrip of ASCL and have together formed a group. Such allegation is as vague as it can be and the same cannot be made as a basis for holding me liable for any manipulation as alleged. j. I deny that I have traded in scrip of ASCL and have executed any synchronized and structured trades and I have never been part of Mehta group and have no link/connection/nexus/with any of alleged entities. Further it is submitted that no details of trading which were in nature of reversal of trade/circular trade has been provided to me. k. That these trades were never execut....
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....ith each other fails completely. s. SCN fails to provide information as to whether orders were placed by me or at my instructions, whether I was in contact with broker or any of the counterparty, what was mode of placement of order by me, whether any funds were transferred by me to any of entities for alleged manipulation, whether I was having knowledge of any such alleged manipulative trading in my account. t. I fail to understand that how mere statement of one Mr. Sunil Mehta that he knows me for last 10-15 years can be made as basis of alleging connection of mine with alleged Mehta group. u. That there is no business or financial connection with any of alleged entity. 5. In interest of natural justice and in order to conduct an inquiry as per rule 4(3) of PFUTP Rules, appellant was granted an opportunity of personal hearing. Authorized Representative (for short 'AR') appeared for hearing on May 10, 2011 and undertook to submit further submission by May 18, 2011. AR further submitted that appellant came to know that he has traded and that his name was unauthorizedly used by the broker when SEBI Officials visited his place for recording his st....
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....ng in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:-- (a) indulging in an act which creates false or misleading appearance of trading in the securities market; (b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss; (c) .... (d) .... (e) any act or omission amounting to manipulation of the price of a security; (f) .... (g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security; FINDINGS:-- 9. Findings in connection with role of appellant on violations as alleged in the case, as follows: (a) Price of scrip opened at Rs. 1,240.00 on October 10, 2008 while it closed at Rs. 1,101.55 on the same day. Closing price of scrip on November 20, 2008 was Rs. 1306.15 (close to close 18.57% rise in 28 trading days). During same period Sensex had fallen by 19.73%....
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.... had signed as introducer iii. Sunil Mehta is the son of Usha Mehta and shares same phone number (9322123257) as well as joint bank account (HDFC Kandivali Bank account No. 01821000063096) with Usha Mehta. iv. The trading account of Usha Mehta was admittedly operated by Sunil Mehta. v. Sunil Mehta has submitted before investigation that Jitendra, Pradesh, Ajay Roongta and Manish Mathur were his friends. vi. Sunil Mehta has entered into bank account transaction with Suresh, Jitendra, Gopal Lal Mathur, Seema Mathur (Wife of Manish Mathur, CEO of the broker Triveni) and Triveni (even though Sunil Mehta did not trade through the broker Triveni in the scrip of ASCL). vii. Sunil Mehta, Usha Mehta and Jitendra were introduced to the broker Arcadia by Suresh and Pradesh. viii. Jitendra has provided email id and phone number (9322123257) of Sunil Mehta in the KYC with the broker Emkay Global and address (Evershine Millenium Park, EMP 47, Flat No. 1804, Thakur Village, Kandivali (E), Mumbai, Maharashtra, 400101) and phone number (9322123256) of Sunil Mehta in the KYC with BP Equity. Further Sunil Mehta has submitted that Jitendra was his ....
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....has also stated that he had borrowed funds from Sunil Mehta for the purpose of trading. xix. Pradesh was introduced to Bakliwal by Sunil Mehta and the address mentioned in the KYC is same as that of Sunil Mehta. xx. Rajnish Jain has submitted that he knows Sunil Mehta through a common friend Ajay Roongta. Rajnish was introduced to Bakliwal by Ajay Roongta. xxi. Ajay Roongta submitted that Sunil Mehta was introduced to him by Manish Mathur. xxii. Both Sunil Mehta and Manish Mathur have submitted that they are friends. Further, there were fund flow between Sunil Mehta on one hand and Seema Mathur and Gopal Lal Mathur, wife and father of Manish Mathur respectively, on the other hand. xxiii. A demand draft issued by Jitendra Jain in favour of Bharat Jain was deposited by Sunil Mehta in the bank account of the Notice. It can be seen from the above that the entities including the Notice are interconnected with each other. (e) Issue of involvement of appellant in manipulating scrip of ASCL is now looked into, which shows that Mehta Group was found to be entering into transactions which were in nature of reversal of trade/circu....
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....ed and SCN was issued were provided to Notice as Annexure 1 to 8 and hence all relevant documents were provided to the Notice. In SCN it was alleged that Notice, client of Triveni, was found to have entered into synchronized and structured transaction with Sunil Mehta, Jitendra Kumar Jain, Sandeep Jain, Suresh Hanswal and Arun Manohar Sakpal for 8 out of 28 trading days during investigation period with above mentioned counterparties and acted in concert with counterparties in manipulating price of the scrip. It is noticed that the effective number of counterparties was only five and all were found to be related with each other. It was not possible unless there is some understanding that almost all of trade will match with same counterparties that too in synchronized transactions over a period of time and further half of the transactions were structured trades. (i) It is seen that orders of appellant were being placed through broker Triveni whose clients were also part of Mehta group and found to be trading in a synchronized and structured manner. Triveni was found to be related to Sunil Mehta through its Chief Operating Officer, Manish Mathur. Notice before IA and before h....
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....as found to be part of whole game plan in manipulation of scrip of ASCL. 10. AO found that trades as executed by appellant were not of one instance but such transactions were carried out over a period of time. This coupled with repeated nature of such transactions clearly establishes malafide intent of appellant while entering into such transactions. It is pertinent to note that such trading patterns lead to price fluctuation and creates false appearance of trading in securities market and thereby tending to mislead the gullible investors. AO also found that during investigation period there has been significant trade volumes (with daily average at 70,000 shares) in scrip despite very low floating stock; which has come down to mere 14,392 shares at end of September 2008 quarter. AO found that at BSE price of scrip opened at Rs. 1,240.00 on October 10, 2008 while it closed at Rs. 1,101.55 on same day. Closing price of scrip on November 20, 2008 was Rs. 1306.15 (Close to close 18.57% rise in 28 trading days). During same period Sensex had fallen by 19.73% (from 10,527.85 to 8,451.01). Subsequent to the investigation period price had started to fall and closed at Rs. 905 on January....
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....ion 4(2)(g) inter alia, prohibits entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security. 14. As can be seen from the above intention of appellant was to create artificial volume in the scrip of ASCL and to influence the price of the scrip during the investigation period. Such acts of manipulative trading by appellant helped in creating artificial demand and thereby leading to a false appearance of trading in scrip of ASCL and also causing fluctuations in price of scrip of the company. Hence in light of facts of case and materials available on record, it is seen that appellant has violated provisions of Regulation 3(a), (b), (c), (d), 4(1) and 4(2)(a), (b), (e) & (g) of PFUTP Regulations. 15. Next issue for consideration is as to what would be monetary penalty that can be imposed on the Notice for violation of Regulation 3(a), (b), (c), (d), 4(1) and 4(2)(a), (b), (e) & (g) of PFUTP Regulations. The Hon'ble Supreme Court of India in the matter of SEBI v. Shri Ram Mutual Fund [2006] 68 SCL 216(SC) held that "In our considered opinion, penalty is attracted as soon as the contravention of the ....
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....ons, or abet carrying out of such transactions which are fraudulent and deceptive, should be suitably penalized for the said acts of omissions and commissions. Notice bought 57162 shares and sold 57162 shares which were manipulative trades and such trades of the Notice constituted 2.9% of the market volume and 98.11% of their own trade. With regard to repetitive nature, I find that there was substantial number of such trades repeated over a number of days during the investigation period. Hence, default of appellant was repetitive in nature. 19. After taking into consideration all the facts and circumstances of the case, penalty of Rs. 5,00,000 (Rupees Five lakh only) under section 15HA of the SEBI Act, on appellant which will be commensurate with the violations committed by him, is imposed. Analysis of findings of adjudicating officer:-- 20. From perusal of entire case, connected documents, submissions of Learned Advocates on behalf of appellant and respondent, it is admitted position that trade volumes of scrip ASCL were manipulated to show higher trading volumes; certain entities called 'Mehta Group' traded amongst each other and engaged in circular, reversal tra....
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....t all entities of Mehta Group and connected brokers, have been painted by same brush, which is not correct or desirable approach to deal with the issue. 24. In above context, it may be mentioned that each entity of Mehta Group is an individual with his/her personality, character and nature and has traded or misled into trading or ignorant of trading in ASCL scrip and has presented his or her version in reply to SCN served on him/her and factors mentioned in reply to SCN by him/her should have been taken into account, while dealing with that individual and this generic approach adopted by AO to deal with all entities of Mehta Group may not be proper and may lead to injustice, which this Tribunal has to guard against. 25. Again, it may be mentioned that generalistic approach adopted by Learned AO with all entities of Mehta Group deal with all entities in same way for proving the charges against them. Here, in fact, two generalistic approaches exist - one deal with entities who traded for themselves and also traded on behalf of other entities of the Group and second approach is to deal with entities, who had allegedly lent their names to first group - knowingly or unknowingly, t....
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....new Sunil Mehta, through whom his trading account was opened with Triveni. Hence, it may be concluded that appellant is not linked to any other entity of Mehta Group, except Sunil Mehta. 29. Appellant has also submitted that he had never traded in shares of ASCL or any other shares of any company. He has also stated that neither any order for trading in scrip of ASCL was placed by him, nor he received/made payment for sale/purchase of ASCL scrip. A perusal of account of appellant for period March 23, 2002 to August 9, 2009 does not reveals any payment/receipt for his dealing in scrip of ASCL or any other scrip during this period. A perusal of his statement of account in State Bank of Bikaner & Jaipur shows that credits of Rs. 5,17,419 and debit of Rs. 5,28,390 during this period i.e. for 6 years and 4 months, which shows that he is a person of meagre income/expenditure. 30. Regarding reporting of authorized operation of appellant's trading account by Sunil Mehta, for which it has been concluded by AO that appellant aided/abetted trading from his account by Sunil Mehta and he is equally liable for manipulation of scrip of ASCL and hence violative of PFUTP Regulations; it m....