TaxTMI 
TaxTMI 
TaxTMI 
2019 (2) TMI 2140
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....rized below: Period Date Opening Price (volume) on first day of the period (Rs.) Closing price (volume) on last day of the period (Rs.) Low price (volume) during the period (Rs.) / Date High Price (volume) during the period (Rs.) / Date Average no. of shares traded daily during the period Pre- Investigation* 01/04/2012 to 03/09/2012 Price 52.5 (03/04/2012) 50 77.3 (03/05/2012) 50 52.5 (03/04/2012) 50 77.3 (03/05/2012) 50 50 Volume Investigation Patch 1 04/09/2012 to 08/01/2013 (price rise) Price 78.8 (04/09/2012) 319.6 (08/01/2013) 78.8 (04/09/2012) 320 (08/01/2013) 2268 Volume 20 (04/09/2012) 25871 (08/01/2013) 12 (12/12/2012) 39450 (07/01/2013) Investigation Patch 2 09/01/2013 lo 22/05/2013 (price rise) Price 318 (09/01/2013) 330.5 (22/05/2013) 300.3 (02/04/2013) 332 (22/05/2013) 75695 Volume 45000 (09/01/2013) 29002 (22/05/2013) 50 (18/01/2013) 202967 (13/02/2013) Investigation Patch 3 23/05/2013 to 27/12/2013 (price fell) Pre-Stock Split Price 315 (23/05/2013) 238.95 (27/12/2013) 225 (22/08/2013) 330.25 ....
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.... trades LTP impact in Rs. QTY traded No of trades LTP impact in Rs. QTY traded No of trades QTY traded No of trades Daulat Laxmilal Chandraliya 16.52 57.25 395 26 57.25 395 26 0 0 0 0 0 Rajesh P Jasani & Sarojaben P Jasani 11.16 38.7 610 18 38.7 255 9 0 0 0 355 9 Prem Lata Nahar 8.01 27.75 290 14 27.75 135 8 0 0 0 155 6 VRP Financial Services Pvt Ltd 7.20 15.75 14035 137 24.95 1515 9 -9.2 200 3 12320 125 Insight Multitrading Pvt Ltd 6.43 22.3 19905 87 22.3 1553 7 0 0 0 18352 80 Sneha Goenka 5.68 19.7 295 10 19.7 120 5 0 0 0 175 5 Bharat Bagri (Huf) 4.30 14.9 75 5 14.9 75 5 0 0 0 0 0 Nirmala Sandesh Kamath 3.98 13.8 190 6 13.8 95 3 0 0 0 95 3 Sarika 3.75 10.9 1006 20 13 221 4 -2.1 179 3 606 13 Babubhai D Patel 3.02 10.45 7050 28 10.45 2250 4 0 0 0 4800 24 Total of Top 10 ....
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....buy orders at the prevailing price. It was also observed that he did not sell all the shares held by him at the beginning of investigation and continued to hold 550 shares out of the 1450 shares he held at the beginning of the investigation. 10. The investigation concluded that the Noticees 6 and 7 were acting in concert and contributed to manipulation in the scrip price (upwards) with a malafied intention and created a misleading appearance of trading in the scrip by such trades. 11. It was also observed that prior to the investigation period, CFTL (Noticee 1) had allotted 1 crore shares of Rs. 10/- per share on preferential basis to 49 non-promoter entities on September 27, 2011 at a price of Rs. 15/- per share. The company was suspended from trading by BSE during the period January 14, 2003 and June 30, 2011 due to non-compliance with Listing Agreement. When the Company made preferential allotment of shares, there was no trading in the scrip, subsequent to revocation of suspension by BSE on July 1, 2011. The shares allotted in the preferential allotment were under lock-in up to one year till September 26, 2012. The investigation revealed that the Company (Noticee 1) and it....
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....pwards, it is a usual practice to punch number of orders into the trading terminal prior to opening of the market at the rate above the last closing rate, so as to ensure their order comes in the queue. Said placement of order and its withdrawal cannot be construed as his involvement in manipulating the price. d) SCN defines Patch 1 from September 4, 2012 to January 08, 2013 wherein the price of the scrip of CFTL had increased from Rs. 78.8 per share to Rs. 319.6 per share. During the said period, he had executed transactions from September 07, 2012 to October 23, 2012 when the price moved from Rs. 81.95 per share to Rs. 150.39 per share. Therefore, it has been contended that he cannot be held liable for price rise up to Rs. 81.95 per share and from Rs. 150.39 per share to Rs. 319.60 per share. e) No relation with the counterparty Mr. Ghanshyam Kachhawa and it was a coincidence that in all purchase transactions in the shares of CFTL, he was the counterparty. In a screen based trading it was not possible for the noticee to find out who is the counterparty and therefore, Mr. Ghanshyam Kachhawa being a counter party to all the trades cannot be construed as a violatio....
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....ing into account the facts and circumstances of the case. f) No evidence has been adduced in the SCN to establish that the funds given by us to VRP were utilized by them either for purchasing the shares of CFTL or for transferring the same to Mr. Ghanshyam Kamlesh Kacchwa through which he has purchased the shares of CFTL. Hence, the serious allegation of violation of SEBI (PFUTP) Regulations have been levelled against CFTL and its Directors just on the basis of figment of imagination of the Investigating Authority. g) Neither the Company not its Directors / Promoters have dealt in the shares of the company during the relevant period. The burden of acts in terms of alleged manipulative trading in the scrip cannot be saddled on to us. There is no allegation that the LTP contributors were trading at our behest or on our behalf. Further, it has not been demonstrated as to how we had any role to play in the trading done by the LTP contributors. h) The Company and its Directors are not aware how VRP routed the funds to Mr. Ghanshyam Kamlesh Kacchwa. We cannot be held liable for the acts done by VRP which has acted on its own and not on our behalf. We have no ro....
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....hat the alleged activities carried out by CFTL through Board Meetings. The activities carried out by CFTL were in the nature of day to day activities and did not require any board approval. Therefore, an independent director they were not involved with respect to transfer of funds to VRP Financial Services Pvt. Ltd. and Ghanshyam Kacchwa. (e) With regard to specific allegations in the SCN against the company, CFTL has filed a detailed reply dated January 28, 2019. The Noticees adopts the submissions made by CFTL in support of their contention that they had acted in a bonafide manner. (f) The Noticees denies that they were part of any scheme to manipulate the price of the scrip to benefit the preferential allottees. (g) The Noticees states that they have not made any gains or derived unfair advantage as a result of alleged violations. (h) The Noticees 1 to 5 were served with another SCN under Section11 (1), 11 (4) and 11B of the SEBI Act on August 9, 2017, i.e., before issuance of SCN dated November 28, 2017 in respect of the current proceedings, for the same set of allegations. (i) The Hon'ble WTM vide order dated December 31, 2018 held ....
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....oticee vide his letter dated January 6, 2018. Further, the Authorized Representative undertake to file additional submissions by February 11, 2019. 22. On behalf of Noticee 6, Mr. Rahul Dwivedi, Advocate appeared before me on February 5, 2019 and sought extension of time till February 12, 2019 for submission of reply to the charges alleged in the SCN and adjournment of personal hearing to February 12, 2019, which was granted. 23. I note that the Noticee 7 vide letter dated February 1, 2019 submitted his reply by enclosing a letter dated October 24, 2018 submitted to the SCN issued by the Hon'ble WTM, which is similar to the reply furnished by him vide his letter dated January 8, 2018, which was summarized in paragraph 15 of this Order. 24. On behalf of the Noticee 7, Mr. Kamal Agrawal, Advocate has made additional submissions vide letter dated February 5, 2019, which is summarized hereunder: a) Reiterated the earlier submissions made by the Noticee vide his letters dated January 8, 2018 and February 1, 2019. b) It is pertinent to note that Hon'ble WTM in his Order dated December 31, 2018 has held under Para 18 that neither the Company nor its Directors we....
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....rd, I have the following issues for consideration viz., I. Whether the Noticees have violated the provisions of Regulations 3 (a), 3(b), 3(c), 3 (d), 4 (1), 4 (2) (a) and 4 (2) (e) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003? II. Whether the Noticees are liable for monetary penalty under Section 15HA of the SEBI Act? III. If so, what quantum of monetary penalty should be imposed on the Noticees? FINDINGS 27. On perusal of the material available on record and giving regard to the facts and circumstances of the case and submissions of the Noticees, I record my findings hereunder. ISSUE I: Whether the Noticees have violated the provisions of Regulations 3 (a), 3(b), 3(c), 3 (d), 4 (1), 4 (2) (a) and 4 (2) (e) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003? 28. Before moving forward, it is pertinent to refer to the relevant provisions of SEBI (PFUTP Regulations), 2003 which reads as under: Regulation 3 of SEBI (PFUTP) Regulations: - Prohibition of certain dealings in securities 3. No person shall directly or indirectly- (a) buy, sell or otherwis....
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....0. The company and its directors in their replies and submissions denied the allegations and have submitted that transfer of funds to VRP was in the form of unsecured inter- corporate loan which was received back prior to the start of the investigation period. As regards the allegation that the company and its directors were part of a scheme to manipulate the price of scrip to benefit the preferential allottees, it is stated by CFTL that the allegations are sweeping and based on surmises. The Noticees have stated that they were not aware about the trading done by other alleged entities including the alleged counterparty buyers to the sale of shares during the post lock in period. In support of its contention, the company has enclosed copy of the ledger of VRP in its books and copy of the bank account statement from where the funds were paid to VRP and received back with its reply. From the reply of the company and its directors and the annexures enclosed therewith, I note that the following fund transfers have taken place between CFTL and VRP. Amount transferred from CFTL's Axis Bank account no. 911020017645987 Date Cheque no. Transferee's Name Amount transferred (in....
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....pulation of the price of the scrip as alleged in the SCN. 34. Upon analysis of LTP on buy side in respect of the Patch 1 i.e., September 4, 2012 to January 1, 2013, I note that top 10 LTP contributors have contributed positive LTP of Rs. 242.80 (70.41 %) of total market positive LTP in 80 trades. Out of the top 10 LTP contributors, 6 entities have contributed more than 5% of LTP. The top contributor to LTP viz., Daulat Laxmilal Chandraliya (Noticee 7) had bought purchased 395 shares and sold 495 shares. All 26 buy trades by Daulat contributed positive LTP of Rs. 57.25 (16.59 %) of total market positive LTP. 35. I note from the order log analysis that the Noticee 7 had been placing numerous buy orders for 100/200 shares at price significantly above the LTP (i.e. around the upper circuit limit). The trades got executed after the placement of sell order by Ghanshyam Kamlesh Kacchawa (Noticee 6). I note that subsequent to the trade, in few minutes of time span, all the unexecuted buy orders for remaining quantity had been deleted. For the purpose of illustration, from the order log analysis for trade done on September 7, 2012 I note that the Noticee 7 placed 30 buy orders for 390....
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.... the trading pattern of the Noticee 6 that he was instrumental in establishing a price higher than the last traded price and thus contributed to increased scrip price with each of his trades. 39. I note that the thumb rule of trading in stock market is to buy shares at lesser rate and sell shares at higher rate. The trading pattern of the Noticee 7 in entering buy Orders at prices much higher than the market price in minimal quantities establishes his manipulative intent to artificially increase the price of the scrip. I note that the rationale for such transactions entered by the Noticee 7 defies the logic and basic economic sense. Further, the trading pattern of the Noticee 6 by releasing small quantity of shares to match the trades of the Noticee 7, clearly establishes his manipulative intent to increase the price of scrip. 40. In this connection, I would like to refer to the observations made by the Hon'ble SAT in its order dated March 21, 2014 in Saumil Bhavnagari Vs. SEBI which are as under: "... but by purchasing shares at the higher price in LTP in most of the trades, the Noticee had given a wrong impression about the liquidity of the scrip in the market. It must not ....
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....clusion has to be gathered from various circumstances like that volume of the trade effected; the period of persistence in trading in the particular scrip; the particulars of the buy and sell orders, namely, the volume thereof; the proximity of time between the two and such other relevant factors." 43. This position was further reiterated by Hon'ble Supreme Court in the matter of SEBI vs. Rakhi Trading Private Ltd., in Civil appeals no., 1969 of 2011 with Civil Appeal Nos., 3174-3177 of 2011 and Civil Appeal No., 3180 of 2011 decided on February 8, 2018, wherein the Apex Court observed that "in the absence of direct proof of meeting of minds, the test should be one of preponderance of probability and also stated that the conclusion has to be gathered various circumstances like volume of trade, period of persistence of trading, particulars of buy and sell orders, proximity of time between the two and such other relevant factors". 44. In view of the dicta of the Hon'ble SAT and Hon'ble Supreme Court, I am not inclined to take a different view and hold that the Noticees 6 and 7 while acting in concert manipulated the price of CFTL scrip. 45. The Noticee 7 in his submissions c....
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....eficiary of manipulative scheme of things. In the instant case, even if it is accepted that G K Agarwal had used the bank / demat accounts of Noticee 6, there are no records of any of his dealings in the scrip of CFTL and therefore had escaped the regulatory supervision / surveillance which not only threatens the integrity of the market but also adversely affects the interest of investor, if such activities remain unchecked. Therefore, I am not inclined to view the acts of voluntary name lending by Noticee 6 leniently, as such acts have facilitated market operators to devise and deploy deceptive, fraudulent and manipulative schemes in the scrip of CFTL. In this regard, I take note of the observation of The Hon'ble Securities Appellate Tribunal in Rahul H. Shah Vs. SEBI (Appeal No. 83 of 2012 decided on May 11, 2012) wherein it was observed that name lending "is a fraudulent activity and requires to be curbed for maintaining the sanctity of the securities market". Therefore, I am not inclined to give benefit of doubt / lenient view, in respect of the Noticee 6. 48. In view of my observations and findings in the paragraphs above, I conclude that Noticees 6 and 7 have violated ....
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....s a result of default. 52. It is difficult, in cases of such nature, to quantify with mathematical precision the disproportionate gains or unfair advantage enjoyed by an entity and the consequent loss suffered by the investors. However, as noted earlier, trading in the scrip of CFTL had been suspended from January 14, 2003 to June 30, 2011. Further, the financials and other fundamentals of the company were not commensurate with the price rise. In such a situation, any genuine investor would try to make the most out of such an opportunity and trade in all the shares at once particularly when such scrip which was were under suspension for 8 years and was infrequently traded even after the suspension was revoked. I note that by the concerted acts of the Noticees 6 and 7 by indulging in price manipulation in the scrip of CFTL, general public could have been carried away by the unusual rise in the volumes and prices in the scrip of CFTL, which induced into investing in the said scrip. This kind of activity seriously affects the normal price discovery mechanism in the securities market. People who indulge in manipulative, fraudulent and deceptive transaction, or abet the carrying out ....