BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

Appeal No. 25 of 2012  

Date of Decision: 21.2.2012  

Saumil A. Bhavnagari
601, Parshwa Towers,
Nr. Fly over bridge, Satellite
Ahmedabad – 380 051.

               …… Appellant 

Versus

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

            …… Respondent 

Mr. Deepak R. Shah, Advocate for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Mobin Shaikh, Advocates for the Respondent.
CORAM : P. K. Malhotra, Member
S.S.N. Moorthy, Member
Per : S.S.N. Moorthy, Member
Challenge in this appeal is against the imposition of penalty of ` 10 lacs on the
appellant under section 15HA of the Securities and Excha nge Board of India Act, 1992
for violating the provisions of regulation 4 of the Securities and Exchange Board of India
(Prohibition of Fraudulent and Unfair Trad e Practices Relating to Securities Market)
Regulations, 2003 (hereinafter referred to as the ‘FUTP Regulations). The appellant is
engaged in the business of trading in shares. The Securities and Exchange Board of India
(the Board) investigated the trading in the scrip of M/s. Adani Exports Ltd. (the
company) during the periods between Ju ly 09, 2004 and January 14, 2005 and between
August 01, 2005 and September 5, 2005. It was observed that the price of the scrip
registered wide fluctuations during the investigation periods . During investigation it
came to light that the appellant had traded substantially in the scrip of the company in his
own name and in the name of his proprietary concern V & S Intermediaries. It was also
revealed that the transactions of the appellant in the shares of the company led to creation
of artificial volumes and price rise and this indicated fraudulent trade practices. A show

2

cause notice was issued to the appellant on June 23, 2008. The appellant sought time for
replying to the show cause notice. Inspite of the lapse of the time granted, no reply was
filed by the appellant. The adjudicating offi cer gave an opportunity of personal hearing
to the appellant which was attended by his au thorized representative. The adjudicating
officer provided the appellant with the deta ils and documents as required by him and
provided a further opportunity of personal he aring. A detailed reply was filed to the
show cause notice denying the allegations.

2. After due consideration of the reply file d by the appellant and the trade details,
   the adjudicating officer concluded that the appellant had indulged in fraudulent and unfair
   trade practices and there has been violation of regulation 4 of the FUTP Regulations.
   Accordingly a penalty of ` 10 lacs was imposed.
3. We have heard the learned counsel for the parties who took us through the details
   of the impugned order. To begin with, th e appellant’s learned counsel denied the
   allegation of synchronized trade and reversal of trades observing that the adjudicating
   officer has not brought on record any material to clinch the issue of manipulation. It was
   further argued by him that the penalty of 10 lacs in the circumstances of the case is highly excessive. He drew our attention to the order of this Tribunal in Appeal no. 207 of 2011 decided on 23.1.2012 in the case of Nrupesh C. Shah who is a counter party in the appellant’s case. It is argued that a penalty of 2.5 lacs has been sustained by this
   Tribunal in the case of the counter party, which should, in effect, apply to the case of the
   appellant also. A reference was also made to the adjudication orders passed by the Board
   in the cases of Ms. Rina Shah, Shri Haresh Posnak, Shri Ankit Vairana, Shri Mangeram
   S. Sharma who have also traded in the sa me scrip during the same period and in whose
   cases, the quantum of penalty levied by the Board was at the rate of ` 1 lakh in almost
   identical circumstances.
4. The learned counsel appearing for the Board defended the order of the
   adjudicating officer. According to him, penalty of ` 10 lacs has been levied by the
   adjudicating officer after taking into acc ount the trade volumes and modus operandi
   adopted by the appellant. It is submitted that the trade volume has got a definite bearing
   on the gravity of the violation and in the present case trade volume is substantially higher 3

than that in the cases cited by the appellant’s learned couns el. Approximately the trade
volume is four times that of Shri Nrupesh Sh ah whose case has been cited in comparison
by the appellant’s learned counsel. He would also lay emphasis on the fact that unlike in
the case of Shri Nrupesh Shah, the appellant in the present case has transacted in the
shares not only in his own name but also in the name of his sole proprietary concern. The
same modus of manipulation was adopted both on the BSE and on the NSE. The
quantum of penalty is reas onable and commensurate to the gravity of the impugned
violation.

5. We have considered the rival arguments. We have also gone through the order of
   this Tribunal in Appeal no.207 of 2011 dated 23.1.2012 in the case of Shri Nrupesh Shah.
   The adjudication orders of the Board cited by the appellant’s learned counsel have also
   been perused. Even though the learned counsel for the Board has strongly defended the
   adjudication order, we are of the view that the quantum of penalty is excessive having
   regard to the facts of the case. At the same time, we cannot subscribe to the view
   canvassed by the appellant’s learned counsel that the quantum of penalty should be at par
   with that in the cases cited by him. The na ture of violation and the trade volumes are
   substantially higher in the present case as co mpared to the cases cited by the appellant’s
   learned counsel. The violations indulged in by the appellants are clearly brought out by
   the adjudicating officer in his findings. It has been found by him that the trade details
   during the period 9 th July, 2004 to 24 th July, 2004 establish a la rge number of reversal
   trades with a single counter party. The appellant was engaged in buying from and selling
   to the same counter party thereby reversing his trades without change of beneficial
   ownership and the time difference was only ze ro to ten seconds. Similarly during the
   period October 15, 2004 to January 14, 2005, the appellant traded in the name of his sole
   proprietary concern, indulged in reversal of trades in the periods of almost less than
   60 seconds. The reversal of trades stands established. The appellant has not brought on
   record any material or any argument to dislodge the above conclusion of the adjudicating
   officer. As already observed, the gravity of vi olation in the appellant’s case, especially
   with regard to trade volumes, cannot be co mpared with that of the cases cited by the
   appellant’s learned counsel. 4

Having regard to the facts of the case, th e nature of transactions and the penalty
imposed on other entities in respect of manipulation in the scrip of the company, we hold
that a penalty of 4 lacs would be just and reasonable. Penalty is, therefore, reduced from 10 lacs to ` 4 lacs. The impugned order stands modified as above. No order as to
costs.

                Sd/-   
            P.K. Malhotra 
                     Member 
                Sd/-  

S.S.N. Moorthy
Member
21.02.2012
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