TaxTMI 
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2025 (11) TMI 311
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....y 5, 2021 passed by the learned WTM (WTM- Whole Time Member) of SEBI (SEBI- Securities & Exchange Board of India) holding the appellants acting in concert, guilty of manipulating the price in the scrip of Biocon (Biocon- Biocon Limited) (in Cash segment) and making wrongful gains by establishing higher settlement price in its futures segment. Appellants were charged for violation of Section 12A (a) of SEBI Act (SEBI Act- Securities and Exchange Board of India Act, 1992) and Regulation 3(b), 4(1), 4(2) (a) & (e) of the PFUTP Regulations (PFUTP Regulations- Securities & Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003) 2. Brief facts of the case are as under :- (i) SEBI conducted an investigation in the trading activities of appellants and other entities to ascertain whether there was any manipulation in the price of Biocon in cash market on June 29, 2017 during 15.00.00 hrs. to 15.30.00 hrs. (Investigation Period). (ii) The investigation by SEBI indicated that the noticee Nos. 2, 3 and 4 (who are the appellants in this case) and noticee no.6, were already holding long positions in F&O ....
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....ars 2 years 2 years 3. Before us, only 3 Noticees namely M/s AKG Securities and Consultancy Ltd. (Noticee No. 4), M/s Vihit Investment (Noticee No. 2) and Mohd. Faisal (Noticee No. 3) have filed the appeal (Numbered respectively as Appellant No. 1, 2 and 3). 3.1 M/s AKG Securities and Consultancy Ltd. (AKG) is a public limited company involved in buying, selling and dealing in stocks and commodities as a jobber, arbitrager and day trader. AKG was represented by Mr. P. N. Modi, learned senior advocate. 3.2 M/s Vihit Investment, a partnership firm involved in the business of trading, jobbing, arbitrage and investment, was represented by Mr. Kushal Shah, authorized representative. 3.3 Mr. Mohd. Faisal, an individual investor and a trader based at Varanasi (UP) was represented by Mr. Kunal Katariya, Ld. advocate. 3.4 Mr. Shiraz Rustomjee, learned senior advocate represented the respondent SEBI. Detailed submissions were filed by them. AKG Securities (Noticee No. 4) 4. On behalf of Noticee no. 4 (AKG Securities), Mr. P. N. Modi, learned senior advocate made detailed submissions, as under:- 4.1 Mr. Modi submitted that the respondent's finding is based on not....
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....er of this Tribunal in the case of Mr. Babubhai Desai and Ors. Vs SEBI (Appeal No. 81 of 2014). 4.5 Mr. Modi further submitted that the role, involvement and participation of Appellant was distinct from other noticees. It was submitted that total long position of all the noticees in Biocon is 10,58,400 shares out of which appellant's long position is merely in 27,000 shares, which is meagre 2.55%. Further, the alleged square off gains made by all the noticees (including appellant) alleged to be is Rs. 50.10 lakhs, out of which square-off gain by the appellant is alleged to be Rs. 1.28 lakhs (which was computed at Rs 4,000 in the SCN). He submitted that appellant is a significant player and on June 29, 2017 itself, it had traded in 172 other scrips as well with its turnover exceeding Rs. 143 Crores. It was submitted that the appellant is a public limited company, engaged in trading in the securities market for past 20 years, which has never faced any adverse order by the SEBI. He was aggrieved that despite its unblemished track record, the appellant was held guilty of making petty profit of Rs. 1.28 lakhs (Rs 4,000 in the SCN), through acting in group with other co-noticees. 4....
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....enior advocate submitted that the basis for computation of profits in 'Futures' market adopted in the impugned order, which is different from the Show Cause Notice is untenable. He drew our attention to Table No. 22, 23 and 25 (at para 43, 44 and 47, respectively) of the impugned order and pointed out that as per the SCN, the futures square off profit made by the appellant was shown at Rs. 4,000/-, whereas the impugned order shows square-off gains at Rs. 1.28 lakhs. He also pleaded that no opportunity was given to the appellant to respond to the new computation. 4.10 With respect to the directions for disgorgement and debarment of the appellant from securities market for a period of 2 years, Mr. Modi submitted that the directions are disproportionate and excessively harsh and considering appellant's unblemished trading in the securities market for the past 20 years, was not called for. M/s Vihit Investment (Noticee number 2) 5. Mr. Kushal Shah, Ld. authorised representative questioned the basis of the alleged 'connection' held between the appellant and noticee No. 1 (Mr. Sunil Gangwal). He submitted that the said connection was alleged on two grounds. Firstly, that Mr. Moh....
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....k and lowest for Aurobindo Pharma". 5.3.1 He submitted that the rationale for trading in the scrip of Biocon by the appellant was high liquidity and his intention was to make small profits. The appellant's explanation in the matter has been recorded in Para 27(v) of the impugned order, as under: - "Further, Noticee No. 2 has submitted that they believed that there would be high liquidity in the scrip of Biocon Ltd. during June 29, 2017 and they thought that they can safely make profits while trading in Biocon Ltd. by availing benefits of marginal spread between available buy and sell quotes. The Noticee has submitted that their sole intention was intra-day trading to earn profits and hence, in case they would have placed the buy price between 327.80 and 334.05 there would have been a high probability for the buy order to get executed and the sale order not to get executed since the sale order was placed at 334.10 and there would have been a major variation in the buy and sale order price which would have inter alia led to delivery of shares which was not the purpose for which the transaction was executed." 5.4 On facts, Ld. advocate drew our attention to the....
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....communication was received from NSE which implies that the NSE did not draw any adverse inferences on the impugned trades by the appellant. 5.5 With respect to the allegation of having made profits in 'Futures' Market segment by manipulating the price in 'Cash' segment, it was submitted that the appellant's 'cash market' buy orders were placed between 14:42 hrs. to 14:45 hrs., and sell orders were placed at 14:46 hrs. In contrast, the 'futures' buy trade for 3,24,000 shares was placed subsequently between 15:00 hrs. and 15:22 hrs. Mr. Shah submitted that evidently appellant's 'cash market' trades were placed long before the 'Futures' trades and, thus, the prices in futures segment had already got adjusted for the 'cash market' trades and hence the allegation is baseless. 5.5.1 He further submitted that the appellant's buy trades (long position) in F&O segment were executed between around 15:00 hrs. to 15:22 hrs. for 3,24,000 shares in the price range of Rs. 328.50 to 329.95, valued at around Rs. 1066.28 lakhs. The said position was not squared off on that day i.e. the expiry date. Thus, later on expiry, appellant earned profit of Rs. 9.87 lakhs calculated at the settlement pr....
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....ad placed sell order in Cash Market Segment at a price of Rs. 334 at 14.51 hrs. However, since the appellant is an intra-day trader, he also placed a stop-loss order to buy these shares at a 334.10 at 14.52 hrs. The 'stop-loss' order was to ensure that the loss of the appellant from the trade can be restricted to only 10 paisa per share. 6.4. With regard to position in derivative segment, he submitted that out of the total long position of 1,96,200 shares, appellant squared off total 1,09,800 shares before the end of the trading session, which comprised of 56% of the total position held by him. If the appellant had entered into manipulative trades in the cash segment to get a better settlement price in futures, he would have kept position for all the shares open till the end of the day instead of squaring off 56% of his F&O positions. More importantly, when the appellant placed orders in cash segment, he was having no holdings in the Futures segment. Therefore, the allegation of trading in cash segment to manipulate the settlement price in F&O segment is not established. 6.5 Explaining the rationale of appellant's trading, Mr. Katariya submitted that the idea of the app....
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....ave high volume while trading in particular scrip, the probability of their trades matching with each other is also high. This does not necessarily show existence of any conspiracy. 6.9 Mr. Katariya contended that the basis of calculation of the unlawful gains made is erroneous. He submitted that the same has been calculated taking the entire buy position in the derivatives segment whereas, admittedly the appellant had squared off 56% of the position before expiry. He further submitted that even for the sake of argument, if it is assumed that the trades of appellant and other noticees were manipulative, the closing price ought to have been derived by considering trades by other traders and by ignoring trades of 6 Noticees and not by merely taking the rate available at 15:00 hrs. He submitted that if such a calculation method was adopted, the closing price would have still been Rs. 330.30 and the price difference would have been only Rs. 1.85 i.e. (Rs. 332.15 - Rs. 330.30). However, the SCN and the impugned order arrive at a price of Rs. 327.45, which was the price at 15:00:00. 6.10 He further submitted that the allegation in the impugned order that the appellant has made prof....
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....r submitted that both parties have already admitted of the loan transactions. Mr. Rustomjee, however conceded before us that there are no evidences on record establishing connection amongst other appellants. 7.3 The Ld. senior advocate submitted that during the inspection period, the appellant No.1 along with other noticees no. 2, 3 and 5 had placed matching buy and sell orders of exactly 2,00,000 shares each at around the same time i.e. at 14:39 hrs. to 14:51 hrs. with negligible time-gap between buy and sell orders. He submitted that when these synchronized transactions are considered in the background of the fact that the Appellant No. 1 and Noticees Nos. 2, 3 and 6 were holding long positions in the future segment of Biocon (which was to expire on June 29, 2017), the 'connection' amongst noticees can be easily derived. 7.4 With respect to the wrongful gain made by the appellant No.1 in the futures segment of the scrip of Biocon, the Ld. senior Adv. Submitted that LTP (LTP- Last Traded Price) of Biocon in the cash segment at 15:00:00 hrs, on June 29, 2017 was Rs. 327.40, however due to manipulation in the cash segment by the noticees during 15:00 hrs. to 15:30 hrs., the LT....
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....her submitted that the sell orders of the appellant matched with Mohd. Faisal (Noticee No. 3) and Paramount Corporation (Noticee No. 5) to the extent of 1 lakh shares each. Further, the buy orders of the Appellant matched with Sunil Kumar Gangwal (Noticee No. 1) to the extent of 99,800 shares, who is 'connected' with the Appellant. Therefore, it is apparent that the appellant did not place buy orders to make profit but to match the same with other noticees for the purpose of establishing a higher settlement price in the futures segment to benefit from the long position taken by the Appellant. 8.2 Refuting the contentions of the appellant No. 3 (Mr. Mohd. Faisal), that as he had placed the sell orders at the price of Rs. 334 with the anticipation that if the price of the shares reached such level he would sell the shares and not below that, Mr. Rustomjee submitted that the Ld. WTM correctly observed that the stop-loss buy order placed by the Appellant would have gotten activated and entered in the market once the trigger price of the stop-loss buy order had reached or surpassed, irrespective of whether the sell order of the Appellant got executed. He further submitted that the Ld....
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....res segment of Biocon. 9.2 Undisputedly, any transaction carried out in the cash segment of a scrip will have a bearing on its LTP and on the expiry day for Futures, such an LTP set up in the last 30 minutes of trading in cash segment, would impact on the settlement price. In normal course, an individual trader trading independently in an anonymous manner, on successful conclusion of transactions, may have the desired effect. In contrast, synchronized transactions undertaken by buyers and sellers with the purpose of artificially setting up higher LTP are fraudulent in nature. Whether the buyer and the seller are carrying out such coordinated transactions, would however, require establishing connection between them and bringing on record instances of communication between them at the relevant time. 9.3 In the instant case, respondent's case is built on observing certain similarities in the trading pattern of noticees, inter-alia, trading at a price higher than LTP by Rs. 4.75/- per share (2% higher), in a limited time period relevant for impacting settlement price, and trading in same quantity. However, there is no material on record to show any connection, direct or indirect,....
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....Website". He also submitted that the appellant traded in Biocon due to its high liquidity and appellant's intention to make small profit during the intra-day trading. Mohd. Faisal (Noticee Nos. 3) has submitted that he is a day trader and the rationale for appellant's trading was to try selling in cash segment at Rs. 334/- by placing a limit order so that in case price falls below Rs. 334/-, he would have made profit. In addition, as the appellant had cited his limited risk appetite and considered that if the prices continued to rise above Rs. 334/-, he would have incurred substantial loss. To restrict it, he placed a stop-loss order at Rs. 334.10 to cap his loss to only Rs. 0.10 Paisa. Regarding F&O segment, since the prices in derivative segment, were getting momentum, he started taking long positions and in respect of his last long position, the appellant decided to square-off 56% of appellant's total long positions as he was getting price at Rs. 0.85 paisa per share. None of these arguments of the appellant have been challenged in the impugned order. Moreover, in the absence of establishing any connection amongst them, oral rebuttal of these arguments is of no assistance for th....