AI Drafter 
TaxTMI 
TaxTMI 
2023 (11) TMI 66
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.... Ms. Nidhi Singh, Ms. Deepti Mohan, Ms. Purvi Jain, Ms. Hubab Sayyed, Mr. Raghav Taneja, Advocates i/b Vidhii Partners. Mr. Sumit Rai, Advocate PER : JUSTICE TARUN AGARWALA, PRESIDING OFFICER 1. Ten appeals have been filed by 14 noticees against a common order dated December 18, 2020 passed by the Whole Time Member (hereinafter referred to as 'WTM') of Securities and Exchange Board of India (hereinafter referred to as 'SEBI') against 16 noticees and separate orders of various dates have been passed by the Adjudicating Officer (hereinafter referred to as 'AO') against the appellants. Since all the appeals emanated from a common issue, the same are being clubbed and are being decided together. 2. Appeal No. 12 of 2022 has been filed by Manish Chaturvedi noticee nos. 1, Laxmi Chaturvedi noticee nos. 2 and Manohar Chaturvedi noticee nos. 3 against the order of the WTM dated October 18, 2022 wherein noticee nos. 1 Manish Chaturvedi has been debarred for a period of seven years and Laxmi Chaturvedi and Manohar Chaturvedi noticee nos. 2 and 3 have been debarred for five years. Further, these three appellants have been directed to disgorge a sum of Rs. 18,98,39,179/- including int....
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.... of 2022 has been filed by Vijay Mercantile, Abhinandan and Josh Trading against the order dated September 30, 2021 passed by the AO wherein these appellants have been imposed a penalty of Rs. 3 lakh each. 5. The facts leading to the filing of the present appeals is, that five different reports were received by SEBI from National Stock Exchange of India Ltd. (hereinafter referred to as 'NSE') indicating suspected front running trading activity by certain entities in the trades of Sterling group during the period January 1, 2010 to December 15, 2010. Based on these reports, SEBI conducted an investigation which revealed that front runners had front-run entities of the Sterling group. Further, the clients of the M/s. Sharekhan Limited (hereinafter referred to as 'Sharekhan') were front-run by Anandilal Chanda through his own account, his HUF account and Sharekhan's proprietary account. These entities had traded heavily on those days where the Sterling group has also traded. The Sterling group comprised of the following entities :- TABLE I - STERLING GROUP ENTITIES SR. NO. NAME 1. ABHI AMBI FINANCIAL SERVICES LIMITED ("ABHI AMBI") 2. STERLING FUTURES & HOLIDAYS....
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....isal Electronics and Bhavesh Gadhavi) and such front-runners had made unfair gains. It was further alleged that the front-running activity by the front-runners was a result of facilitation by noticee nos. 1, 3, 5, 9 and 11 (Manish Chaturvedi, Manohar Chaturvedi, Abhinandan Ranka, Sandeep Maloo and Neeta Maloo). 9. It was further alleged that the clients of Sharekhan were frontrun by Sharekhan (in its proprietary account), Anandilal Chanda (Noticee nos. 14) and Anandilal Chanda HUF (Noticee nos. 15) and that Madhu Chanda (Noticee nos. 13) used / passed the information of orders placed by Manish Chaturvedi to her husband, Anandilal Chanda and had also facilitated (a) Manish Chaturvedi in frontrunning the trades of the Sterling group and (b) Sharekhan, Anandilal Chanda and Anandilal Chanda HUF to front-run the clients of Sharekhan. 10. It was also alleged that Anandilal Chanda had, in connivance with Madhu Chanda, obtained confidential information about orders placed by clients of Sharekhan and had front-run the trades of Sharekhan's clients in his own account, HUF account and proprietary account of Sharekhan. 11. As a result, the aforementioned entities / noticees nos. 1-15 ....
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.... runners i.e. the aforesaid 7 entities. Madhu Chanda had facilitated the front-running activity of Manish Chaturvedi in the trades of the, Sterling group as Manish Chaturvedi and Madhu Chanda were observed to be frequently communicating during market hours and the orders placed in the trading accounts of some of the aforesaid 7 entities were also in synchronization with the call timings between them. 17. The authorities found that Madhu Chanda had used / passed the confidential information of orders placed by Manish Chaturvedi in the trading accounts of the aforesaid 7 entities to her husband, Anandilal Chanda. With the strength of such "information" passed on by Madhu Chanda, Anandilal Chanda carried out trading activity to front run the clients of Sharekhan i.e., the aforesaid 7 entities (Noticee Nos. 2, 4, 6, 7, 8, l0 and 12) in his own account, in the account of Anandilal Chanda HUF and in the proprietary account of Sharekhan. 18. The proceedings initiated against Sharekhan vide the 2nd show cause notice dated February 9, 2017 as well as adjudicating proceedings against Sharekhan were settled and disposed of vide a settlement order dated April 23, 2019 read with addendum ....
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....opposed to the profit of Rs. 39 lakh made on the remaining 3168 scrip days. 23. We also find that the percentage number of shares traded by the front runners was overwhelmingly high i.e. 84.68% on days when the Sterling group had traded. Further, of the shares day traded on the scrip day common with the Sterling group, 85.95% of the number of shares day traded matched with that of the Sterling group. 24. We also find that out of the total number of trades of the front runners matched with the Sterling group, 85.24% of number of trades matched was ordered at the same price by the front runners as that of the Sterling group. We find that the very nature front running refers to an extremely precise trading activity which is impossible to achieve unless the front runner had access to the non-public information about the impending orders of the Big Client (in this case the, Sterling group). For this reason, matching of common scrip days, common percentage of shares, precise matching of price by the front runner with the Big Client, earning significant amounts of profits on common scrip days with the Big Client when compared to non-common scrip days are all extremely strong indicat....
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....I CHATURVEDI ON 18.11.2010 TABLE VII - TRADES OF LAXMI CHATURVEDI ON 18.11.2010 SR. NO. CLIENT A B C D E % MATCHED WITH STERLING GROUP SHORT SELL TRADE TIME (HOURS) BUY TRADE TIME (HOURS) SELL QUANTITY BUY QUANTITY PROFIT (Rs.) 1. Laxmi Chaturvedi 09:15:13- 09:24:31 09:24:37- 09:24:48 1,08,719 1,05,178 91,152 99.91 2. Laxmi Chaturvedi 09:27:59- 09:36:26 09:38:31- 09:38:42 81,575 85,116 3. Laxmi Chaturvedi 12:36:55- 12:58:50 13:02:15- 13:02:32 2,48,037 2,50,000 1,06,818 100.00 4. Laxmi Chaturvedi 13:12:32- 13:19:39 13:19:44- 13:19:46 30,338 30,345 9,453 100.00 5. Laxmi Chaturvedi 13:40:45- 13:46:26 13:46:43- 13:46:50 83,768 83,768 51,122 100.00 TOTAL 5,52,437 5,54,407 2,59,135 99.98 TABLE VIII - TRADES OF E-ALLY ON 18.11.2010 SR. NO. CLIENT A B C D E % MATCHED WITH STERLING GROUP SHORT SELL TRADE TIME (HOURS) BUY TRADE TIME (HOURS) SELL QUANTITY BUY QUANTITY PROFIT ....
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....12:56:58 while the call placed to Madhu Chanda was online. The duration of the aforementioned call was 3:53 minutes. Manish Chaturvedi had enquired with JMFL dealer about number of shares of Idea available in Abhi Ambi account and, thereafter, had put the call on hold. (vi) During the duration of the above mentioned calls between (a) Manish Chaturvedi and Madhu Chanda and (b) Manish Chaturvedi and JMFL, a total of 27 sell orders were placed in E Ally's account from 12:59:04 - 13:01:45 resulting in 3,03,000 shares being sold in E-Ally's account (see column C of Table VIII above). (vii) At 13:01:09, JMFL had called Manish Chaturvedi (9790967968) while the call by Manish Chaturvedi (9967051632) to Madhu Chanda was online. The duration of the aforementioned call was 2:13 minutes. During the duration of the aforementioned call between Manish Chaturvedi and JMFL, Manish Chaturvedi was heard to be talking in the background asking the other person to sell 50,000 and a sell order was observed in E-Ally's account for the same quantity. (viii) About 20 seconds prior to the order placed in Abhi Ambi's account at Rs. 69.60 (see column F of Table X above), Manish C....
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....nd Anandilal Chanda HUF took the benefit of the impending trades of the big clients i.e. Sterling group. Therefore, while observing the timing and price of the orders punched by Anandilal Chanda and Anandilal Chanda HUF must be compared with the timing and price of the orders punched by the big clients i.e. Sterling group. 32. We also find that the trades executed by Anandilal Chanda were synchronised trades as analyzed hereunder :- (i) The orders placed to square off the existing position in the accounts of Anandilal Chanda and Anandilal Chanda HUF were being placed either before (i.e. jumping the time priority) the orders in the accounts of 7 Front Runners / clients of Sharekhan and / or at a price better (i.e. jumping the price priority) than that of the orders in the accounts of clients of Sharekhan. (ii) Due to the aforesaid strategy, the trades in the accounts of Anandilal Chanda and Anandilal Chanda HUF got executed before (due to being ahead in terms of pricetime priority) the trades in the accounts of noticee nos. 2, 4, 6, 7, 8, 10 and 12 and got matched with the trades of the Sterling group. This also resulted in orders of these clients of Sharekhan r....
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..../- as against a profit of Rs. 98,089/- on the other scrip days. (ii) 92.83% of number of shares day traded during the investigation period were on scrip days common with the Sterling group. (iii) Further, of the shares day traded on the scrip days common with the Sterling group, 6l.88% of the number of shares day traded matched with Sterling group. (iv) The huge variation in the average number of shares and value per trade with the Sterling group (same counter-party as that of the clients of Sharekhan) as against the others in the market indicates that the orders placed by Anandilal Chanda and his HUF were placed based on orders of clients of Sharekhan. (v) The value of trades / number of shares traded and the average amount of profit earned by the front-runners on the scrip days common with the Sterling group and the clients of Sharekhan was much higher than that on other scrip days. 36. Thus, the WTM order and the AO order have correctly held that due to the trading based on prior information of trades of the aforesaid 7 noticees (noticee Nos. 2, 4, 6, 7, 8, 10 and 12) and of the Sterling group, Madhu Chanda, Anandilal Chanda and Anandilal C....
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.... 40. In so far as delay in issuing the show cause notice is concerned, we find that the trades were executed in 2010 and show cause notice was issued in 2017. Collating data of 4001 scrips for 833 trading days through several front running entities was an uphill task which took time. Considering the findings of synchronised trades executed by the front runners, we are satisfied that in the given circumstances, there is no unusual delay in the issuance of the show cause notice. Further, we find that no prejudice has been caused. No such plea has been raised. 41. The ground of delay raised by Madhu Chanda and others are also rejected on the aforesaid findings. The contention that no opportunity was given to cross-examine a witness (Manish) is erroneous. The breach committed by the appellants is distinct to the role of Manish and, consequently, the plea of cross-examination was only a ploy to derail the proceedings. In any case, we find that the request for cross examination was given up by the appellant before the WTM which finding has not been disputed before us. Similarly, the contention that documents were not supplied is incorrect in as much as relevant extract applicable to....