BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

                                                  Appeal No. 26 of 2011  

Date of Decision: 16.6.2011

Chirag Tanna
003, Umang, B- Wing,
Mathuradas Road Extn.,
Kandivali West, Mumbai – 400 067.

               …… Appellant  

Versus

The Adjudicating Officer
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai.

            …… Respondent  

Mr. Zal Andhyarujina, Advocate with Mr. Joby Mathew, Mr. Neerav Merchant and
Mr. Shantibhushan Nirmal, Advocates for the Appellant.

Mr. Kumar Desai, Advocate with Ms. Harshada Nagare, Advocate for the Respondent.

CORAM : Justice N. K. Sodhi, Presiding Officer
P. K. Malhotra, Member
S. S. N. Moorthy, Member

Per : Justice N. K. Sodhi, Presiding Officer (Oral)

The appellant is a trader and claims to be a short term investor in the securities
market. He was served with a show cause notice dated July 25, 2008 alleging that in
collusion with certain brokers and clients he had executed circular trades which resulted in
the creation of artificial volumes and also manipulated the price of the scrip of Jindal
Drilling & Industries Limited. Adjudication proceedings were initiated against him and
the impugned order passed by the adjudicating officer holds that the appellant did not
indulge in any circular trading. It has, however, been found that the appellant in collusion
with certain other clients/investors had traded in the scrip in a collusive manner thereby
creating artificial volumes and manipulating the price of the scrip. By order dated
November 26, 2010 he has been imposed a monetary penalty of ` 25 lacs for violating
Regulation 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and
Unfair Trade Practices relating to Securities Market) Regulations, 2003. It is against this
order that the present appeal has been filed.

2

2. Learned counsel for the parties have been heard. We have on record the trade and
   order logs from which it has been pointed out by the learned counsel for the respondent
   Board that the appellant had executed self trades i.e. trades in which he was both the buyer
   and the seller. Such trades are, admittedly, fictitious and create artificial volumes in the
   traded scrip. What we find is that there is no such charge laid in the show cause notice
   which we have carefully gone through. The learned counsel for the appellant is right in
   contending that the appellant will be prejudiced if we record a finding in this regard
   without there being a foundation laid in the show cause notice. Rules of natural justice
   require that the enquiry conducted by the adjudicating officer should not only be fair but
   the charge levelled against the delinquent must be precise, clear and unambiguous so that
   he is able to meet the same. The learned counsel for the respondent has pointed out a chart
   from the show cause notice from which he wants us to infer that self trades have been
   alleged. We have seen that chart in para 6 of the show cause notice and it is difficult to
   infer without further details that the appellant had executed self trades. However, the trade
   and order logs to which reference has been made by the learned counsel for the respondent
   do prima facie support the contention but we cannot accept the same in the absence of such
   a charge in the show cause notice. In this view of the matter, we cannot but set aside the
   impugned order which we hereby do and remand the case to the adjudicating officer for
   holding fresh proceedings against the appellant after serving a proper show cause notice on
   him. It is made clear that we have not expressed any view on any of the issues raised in
   the appeal which shall remain open. The trades that have been called in question were
   executed sometime in the year 2005 and, therefore, we direct the Board to conclude the
   proceedings expeditiously. No costs. Sd/-
   Justice N.K.Sodhi
   Presiding Officer Sd/- P.K. Malhotra
   Member Sd/- S.S.N. Moorthy Member

16.6.2011
Prepared and compared by
RHN

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