BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 171 of 2011
Date of decision : 16.01.2012 Sparkline Mercantile Co Pvt. Ltd.
26, Krishna Niwas,
498, Kalbadevi Road,
Mumbai – 400 002. …… 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. Deepak Dhane, Advocate for the Appellant.
Mr. Kumar Desai, Advocate with Ms. Harshada Nagare, Advocate for the Respondent.
Coram : P. K. Malhotra, Member
S.S.N. Moorthy, Member
Per : P. K. Malhotra, Member
This appeal is directed against the order dated December 31, 2010 passed by the
adjudicating officer of the Securities and Exchange Board of India (for short the Board)
holding the appellant guilty of violating regula tions 4(1) and 4(2) 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). He has found that
the appellant, in collusion with certain broke rs and clients, had executed synchronized
trades on the Bombay Stock Exchange in th e scrip of Jindal Drill ing & Industries Ltd.
(for short the company) and indulged in non-genuine/fraudulen t transactions in
violation of the Regulations which resu lted in creation of artificial volume,
manipulation of the price of the scrip and distorting the market equilibrium. The
appellant was served with a show cause no tice dated July 25, 2008 requiring it to show
cause as to why an enquiry should not be held against it and pe nalty imposed for the
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said violations. Admittedly, the appellant did not avail of this opportunity and the
adjudicating officer, by an ex-parte order, found the appellant guilty of the charge and
imposed a monetary penalty of Rs.25 lacs on it. Hence this appeal.
- We have heard learned counsel for the parties. The allegations against the
appellant are that the appellant, along with some other connected entities, had executed
synchronized/circular trades and indulged in non-genuine transactions in the scrip of the
company on the Bombay Stock Exchange during the investigation period from
May 10, 2005 to September 2, 2005. The details of total purchase, sale and gross
trading are mentioned in the show cause notice in the form of a table as under:
Name of the
client
Broker Total buy Total Sell Gross
Trading
% to market
gross
Samradha
Finstock
Indiabulls
Securities
Ltd.
261700 268200 529900 4.61
Emerging
Capital
Indiabulls
Securities
Ltd.
41644 171167 212811 1.85
Sparkline
Mercantile
Religare
Securities
Ltd.
308757 326832 635589 5.54
V&U
Caplease
ASE Capital
Market Ltd. 374263 365437 739700 6.44
Hem Kanak
Mercantile
UTI
Securities
Ltd.
293474 243474 536948 4.68
Chirag Tanna M R Share
Broker Ltd. 526756 447311 974067 8.49
Total 1806594 1822421 3629015 31.63
The details of their trading amongst themselves are also provided in the form of a table
as under:
Buy/Sell Samradha
Finstock
Emerging
Capital
Sparkline
Mercantile
V&U
Caplease
Hem
Kanak
Mercantile
Chirag
Tanna
Total
Samradha
Finstock 0 5000 31500 2051 50484 64105 153140
Emerging
Capital 0 0 0 23354 0 3100 26454
Sparkline
Mecantile 21390 200 25331 44384 73208 164513
V&U
Caplease 5298 1402 5444 500 1227 17093 30964
Hem
Kanak
Mercantile
62634 0 37040 17152 0 42783 159609
Chirag
Tanna 35325 0 67584 19962 49355 2525 174751
Total 124647 6402 141768 88350 145450 202814 709431
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These trades are not disputed by the parties. The case of the appellant is that in penalty
proceedings, it is incumbent on the authority to bring out a clear connection with the
group entities and the appellant. The only c onnection that has been brought out by the
adjudicating officer is that Emerging Cap ital Advisors Limited, one of the group
entities, and the appellant ar e located at the same addre ss and also have same phone
number. There has been no transaction be tween Emerging Capital Advisors Ltd. and
the appellant. It was further submitted by th e learned counsel for the appellant that the
synchronized trades per se are not illegal. It is only when synchroni zation of trades is
done with a view to manipulate the market that such trades can be questioned. The
evidence brought on record is not enough to bring home the charge against the appellant
and punishing him for violating regulations 4( 1) and 4(2) of the Regulations. In the
absence of any such findings having been recorded by the adjudicating officer, the
charge against the appellant cannot sustai n and the order passed by the adjudicating
officer needs to be set aside.
- We are unable to agree with the lear ned counsel for the appellant that the
adjudicating officer has failed to bring hom e the charge against the appellant. The
trades executed by the group entities have be en mentioned in the tables in the show
cause notice as extracted above. References have also been made to the relevant
portions of the investigation report indicating that during the investigation period these
related entities have traded amongst them selves. The interconnection between these
related entities have also been referred to by the adjudicating officer in para 21 of his
order which is reproduced below for ease of reference:
“The Investigation Report has al so established the relationship
between the concerned entities. Shri Chirag Tanna was introduced
to the stock broker M R Share Broking Pvt. Ltd. by Shri Dilip
Nabera, who is one of the contact persons/directors of both
Emerging Capital Advisors Ltd. and Adhunik Finance Pvt. Ltd.
As per the information provided by NSE Mayrose Capfin Pvt. Ltd.
and Samradha Finstock Pvt. Ltd. have the same address. Emerging
Capital Advisors Ltd. and the noticee are located at the same
address and also have same phone number. Common address was
mentioned in the letterheads of both the noticee and Mayrose
Captin Pvt. Ltd. One of the dir ectors of Hem Kanak Mercantile
Pvt. Ltd., Mrs. Sadhana Nabera is the wife of Shri Dilip Nabera.
The BSE Investigation Report ha d also mentioned that Adhunik 4
Finance Pvt. Ltd. and Samradha Finstock Pvt. Ltd. have a common
phone number. It was observed from the Form No.3CD –
Statement of particulars required to be furnished under section
44AB of the Income Tax Act, 1961 in the Assessment year 2004-
05 that V&U Caplease Pvt. Ltd. had received Rs.50 lacs from
Adhunik Finance Private Ltd. Adhuni k Finance in its reply dated
March 10, 2008 admitted that it had given Rs.50 lacs to V&U
Caplease Pvt. Ltd. as loan against shares to be purchased in due
course in the financial year 2003-04. However, the deal could not
be materialized and the amount was returned back latter on.”
It is an admitted position that it is difficu lt to get direct evidence with regard to
synchronization of trades for the purpose of upsetting the market equilibrium or to
manipulate the market. It is only on the basis of circumstantial evidence that such a
connection can be proved. Looki ng at the details provided in the investigation report,
the show cause notice and the findings reco rded by the adjudicating officer, we are
convinced that the adjudicating officer has brought enough material on record in
support of the conclusion that the entities me ntioned in the tables above are connected
entities and traded among themselves with prior arrangement resulting in creation of
artificial volume and distorting the market equilibrium. A large number of trades were
executed among the group entities within a minut e of placing the or der. This cannot
happen without prior meeting of minds among the connected entities. From the details
of the trades executed and ha ving regard to th e trading system, we do not think that
such large number of trades could match between the same parties unless the trading
system was being abused. Therefore, we ha ve no hesitation in upholding the findings
recorded by the adjudicating officer in the impugned order. - It was then argued by the learned counsel for the appellant that under similar
facts and circumstances relating to the same transaction in relation to two other group
entities namely, Hem Kanak Mercantile Private Limited (Appeal no. 171 of 2009
decided on 11.3.2010) and Samradha Finsto ck Pvt. Ltd. (App eal no. 204 of 2010
decided on 28.2.2011) this Tribunal had reduced the penalty to Rs. 7 lacs. We have seen
the earlier orders. The transactions are the same and the entities involved are also group
entities. The case of the appellant is identic al to the two cases re ferred to above. The 5
appellant, therefore, cannot be given a diffe rent treatment. We, therefore, reduce the
penalty to Rs. 7 lacs in this case.
In the result, while upholding the findings of the adjudicating officer, we reduce
the penalty to Rs.7 lacs. The impugned order stands modified accordingly. There will be
no order as to costs.
Sd/-
P. K. Malhotra
Member
Sd/-
S.S.N. Moorthy
Member
16/01/2012
Prepared & compared by-ddg