TaxTMI 
TaxTMI 
TaxTMI 
2021 (2) TMI 1362
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....ities and Exchange Board of India Act, 1992 (hereinafter referred to as "SEBI Act, 1992") and SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as "PFUTP Regulations, 2003"). 2. It was observed during the investigation that trading in the scrip of the Company was suspended with effect from November 15, 1999 on account of noncompliance of Listing Agreement and the same was revoked by the stock exchange with effect from July 01, 2011. During the course of investigation, the price volume data in the scrip of the Company was analyzed and it was noticed that the scrip opened at a price of Rs.5.25 on May 03, 2012 and increased to a level of Rs.269.70 (closing price) on September 10, 2013. Subsequently, there was a stock split of existing equity shares of the Company in the ratio of 1:10 with effect from November 22, 2013. Investigation further noticed that subsequent to the stock split, the price of the scrip of Rutron opened at Rs.24.45 and thereafter fell down and closed at Rs.7.3 on November 28, 2014. 3. Based on price-volume movements noticed in the scrip of the Company, the Investigation Period has ....
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.... the 3 Noticees have contributed Rs.201.97 towards the market positive Last Traded Price (hereinafter referred to as "(+) LTP / positive LTP") which constituted 96.49% of contribution to the net positive LTP of the scrip observed during Patch-1 of the Investigation Period. c) Investigation also noticed that in spite of the fact that the trading system displayed buy orders for larger quantities of the scrip being available in the market, the 3 Noticees herein kept placing their sell orders for very small quantities i.e. 5-10 shares only on a repeated basis in each of their transactions always at prices higher than the LTP just to match the price of the pending buy orders, which contributed substantial rise in the price of the scrip of Rutron. It was also witnessed that the 3 Noticees were holding substantial quantities of shares of the Company before executing these 115 trades and despite holding abundant quantity of shares, they released very small number of shares in a controlled manner and matched their sell orders with the existing positive LTP contributing buy orders, mostly by offering shares in the range of 5 shares on a given trading day. d) Based on the aforesaid findin....
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.... LTP during Patch-3 in the scrip of Rutron. It is again noticed that the six Noticees while executing 201 such intra-group trades, Noticee nos. 3, 5 and 8 were on the seller side and other 3 Noticees viz. Noticee nos. 6, 7, and 10 were playing the role of counter party buyers. j) Based on the aforesaid findings, investigation noted that the aforesaid six Noticees (Noticee nos. 3, 5, 6, 7, 8 and 10) while acting in concert as a group during Patch-3 of the Investigation Period, have also created a misleading appearance of trading in the scrip. 6. Investigation noticed that the aforesaid trading pattern followed by the above noted 14 Noticees during various Patches of Investigation period, was prima facie aimed at creating an artificial and misleading appearance of trading in the scrip in the minds of the investors of Securities Market and other market participants. Keeping in view the afore said factual findings, it has been alleged that the aforesaid trades executed by the Noticee nos. 12, 13 and 14 during Patch-1, by the Noticee nos. 1, 2, 3, 4, 9 and 11 during the Patch-2 and also the trades of Noticee nos. 3, 5, 6, 7, 8 and 10 during Patch-3 of the Investigation period were no....
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....rinciple of natural justice, an opportunity of personal hearing was accorded to all the Noticees and a date of hearing was fixed on 26.08.2020. I note from the records that the hearing notices were served on all the Noticees through post / email / newspaper publication. However, on the said date of hearing, Authorized Representatives (AR) appeared on behalf of Noticee nos. 4 and 8 and represented their case. Further, karta of Noticee no. 11 appeared on behalf of its HUF and made submissions. However, no one appeared on behalf of the other Noticees. In this regard, I note that the letter intimating the hearing notice as well as the newspaper publication contained an email address at which, Noticees could have contacted SEBI for communicating anything with respect to their attendance or inability to attend the personal hearing, however, from the materials available before me, I don't see any request from any of the remaining Noticees requesting for more time or adjournment of personal hearing having been received by SEBI so far. Under the circumstances, in my opinion the matter is ripe enough to be proceeded with based on the materials available on record, including the written repli....
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....r, she held very miniscule i.e. 0.92% of the shares of CFL. Further, such shares of CFL were sold long back in the open market between October, 2013 to December, 2013. Moreover, no action has been initiated against Mr. Anil in this matter, and the SCN fails the test the principles of equity and is also against the Article 14 of Constitution of India. h) Noticee has advanced the argument that the allegation of her connection with the other allegedly connected group entities is misconceived and without any basis. In this regard, Noticee has relied upon the observations of Hon'ble Supreme Court in the case of Canara Bank vs. Debasis Das (200) 4 CC 557. i) Based on evidence, no connection of Noticee with counterparties / buyers of her trades during Patch-2 of the Investigation Period is established. j) Noticee has sold around 5 lakhs shares in the scrip of Rutron and out of those total number of 5 lakh shares, 2,66,908 shares were alleged to be bought by other Noticees and only 15,615 shares have been alleged as manipulative. Therefore, 96.88% of trading of Noticee is not considered as manipulative. Hence, the allegation on the remaining 3.12% of total trades in shares of the Com....
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....d July 2014 and the Noticee has incurred loss of Rs.64.27 lakhs by selling those shares. e) The total trading volume in the scrip of Rutron during the Investigation period was 10,23,62,427 shares. Therefore, Noticee's trading volume involving the alleged 3000 shares i.e. only 0.0029% of the total market volume is exceedingly miniscule which tantamount to NIL percentage, hence too small to warrant any serious charge of fraudulent and unfair trade practice. f) Further, the contribution of negative LTP of Rs.0.08 through the alleged 3 sell trades involving 3000 shares by the Noticee, is very miniscule and does not warrant serious allegation of fraudulent and unfair trade practice. g) The alleged sell orders were placed around 3 pm, however, the buy orders were already available in the stock exchange's system from around 09:18 am. As the Noticee has matched its sell orders with the available buy orders in the system, no adverse inference should be drawn against the Noticee for the same. h) The SCN has not been able to adduce any evidence for the loss incurred by investors or unfair gains made by any person including the Noticee in case of the allegation that the Noticee has all....
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....sues and Findings 11. Considering the allegations leveled against the Noticees in the SCN based on the findings of investigation, the explanations offered by the Noticees to the allegations made in the SCN through their written replies and after hearing some of them personally, I find that in this case, the following issues require consideration: * Issue 1: Whether the Noticees are connected entities. * Issue 2: Whether the acts of the Noticee nos. 12, 13 and 14 during Patch-1 of the Investigation period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003. * Issue 3: Whether the acts of the Noticee nos. 1, 2, 3, 4, 9, and 11 during Patch-2 of Investigation Period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003. * Issue 4: Whether the acts of the Noticee nos. 3, 5, 6, 7, 8 and 10 during Patch-3 of Investigation Period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regul....
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....ral directions given as and by way of clarifications without going into the merits of the case. Therefore, directions given in the facts of Price Waterhouse cannot be said to be the ratio laid down by the Apex Court applicable to all other case". Similarly, in the case of UP vs. Shatrunghan Lal (supra) referred to by the Noticee no. 8, I note that the documents which were referred to in the charge- sheet to draw strength relying thereon, were as evidence in support of articles of charges, were essential to be furnished to the accused and non-furnishing of those documents to the accused would have resulted in causing a grave prejudice thereby vitiating the proceedings. However, in the instant matter, it is noted that the documents which have been relied upon while making allegations in the SCN have already been furnished to the Noticees as annexures to the SCN and inspection of such documents have also been provided to Noticee nos. 4 and 8, in order to ensure fair opportunity to them and to avoid any prejudice Therefore, the contentions of non-furnishing of the copy of the IR by SEBI does not need to be seen with impunity as no prejudice has been shown to have caused to the Noticees....
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....sideration. 15. I note that Noticee no. 4 has advanced an argument stating that the hearing notice in the captioned matter was served upon her through newspaper publication, which cannot be treated as a substitute to a notice personally served upon a party. In this regard, I note from the records available before me that the SCN was served upon the Noticee no. 4 on the last address available in the records i.e. "Chenab Textile Mills, P.O. Kathua, Jammu, Jammu and Kashmir, 184102"and Noticee no. 4 while replying to the SCN vide her letter dated April 03, 2018 had informed SEBI regarding her new correspondence address viz: "C/2801, Oberoi Woods, Mohan Gokhale Road, Goregaon (East), Mumbai-400063". Further, Noticee no. 4 vide her letter dated November 01, 2019 had communicated with SEBI from the aforesaid new address in response to which communication was also sent by SEBI vide letter dated December 23, 2019 at the aforesaid new address. Subsequently, the hearing notice to Noticee no. 4 was sent to the same new address of the Noticee, but the said hearing notice could not be served on her at the said address given by her. Thereafter, considering the Covid-19 pandemic restrictions, as....
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..... 5 and Noticee no. 11. I also note that Noticee no. 3 is connected to the Company in terms of bank transactions with the Company. Similarly, certain Noticees were connected to each other on the basis of fund transactions with common entities. For instance, Noticee nos. 1, 2 and 3 had financial transaction with a common entity viz. Keshav Madhav Enterprise. Similarly, Noticee nos. 3 and 5 are connected on the basis of financial transaction with a common entity viz: Manmade Fibres Pvt. Ltd. With regard to connection on the basis of common Directors, I note that one Bhavna Manish Tivadi (DIN-07227596) was a Common Director in Noticee nos. 3 and 8. Similarly, Noticee nos. 9 and 10 have a common Director namely, Debi Prasad (DIN-6528550). On the basis of common addresses, I note that Noticee no. 12 shares a common address i.e. "18, Chandra Nagar, Gopalpura, Jaipur, Rajasthan", with Noticee no. 2. Similarly, as per the UCC details available on record, I note that Noticee nos. 3 and 6 share common address "34a, Metcalfe, St 4th Floor, R N 4f, Kolkata, 32, 85, 700013". Further, Directors of Noticee nos. 1 and 2 shared common address. I further, note that Noticee no. 13 received physical s....
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.... directorship, common address, fund transactions, off-market transactions, etc., while the remaining Noticees share connections amongst themselves by virtue of being connected to other connected group entities as referred to above, who have not been proceeded with in the instant proceedings. Be that as it may, the common factors for imputing connection amongst the Noticees, either directly or through the other connected group entities, are observed to be based on certain undisputable facts such as sharing of common directors, common address, fund transactions, off-market transactions, etc. 19. I note that some of the Noticees have contended that their banking transactions with other Noticees including the connected group entities as mentioned in Annexure 2 to the SCN were purely commercial in nature. However, none of these Noticees has submitted any documentary evidence in support of the said contention. For instance, Noticee no. 3 has contended that its transaction with the Company and Mr. Anil (one of the connected group entities) was related to repayment of loan / advance. However, no underlying independently verifiable document has been provided by the said Noticee to support ....
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....icee no. 3 and Noticee no. 8. Further, the records available before me also indicate that alongwith Noticee no. 4, Mr. Anil was also a Director in CFL. Considering the aforesaid blood relationship between them, it can be reasonably concluded that the Noticee no. 4 was connected to other Noticees through her brother and other connected group entities. 22. Some of the Noticees have contended that no proceedings have been initiated against some other connected group entities including Mr. Anil Agarwal and in the absence of proceedings against those other connected group entities, the instant proceedings deserve to be dropped as it would not serve any purpose. In this respect, it is a trite law to state that in the quasi-judicial proceedings, the adjudicator is bound within the realms of the show cause notice before him. In the instant case, after examining the role of other connected group entities, if SEBI has found that it is not necessary to proceed against them, the same logic cannot be suo moto as a matter of right, extended to the Noticees in this proceedings, more particularly, when these Noticees have not submitted any explanation with supporting document to substantiate that....
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....idence that the trades executed by them were mere coincidences without there being any commonality between the Noticees and their trading pattern do not in the scrip of Rutron do not suggest for abnormality. In view of the above and in absence of any material contrary to the allegations, I find that it can be reasonably concluded that the Noticees are enjoying close proximities as well as close connection amongst themselves. Issue 2: Whether the acts of the Noticee nos. 12, 13 and 14 during Patch-1 of the Investigation period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003? 24. I note that in the SCN, the acts of the Noticees of indulging in manipulative trades by contributing to positive as well as negative LTP in the scrip of Rutron, repeatedly during different patches of the Investigation period, have been alleged to have violated various provisions of PFUTP Regulations, 2003. Therefore, before moving forward on this issue, it would be proper to visit the afore-stated provisions alleged to have been violated in the SCN. The said provisions are produced hereunder for r....
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....0 44 265 122.2 44 265 0 0 0 0 0 58.413 56.4695 Vandana Sharma 61.92 49 400 61.92 48 395 0 0 0 1 5 29.59847 28.61368 Asha Sharma 17.85 23 201 17.85 23 201 0 0 0 0 0 8.532505 8.248614 Total of 3 Noticees 201.97 116 866 201.97 115 861 0 0 0 1 5 96.49 93.33 Market Total 209.20 157 5811 216.40 128 1431 -7 105 1 28 4275 100 100 26. From the table no. 3 presented above, it is noted that during the Patch-1 period, the 3 Noticees have cumulatively executed 116 trades and out of these 116 trades, through 115 trades executed by them, they have contributed a total amount of positive LTP of Rs.201.97 which is 96.49% of the net market positive LTP of Rs.209.20 and 93.33% of the total market positive LTP of Rs.216.40, as witnessed in the trading of the scrip of Rutron during the said period. I also observe from the above table that such net positive LTP of Rs.201.97 was contributed by the above noted group of 3 Noticees by way of trading in only 861 shares, which is just 14.81% of the total shares traded (5811 shares) in the scrip of Rutron during the Patch-1 of the Investigation Period. The aforesaid trading volumes wherein gro....
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.... 16.71 0.79 4.96 400 10 10 16. 27-Jul-12 VANDANA SHARMA 9:15:00 15:09:32 5:54:32 17.54 17.54 17.54 0.83 4.97 900 5 5 17. 30-Jul-12 VANDANA SHARMA 9:15:00 14:11:57 4:56:57 18.41 18.41 18.41 0.87 4.96 400 5 5 18. 01-Aug-12 VANDANA SHARMA 9:15:01 13:47:34 4:32:34 19.3 19.3 19.3 0.89 4.83 2000 5 5 19. 06-Aug-12 VANDANA SHARMA 9:16:25 14:30:46 5:14:21 20.25 20.25 20.25 0.95 4.92 2000 5 5 20. 07-Aug-12 VANDANA SHARMA 9:15:00 15:14:10 5:59:10 21.25 21.25 21.25 1 4.94 1200 5 5 21. 10-Aug-12 ASHA SHARMA 9:15:00 13:28:24 4:13:24 22.3 22.3 22.3 1.05 4.94 900 5 5 22. 16-Aug-12 ASHA SHARMA 9:15:00 13:40:35 4:25:35 22.7 22.7 22.7 0.4 1.79 400 5 5 23. 22-Aug-12 VANDANA SHARMA 9:15:00 12:42:52 3:27:52 23.6 23.6 23.6 0.45 1.94 500 5 5 24. 27-Aug-12 ASHA SHARMA 9:15:00 14:17:29 5:02:29 24.05 24.05 24.05 0.45 1.91 1000 5 5 25. 28-Aug-12 VANDANA SHARMA 9:15:00 15:20:53 6:05:53 24.5 24.5 24.5 0.45 1.87 1100 5 5 26. 30-Aug-12 ASHA SHARMA 9:15:00 15:21:53 6:06:53 24.95 24.95 24.95 0.45 1.84 200 5 5 27. 31-Aug-12 VANDANA SHARMA 9:15:00 15:28:23....
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....:35 6:04:35 40.15 40.15 40.15 0.75 1.9 300 10 10 52. 01-Nov-12 ASHA SHARMA 9:15:00 15:16:01 6:01:00 40.95 40.95 40.95 0.8 1.99 4000 15 15 53. 02-Nov-12 VANDANA SHARMA 9:15:00 13:52:47 4:37:47 41.75 41.75 41.75 0.8 1.95 600 10 10 54. 06-Nov-12 ASHA SHARMA 9:15:00 12:21:39 3:06:39 42.55 42.55 42.55 0.8 1.92 100 5 5 55. 08-Nov-12 ASHA SHARMA 9:15:00 14:51:34 5:36:34 44.65 44.65 44.65 2.1 4.94 2000 5 5 56. 09-Nov-12 VANDANA SHARMA 9:15:00 10:21:13 1:06:13 46.85 46.85 46.85 2.2 4.93 500 5 5 57. 12-Nov-12 VANDANA SHARMA 9:15:00 11:28:37 2:13:37 49.15 49.15 49.15 2.3 4.91 500 10 10 58. 13-Nov-12 ASHA SHARMA 15:45:01 15:51:13 0:06:12 51.6 51.6 51.6 2.45 4.98 1000 11 11 59. 16-Nov-12 VANDANA SHARMA 9:15:00 12:21:46 3:06:46 54.15 54.15 54.15 2.55 4.94 200 5 5 60. 19-Nov-12 VANDANA SHARMA 9:15:00 15:28:04 6:13:04 56.85 56.85 56.85 2.7 4.99 300 10 10 61. 21-Nov-12 VANDANA SHARMA 9:15:01 11:10:28 1:55:27 59.65 59.65 59.65 2.8 4.93 100 5 5 62. 22-Nov-12 VANDANA SHARMA 9:15:00 15:07:24 5:52:24 62.6 62.6 62.6 2.95 4.95 4900 5 5 63. 23-....
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....-12 MADAN LAL 9:15:00 12:17:03 3:02:03 121.3 121.3 121.3 2.35 1.98 1500 5 5 88. 01-Jan-13 MADAN LAL 9:15:00 15:00:29 5:45:29 123.7 123.7 123.7 2.4 1.98 500 5 5 89. 02-Jan-13 MADAN LAL 9:15:00 15:19:36 6:04:36 126.15 126.15 126.15 2.45 1.98 100 5 5 90. 03-Jan-13 MADAN LAL 9:15:01 14:24:43 5:09:43 128.65 128.65 128.65 2.5 1.98 2000 5 5 91. 04-Jan-13 MADAN LAL 9:15:00 14:12:09 4:57:09 131.2 131.2 131.2 2.55 1.98 2000 5 5 92. 07-Jan-13 MADAN LAL 9:15:00 15:11:05 5:56:05 133.8 133.8 133.8 2.6 1.98 1000 5 5 93. 08-Jan-13 MADAN LAL 9:15:01 15:05:34 5:50:34 136.45 136.45 136.45 2.65 1.98 500 5 5 94. 10-Jan-13 MADAN LAL 9:15:00 13:03:48 3:48:48 139.15 139.15 139.15 2.7 1.98 500 5 5 95. 11-Jan-13 MADAN LAL 9:15:02 15:13:58 5:58:56 141.9 141.9 141.9 2.75 1.98 100 5 5 96. 14-Jan-13 MADAN LAL 9:15:01 15:00:26 5:45:25 144.7 144.7 144.7 2.8 1.97 500 5 5 97. 15-Jan-13 MADAN LAL 9:15:00 14:25:57 5:10:57 147.55 147.55 147.55 2.85 1.97 1000 5 5 98. 16-Jan-13 MADAN LAL 9:15:00 13:18:19 4:03:18 150.5 150.5 150.5 2.95 2 500 5 5 99. 17-Jan....
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.... These trades were executed only because the 3 Noticees chased those buy orders pending in the system, with their respective sell orders for miniscule quantities. In the absence of sell order of the Noticees, the pending buy order would not have been executed in the normal course of trading as all of these pending buy orders were seen to have been executed only with the sell orders of the Noticces offering small quantities of shares on those trading days. Though the buyers had placed their buy orders much ahead of the sell orders at a price higher than LTP, I note that there was no seller in the scrip on those dates available in the market with whom such buy orders could have matched on those days. I find that contention of the 3 Noticees that their sell orders should not be see with impunity, are not seen justified for the reason that the placing sell order in isolation may not be sufficient to see any abnormality in the order, however, the undisputed fact of the 3 Noticees indulged in such acts of placing sell order on continuous basis, wherein they are found to be sufficient to be held as abnormal having the potential to creating misleading appearances, in the absence of any pla....
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....antities on a continuous basis over a period of time. Details of the quantities of shares held by these 3 Noticees and the bifurcation of the quantities of shares offered by them in different trades are tabulated below: Table 5: Bifurcation of trades of 3 Noticees on the basis of Quantity of shares sold Sl. No Seller Name Total No. of trades (LTP >0) Total no. of orders (LTP>0) No. of instances with sell order of 5 shares No. of instances with sell order of 15 shares or less Positive LTP contribu tion (Rs.) % of positive LTP to Total Market positive LTP No. of shares held before these trades (NSDL/ CDSL Statements) Balance no. of shares held after LTP trades in Patch 1 (NSDL/ CDSL Statements) 1 Madan lal 44 44 35 9 122.20 56.47 400 0 2 Vandana Sharma 48 48 36 12 61.92 28.61 400 90 3 Asha Sharma 23 23 11 12 17.85 8.25 200 0 Total 115 82 33 201.97 93.33 1000 90 30. I note from table no. 5 above, that out of the 115 trades of 3 Noticees alleged to have contributed to the market positive LTP in the scrip, in 82 trades the quantities sold by these 3 Noticees were 5 shares per such trade. Therefore, in 71% of the....
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....ill the Noticees placed their sell orders for tiny quantities at the pending bid prices so as to execute those LTP contributing trades. No justifiable explanations have been offered to explain the rationale and logic behind such a pattern of trading adopted by the 3 Noticees. These 3 Noticees have not furnished any information as to whether they have also bought any shares of the Company in that bullish market so as to consolidate their holding of shares of the Company nor have they justified their action as to on what basis they were happy in selling shares in an upwardly rising market for the shares of the Company. The intent of the Noticees for indulging into unfair and manipulative trades further gets exposed from the fact that all the 3 Noticees have bought shares on the same day i.e. 18/05/2012 and all of them have also bought those shares through off market transactions. 31. The investigation has noticed that the scrip of Rutron was under suspension over a long period of 12 years and the suspension was revoked in July 2011. Trading in the scrip witnessed continuous rise from Rs.5.25 from May 03, 2012 and reached a level of Rs.269.70 on September 10, 2013. The Company had no....
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....e / reasoning for executing such abnormal trades on 23 times which have resulted in contributing LTP to the price of the scrip. 33. Interestingly, on a further analysis of the trade data presented in the above mentioned table no. 4 of this Order, it is observed all the aforementioned 115 trades executed by the 3 Noticees during the Patch-1 were executed on different trading days which means, none of the 3 Noticees who has contributed to the positive LTP of the scrip, has traded jointly with any other Noticee on the same trading day. It shows how those trades were executed on different trading days by different Noticees apparently by taking turns one after another, in a manner that exposes that the 3 Noticees have traded in the scrip under a pre decided scheme by taking individual turns on various trading days. Thus even if the records do not indicate connection of Noticee no. 14 with other Noticees contrary to the allegation in the SCN, considering the commonalities and apparent common intent displayed by the 3 Noticees in acquiring shares through off market mode, selling those shares immediately after the acquisition in small quantities by chasing the pending buy orders and none ....
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....in the system cannot be considered as manipulative in itself. However, looking at the pattern of trading done by the appellants and the fact that the appellants have derived considerable financial benefit through that particular scheme or nature of trading we are of the view that the trading pattern adopted by the appellants is of a manipulative and unfair nature and would squarely fall within the ambit of the PFUTP Regulations.......... This behavior cannot be justified in terms of normal rational expectations of a seller." 34. I further note that since the quantities sold by each of the 3 Noticees were very few, their individual contribution to the positive LTP in the scrip of Rutron was most of the times in the range of 1% to 5% in a single trade. Thus, the individual contribution to positive LTP in every trade in the scrip of Rutron was not normal to be ignored since the cumulative impact of all such individual contributions has ultimately resulted in contribution of 96.49% of positive LTP to the net positive LTP and contribution of 93.33%to the total positive LTP in the scrip of Rutron. The uncanny similarity in their approach while selling shares of the Company strongly sign....
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....lations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003? 37. During the Patch-2 of the Investigation Period (February 12, 2013 to November 21, 2013), the price of the scrip moved from Rs. 218.60 to Rs. 243.00, thereby registering an increase of Rs. 24.30 (11.11%) in the price of the scrip and a total contribution of market positive LTP of Rs. 318.40. I note that the SCN has alleged that by executing manipulative and unfair trades, the 6 Noticees viz. Noticee nos. 1, 2, 3, 4, 9 and 11 through their 64 trades had contributed to positive LTP of Rs.16.85 (5.26% of total market positive LTP) in the scrip of Rutron during Patch-2 of the Investigation Period. SCN has further alleged that out of the said group of 6 Noticees, Noticee nos. 1, 2, 3 and 9 were acting as buyers while Noticee nos. 4 and 11 were the sellers / counterparties to such alleged trades that contributed to positive LTP in the scrip of Rutron during Patch-2 of the Investigation Period. Therefore, the impact of such trades on the LTP of the scrip during Patch-2 of the Investigation Period needs to be examined. In this regard, details of po....
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....nished any reasoning for executing such abnormal trades with the other connected entities. In this regard, I would like to refer to the observations of Hon'ble SAT, in the matter of Classic Credit Ltd. vs. SEBI (Appeal No. 68 of 2003, DoD-08.12.2006), wherein it was inter alia, observed that "....... the appellants did not file any reply to the second show-cause notice. This being so, it has to be presumed that the charges alleged against them in the showcause notice were admitted by them". 41. Moving on to the argument of Noticee no. 4 with respect to her trades executed in the scrip of Rutron, she has taken a plea that the total volume in the scrip of Rutron during the Investigation period was 10,23,62,427 shares. Therefore, Noticee's trading volume of 15,615 shares i.e. only 0.02% of the total market volume is exceedingly miniscule to attract any serious charge of fraudulent and unfair trade practice and price manipulation. It is pertinent to note here that the charge on Noticee no. 4 is of contributing to the positive LTP in the price of the scrip of Rutron during the Patch-2 of the Investigation Period and not during the entire Investigation Period as projected by the Noticee....
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....already been exonerated by the Respondent" In the instant matter, the counter party to Noticee 2 Hon'ble SAT in the matter of M/s Nishith Shah (HUF) vs. SEBI (Date of Decision: 16.01.2020, Appeal 97 of 2019) "....the Tribunal held that the charge of raising price artificially has to be established and the element of collusion between the buyer and the seller is a sine quo non. We are in the entire agreement with the aforesaid decisions and reiterate that in the absence of any finding of collusion between the buyer and the seller the charge contributing to the LTP cannot be sustained." no. 4 has already made parties to the SCN. 3 Hon'ble SAT in the matter of Narrotam Gandhi vs. SEBI (Date of Decision: 21.01.2020, Appeal 225 of 2019) Observations of Hon'ble SAT In the instant case, we find that the investigation report itself indicates that there is no connection between the appellants, with the buyer, promoter or with the company. In the absence of any connection between the seller and the buyer, the appellants could not be charged with manipulating the scrips nor the trading pattern of the appellants could infer manipulating the price of the scrip. 4 SEBI WTM order ....
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....s Karta (Mr. Jugal) in CFL. Noticee no. 11 has further contended that its Karta (Mr. Jugal) was appointed as a Director of the CFL on August 02, 2014, i.e. nearly one and half years after it carried out trades in scrip of Rutron. I have gone through the records available before me and find that the alleged trade was executed by Noticee no. 11 on March 22, 2013, whereas, he was appointed as Director in CFL with effect from August 02, 2014. In this regard, I note that though there is no dispute that Mr. Jugal (Karta of Noticee no. 11) became the Director of CFL after the alleged trades were executed by him, the fact that the connection of the Noticee no. 11 is established with other connected group entities on the basis of said Directorship also remains undisputed. I further note that Noticee no. 11 has disputed its fund transaction with Noticee no. 5 as alleged in the SCN and has contended that it has opened and operated only one bank account with HDFC Bank bearing no "10531930003644". However, I note from the bank account statement of Noticee no. 5 available before me that there was indeed a fund transfer of Rs.5 lacs from Noticee no. 5 to HDFC Bank Account of Noticee no. 11. In th....
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....h was constituting just 0.46% of the total number of trades (14038) executed in the scrip of Rutron during Patch-2 of the Investigation Period, the 6 Noticees have contributed 5.26% of the total market positive LTP in the said scrip. The malafide intent on the part of these 6 Noticees for marking up the price of the scrip of Rutron is further demonstrated by the peculiar trading pattern adopted and executed by the 6 Noticees in an anonymous screen based trading system wherein the buy and sell orders placed by these 6 Noticees got matched amongst themselves on a numerous occasion, which in my considered view, cannot be seen as mere coincidences of matching of orders. Instead such unusual LTP contributing trades executed amongst the connected entities strengthens the allegations made in the SCN that these trades have been deliberately executed with a fraudulent intent of manipulating the price and causing misleading appearances of trading in the scrip, thereby causing inducement to the investors at large., It is highly inconceivable that the trades of the 6 Noticees executed on an anonymous trading platform matched with their connected entities on a numerous occasions by sheer coinci....
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....nd 8 (hereinafter referred to as "seller Noticees") were acting as sellers / counterparties to the remaining 3 Noticees viz. Noticee nos. 6, 7 and 10 (hereinafter referred to as "buyer Noticees") who purchased the shares of the Company in those alleged 201 trades which contributed to negative LTP in the scrip of Rutron during Patch-3 of the Investigation Period. In this regard, details of negative LTP contribution by the trades executed by of the said six Noticees as buyers and sellers during Patch-3 of Investigation Period are tabulated below: Table 7: Details of trades by the six Noticees amongst themselves in Rutron during Patch-3 Seller Buyer Negative LTP Contribution % of Mkt Negative LTP No of Trades Qty Traded Padma Impex Pvt. Ltd. (Noticee no. 3) Astabhuja Construction Pvt. Ltd. (Noticee no. 7) - 0.05 0.07 1 3 Ramdut Infraprojects Pvt. Ltd. (Noticee no. 6) -10.06 13.79 167 48820 Ranisati Dealer Pvt. Ltd (Noticee no. 5) Helpful Investment Advisory Pvt. Ltd. (Noticee no. 10) - 0.04 0.05 1 5000 Astabhuja Construction Pvt. Ltd. (Noticee no. 7) - 0.6 0.82 5 1100 Ramdut Infraprojects Pvt. Ltd. (Noticee no. 6) - 1.91 2.62 24 66356 Comfort Intech ....
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....the six Noticees. Therefore, it becomes clear that the six Noticees were not acting as genuine buyers or sellers and had no bona fide intention to buy / sell the scrip. The negative LTP contribution made in the scrip of Rutron through their trades gives clear indications that they were executing trades lower than the LTP as if they were consciously pre-determined to cause price fall in the scrip of Rutron. It is also pertinent to note that the inter se connection observed amongst the six Noticees as already highlighted while dealing with the Issue 1 of this Order, furthers reinforces the malafide intention of these six Noticees behind engaging in such abnormal and premeditated trading pattern in the scrip of the Company that has caused decline in the price of the scrip. 52. I also note that by executing those 201 trades which constituted just 1.27% of the total number of trades (15819) executed in the scrip of Rutron during Patch-3 of the Investigation Period, the six Noticees have contributed as much as 17.46% of the total market negative LTP in the scrip. Thus it is a matter of concern that the six Noticees have contributed more than 17% of the total market negative LTP contribu....
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....h the orders of the counter parities over the period on a frequent basis are sufficient to come to a conclusion that these trades were not executed by the Noticees in the normal course of trading. In a screen based trading, there cannot be a coincidence that the orders of these six Noticees would get matched repeatedly on several occasions on an anonymous trading platform, which in itself is sufficient evidence to hold that such matching of orders did not product of genuine trades and were executed only to manipulate the price of the scrip for reasons best known to these Noticees. 54. The Noticee no. 8 has argued that the SCN has not been able to adduce any evidence for any loss incurred by any investor or any unfair gain earned by any person including the Noticee on account of the said allegation that the Noticee has contributed to the fall in price of scrip of Rutron. In this regard, I note that the present proceedings have been initiated based on alleged contribution by the Noticee no. 8to the negative LTP in the scrip of Rutron by way of executing manipulative and fraudulent intra group trades. There is no allegation against the Noticee in the SCN for making undue gains out of....
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....each other so as to distort the integrity of orderly functioning of the market mechanism hence, those unusual trades which were found to be executed amongst the connected entities in a fraudulent manner cannot be stated to have been executed in normal course of trading in securities. Moreover, keeping in view the inter se nexus amongst the six Noticees as revealed during the investigation, repeated execution of such inter se trades on an electronic platform suggests how these six Noticees have deployed a strategy to defeat the objective of even an anonymous trading platform and have successfully ensured that their orders get matched with each other as per their pre-conceived strategy to mark down the price of the scrip. Therefore, in my considered view, the alleged trades can't by any standard be categorized as trades executed in normal course of trading in securities market. 57. In this regard, I would like to rely on the observations of Hon'ble SAT in the matter of BP Comtrade Pvt. Ltd vs. SEBI (Appeal no. 189 of 2020, DoD: 20.11.2020): "A large number of sell orders were placed repeatedly on several trading dates at less than the LTP; it is illogical. Therefore, the contentio....