TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 2025
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....: 1. Securities and Exchange Board of India (hereinafter referred to as 'SEBI') conducted an investigation into trading and dealings in the scrip of Confidence Finance & Trading Ltd. (hereinafter referred to as 'CFTL/the company') for suspected manipulation of price of the shares of CFTL. SEBI had also received references from Directorate of Investigation, Income Tax Department, Kolkata and Principal Director of Investigation, Income Tax Department, Delhi through letters dated September 10, 2014 and February 02, 2015 alleging that certain entities had used the stock exchange mechanism to generate Long Term Capital Gain Tax (LTCG) and CFTL was one such scrip mentioned in the aforesaid letters. Further, while the investigation was underway, SEBI received letter dated April 01, 2016 from the Office of the Joint Commissioner of Income Tax, Range 19(2), Mumbai forwarding a report of the Assistant Commissioner of Income Tax, Mumbai which stated that there was a sharp rise in the price of the scrip of CFTL, not supported by corporate actions. Show Cause Notice, Reply to Show Cause Notice and Personal Hearing: 2. A Show Cause Notice (hereinafter referred to as, 'SCN') dated August....
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....Split) December 28, 2013 (Rs.24) to March 28, 2014 (Rs.5.04) c) No manipulative trading could be established in Patch 2, 3 and 4. d) In Patch 1, a price rise patch, the buy trades of top 10 LTP contributors is given below: Buyer Name % of Positive LTP to Total Market all trades trades with LTP diff > 0 trades with LTP diff < 0 trades with LTP = 0 LTP impact in Rs. QTY traded No of 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 L 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 ....
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....all the unexecuted buy orders for remaining quantity had been deleted. Such pattern of placement of buy orders and deletion of unexecuted orders was observed repeatedly almost for all trades undertaken by Mr. Daulat Laxmilal Chandraliya. For example, order log analyses for trade done on Sept 07, 2012 revealed that Mr. Daulat Laxmilal Chandraliya, has placed 30 buy orders for 3900 shares altogether. All buy orders were placed at Rs. 81.95/- which is 1.99% higher than previous close of Rs.80.35/- during 9:15 -9:19am. The trade for 20 shares at Rs.81.95/- has been executed with the placement of sell order by Mr. Ghanshyam Kamlesh Kachhawa at 12:09:10. Subsequently, between 12:15pm -12:16pm, all other 29 unexecuted buy orders have been deleted by Mr. Daulat Laxmilal Chandraliya. h) It was further observed that Noticee no. 6, Mr. Ghanshyam Kamlesh Kachhawa was the only counterparty client for all the buy trades of the major LTP contributors during initial phase of Patch 1 till November 19, 2012. Mr. Ghanshyam Kamlesh Kachhawa had received funds from an entity VRP Financial Services Pvt. Ltd. (hereinafter referred to as "VRP") just before the preferential allotment by CFTL prior....
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....CFTL, Noticee no. 1, had allotted 1 crore shares of Rs. 10/- per share on preferential basis to 49 nonpromoter entities on September 27, 2011 at a price of Rs. 15/- per share. At that time there was no trading in the scrip subsequent to revocation of suspension by BSE on July 1, 2011. The company was suspended from trading by BSE for the period January 14, 2003 to June 30, 2011 due to non-compliance with Listing Agreement. The shares allotted in the preferential allotment were under lock-in up to one year till September 26, 2012. Subsequently during Patch 1 of the investigation period i.e. from September 04, 2012 to January 08, 2013, the price was manipulated by Mr. Ghanshyam Kamlesh Kachhawa, (an entity connected to CFTL through indirect fund transfer), and Mr. Daulat Laxmilal Chandraliya. Thereafter, some of the preferential allottees sold their shares at a manipulated high price. l) In the light of the facts revealed during investigation, it was alleged in the SCN dated August 09, 2017 that the Noticees had violated the provisions of Regulations 3(a), (b), (c), (d) and Regulations 4(1), 4(2), (a) and (e) of Securities and Exchange Board of India (Prohibition of Fraudule....
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....submitted that: i) Noticees are not concerned how VRP routed the funds to Mr. Ghanshyam Kamlesh Kacchwa. ii) The Noticees had no role to play in the trading done by Mr. Ghanshyam Kamlesh Kacchwa and Mr. Daulat Chandraliya. g) No SCN has been issued to VRP for being a conduit and no adverse inference has been drawn against them. h) No proceedings have been initiated against other LTP contributors who have been instrumental in price manipulation. i) Based on the copy of bank account statement of VRP received during inspection for the period July 04, 2011 to July 29, 2011 the following is submitted: i) On July 13, 2011, VRP has received an amount of Rs. 47 lakhs from one Esaar India Ltd. (hereinafter referred to as "Esaar"). Prior to that period, the bank account of VRP was having a balance of Rs. 1, 68, 733.89/-. Out of the funds received from Esaar, VRP has transferred a sum of Rs. 20 Lakhs to Mr. Ghanshyam Kacchwa on July 14, 2011. ii) On July 21, 2011, VRP received a sum of Rs. 8 lakhs only again from Esaar. Prior to that, the bank account of VRP was having a balance of only Rs. 1, 46, 491/-. Out of the funds received ....
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....N that alleges that 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 he was not involved with respect to transfer of funds to VRP Financial Services Pvt. Ltd. and Mr. Ghanshyam Kacchwa. e) With regard to specific allegations in the SCN against the company, CFTL has filed a detailed reply dated October 22, 2018. The Noticee adopts the submissions made by CFTL in support of his contention that he has acted in a bonafide manner. f) The Noticee has denied that he was a part of any scheme to manipulate the price of the scrip to benefit the preferential allottees. g) The Noticee has stated that he has not made any gains or derived unfair advantage as a result of alleged violations. 9. Noticee no. 6, Mr. Ghanshyam Kamlesh Kachhawa, has submitted two letters dated October 18, 2017 and December 28, 2017 wherein the following are contended: a) He is not aware of the company nor has he traded in shares at all. He has also stated that he has no knowledge of share market. a) He ....
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....to all the trades cannot be construed as a violation. g) All the trades executed by Noticee no. 7 have resulted into delivery with beneficial ownership. 11. All the Noticees were granted an opportunity of hearing on October 05, 2018 which was communicated vide letter dated August 30, 2018. The said notice of hearing was served on all the Noticees through Speed Post. Affixture of the hearing notice was also attempted for all the Noticees except Noticee no. 6. As the Noticees were present at the respective address, they received the letters, gave acknowledgment and did not allow Affixture. Noticee no. 6, Mr. Ghanshyam Kamlesh Kachhawa vide letter dated September 05, 2018, sought adjournment due non availability of his advocates on the said date and time. Noticee no. 7, Mr. Daulat Laxmilal Chandraliya vide letter dated September 22, 2018, informed SEBI that he had not received the SCN and requested SEBI to send copy of the SCN. The Noticee also requested one month's time to file reply and sought adjournment of the personal hearing. Vide letter dated September 27, 2018 copy of SCN dated August 09, 2017 was provided to the Noticee. 12. Noticee no. 1, CFTL vide letter date....
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....and other materials available on the record. I note that the SCN has alleged that Company, its executive director at time of preferential allotment, Mr. Manojkumar Naginlal Jain along with other directors namely, Mr. Amruth Joachim Coutinho, Mr. Lalitkumar Roshanlal Maroo and Mr. Swati P. Panchal were all part of scheme to manipulate the price of the scrip to benefit the preferential allottees. The question now arises whether the Noticees i.e. the company and its directors along with Mr. Ghanshyam Kacchawa and Mr. Daulat Laxmi Chandraliya have violated Regulation 3 (a), (b), (c) (d) and Regulation 4(1) 4(2) (a) and (e) of SEBI (PFUTP) Regulations 2003 which read as under: PFUTP Regulations, 2003 Regulation 3. Prohibition of certain dealings in securities "No person shall directly or indirectly (a) buy, sell or otherwise deal in the securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made....
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....ter- corporate loan under section 372A of the Companies Act, 1956 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 that the allegations are sweeping and based on surmises. The Noticees have stated that they are 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 dated October 22, 2018 of the company and its directors and the annexures enclosed therewith, it is observed 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 Amt. transferred (in Rs.) 31/10/2011 27745 VRP 8,75,000 24/01/2012 27771 VRP 15,00,000 02/05/201....
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....y with effect from February 14, 2014. She was appointed as an Independent Director with effect from September 30, 2014. In support of this, the company has enclosed copy of Form 32 for appointment of Ms. Swati Panchal as an Additional Director and further as an Independent Director. I note that the present SCN pertains to trading and dealings in the scrip of CFTL in Patch 1 i.e. from September 04, 2012 to January 08, 2013. As such, I note that Ms. Swati Panchal was not a director of the company during the relevant period when the violations occurred. There is nothing to show the direct involvement of Mr. Lalitkumar Maroo and Ms. Swati Panchal in the manipulation of the price of the scrip. 21. Therefore, in the facts and circumstances of this case, it would be difficult to conclude the that the said notice No. 1 to 5 have violated any provisions of SEBI (PFUTP) Regulations as alleged in the SCN and no direction is called for at this stage. 22. I note that Noticee no. 6, Mr. Ghanshyam Kamlesh Kachhawa, has submitted two letters dated October 18, 2017 and December 28, 2017. In his reply letter dated October 18, 2017, Noticee no. 6 has submitted that he is not aware of the compan....
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....ades by Mr. Kachhawa has contributed to 72.73% of total LTP with sell of 900 shares (0.47% of market volume). I also note that by these trades, Mr. Kachhawa was instrumental in establishing a price higher than the last traded price and thus contributed to increased scrip price with each of his trades. Had Mr. Ghanshyam Kachhawa not intervened by placing sell orders by putting shares in smaller lots of 15-20 shares to match the price punched in by the buyer, the buy orders would have got deleted automatically and the price would not have increased. I note that Mr. Ghanshyam Kamlesh Kachhawa was not acting as genuine seller and had no bona fide intention to sell. Therefore, Mr. Ghanshyam Kachhawa's pattern of trading was manipulative and were executed for manipulating the price or volume of the scrip. 25. Mr. Daulat Laxmi Chandraliya in his reply and personal hearing has stated that he has executed transactions for sale and purchase of shares in number of companies during the investigation period in addition to trades in the scrip of CFTL. The said transactions have been executed in the normal course of business with no intention to manipulate price of any scrip including CFTL. As....
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....to be open for acceptance, though it might subsequently be cancelled prior to acceptance; and (2) in placing an offer which, at the time it is placed, the offeror does not genuinely intend should be accepted". It is observed from the trading pattern of Mr. Daulat Laxmi Chandraliya his orders at price significantly above the LTP and such orders were matched only when Mr. Ghanshyam Kachhawa placed his sell orders. The market, or, genuine investors were led to attribute significance to the fact that offers were being made at particular prices. Therefore, I note that deletion of unexecuted buy orders does not indicate bona fide intention to trade on part of Mr. Daulat Laxmilal Chandraliya and on other hand indicate trading to manipulate the price of the scrip. 28. He has further stated that 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 ....
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....hyam Kachhawa being a counter party to all the trades cannot be construed as a violation. In this regard, I note the observations of the Hon'ble Supreme Court in Securities and Exchange Board of India v. Kishore R. Ajmera (2016) 6 SCC 368: "While the screen-based trading system keeps the identity of the parties anonymous it will be too naive to rest the final conclusions on said basis which overlooks a meeting of minds elsewhere. Direct proof of such meeting of minds elsewhere would rarely be forthcoming. The test, in our considered view, is one of preponderance of probabilities so far as adjudication of civil liability arising out of violation of the Act or the provisions of the Regulations framed thereunder is concerned. ... The conclusion 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." This position was further reiterated in Securities and Exchange Board of India v. Rakhi Trading Pvt. Ltd. [2018] 207 Comp Cas4....