TaxTMI 
TaxTMI 
2020 (7) TMI 847
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.... SAURABH KUMAR RASIKLAL GANDHI AMVPG6042M 5. V AND R YARNS PRIVATE LIMITED AADCV1473C 6. MOSS TRADERS PVT LTD AAFCM1942F 7. AILISH TRADERS PRIVATE LIMITED AAICA1021G 8. KINITA REAL ESTATE PRIVATE LIMITED AADCK7739G 9. JESHNA MUILTITRADE PVT LTD AACCJ2392K 10. GAJPAL BUILDINFRA PRIVATE LIMITED AADCG5699R 11. GRANTVIEW PROPERTIES PRIVATE LIMITED AADCG0799G 12. MONAECUM PROPERTIES PRIVATE LIMITED AAGCM5765M 13. JASMIN SUSILKUMAR BAJORIYA AKBPB3342D 14. INDIVAR TRADERS PRIVATE LIMITED AACCI1585K 15. ADDO CONSTRUCTIONS PVT LTD AAICA0732C 16. SUNLIGHT COMMOTRADE PRIVATE LIMITED AANCS6134P 17. ABIJAH REAL ESTATE PVT LTD AAICA0617L 18. JIGNESH CHANDRAKANT SHAH BCWPS6593R 19. ALPESH SHESHMAL SHAH AEAPS0393A 20. AMIIT SAHITA FINANCE P LTD. AABCA2735J (The entities mentioned above are individually known by their respective name or Noticee no. and collectively referred to as "Noticees") In the matter of Aadhaar Ventures India Limited. Background: 1. An investigation was conducted by Securities and Exchange Board of India (hereinafter ref....
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....69 1,91,202 (27/04/2015) 3,69,14,033 (18/05/2015) 3. In the course of investigation conducted by SEBI, while analyzing the price and trade movement in the scrip of AVIL, following facts, inter alia, came to light: Patch-1 (January 01, 2009 to August 1, 2011) a) During Patch-1, the price of the scrip opened at Rs.1.80, reached a high of Rs.87.10 and closed at Rs.77.15. During this Patch 1, the scrip of AVIL witnessed a sharp price rise of 4738.89%, with a net positive Last Traded Price (hereinafter referred to as "(+) LTP / positive LTP") of Rs.75.35 and a market positive LTP of Rs.5704.21 although inadvertently mentioned as Rs.1472.63 at para 3 on page no. 4 of the SCN. This inadvertent mistake in the SCN is borne out of the fact that although as per the last column of Table-2 on page 7 of SCN, the total market positive LTP is mentioned as Rs.5704.21, erroneously the said figure is mentioned as Rs.1472.63 in SCN. Further, in last column of Table no. 4 on page no. 8 of the SCN, it is stated that the (+) LTP contribution of Rs.298.52 by Noticee no. 1 to 18 is 5.23% of the total (+) LTP, which is possible only when the total (+) LTP is 5704.21 and not 1472.6....
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.... acting in concert as a group, manipulated price of the scrip of AVIL and created misleading appearance of trading in the scrip. Patch-2 (August 02, 2011 to December 30, 2011) d) By examining the trades during the Patch-2 period, Investigation observed that the price of scrip opened at Rs.77.50 on August 02, 2011 and closed at Rs.0.66 on December 30, 2011 thereby causing a fall of 99.15% in the price of the scrip. During the Patch-2, the scrip observed a total market negative Last Traded Price (hereinafter referred to as "(-) LTP / negative LTP") of Rs.642.79. From the analysis of the trades executed in Patch-2, Investigation revealed that Noticee no. 19 (Alpesh Sheshmal Shah) through his 213 sell trades, had contributed to negative LTP of Rs.67.70 (10.53% of total market negative LTP) in the scrip. e) Investigation further observed that Noticee no. 19 by executing self-trades on 25 instances had contributed Rs.11.65 to negative LTP in the scrip. Investigation also unearthed that out of his 213 sell trades, Noticee no. 19 had placed sell orders for only 01 quantity of share in each of his 148 trades, even though the prevailing quantity demanded in the cor....
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....cts of violations of provisions of PFUTP Regulations, 2003. 6. I note from the available records that the aforesaid SCN was served on 3 Noticees (Noticee no. 1, 2 and 19) by hand delivery / speed post and for remaining Noticees (except for Noticee no. 16) through affixtures. I further note that for Noticee no. 16, the SCN was served through newspaper publication dated 28/03/2018. I further note that Noticee no. 1 vide letter dated 02/01/2019, Noticee no. 2 vide letters dated 01/01/2019 and 10/01/2019, Noticee no. 3 vide letter dated 22/12/2018, Noticee no. 19 vide letter dated 11/01/2019 and Noticee no. 20 vide letter dated 02/01/2018 have submitted their reply to the SCN. Additionally, Noticee no. 2 had sought inspection of certain documents which was provided to him by SEBI on 07/03/2018. Subsequently, in compliance with the principle of natural justice, an opportunity of personal hearing was accorded to all the Noticees and date of hearing was fixed on January 03, 2019. However, on the said date of hearing, only 5 Noticees (Noticees no. 1, 2, 3, 19 and 20) attended. On the said date, Noticees no. 3 and 19 appeared before me in person while on behalf of Noticees no. 1, 2, and ....
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....d such trades for larger quantities and has only considered his trades for 01 share. ● None of the counterparties to his other trades except for the 4 trades have been charged for any violation. ● Noticee has placed reliance on observations of Hon'ble SAT in various judgments including the following to defend his case: ⮚ Premchand Shah & Ors. vs. SEBI (DoD: 21/02/2011) ⮚ Narendra Ganatra vs. SEBI (DoD: 29/07/2011) ⮚ Smitaben N. Shah vs. SEBI (DoD: 30/07/2010) ⮚ Vikas Ganeshmal Bengani vs. WTM, SEBI (DoD:25.02.2010) ⮚ KSL &Industries Ltd. vs. Chairman, SEBI (DoD:30/09/2003) ⮚ Kapil Chaturbhuj Bhuptani vs. SEBI (DOD: 10/10/2013) Noticee no. 3 ● The Noticee has never traded in the scrip of AVIL. ● The Noticee had submitted his KYC documents to one Shri R. Munshi Bhai Patel for obtaining loan, which the Noticee never got. The Noticee also filed a FIR against one Munshi Bhai Patel in this regard. Noticee no. 19 ● He is a jobber and he has always done jobbing in the scrip of AVIL. As a jobber, he has t....
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....1 is a director in Noticee no. 6. I also note that there were off-market transfers of shares between Noticee no. 1 and Noticee no. 3. Similarly, I observe that Noticee no. 13 had off market transfers of shares with Noticee no. 18, Noticee no. 4 and other group entities. Off market transfers of shares were also observed between Noticee no. 2 and Noticee no. 14. It is a common knowledge that off market share transactions between two parties can happen only when both the entities are well known and familiar to each other, hence off market transfer of shares gives a strong presumption of connection between transferor and transferee entities. With regard to sharing of common addresses, I note from the materials on record, that the Noticee no. 9 and Noticee no. 10 shared common address located at 312/3 Sarda Chamber no 1, 31 K N Road, Mumbai 400009. Similarly, Noticee no. 17 and Director of Noticee no. 10 shared common address at 35, Anant Niwas, 262/170, Narshi Natha Street, Bhaat Bazaar, Mumbai -400009, which again indicates a strong connection between such entities. 10. As noted above that most of the Noticees have chosen not to file any reply and even preferred to abstain from per....
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....it involves fraud and may include all or any of the following, namely:- (a) indulging in an act which creates false or misleading appearance of trading in the securities market; (e) any act or omission amounting to manipulation of the price of a security 12. It is noted that the SCN has inter alia alleged that by executing 983 manipulative and unfair trades, 18 connected Noticees have contributed to the positive LTP of the scrip of AVIL during Patch-1 of the Investigation Period. It has been alleged that Noticees no. 1 to 13 were acting as buyers in these 983 trades and out of these 983 trades, in respect of 49 trades, the selling counterparties (including 9 of those 13 entities) were also the part of suspected group entities. As stated in the beginning, 14 Noticees (including 9 Noticees viz. Noticees no. 1, 2, 3, 4, 7, 8, 9, 10 and 12 of those 13 Noticees and 5 Noticees, viz. Noticees no. 14 to 18) were acting as selling counterparties in those 49 trades which contributed to positive LTP in the scrip of AVIL during Patch-1. 13. Thus as explained above, the SCN has alleged that the 18 Noticees (13 plus 5) through their 983 trades during the Patch-1, had cont....
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....that the 13 Noticees were deliberately placing the buy orders for meagre quantity of 01 or 02 shares in each of their trades despite the fact that the sell orders placed by the counterparties in the stock exchange's system were available for relatively larger quantities. A few such trades are tabulated below: Table no. 3: Few trades of miniscule quantities executed by 13 Noticees TRADE DATE Buyer Name TRADE TIME BUY ORDER TIME SELL ORDER TIME TRADE EXECUTED RATE ORDER RATE SELL ORDER RATE ORDER LTP SELL ORDER LTP TRADED QTY ORDER QTY SELL ORDER QTY LTP (Rs.) LTP CONT (Rs.) 24/09/2009 CHANDRAKANT B SHAH 3:20:40 3:20:40 3:16:52 19.07 19.07 19.07 18.7 19.05 2 2 300 18.7 0.37 05/11/2009 AJAY RAVINDRA SHAH 2:53:51 2:53:51 2:42:23 19.9 19.9 19.9 19.5 19.9 1 1 1000 19.5 0.4 08/07/2010 SAURABH KUMAR RASIKLAL GANDHI 2:57:48 2:57:48 2:54:52 48.3 48.3 48.3 48.25 48 1 1 50 48.25 0.05 12/07/2010 SANTOSH VASANT BHELEKAR 12:36:08 12:36:08 11:26:52 47.2 47.2 47.2 47.1 47 1 1 100 ....
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....table no. 4, one can easily detect the aforesaid peculiar as well as an unusual trading pattern that clearly emerges out of those positive LTP contributing 983 trades executed by the above stated Noticees during the Patch-1 of the Investigation Period. It shows how those trades were executed on different trading days by different Noticees in a manner that exposes that the Noticees have traded under a pre decided scheme by taking turns either individually or jointly with another Noticee on various trading days. I have already observed that Noticees enjoyed inter connections amongst themselves which were discovered during the investigation, based on their KYC, Common address/email, off market transfer etc. My observation that the Noticees were enjoying connection amongst themselves is further reinforced by the aforesaid unique trading pattern followed by the entities while executing the alleged 983 trades wherein, Noticees were taking turns on different trading days over the entire period of Patch-1. 17. The pattern devised and followed by Noticees apparently demonstrate that under a pre-planned strategy to elevate the price of the scrip by contributing to the LTP of the scrip thr....
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.... to the positive LTP of the scrip while on the other hand, they were placing their buy orders for only 01 share of AVIL at a time, and also on more than one occasion on the same trading day. For instance, all trades excepting one trade executed during the period of 4 days, i.e. from July 06, 2010 to July 09, 2010 were executed with Noticee no. 4, in which the Noticee no. 4 purchased 01 share 7 times in 7 different trades on July 06, 2010. Again on July 07, 2010, Noticee no. 4 executed 23 trades of 01 share each and all such trades cumulatively contributed to positive LTP of the scrip. Similarly, on July 08, 2010 and July 09, 2010, he executed 44 and 11 buy trades of 01 share each respectively. I observe similar unusual trading behaviour of purchasing 01 share in each trade on various occasions in a single trading day, were exhibited by other Noticees as well from the aforesaid group of 13 Noticees. 20. In this respect, it is further noted that in all the alleged trades, the 13 Noticees have always placed their buy trades subsequent to sell orders placed in the system. The conduct of the Noticees in buying the scrip of a Company, which had no market fundamentals to support such s....
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....or have they demonstrated that they have also indulged in similar type of trading in other scrips also during the same period, so as to prove their point that they have executed these trades in normal course of their business activities. Thus, I find that the explanations offered by the Noticees are bereft of merit and no substance in their submissions that trading in minimum quantities would not be capable of manipulating the scrip. 22. Noticees have also contended that there were other trades of theirs in the scrip as well, which were in larger quantities, however, the same have not taken into consideration while framing charges under the SCN. The submission of Noticees of having traded in larger quantities further belies their explanation and exposes their ill intent, as no justifications have been advanced as to why, having traded in larger quantities which they consider as normal trades, they had to indulge simultaneously in repeated trading of such token quantities of 01 share in the same scrip which invariably led to increasing the LTPs over a long period of time. The investigation has presumably not noticed any abnormalities in those trades for larger quantities and acco....
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....nd a few entities alone was discriminatory. In the said case, the Hon'ble SAT observed that "We cannot subscribe to this view since the Board has set its own benchmark in selecting cases for action and, in any case, the appellant cannot plead himself innocent or his trades as lawful." Therefore, those who seek equity must come out with clean hands. 24. The Noticees ought to discharge their onus by justifying their trades within the bounds of market prudence before seeking an escape route by taking such a plea. Considering the foregoing, I reject this contention of the Noticees in limine and do not find it necessary to further deal with this contention. The plea taken by the Noticees may indicate about possible involvement of the counterparties to their trades and even if such pleas are accepted on its face value, it would not in any manner diminish the liability of the Noticees for having executed those impugned and manipulative trades or result in suo moto exoneration of Noticees from the violations fastened on to them by the SCN. Not proceedings against other entities would not take away the fraudulent trade practice indulged in by Noticees who, by repeatedly executing those t....
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....ed in the year 2017. In view of the aforesaid I find that the contention of the Noticees with respect to delay in initiating action against them is misconceived and misplaced on facts, hence not maintainable. 27. It is also noticed that Noticees have relied upon the findings of the Hon'ble SAT in the matter of Smitaben N. Shah vs. SEBI (DoD: 30/07/2010 in Appeal no. 37 of 2010), Kapil Chaturbhuj Bhuptani vs. SEBI (DoD: 10/10/2013 in Appeal no. 95 of 2013), Vikas Ganeshmal Bengani vs. SEBI (DoD: 25/02/2010 in Appeal no. 225 of 2009) and in the matter of Premchand Shah & Ors. vs. SEBI (DoD: 21/02/2011 in Appeal no. 192 of 2010), wherein observations have made pertaining to fraudulent and manipulative trades. In this respect, having gone through the aforesaid decisions, I am of the view that the observations made in the decisions referred to above are factually distinguishable from the present proceedings hence the proposition of law made therein is not applicable in the instant case. For instance, in the matter of Smitaben N. Shah (supra), the allegation made was against cornering of shares in collusions with the counter party by way of a structured and synchronized trading, while....
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....Seller 1. CHANDRAKANT B SHAH Yes Yes 2. AJAY RAVINDRA SHAH Yes Yes 3. SANTOSH VASANT BHELEKAR Yes Yes 4. SAURABH KUMAR RASIKLAL GANDHI Yes Yes 5. V AND R YARNS PRIVATE LIMITED Yes No 6. MOSS TRADERS PVT LTD Yes No 7. AILISH TRADERS PRIVATE LIMITED Yes Yes 8. KINITA REAL ESTATE PRIVATE LIMITED Yes Yes 9. JESHNA MUILTITRADE PVT LTD Yes Yes 10. GAJPAL BUILDINFRA PRIVATE LIMITED Yes Yes 11. GRANTVIEW PROPERTIES PRIVATE LIMITED Yes No 12. MONAECUM PROPERTIES PRIVATE LIMITED Yes Yes 13. JASMIN SUSILKUMAR BAJORIYA Yes No 14. INDIVAR TRADERS PRIVATE LIMITED No Yes 15. ADDO CONSTRUCTIONS PVT LTD No Yes 16. SUNLIGHT COMMOTRADE PRIVATE LIMITED No Yes 17. ABIJAH REAL ESTATE PVT LTD No Yes 18. JIGNESH CHANDRAKANT SHAH No Yes 30. On a comprehensive reading of the data as presented in table no. 2, 3, 4 and 5, I note that despite sizeable quantity of shares available for sell in the market, the 13 Noticees purchased 01 or 02 shares in each of their buy trades and such trades were in....
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....an occasion to deal with the propriety of non-genuine trades and have made the following observations: "............Any transaction executed with the intention to defeat the market mechanism whether negotiated or not would be illegal. Whether a transaction has been executed with the 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. 33. Hon'ble Supreme Court of India in the case of SEBI vs. Rakhi Trading Pvt. Ltd., (2018) 13 SCC 753 has appreciated that fairness, inte....
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....lp, (which the Noticee never got) has misused his identity and traded in his name without his knowledge. The Noticee no. 3 has also filed FIR against the said Munshi Bhai Patel in this regard. He stated that had he been summoned by SEBI during investigation, it would have been possible to catch Munshi Bhai Patel who has defrauded him. I have carefully considered his explanation and am inclined to give credence to the explanation offered by him on the basis of fact & circumstances surrounding his matter. Therefore, notwithstanding the fact that the trades executed in his name are held by me to be not genuine and manipulative in nature, keeping his apparent non-involvement and innocence in view and the fact that he has since filed a FIR against Munshi Bhai Patel, I am persuaded to treat him as not connected to other Noticees and as a victim of a fraud committed on him and accordingly exonerate Noticee no. 3 from the charges levelled against him in the SCN. Under the circumstances, I now hold that except for Noticee no. 3, the trading behavior of Noticees nos. 1, 2 and 4 to 18 vis-à-vis the scrip of AVIL has been glaringly ill motivated, fraudulent and was intended towards mani....
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....TP of the scrip during Patch-2.It has further been alleged in the SCN that out of the aforesaid total no. of 213 sell trades, in 148 sell trades the Noticee had placed sell orders for only 1 share in every such sell trade. By placing sell orders for only 1 share in each order, Noticee no. 19 has contributed to (-ve) LTP of Rs.49.65 in the price of scrip of AVIL. 39. Similarly, regarding the trades of Noticee no. 20, it has been alleged that he has executed artificial and manipulative trades in the scrip of AVIL by way of his sell trades of miniscule quantities mostly for 1 share at a time, along with various self-trades executed by him during Patch-3 of the Investigation Period i.e. from 02/01/2012 to 24/04/2015. I note that the trading pattern followed by Noticee no. 20 were similar to the trades executed by Noticee no. 19 in patch-2 of the Investigation Period. As already mentioned in the initial paragraph, during the Patch-3, the price of the scrip of AVIL opened at Rs.0.66 and closed at Rs.0.19 thereby registering a fall of 69.84% with a total negative LTP of Rs.97.84. The SCN has alleged that Noticee no. 20 through his 920 sell trades have contributed Rs.9.63 to the said to....
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....o the total number and volume of trades executed in the scrip during the respective patches of Investigation Period, hence the alleged trades can't be held responsible for fall in the price of the scrip of AVIL. Further, there is no allegations that Noticees no. 19 and 20 had caused the stated price fall so as to make profit later on or have any association with any other Noticees. 42. It is a matter of fact that both the Noticees (Noticee no. 19 and 20) were carrying out jobbing transactions during the relevant time as evidenced from their personal records produced before me. In the course of jobbing transaction, the Noticees have claimed to have executed trades in the scrip of AVIL during the Investigation Period. I note that the Noticee no. 19, traded for a total quantity of 37183 shares of AVIL as a seller out of which, transaction in 25 shares were alleged to have been resulted from self-trades, which was 0.067% of the total shares of AVIL traded by the said Noticee during Patch-2 of the Investigation Period. Similarly, Noticee no. 20 had traded for 35104814 shares of AVIL during Patch-3 of the Investigation Period, out of which transaction in 1.68% shares amounting to 7704....
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....spective role as far as causing fall in the market price of the scrip should be viewed separately, though similarly because of their similar nature and similar manner of trading which again, may have been due to their similar job description as jobbers. Nevertheless, even if I give benefit of doubt to the Noticees no. 19 and 20 for the alleged abnormal trading pattern followed by them and for the self-trades which are inimical to the integrity of the securities market based on their representations about their nature of job, I can't be oblivious to the fact that both Noticees no. 19 and 20 have traded in an irresponsible and artificial manner thereby throwing away market prudence to the wind and in the process, have generated artificial volume and created misleading appearance of trading in the scrip, apart from causing a fall in the LTP of the scrip. I also note that the Hon'ble SAT in the case of HJ Securities Pvt Ltd vs. SEBI (DOD-11/05/2012), have made the observation that simply because the number of such self-trades is not large by itself cannot justify execution of self-trades. However, keeping the nature of profession and the explanations offered by the above stated two Not....
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....nner on the basis of the supporting evidence, and the market manipulation if any, caused by indulging in such self-trades should be ascertained from the available facts and circumstance in which such trades were executed. In view of the above, in the absence of any evidence demonstrating the intentional self-trades, mere accidental/unintentional self-trades should not be hit by the mischief under the PFUTP Regulations 2003. 46. I note that allegations against Noticees no. 19 and 20 have been made in the SCN on the basis of execution of self-trades and miniscule trades in the scrip of AVIL and no other material is made available to me to indicate that such self-trades were manipulative in nature and/or have resulted into creation of false or misleading appearance of trading in the scrip in the securities market or have been executed for manipulating the price/volume of the scrip. At this stage, I take guidance from the findings of Hon'ble Supreme Court in the matter of Kishore R. Ajmera (supra) and observe that the attending facts and circumstances of the case of Noticees no. 19 and 20 are not sufficient enough to prove the violations against them, as alleged in the SCN. 47. I....