TaxTMI 
TaxTMI 
2021 (2) TMI 1362
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....lation, if any, of the provisions of Securities 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Company was suspended with effect from November 15, 1999 on account of noncompliance of Listing Agreement and the same was revoked by the stock exchange with effect from July 01, 2011.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....
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....ntities viz. Noticee no. 12, Noticee no. 13 and Noticee no. 14 (hereinafter referred to as "3 Noticees") together have sold 866 shares of Rutron in 116 trades. Out of 115 such trades involving trading of only 861 shares, 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 o....
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....cuting 201 trades inter se amongst themselves at prices lower than LTP, a group of six Noticees herein viz. Noticee nos. 3, 5, 6, 7, 8 and 10 (hereinafter referred to as "six Noticees") have contributed to a price fall of Rs.12.74 i.e. 17.46% of the total market negative 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 fi....
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.... responded to him by stating that all the documents that have been relied upon in the SCN have already been provided to him hence, a further requisition of a copy of entire Investigation Report by him is unwarranted and not relevant to his case . Subsequently, in compliance with the principle 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....
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.... received. In the absence of receipt of such documents, Noticee has not been able to prepare a comprehensive reply. g) With regard to her connection alleged in the SCN, the Noticee has admitted that Mr. Anil is her brother and by virtue of that relationship, she was included in the category of promoter and promoter group in Comfort Fincap Limited (CFL). However, 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. ....
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....icee company and had never been involved in the business decisions. His role as an Independent Director was limited and restricted to the extent of attending board meetings and he was never involved in day to day management of the Noticee. d) Noticee had purchased 24,500 shares of Rutron at a price of Rs.267 per share in April 2013. After waiting for more than one year, since the price of the scrip did not rise as per the expectation, those shares were sold in and around 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) ....
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....e counter party: • Hon'ble SAT in the matter of HB Stockholdings vs. SEBI (Date of Decision: 27.08.2013, Appeal 114 of 2012) • Hon'ble SAT in the matter of M/s Nishith Shah (HUF) vs. SEBI (Date of Decision: 16.01.2020, Appeal 97 of 2019) • Hon'ble SAT in the matter of Narrotam Gandhi vs. SEBI (Date of Decision: 21.01.2020, Appeal 225 of 2019) • SEBI WTM order in the matter of First Financial Services dated 02.04.2018. • SEBI WTM order in the matter of Confidence Finance and Trading Limited dated 31.12.2018. Consideration of Issues 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....
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....the respondents. The authors of such statements (recorded during investigation), which are to be relied upon (against the respondents), shall be offered for cross-examination to the respondents. Only thereupon, it will be permissible to rely upon the same." 13. I note that while referring to the aforesaid observations of the Hon'ble Supreme Court in matter of Price Waterhouse (supra), the Hon'ble SAT in the matter of B. Ramalinga Raju vs. SEBI (Appeal No. 286 of 2014) (DoD: 12.05.2017), inter alia, has clarified that "Apex Court in case of Price Waterhouse has specifically recorded that the directions given in that case are general 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....
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.... material available on record, I note that relevant information which have been relied upon from the Investigation Report, had already been provided either in the SCN or as annexures to the SCN. Further, as highlighted above inspection of such documents have already been granted on August 23, 2018. Noticees have not explained as to how non-furnishing of those documents or portions of IR which have not been relied upon in the SCN, have caused prejudice to their interest in the present proceedings. Considering the foregoing, I find the contentions of the Noticees to be unfounded and unjustified and hence, do not require any further consideration. 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 ....
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....ve caused to her, hence the issues raised by her on the issue of service of notice lacks any merit and does not require any further consideration. Issue 1: Whether the Noticees are connected entities. 17. The SCN has proceeded on to allege that the all Noticees were part of a set of connected group entities and have enjoyed connections with each other and the said inter se connection was based on common addresses, common shareholder-ship, financial transactions, common directorship and common address of directors, etc. For instance, Noticee no. 5 is a shareholder in Noticee no. 3 and there are financial transactions between Noticee no. 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 Director....
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....alleged based on the analysis of the KYC/ UCC details, details on the MCA website, offmarket transfers and bank account statements of each of the Noticees. In fact, I find that the analysis of the aforesaid details has imputed connection amongst a larger set of connected group entities (referred to as "Group-1 entities" in the SCN), out of which 14 entities have been made part of the instant proceedings apparently due to their inter se close nexus coupled with their trading in a concerted manner as described above, and hence they are being suitably termed as Noticees. Some of these Noticees are directly connected to each other based on common 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, fu....
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....in the shares of the Company during the Investigation Period so as to adjudicate if the trading activities of these Noticees possessed elements sufficient to hold them as manipulative or fraudulent trades falling within the ambit of alleged provisions of PFUTP Regulations, 2003. 21. With regard to the contention of Noticee no. 4 that her name was included in the category of promoter and promoter group in CFL by virtue of her relationship with one Mr. Anil (admittedly her brother), it is pertinent to note that she has not disputed her directorship in the CFL. In fact, she has admitted that Mr. Anil is her brother who was directly connected to Noticee 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 aga....
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...., these Noticees have not brought any specific instance to my attention which are factually identical or similar to that of the entities so as to stake a claim that they also ought to have been exonerated from the instant proceedings. Considering the foregoing, I reject this contention of the Noticees in limine and do not find it necessary to further deal with this contention. 23. Considering the aforesaid and the fact that these entities are found to be connected to each other and almost all of their trades have been entered with the connected entities and from their unusual trading pattern in the scrip of the Company, it cannot be stated with confidence 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 ....
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....rity 25. It has been alleged in the SCN that the Noticee nos. 12, 13 and 14 have executed artificial and manipulative sell trades in the scrip of Rutron during Patch-1 of the Investigation Period. The details of such trades executed by these 3 Noticees and their impact on the LTP of price of scrip of Rutron are tabulated below: Table 3: Trading by the 3 Noticees during Patch-1 LTP analysis in Patch-1 Noticee Name All trades (+ve) LTP (-ve) LTP (0 )LTP % of Negative LTP to Net Market Negative LTP % of Negative LTP to Total Market Negative LTP LTP impact No of trades QTY traded LTP impact No of trades QTY traded LTP impact No of trades QTY traded No of trades QTY traded Madan lal 122.20 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 Tot....
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.... 14:05:48 4:50:48 9.81 9.81 9.81 0.46 4.92 50 5 5 6. 05-Jul-12 VANDANA SHARMA 9:15:00 13:50:27 4:35:27 10.3 10.3 10.3 0.49 4.99 500 5 5 7. 09-Jul-12 VANDANA SHARMA 9:15:00 14:14:40 4:59:40 10.81 10.81 10.81 0.51 4.95 500 5 5 8. 10-Jul-12 VANDANA SHARMA 9:15:00 9:29:20 0:14:20 11.35 11.35 11.35 0.54 5 5000 5 5 9. 11-Jul-12 VANDANA SHARMA 9:15:00 11:39:41 2:24:40 11.91 11.91 11.91 0.56 4.93 2000 5 5 10. 16-Jul-12 VANDANA SHARMA 9:15:00 14:41:22 5:26:22 12.5 12.5 12.5 0.59 4.95 400 5 5 11. 18-Jul-12 VANDANA SHARMA 9:15:00 11:02:02 1:47:02 13.12 13.12 13.12 0.62 4.96 500 10 10 12. 20-Jul-12 VANDANA SHARMA 9:15:01 14:05:10 4:50:10 14.45 14.45 14.45 0.68 4.94 2000 5 5 13. 24-Jul-12 VANDANA SHARMA 9:15:00 14:36:41 5:21:41 15.17 15.17 15.17 0.72 4.98 500 5 5 14. 25-Jul-12 VANDANA SHARMA 9:15:00 15:10:00 5:55:00 ....
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.... VANDANA SHARMA 9:15:00 15:29:06 6:14:06 28.45 28.45 28.45 0.55 1.97 500 5 5 34. 12-Sep-12 ASHA SHARMA 9:15:00 15:28:43 6:13:43 29 29 29 0.55 1.93 1000 5 5 35. 14-Sep-12 VANDANA SHARMA 9:15:00 14:58:37 5:43:37 29.55 29.55 29.55 0.55 1.9 1000 5 5 36. 20-Sep-12 ASHA SHARMA 9:15:00 15:14:51 5:59:51 30.1 30.1 30.1 0.55 1.86 200 15 15 37. 24-Sep-12 VANDANA SHARMA 9:15:00 13:50:55 4:35:55 30.7 30.7 30.7 0.6 1.99 1000 20 20 38. 27-Sep-12 ASHA SHARMA 9:15:00 13:06:26 3:51:26 31.3 31.3 31.3 0.6 1.95 2000 5 5 39. 03-Oct-12 ASHA SHARMA 9:15:00 13:47:34 4:32:34 31.9 31.9 31.9 0.6 1.92 500 15 15 40. 08-Oct-12 VANDANA SHARMA 9:15:00 15:25:18 6:10:18 32.5 32.5 32.5 0.6 1.88 1000 5 5 41. 09-Oct-12 ASHA SHARMA 9:15:00 15:10:35 5:55:35 33.15 33.15 33.15 0.65 2 800 10 10 42. 11-Oct-12 VANDANA SHARMA 9:15:00 13:48:39 4:....
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.... 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-Nov-12 VANDANA SHARMA 9:15:00 15:21:17 6:06:17 65.7 65.7 65.7 3.1 4.95 200 10 10 64. 26-Nov-12 VANDANA SHARMA 9:15:00 14:57:54 5:42:54 68.95 68.95 68.95 3.25 4.95 200 5 5 65. 27-Nov-12 VANDANA SHARMA 9:15:00 13:27:40 4:12:40 72.35 72.35 72.35 3.4 4.93 100 5 5 66. 29-Nov-12 VANDANA SHARMA 9:15:00 13:42:12 4:27:12 75.95 75.8 75.95 3.6 4.98 300 5 5 67. 30-Nov-12 VANDANA SHARMA 9:15:00 14:16:22 5:01:22 79.7 79.7 79.7 3.75 4.94 1500 5 5 68. 03-Dec-12 VANDANA SHARMA 9:15:00 15:13:48 5:58:48 83.65 83.65 83.65 3.95 4.96 500 5 5 69. 04-Dec-12 VANDANA SHARMA 9:15:00 15:11:03 5:56:03 85.3 85.3 85.3 1.65 1.97 500 5 5 70. 05-Dec-1....
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.... 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 13:1....
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....sitive LTP in the scrip of Rutron, all the sell orders were placed by the 3 Noticees only on the above listed trading dates, while chasing the corresponding buy orders resultantly trades that got executed after the Noticees placing their sell orders, were in fact the first trade of those respective trading days. It is also observed from the details presented in the above table that out of those 115 alleged trades, trades executed by Noticee nos. 12, 13 and 14 were 48, 44 and 23 respectively and all of such trades contributed LTP to the scrip of the Company. 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 ....
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.... of shares offered by them in their sell orders was most of the times placed in single digits. I further note from the materials available on record that all the 3 Noticees have acquired their shares through off market transaction and further, out of these 3 Noticees, the two Noticees i.e. Noticee no. 12 (Vandana Sharma) and Noticee no. 13 (Madan Lal) have received their shares of the Company from connected group entities with whom they were sharing the common addresses. As noted above, these 3 Noticees have executed sell trades by offering shares in small quantities 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/....
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....iscule quantities just to match the prices of the buy orders pending in the system. The sequencing of buy & sell orders and the trading pattern followed in these trades clearly show that the 3 Noticees have placed their sell orders not on business prudence but only with a view to inflate the price of the scrip. The said observations further get reinforced from the undisputed fact that these Noticees had bought the shares in an off market mode and afterwards were found to be selling those shares in miniscule quantities, despite the fact the buy orders for relatively large quantities were pending for hours and no seller came forward to sell any shares till 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 ....
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...., I find no document to indicate any connection of Noticee no. 14 with other Noticees. However, notwithstanding the absence of any direct connection of Noticee no. 14 with other Noticees, the alleged LTP contributing trades executed by the Noticee no. 14 as discussed above, together with the fact of off-market acquisition of those shares of the Company by him, which were used for entering into those LTP contributing sell trades, are sufficient enough to come to a finding that the trades executed by the Noticee no. 14 contained all the ingredients to be termed as manipulative trades. Further, as stated above the Noticee no. 14 has not provided any rationale / 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 ....
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....tities by trading one at a time and once in a day so as to inflate the price of the scrip over a long period of time. In normal business prudence, it is natural for an investor to seek a better price of the shares and the act of selling the shares at higher price by the Noticees may not be viewed as manipulative and unfair. However, I would like to rely on the observations of the Hon'ble SAT in the matter of Kalpana Dharmesh Chheda and Ors. Vs. SEBI and Ors. (DoD: 25.02.2020), in which the Hon'ble Tribunal had, inter alia, observed that "though generally it can be stated that selling at a price higher than the LTP particularly when buy orders are available 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." 3....
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....to hold that the Noticee nos. 12, 13 and 14 were not acting as genuine market participants and had no bona fide intention to trade in the shares of Rutron. Therefore, I hold that the trading behavior of Noticees nos. 12 to 14 during Patch-1 of the Investigation Period of vis-à-vis the scrip of Rutron has been conspicuously ill motivated, fraudulent and was targeted to manipulate the price of the shares of Rutron hence, is in violation of regulations 3 (a), (b), (c), (d) and 4 (1), 4 (2) (a), (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? 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 N....
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...., these 6 Noticees have ensured the rise in the scrip price of Rutron. Therefore, it appears that 6 Noticees were not acting as genuine buyers or sellers and had no bona fide intention to buy / sell the scrip. The positive LTP contribution made in the scrip of Rutron through their trades gives an indication that these Noticees were happily executing trades higher than the LTP in complete disregard for the integrity of market mechanism and were executing trades deliberately to cause price rise in the scrip of Rutron. 40. I find that out of the above noted 6 Noticees, only Noticee nos. 3, 4 and 11 have submitted their written responses while the remaining Noticees have not furnished any reply to the SCN. Further, I note that the Noticee no. 3 in its reply has not furnished 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 cha....
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....he instant case. In fact, in the instant matter, counterparty to the trades of Noticee no. 4 is also one of the Noticees who is already under service of the same SCN which has been served upon her. For the sake of more clarity, I am dealing with the judicial decisions relied upon by the Noticee no. 4 to indicate how those decisions are different from the instant proceedings, in the following table: Sr. No. Matter Facts of the matter and respective How the facts are different from instant proceedings 1 Hon'ble SAT in the matter of HB Stockholdings vs. SEBI (Date of Decision: 27.08.2013, Appeal 114 of 2012) Hon'ble SAT has made observations regarding proving connivance with the counterparties and observed that "the counter party namely, Gloria Investment Limited has 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....
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....cuted by 6 Noticees amongst each other as a connected group action in unison to manipulate the price of the scrip of the Company hence, taking the cause of the isolated trades of each of the 6 Noticee may not be the right approach while dealing with the allegations. Though the individual contribution of each of these 6 Noticees may be visibly less, but it cannot be lost sight of the fact that together in just 64 trades (0.46% of the total number of trades), these 6 Noticees were able to contribute to 5.26 % of the total market positive LTP in the scrip during the Patch-2 of the Investigation Period, which rather highlights the malafide intention of these 6 Noticees to artificially inflate the price of the scrip. Noticee no. 11 has contended that it has been made party to the SCN on the basis of directorship of its 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 ....
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....intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available. The nature of the transaction executed, the frequency with which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether there is real change of beneficial ownership, the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn. 45. I also note that by executing the above noted 64 trades which 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 p....
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....share of the scrip in the ratio of 1:10, the price of the scrip opened at Rs.24.45 (unadjusted price of Rs.244.5), reached a low of Rs.6.55 (unadjusted price of Rs.65.5) and on November 28, 2014, closed at Rs.7.3 (unadjusted price of Rs.73), thereby witnessing a fall of 70.14% with a net negative LTP contribution of Rs.17.15 (unadjusted price of Rs.171.5) and total market negative LTP contribution of Rs.72.96 (unadjusted price of Rs.729.6). 48. The SCN has alleged that by executing 201 manipulative and unfair trades, Noticee nos. 3, 5, 6, 7, 8 and 10 ("six Noticees" for convenience) have contributed Rs.12.74 of negative LTP i.e.17.46% of total market negative LTP of Rs.72.96 in the scrip of Rutron during Patch-3 of the Investigation Period. SCN has further alleged that out of the said group of six Noticees, Noticee nos. 3, 5 and 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 Pe....
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....e trading day. A combination of roles played by the six Noticees by executing those alleged 201 trades amongst themselves as buyers and sellers in scrip of Rutron are presented in the table below: Table 8: Date wise details of combination of buyers and sellers in 201 trades during Patch-3 Buyer / Seller Period of Trading Noticee no. 7 (Buyer) Noticee no. 3 (Seller) 29-11-13 Noticee no. 7 (Buyer) Noticee no. 5 (Seller) 06-12-13 Noticee no. 10 (Buyer) Noticee no. 5 (Seller) 07-05-14 Noticee no. 6 (Buyer) Noticee no. 5 (Seller) 04-06-14 to 19-06-14 Noticee no. 6 (Buyer) Noticee no. 3 (Seller) 20-06-14 to 22-07-14 Noticee no. 6 (Buyer) Noticee no. 3 and 8 (Seller) 23-07-14 Noticee no. 6 (Buyer) Noticee no. 3 (Seller) 24-07-14 to 24-11-14 51. The aforesaid trading pattern of approaching the market on different trading days to contribute price fall in the scrip of Rutron has not been rebutted by any of 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 t....
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....a.m., which is matched with a sell order placed by the Noticee which is also part of the connected group entities around closure of the securities market at around 3 p.m., cannot be a mere coincidence of matching of orders . Such a trading pattern, in fact, draws attention to a premeditated strategy to bring the LTP of the scrip down by every succeeding matched trade over a period of time. The malafide of the seller Noticees further becomes conspicuous from the fact that the price of the scrip of the Company, which had witnessed a phenomenal rise in recent past during the Patch-1 and 2, started showing decline so much so that the seller notice was willing to sell shares at prices lower than the LTP. Seller Noticees have not advanced any justification as to what development suddenly took place in the market, which prompted them to sell their shares at lower prices on a continuous basis. Such an undisputed fact coupled with the matching of their orders with 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 ca....
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....and requires no further consideration. 56. As observed earlier that there is no strong reasoning available on record to suggest as to why these six Noticees executed such trades on a regular basis in the scrip of Rutron thereby contributing a cumulative market negative LTP of Rs.12.74. However, the pattern of trades adopted by these six Noticees negates any such universally accepted business prudence of trading in securities. The nefarious intent on the part of the six Noticees for pulling the price lower in the scrip of Rutron is further demonstrated by the trading pattern adopted and executed by the six Noticees. I further observe that the strange coincidence with which the orders placed by the Noticees matched with each other repeatedly on a numerous times on an anonymous screen based trading system in itself adequate to hold that these six Noticees have been deliberately trading in a manner to ensure that the buy & sell orders placed by them match with 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 hav....