BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

            Appeal No. 163 of 2012 

    Date of Decision: 10.09.2012      

Mr. Jagdish R. Jani
Shriram Vihar, Block No. 23 Rokadia Lane,
Near Gokul Hotel, Borivali (W),
Mumbai- 400 092

                                     ……Appellant 

Versus

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

                                …… Respondent 

Dr. Mr. S. K. Jain, Practicing Company Secretary for the Appellant.
Dr. Mrs. Poornima Advani, Advocate with Mr. Ajay Khaire and Ms. Rachita Romani,
Advocates for the Respondent.
CORAM : P.K. Malhotra, Member & Presiding Officer (Offg.)
S.S.N. Moorthy, Member
Per : S.S.N. Moorthy.
The appellant is a trader in securities . The present appeal is directed against
imposition of a penalty of ` 4 lacs by the adjudicating officer. The appellant was found
guilty of violating the Provisions of Regulation 4 of the Securities and Exchange Board
of India (Prohibition of Fra udulent and Unfair Practices re lating to Securities Market)
Regulations, 2003 (hereinafter called FUTP Regulations). The adjudicating officer
found that the appellant, by way of circular/f ictitious trades in the scrip of Flawless
Diamond (India) Limited (FDIL), created false and misleading appearance of trading by
indulging in collusive activities with a few entities who traded in the scrip along with
the appellant.

1. The Securities and Exchange Board of India (the Board) conducted investigation
   in the scrip of FDIL for the period June 2006 to February 2007. During the period of 2
   investigation the price of the scrip registered an increase from 13.55 to 129.80. The
   abnormal increase in price acted as an alert for conducting investigation in the case and
   this resulted in identificat ion of a group of entities, including the appellant, who
   indulged in synchronization of trades and circular dealings for artificially jacking up the
   price of the scrip. A show cause notice wa s issued to the appellant on June 30, 2011 to
   show cause why an enquiry should not be held and if found guilty penalty should not be
   imposed for violation of FUTP Regulatio ns. The appellant went in for consent
   proceedings before the Board which were rejected. Subsequently, after perusal of
   necessary documents, the appellant filed a detailed reply to the show cause notice
   denying the allegations. A personal hearing was afforded to the appellant before
   finalization of proceedings. During the personal hearing the fact of circular trading was
   admitted by the appellant’s authorised representative and a request was made for a
   sympathetic consideration of the case. The adjudicating officer, after due consideration
   of the facts of the case and the conduct of the appellant, imposed a penalty of ` 4 lacs as
   mentioned above.
2. We have heard Dr. S.K. Jain, Company Secret ary for the appellant and
   Dr. Mrs. Poornima Advani, learned couns el for the respondent Board who took us
   through the records of the case.
3. After a careful consideration of the facts on record and the submissions made by
   the appellant before the adjudicating officer we are of the view that the only issue to be
   resolved in this case is the quantum of pena lty, since the fact of circular trading has
   been admitted. It is necessa ry to highlight the admissi on made by the appellant’s
   authorised representative before th e adjudicating officer on March 20, 2012. The
   relevant admission runs as under:
   “I accept the charge that Noticee had indulged in circular
   trading with other members of the group which resulted in
   volume build-up. I request the AO to take a lenient view in
   the matter.” 3
4. The learned representative appearing for the appellant submitted that the alleged
   increase in price during the period when appellant traded was not phenomenal as
   compared to the previous and subsequent pe riods when the appellant did not trade and
   this would mitigate the seriousness of the guilt. According to him major price rise
   occurred before October 19, 2006 during which period the appellant did not involve in
   the trades. It is pointed out that the appe llant traded during the period October 19, 2006
   to January 3, 2007. The price increase during the above mentioned period is stated to be
   from 43.95 to 58.85 with variations in between. According to the appellant the price
   behavior during the above peri od was very moderate and reasonable. The price rise
   during the other parts of the investigation pe riod was of a high order. So, according to
   the appellant, the impact of the price rise on account of circular trades during the period
   when the appellant traded was minimum and he should not be penalized taking into
   account the mischief which took place during th e investigation period as a whole. It is
   also submitted that the price rise in the scrip during the above period from 43.95 to 58.85 was on account of corporate announcements . The learned representative of the
   appellant drew our attention to the adjudica tion orders passed in th e case of Dinesh K.
   Pandey and Hiren Kirit Gandhi who were al so involved in the same manipulation.
   According to him, they were imposed a penalty of 1 lac each whereas in identical circumstances a penalty of 4 lacs has been foisted on the appellant and this goes
   against the doctrine of proportionality.
5. The learned counsel appearing for th e Board defended the order of the
   adjudicating officer and submitted that the conduct of the appellant does not show any
   ground for leniency in the quantum of penalty. It is submitted that all the entities in the
   group acted in tandem in the manipulation of th e scrip and the quantum of shares traded
   by the appellant is substantially high. C onnection among the entities of the group has
   been established and this is not disputed by th e appellant. Once it is established that the
   entities of the group acted in concert there is no need to further subdivide the period of
   investigation so as to give a separate treatment to th e trades of the appellant. The
   company lacks strong fundamentals and the a ttempt of the appellant was to create 4
   artificial price rise through ci rcular trading which is highly manipulative. It is also
   submitted by the learned counsel for the Boar d that the adjudicating officer has very
   ably distinguished the case of Dinesh K. Pa ndey in the adjudication order itself and so
   the plea of the appellant for reduction of penalty on this count is not tenable.
6. While imposing a penalty for violation of FUTP Regulations it is necessary to
   take into account the volume of trades, period of trades and the extent of the appellant’s
   participation in the manipulation. Even though the manipulation has been done by the
   group as a whole the contribution of each en tity in the group may vary depending upon
   the factors mentioned hereinabove. Viewed from this angle, the period during which the
   appellant traded in the scrip and the conse quent price rise during the period has to be
   given due regard. During the hearing of the appeal the learned representative of the
   appellant has produced before us a chart show ing the price behavior of the scrip during
   the period when the appellant traded. The same chart is made the basis for the
   contentions in the grounds of appeal. It is not disputed that the appellant’s trades spread
   over a period from October 19, 2006 to Janua ry 3, 2007. During this period, as per the
   chart furnished by the appellant, the price of the scrip rose from 43.95 to 58.85. The
   price rise prior to and subsequent to the above period is substantially of a high order. In
   fact, in June 2006 the price of the scrip was only 13.55. In February 2007 i.e. at the end of the investigation period, the scrip was at a high of 129.80. So there is some
   merit in the contention of the appellant that the price rise during the period of his trades
   was rather moderate as compared to the remaining period of investigation. We are
   unable to accept the submission of the appellan t that this price ri se was on account of
   corporate announcements. On the other hand, th e price behavior of the scrip establishes
   a steady upward curve during the investigation period. The adjudication order in the case
   of Dinesh K Pandey, relied on by the learned re presentative of the appellant may not be
   of much help to the appellant because the facts of the case have been clearly
   distinguished by the adjudicating officer in the impugned order. So is the case with the
   adjudication order in the case of Hiren Kirit Gandhi also. The quantity of shares traded
   in both these cases is substantially of a lower order. The appellant had traded in 202540 5
   shares amounting to 3.52% of the total ma rket volume during the investigation period.
   The circular transactions amounted to 151084 shares. As observed above, the appellant’s
   contribution to the price rise was confined to only a portion of the investigation period
   and the price rise during that period wa s not abnormally high. This fact requires
   consideration while evaluating the gravity of the wrong doi ng and quantum of penalty.
   Taking into account the facts of the case and having regard to the role of the appellant in
   the overall scheme of manipulati on we hold that a penalty of 2 lacs would meet the ends of justice. Accordingl y, the penalty is reduced to 2 lacs and the appeal partly
   allowed. No order as to costs. Sd/- P.K.Malhotra Member & Presiding Officer (Offg.) Sd/- S.S.N. Moorthy Member 10.09.2012
   Prepared & Compared By: Pk