BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 112 of 2011

Date of Decision : 11.08.2011

Kajal P. Shah
1st Floor, 37 Gayatri Society,
Sukhabag Road,
Palanpur – 385001, Gujarat.

…Appellant
Versus

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

…Respondent
Mr. Zal Andhyarujina, Advocate with Mr. Ankit Lohia and Ms. Akshaya Bhansali,
Advocates for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Mobin Shaikh, 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 appeal deserves to succeed on the short ground that the allegations in the
show cause notice issued to the appellant initiating adjudication proceedings against
her are self contradictory. In paragraph 3 of the show cause notice dated
May 21, 2008 it is stated that as many as 42 entities were involved in the
manipulation of the scrip of Mega Corpor ation Ltd. (for short the company). The
names of these entities are mentioned in Annexure 1 to the show cause notice. The
name of the appellant is among these entities. It is further stated in paragraph 3 that
out of the 42 entities, 33 entities were allegedly found to be connected inter se. Their
names and linkages have been mentioned in Annexure 2 to the show cause notice.
The name of the appellant does not figure in this annexure. It is, thus, clear that the
allegation in the show cause notice is that the appellant manipulated the scrip but she
was not a connected entity referred to in Annexure 2. In paragraph 11 of the show
cause notice, it is alleged that the appellant being a part of the connected entities, had

2
contravened Regulation 4 of the Securities and Exchange Board of India (Prohibition
of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations,
2003 (for short the Regulations). A bald statement has been made in this para that the
appellant is a connected entity without indicating as to how she is connected with any
other entity. If we go by the annexures the appellant is not a connected entity but
allegation in paragraph 11 makes her a conne cted entity. The show cause notice does
not allege anywhere as to how the appellant was connected with the other entities. In
view of this contradiction, the show cause notice must fail.

2. The appellant is alleged to have vi olated Regulation 4 of the Regulations
   which prohibits a person from indulging in a fraudulent or an unfair trade practice in
   securities. Admittedly, on April 15, 2005 the appellant had purchased 5 lacs shares of
   the company from one Santosh Jagtap thr ough the price and order mechanism of the
   Bombay Stock Exchange (BSE). The purchas e order was executed in three different
   trades on the same day. Another 11,000 shares were purchased by her on
   September 1, 2005 from one Ramdas Krishsagar and this purchase was also through
   the exchange mechanism. The appellant th en sold 2,90,160 shares to one Fine Line
   Mercantile Co. (P) Ltd. in an off market transaction and the balance 2,20,840 shares
   were sold by her to different entities on BSE. It is alleged that Fine Line Mercantile
   Co. (P) Ltd. which purchased the shares from the appellant in an off market
   transaction is one of the connected enti ties mentioned in Annexure 2 to the show
   cause notice. From this it has been inferre d that the appellant was also a connected
   entity and a part of the group that manipulated the scrip. We are unable to understand
   this logic. How can the appellant be part of the connected entities when her name
   does not figure in Annexure 2 and merely because she sold 2,90,160 shares to Fine
   Line Mercantile Co. (P) Ltd. in an off mark et transaction does not mean that she was
   indulging in manipulating the scrip. There is not a whispe r in the show cause notice
   as to how the appellant was connected with Fine Line Mercantile Co. (P) Ltd.
   Of course, the appellant executed an off mark et transaction when she sold the shares
   but off market transactions are not illegal and nothing has been stated in the show
   cause notice as to how that transaction was illegal violating the trading norms of the
   exchange. We further find from the show cause notice that the appellant is alleged to 3
   have sold 56,100 shares to some of the connected entities whose names figure in
   Annexure 2. It is common case of the parties that these shares were traded on market
   through the price and order matching mechan ism of BSE and ther e is no allegation
   that the buy and sell orders were either synchronized or matched or that there was a
   prior understanding between the buyer and the seller. Merely because 56,100 shares
   were picked up by the so-called connected entities through th e market mechanism
   does not mean that the appellant was part of the manipulative group or that she was in
   any way connected with those entities. There is no allegation of any connection
   between the appellant and the purchasers. In this view of the matter, we are of the
   view that the charge of manipulation le velled against the a ppellant is not only
   contradictory but the respondent has also mi serably failed to establish the same even
   on its own showing.
3. Before concluding, we may mention th at the appellant had filed a detailed
   reply to the show cause notice denying each and every allegation levelled against her.
   Surprisingly, the adjudicating officer in the impugned order has not dealt with any of
   the pleas taken by the appell ant in her reply though he re fers to the reply in the
   impugned order. It is obvious that he did not apply his mind to the material on record
   and recorded his findings on mere conjectu res without establishing any link between
   the appellant and the so-called connected entities. In the result, the appeal is a llowed and the impugned order imposing a
   monetary penalty of 2 lacs on the appellant set asid e. She will have her costs from the respondent which are assessed at 50,000/-. Sd/- Justice N.K. Sodhi
   Presiding Officer Sd/- P.K. Malhotra Member Sd/- S.S.N. Moorthy Member </code></pre>11.08.2011
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