BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

Appeal No. 63 of 2011

Date of Decision: 6.7.2011

Shailesh M. Ved
45, G.K. Bhatia Building,
Room No.17, 2nd Floor,
Vithaldas Road, Mumbai – 400 002.

               …… Appellant 

Versus

The Adjudicating Officer
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Mumbai – 400 051.

            …… Respondent 

Mr. Zal Andhyarujina, Advocate with Mr. Deepak Dhane, Advocate 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)
This order will dispose of two Ap peals no.63 and 71 of 2011 which involve
identical questions of law and fact. Since arguments have been addressed in Appeal
no.63 of 2011, the facts are being taken from this case.

2. The appellant before us is an investor in the securities market and he has been
   trading in different scrips including the scrip of Nandan Exim Ltd. (hereinafter called the
   company). He is a director in Krishna Caps hares (P) Ltd. which is the appellant in the
   other appeal. The shares of the company are listed on the National Stock Exchange of
   India Ltd., Bombay Stock Exchange Limite d and Ahmedabad Stock Exchange. The
   Securities and Exchange Board of India (for sh ort the Board) investigated the trading in
   the scrip of the company for the period from June 13, 2005 to September 30, 2005 and
   again for the period from September 20, 2006 to November 23, 2006. We are concerned
   with the subsequent period during which the appe llant is said to have executed trades in
   the scrip of the company. On the conclusi on of the investigations, the appellant was 2
   charged with two violations. The first violation was in rega rd to Regulations 3 and 4 of
   the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade
   Practices relating to Securities Market) Regulations, 2003. It was alleged that he placed
   buy orders in the scrip of the company at a pr ice lower than the last traded price and was
   deleting such orders after some time. Inve stigations had also revealed that he was
   placing big buy orders and was later updating th em with minor changes or without any
   change. By following this practice, it was obs erved that his orders were going in queue
   and the orders remained unex ecuted and after some time thos e were being deleted. In
   short, the appellant is said to have been putting huge buy orders away from the market
   price revealing the entire quantity on the trading screen and subsequently updating and
   deleting the orders and, thus, created ar tificial buying pressure in the market and
   manipulated the order book. This according to the Board violated Regulations 3 and 4 of
   the Regulations. The second charge levelled ag ainst the appellant is that he failed to
   provide crucial information/documents during the course of the investigations whereby
   he prevented the Board from effectively ga thering vital evidence. The appellant was
   summoned by the investigating authority to provide certai n information/documents and
   was also required to appear in person with the re quisite information. According to the
   Board, he repeatedly failed to comply with the summonses and, therefore, violated
   section 11C of the Securities and Exchange Bo ard of India Act, 1992 (for short the Act).
   A show cause notice was issued to the appell ant with the aforesaid two charges to which
   he filed his reply denying both of them. On a consideration of the material collected
   during the course of the inve stigations and the enquiry conducted by the adjudicating
   officer, she found that both the charges st ood established and by her order dated
   December 30, 2010 she imposed a monetary penalty of 15 lacs on the appellant. 5
   lacs was the penalty for not complying with the provisions of section 11 C of the Act and
   a sum of ` 10 lacs for violating Regulations 3 and 4 of the Regulations. It is against this
   order that the appellant has filed the present appeal.
3. We have heard the learned counsel for the parties who have taken us through the
   record and the impugned order. We shall fi rst deal with the charge relating to the
   violation of Regulations 3 and 4 of the Regulat ions. The details of the trades and orders
   placed by the appellant in the scrip of the company are as under:- 3

Date
Buy
Order
Qty

Buy
Trade Qty
Diff
Sell Order
Qty
Sell Trade
Qty
Diff
Buy trade
Value
Sale Trade Value

17/10/06 7,417,463 1,809,365 5,608,098 2354266 1,809,365 544, 901 31574910.48 32,167,219.97
18/10/06 3,265,732 360,000 2,905,732 670784 341,640 329,144 6283122.92 5,854,722.48
19/10/06 18360 18,360 0 314,958.37
27/10/06 5,070,978 1,162,114 3,908,864 2011666 1,162,114 849, 552 18758583.33 18,744,488.87
30/10/06 11,198,101 2,452,561 8,745,540 2728794 2,452,561 276,233 37150632. 05 37,291,428.38
31/10/06 14,010,274 1,546,474 12,463,800 2042164 1,546,474 495,690 24005391. 67 23,987,137.22
1/11/06 7,103,787 1,696,577 5,407,210 2004151 1,696,577 307, 577 25498139.35 26,348,557.15
2/11/06 15,887,249 1,205,245 14,682,004 1496144 1,205,245 290,899 17672383. 95 17,709,529.50
3/11/06 4,046,778 688,926 3,357,852 911667 688,926 222,741 9369393.6 9,437,261.80
6/11/06 8,649,463 216,079 8,433,384 216079 216,079 0 3046244.2 3,079,125.75
7/11/06 11,391,800 779,474 10,612,326 1391930 779,474 612,456 10828594.4 10,910,897.70
8/11/06 4,000,429 96,591 3,903,838 123409 96,591 26,818 1246053.65 1,252,151.10
9/11/06 1,920,214 427,470 1,492,744 580096 427,470 152,626 5345893 5,350,787.15
10/11/06 2,194,845 5,155 2,189, 690 6803 4,500 2,303 61860 54,225.00
Total 96,157,113 12,446,031 83,711,082 16,556, 316 12,445,376 4,110, 940 190841202.6 192,502,490.44
Total Buy trade
value and Sale Trade
Value

38.33
crore

The adjudicating officer has also relied upon th is chart as it correctly depicts the trade
and order logs of the appellant. The appella nt claims to be a day trader who buys and
sells shares during the course of the day and squares off his position at the end of the day.
It is clear from the aforesai d chart that on 13 days when the appellant placed his buy
orders, he could square off his position on 11 days when the shares bought and sold
during the course of the day were the same and he only made profit/loss to which he was
entitled and he had no obligation to deliver or to pay during the course of the settlement.
It is only on 18 th of October, 2006 and 10 th of November 2006 that the total number of
shares purchased by the appellant did not tally with those sold during the course of those
days and the difference is nominal. On the ba sis of the aforesaid tr ading pattern of the
appellant, the adjudicating officer has found that he had been placing huge quantities of
buy orders and those which actually resulted in trades were comparatively much less
from which an inference has been drawn that the appellant has been putting in buy orders
without the intention of getting them executed and it is for this reason that the buy orders
were being placed at a price lower than the la st traded price. This, according to the
adjudicating officer, resulted in creating artif icial buying pressure in the market and
manipulating the order book. The adjudicati ng officer holds that such acts of the
appellant created false appearance of trading in the scrip of the company and misled the
gullible investors. It is on this basis that she holds the appellant guilty of violating
Regulations 3 and 4 of the Regulations whic h prohibit persons from buying, selling or
otherwise dealing in securities in a fraudul ent manner and from i ndulging in fraudulent

4
and unfair trade practices in securities. Having examined the trading pattern of the
appellant, we are not inclined to agree with the adjudicating officer. It is true that the
appellant had been placing huge buy orders and that those which resulted into trades were
comparatively less. For instance, on N ovember 2, 2006 the appellant had placed buy
orders for 1,58,87,249 shares whereas he c ould only purchase 12,05,245 and sold an
equal number on that day. Instead of drawing an inference that the appellant did not have
the intention of getting his buy orders executed into trades because the orders were being
placed at a price lower than the last traded pric e, one could also infer that as a day trader
the appellant wanted to buy and sell large quantities of shares but could manage to buy
and sell only 12,05,245 which again is not a very small number. Again, from the fact that
the orders were being placed at a price lower than the last traded price, it is reasonable to
infer that the appellant was following the normal market mantra of “buy low sell high”.
It is reasonable to infer that as a genuine buyer the appellant wanted to buy at the rate
slightly lower than the last traded price and th is is what he did. This is clear from the
price at which he had put in his buy orders. It must be remembered that day traders who
trade during the course of the day usually net their posit ion like the appellant did and
their profits are extremely low and in order to make good profit, they need to trade in
high volumes. It could be for this reason that the appellant pu t in buy orders for
1,58,87,249 shares on November 2, 2006 and there is nothing unnatural about it. Similar
is the trading pattern on the ot her days as depicted in the af oresaid chart. A charge of
manipulative trading like the one levelled against the appellant is a serious charge which
involves fraud and, therefore, ha s to be established with a high degree of probability.
Looking at the trading pattern of the appellant, we do not find that the charge is
established with the required degree of proba bility. In this view of the matter, we set
aside the findings of the adjudicating officer on the first charge.

4. Now coming to the second charge regardi ng the violation of section 11 C of the
   Act. Here we find that a number of summons es had been issued to the appellant to
   furnish detailed information during the course of the investigations. The appellant had
   been asked to furnish the details of the scrips other than that of the company in which he
   had traded and also the source of money that had come into his bank accounts. A copy of
   the demat account and the bank account statemen ts were also asked for. Some of the 5
   information was furnished. When we look at the bank account statements we find that
   large sums of money were deposited in cash on a day to day ba sis during short intervals.
   The source of these cash and other deposits/entries has not been adequately explained. It
   is, therefore, not enough to im pose a monetary penalty of ` 5 lacs on the appellant and
   leave the matter at that. This is what the adjudicating officer has done. We, therefore, set
   aside the findings on the second charge and remit the case to the Board with a direction to
   call upon the appellant to explain the source of the monies which came into his account
   on the basis of which he was trading in the securities market. We are issuing this
   direction because we are conscious that section 11 of the Act enjoins a duty on the Board
   to protect the integrity of the securities market and this duty makes it obligatory on the
   Board to ensure that tainted/unaccounted money does not come into the securities market.
   On the basis of the findings that the Board r ecords after getting full information from the
   appellant it shall be open to it to proceed fu rther in the matter in accordance with law.
   The appellant is directed to co-operate with the Board in this regard.
5. Appeal no.71 of 2011
   Krishna Capshares Pvt. Limited is the appellant in this appeal. The primary
   charge against it is that it aided and abetted Shailesh M. Ved, the appellant in Appeal
   no.63 of 2011 in executing manipulat ive trades in the scrip of the company. Since the
   charge of manipulative trades against Shaile sh M. Ved has not been established, this
   charge against the appellant must fail.
6. The other charge levelled against the appella nt is that it failed to co-operate with
   the investigating officer and did not respond to the summonses issued to it requiring it to
   furnish information which was necessary for investigating the trading in the scrip of the
   company. Admittedly, two summonses had been issued to the appellant to which it did
   not respond nor did its represen tative appear before the inve stigating officer. We are,
   satisfied that the violation of section 11 C of the Act stan ds established against this
   appellant. The adjudicating o fficer has imposed a penalty of ` 5 lacs for this violation
   which is upheld.
   In the result, both the appeals are partly allowed. Appeal no.63 of 2011 is
   remanded to the Board for proceeding against the appellant for violation of section 11 C
   of the Act and then proceed in accordanc e with law. In Appeal no.71 of 2011 the 6
   findings of violation of the Regulations is set aside whereas the findings on the other
   charge upheld. The appellant in Appeal no.63 of 2011 is directed to appear in the office
   of the Board on July 25, 2011 for further proceed ings. There is no or der as to costs in
   both the appeals. Sd/- Justice N.K.Sodhi Presiding Officer Sd/- P.K. Malhotra Member Sd/- </code></pre>S.S.N. Moorthy
Member
6.7.2011
Prepared and compared by
RHN

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