AI Drafter 
TaxTMI 
TaxTMI 
2016 (1) TMI 1510
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....he above scrips, it was prima facie observed that certain entities had indulged in creating artificial volume by trading among themselves, in a synchronized manner and also carrying out off-market transfers among themselves for the purpose of meeting settlement obligations of another, thus contributing also to the price rise in these scrips. 3. In view of the above, in order to protect the interests of investors and to preserve the safety and integrity of the market, SEBI passed an interim order dated February 02, 2011 restraining 39 persons/entities including Mr. Bharat Shantilal Thakkar, Mr. Bipin Jayant Thaker, Mr. Kishore Chauhan, Mr. Bhavesh Pabari, Mr. Prem Mohanlal Parikh, Mr. Hemant Madhusudan Seth, Ms. Mala Hemant Seth, Mr. Ankit Sanchaniya, Mr. Amar Premchand Valmiki, Mr. Samir Sureshbhai Shah, Mr. Pandya Hardik M. and Mr. Bipinkumar Gandhi from accessing the securities market and further prohibited them from buying, selling or dealing in securities in any manner whatsoever, till further directions. 4. SEBI initiated an investigation relating to buying, selling or dealing in the shares of the scrip of GIL inter alia to ascertain the violation of the provisions of th....
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.... nos. 8, 16, 19, 22. 7. Navneetlal Jeevanlal Gandhi Entity at sl. no. 26 introduced him for trading a/c. - With entities at sl. nos. 4, 11, 20, 21, 24 8. Chirag Rajnikant Jariwala Same Tel. no. with entity at sl.no.16. Sl. no. 16 is his uncle. Business relations with sl. nos. 5, 6, 9, 16, 22, 30, 31. With entities at sl. nos. 16, 22. With entity at sl. no. 6 9. Kishore Chauhan Join a/c with entity at sl. no. 16 Entity at sl. no. 16 & 22 are witness for demat a/c. Business relations with entities at sl. nos. 5, 6, 8, 16, 19, 22, 30. With entities at sl. nos. 16, 19, 22. With entities at sl. nos. 16, 19, 22, 31. 10. Manish Suresh Joshi - - - 11. Samir Sureshbhai Shah Entity at sl. No. 7 is his father. Entities at sl. nos. 6, 13, 14, 21, 23, 25, 24 are his clients. Entities at sl. Nos. 4, 12, 15, 26, 17, are Paras Chaplot's friend. Entity at sl. no 11 came in touch with Paras Chaplot as a stock broker. - With Entities at sl. nos. 4, 7, 14, 21, 23, 24, 25, 26, 27 12. Manoj Bhandari - With entities sl. nos. 4, 11, 26. With entities at sl. nos. 4, 5, 16....
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..... 16, 19, 9, 28, 30, 31, 6, 26. 23. Ashokkumar Bhikhalal Parmar Entity at sl. no. 11 introduced him for trading a/c. He knows entity at sl.no. 11 who is a stock broker. With entities at sl. nos. 26, 11, With entities at sl. nos. 11, 25, 26, 24. Manisha Navneetlal Gandhi Entity at sl. No. 4 entered into off market transactions with entity at sl. No. 16 & has fund movement with entity at sl. No. 26. - With entities at sl. nos. 4, 11, 7, 25. Pandya Yaminiben M Same address with entity at sl. No. 26. Knows entity at sl. No. 11 & entity sl. No. 26 is his relative. With entities at sl. nos. 26, 11, 31, With entities at sl. nos. 11, 23, 26, 26. Pandya Hardik M Having common Tel. no. with entity at sl. no. 11. Entity at sl. No. 11 is the promoter of Samir Shah & Co. and sl. No. 26 is one of its employees. Knows entity at sl. No. 11 & entity at sl. No. 25 is his relative. With entities at sl. nos. 12, 18, 4, 11, 17, 25, With entities at sl. nos. 11, 23, 25, 16, 22. 27. Bharatkumar Baldevbhai Parmar Having common Tel. no. with Rameshbhai Parmar. - With entities at sl. nos. 4, 11. 28. ....
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.... buy and sell orders with respect to 84,749 shares accounting for 1.71% of the total market volume, were placed in such a manner that the difference between placement of orders by buyer and seller was within one minute with the order rate as well as order quantity of buy side and sell side was the same. These 84,749 shares constitute 4.31% of the total purchases and 2.47% of the total sales of the above mentioned 18 entities. v. It was further observed that certain the PP group entities i.e., Mr. Bhabesh Prakash Pabari, Mr. Prem Mohanlal Parikh, Mr. Hemant Madhusudan Sheth and Mr. Vivek Kishanpal Samant also indulged in self trades on the BSE (i.e. buy client as well as the sell client for a given trade was the same resulting in no change of beneficial ownership). vi. The price volume data analysis revealed that the shares of GIL were traded for 226 trading days during the investigation period on BSE. Out of 226 trading days, the PP group entities, including the above-mentioned 18 entities, traded among themselves on 90 days. It was observed that the volume of trades undertaken by the PP group entities contributed significantly to the daily market volume in the sc....
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....LTP and 541 trades at a price greater than LTP (contributing a gross increasing in price by Rs. 325.75). ix. The PP group entities had indulged in off-market transfer of 23,37,086 shares of GIL amongst themselves during the investigation period. The off-market deals further support the connection among the group. 5. The afore discussed actions on part of the above mentioned 18 entities i.e. execution of synchronized and self trades, creation of artificial volume and price manipulation distorted the market equilibrium and were observed to be fraudulent in nature. Consequently, a Show Cause Notice dated September 19, 2014 (hereinafter referred to as "the SCN") was issued to the above mentioned 18 entities (hereinafter collectively referred to as "the Noticees") calling upon them to show cause as to why suitable directions under section 11B read with section 11(4) of the SEBI Act should not be issued against them for the alleged violation of the provisions of regulations 3 (a), (b), (c), (d), 4(1), 4(2) (a),(b) (e) and (g) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 ("PFUTP Regulations"). The provisions....
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....tion of performing it or without intention of change of ownership of such security;" 6. Vide separate letters all dated October 07, 2014, Mr. Bharat Shantilal Thakkar, Mr. Hemant Madhusudan Seth, Ms. Mala Hemant Seth, Mr. Bhavesh Pabari and Mr. Bhupesh Rathod had requested for certain documents as detailed below, which were provided to them, vide separate letters dated November 05, 2014. (i) Mr. Bharat Shantilal Thakkar had sought the following documents which were provided to him: a) Copies of his KYC and KYC of Bhavesh Pabari evidencing that they shared common address. b) Copies of his bank statement of Axis Bank Ltd. evidencing transactions with other noticees. c) His letter to SEBI dated 11.07.2012 wherein he had stated that he had business relations with certain other noticees. (ii) Mr. Hemant Madhusudan Seth had sought the following documents which were provided to him: a) Details of directors of Rajnadi YarnsPvt. Ltd. evidencing that he and Mr. Bhavesh Pabari were directors. b) Copies of his bank statement of Axis Bank Ltd. evidencing transactions with other noticees. c) His letter to SEBI dated 12.07....
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....y SEBI. • He has already suffered a prohibition period for more than four years and does not have any financial means and capacity to take service of legal consultation and represent his case in the present proceedings. • It has been alleged in the SCN that he shared common address with Mr. Bavesh Pabari. However, on perusal of the KYC may be noticed that his address is on the 3rd floor flat no. 32 and that of Mr. Bhavesh Pabari is 1st floor flat no. 6. • He placed orders on the system of the stock exchange in the normal course of trading and did not execute synchronized trades. His trades were delivery based. • His contribution to the total trades undertaken in the scrip during the investigation period was miniscule • He did not undertake off market trades with any other remembers of the group (ii) Mr. Bipin Jayant Thaker vide his letter dated April 30, 2015 submitted his reply to the SCN and enclosed a copy of the appeal filed by him against the Order passed by AO in the same matter imposing a penalty of Rs.5,00,000/- on him. The noticee has submitted following in his reply: • In the same matte....
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....He does not have any business relationship with certain other noticees, as alleged. • The documents furnished have failed to provide any documentary evidence to prove the relationship. • It has been alleged in the SCN that he shares address with Bharat Thakkar. But on a perusal of the KYC may be noticed that the address of Bharat Thakkar is on the 3rd floor flat no. 32 and that of his is 1st floor flat no. 6. • The allegation of common telephone number with other noticees is not established. • Prem Mohanlal Parikh is not his cousin. • He had placed orders on the system of the stock exchange in the normal course of trading and did not execute synchronized trades. His trades were delivery based. • His contribution to the total trades undertaken in the scrip during the investigation period was miniscule (iv) Mr. Prem Mohanlal Parikh vide his letter dated April 30, 2015 submitted his reply to the SCN and enclosed a copy of the appeal filed by him against the AO Order passed in the same matter imposing a penalty of Rs. 5,00,000/- on him. He has submitted the following: • In the same matte....
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....her, he did not have fund movement with other noticees • He had placed orders on the system of the stock exchange in the normal course of trading and did not execute synchronized trades. His trades were delivery based. • His contribution to the total trades undertaken in the scrip during the investigation period was miniscule. (vi) Ms. Mala Hemant Seth vide her letter dated April 30, 2015 had submitted reply to the SCN and had enclosed a copy of the appeal filed by her against the AO Order passed in the same matter imposing a penalty of Rs. 5,00,000/- on her. The noticee has submitted the following: • In the same matter an order was passed by the Adjudicating officer imposing a penalty of Rs. 5,00,000/- on her. She is aggrieved by the said order. She is unable to pay to pay the penalty due to the restrain order passed by SEBI. • She has already suffered a prohibition for more than four years and does not have any financial means and capacity to take service of legal consultation and represent his case in the present proceedings. • Copies of trade logs and order logs were provided in CD format, which was volum....
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.... • The noticee did not undertake nay off market trades with other noticees in the scrip. (viii)Mr. Bhupesh Rathod vide letter dated April 30, 2015 submitted his reply to the SCN and enclosed a copy of the appeal filed by him against the AO order passed in the same matter imposing a penalty of Rs. 5,00,000/- on him. His submissions are as follows: • In the same matter an AO order was passed, imposing a penalty of Rs. 5,00,000/- on him. He is aggrieved by the said order and he is unable to pay the penalty due to the restrain order passed by SEBI. • He has already suffered a prohibition for a period of more than four years and he does not have any financial means / capacity to take service of legal consultation and represent his case in the present proceedings. • Copies of trade logs and order logs were provided in CD format, which were voluminous and difficulty to short. The action proposed report has not been shared with him. • He did not have business relationship with other Noticees and documents shared with him failed to prove the alleged relationship. • Although he introduced Mr. Hemant Seth, Mr. Pr....
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....ther noticees which was provided to him vide letter dated August 04, 2015. 9. I have considered the allegations levelled against the Noticees in the SCN, replies made by the Noticees in response thereto and other material on record. At the outset, I find that in the present proceedings, the principles of natural justice have been duly followed as all the Noticees were given ample opportunity to file their replies/written submissions and also with opportunities of hearing. I now proceed to deal with the present proceedings on merit on the basis of the replies/written submissions of the Noticees on record. 10. One of the common contentions of many the Noticees are that six different SCNs have been sent to them for trading in five scrips and they are aggrieved by the same. In this regard, I note that the interim order in the matter was passed on the basis of prima facie findings in respect of the dealings in the five scrips. Since, the entities involved in the trading in the five scrips were common and the time period (being the subject matter of the preliminary inquiry) was common, a combined interim order was passed. Subsequent to the interim order, a detailed investigation wa....
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....n Jayant Thaker and Mr. Bavesh pabari had stated that they had business relations with certain other noticees. Mr. Prem Manoharlal Parikh in his letter to SEBI dated July 12, 2012 had stated that he had business relations with certain other noticees. He also had off market transactions with Mr. Bhavesh Pabari, Raj Nandi Yarns Private Limited, Mr. Kishore Chauhan in GIL and other noticees in the other 4 scrips. Vide letters to SEBI dated July 12, 2012 both Mr. Hemant Madhusudan Seth and Mr. Mala Hemant Seth had stated that they had business relations with certain other noticees. I therefore, am of the view that the submissions that they did not have any business relations with each other cannot be accepted. However, there are other evidences as elaborated in the table no. 1 suggesting relationship of the Noticees amongst themselves and with other PP group entities. 14. Mr. Bhavesh Pabari and Mr. Hemant Madhusudan Seth have contended that though they were directors in Rajnandi Yarns Private Limited, the decision regarding investment of Rajnandi Yarns Private Limited was taken in company's board meeting and not at an individual level. In this regard I note that several off mark....
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.... and 3rd). Also it is not disputed that Mr. Bhavesh Pabari is the nephew of Mr. Bharat Shantilal Thakkar. Thus, even if the technical argument is accepted, the facts that there is unclenephew relation between them and they stay in same building, acutely corroborate the allegation that they are connected. 18. The Noticees have made a common contention that they were not related to each other. Some of the Noticees have submitted that they were not the introducer but the witness in the KYC. Two of the Noticees has rejected that they are cousin of each other. In this regard, I note that the relationship / connection among the PP group entities as illustrated in the SCN has been established on the basis of a multiplicity of factors including family relationship, common address, bank account details, fund movements share transfers in off-market etc. Other than a general denial, the Noticees have not produced any satisfactory material/documents to dispute the inferences regarding their inter-se relationship brought out in SCN. In my view, it cannot be a mere coincidence that the Noticees while trading inter alia in the scrip of GIL ended up trading amongst each other only and collectiv....
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....000 130.85 0.28 7. Prem Mohanlal Parikh 1,600 0.36 0.03 0 0.00 0.00 8. Hemant Madhusudan Sheth 0 0.00 0.00 600 0.10 0.01 9. Mala Hemant Sheth 4,000 5.51 0.08 5,000 1.88 0.10 10. Ankit Sanchaniya 5,000 1.79 0.10 13,000 3.48 0.26 84,749 4.31 1.71 84,749 2.47 1.71 *Values below 0.01 has not been mentioned 21. Placing of the sell orders with same counterparties for same quantity of shares at the same price within nil or negligible time difference repeatedly over a period of time is a clear indication that those trades of the Noticees were synchronised /structured. In this regard, the following observations of the Hon'ble SAT in its order dated July 14, 2006 in the matter of Ketan Parekh vs. Securities and Exchange Board of India, are worth mentioning: ".......... A synchronised transaction will, however, be illegal or violative of the Regulations if it is executed with a view to manipulate the market or if it results in circular trading or is dubious in nature and is executed with a view to avoid regulat....
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....: "one cannot buy and sell shares from himself. Such transactions are obviously fictitious and meant only to create false volumes on the trading screen of the exchange." 24. It is also noted that during the period under investigation, the price of the scrip of GIL opened at Rs. 21.20 and touched a high of Rs. 78.35, i.e. an increase of Rs. 57.15. Further, out of 1,690 buy transaction by PP group entities 273 trades took place at a price less than LTP (contributing a gross fall in price by Rs. 93.65), 875 trades took place at a price equal to LTP and 541 trades at a price greater than LTP (contributing a gross increasing in price by Rs. 325.75). The detail of individual contribution to change in the price of the scrip by entering into buy transaction is placed as under: Table 5 - LTP analysis of PP group entities Sl. No. Name of the entiy No of trades no of trades above LTP Gross increase in price No of trades less than LTP Gross fall in price No of trades at LTP Net impact 1. Rajesh Pravin Bhanushali 0 0 0.00 0 0.00 0 0.00 2. Bhupesh Rathod 3 1 0.30 1 -0.05 1 0.25 3. Spectrum Ch....
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....nbsp;-1.85 18 -0.25 30. Ankit Sanchaniya 259 67 40.70 29 -9.40 163 31.30 31. Vivek Kishanpal Samant 72 17 10.00 6 -3.60 49 6.40 25. In addition to the above, the PP group entities including the Noticees had indulged in offmarket transfer of 23,37,086 shares of GIL amongst themselves (during the period January 06, 2009 and December 30, 2009) which further corroborated the connection among them. The details of the off market transactions undertaken by the PP group entities are as under: Table 6- Off-market transitions of PP group entities in the scrip Sl. No. Client Name Counter Party Client Name Dr or Cr Total Quantity 1 Gandhi Aditi M Samir Sureshbhai Shah D 23370 2 Samir Sureshbhai Shah Gandhi Aditi M C 23370 3 Samir Sureshbhai Shah Shobhnaben R Parmar C 6220 4 Shobhnaben R Parmar Samir Sureshbhai Shah D 6220 5 Hemant Madhusudan Sheth Vivek Kishanpal Samant C 400000 6 Vivek Kishanpal Samant Hemant Madhusudan Sheth D 400000 7 Ankit....
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....h . Hemant Madhusudan Sheth D 73579 39 Bhavesh Prakash Pabari Raj Nandi Yarns Private Limited C 5000 40 Hemant Madhusudan Sheth Raj Nandi Yarns Private Limited C 19150 41 Raj Nandi Yarns Private Limited Bhavesh Prakash Pabari D 5000 42 Raj Nandi Yarns Private Limited Hemant Madhusudan Sheth D 19150 43 Gaurang Ajit Sheth Gaurang Ajit Sheth C 10400 44 Gaurang Ajit Sheth Gaurang Ajit Sheth D 10400 45 Bhavesh Prakash Pabari Raj Nandi Yarns Private Limited C 14000 46 Hemant Madhusudan Sheth Raj Nandi Yarns Private Limited C 14000 47 Prem Mohanlal Parikh Raj Nandi Yarns Private Limited C 10348 48 Raj Nandi Yarns Private Limited Bhavesh Prakash Pabari D 14000 49 Raj Nandi Yarns Private Limited Hemant Madhusudan Sheth D 14000 50 Raj Nandi Yarns Private Limited Prem Mohanlal Parikh D 10348 51 Bhavesh Prakash Pabari Raj Nandi Yarns Private Limited C 42530 52 Raj Nandi Yarns Private Limited Bhavesh Prakash Pabari D &nb....
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....ave submitted that based on the same set of facts and transactions as in the instant case monetary penalties were imposed against the Noticees by the adjudicating officer vide his separate order(s) and the Noticees have challenged the said order(s) before SAT. However, I am satisfied that the contraventions as found in this case are grave and have the potential to disturb the market integrity and disturb the fair, equitable and efficient functioning of the securities market. In the instant case, the proceedings under sections 11 and 11B of the SEBI Act have been initiated against the Noticees in addition to the adjudication proceedings against them as the charges against the entities are grave and have larger implications on the safety and integrity of the securities market. In my view, for the serious contraventions as found in the instant case, monetary penalty alone would not be sufficient to safeguard the market integrity. In this regard, the following observations of the Hon'ble SAT in the order dated December 02, 2010, in Appeal no. 70 of 2010 - Yashraj Containeurs Ltd. v. SEBI are worth mentioning: ".... we cannot resist observing that in view of the serious allegat....
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....ng, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner for a period of 5 years. Further, in respect of Mr. Bhavesh Pabari, Mr. Bipin Jayant Thaker, Mr. Kishore Chauhan, Mr. Prem Mohanlal Parikh, Mr. Hemant Madhusudan Seth, Ms. Mala Hemant Seth, Mr. Ankit Sanchaniya and Mr. Bharat Shantilal Thakkar against whom the allegations leveled in the SCN have been established, have been also restrained by SEBI vide order dated June 29, 2015 (in the matter of dealings in the shares of LGS Global Limited) from accessing the securities market and have been further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner for a period of 6 years. It is noteworthy that the said restraint has been imposed on these Noticees for indulging in fraudulent and manipulative acts in violation of the PFUTP Regulations as has been found in the present case. In my view, repeated fraudulent acts and delinquent behavior of the erring Noticees does not bode well for the integrity, orderly development and smooth functioning of the securities ....