BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

Appeal No. 207 of 2011  

Date of Decision: 23.1.2012  

Nrupesh C. Shah
235, Doshiwala Pole,
Kalupur, Ahmedabad – 380 001.

            …… 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. Mihir Mody and Mr. Mobin Shaikh, Advocates for
the Respondent.
CORAM : P. K. Malhotra, Member
S.S.N. Moorthy, Member
Per : S.S.N. Moorthy, Member
The present appeal has been filed agains t the adjudication order of the Securities
and Exchange Board of India (for s hort the Board) by which a penalty of ` 5 lacs was
imposed on the appellant. The appellant is e ngaged in the business of trading in shares.
The Board conducted investigations in the buy ing, selling and dealing in the shares of
M/s. Adani Exports Ltd. (AEL) for the periods July 09, 2004 to January 14, 2005 and
August 01, 2005 to September 5, 2005. It was observed that the price of the scrip
registered wide fluctuations during the above periods. Du ring investigation it was found
that the appellant had traded substantially in the scrip of AEL through M/s. Grishma
Securities P. Ltd. during the first investigation period. The trades resulted in
synchronized dealings with other entities on the Bombay Stock Exchange and created
artificial volumes in the scrip of AEL. The appellant was directed to show cause why
penalty should not be levied for unlawful trading as found duri ng investigation. The
appellant appeared in person before the adj udicating officer but sought time for filing a
detailed reply to the show cause notice. He did not file any reply within the time granted
but sought further time for filing reply to the show cause notice. However, subsequently,
no reply was filed by him to the show cause notice. The adjudicating officer proceeded to

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consider the issues as appearing in the invest igation report and the material available on
record. After due consideration of the rele vant issues the adjudicating officer found the
appellant guilty of unfair trade practices and imposed a penalty of ` 5 lacs under section
15HA of the Securities and Exchange Board of India Act 1992 (for short the Act).

2. The appellant’s learned counsel woul d fairly admit that there has been
   synchronization of trades during the period July 09, 2004 to January 14, 2005. However
   the main thrust of his argument is that penalty has been imposed without regard to the
   factors outlined in section 15J of the Act and to the stand taken by the adjudicating
   officer in cases of similar kind where manipulation was noticed in the scrip in the case of
   a few other individuals. According to the appellant’s learned counsel, the three factors
   mentioned in section 15J should have a strict correlation to the quantum of penalty which
   is not so in the present case. With reference to adjudication orders in the cases of
   Ms. Rina Shah, Shri Haresh Posnak, Shri Ankit Vairana, Shri Mangeram S. Sharma in
   whose cases the quantum of penalty levied was only ` 1 lakh, the appellant’s learned
   counsel put up a strong plea for reduction in the quantum of penalty.
3. The learned counsel appearing for th e Board pointed out that the alleged
   fraudulent transactions in the appellant’s case related to only one counter party and so the
   appellant had knowingly contributed to the fraud and this has weighed with the
   adjudicating officer in determining the quant um of penalty. It was also argued by him
   that the quantum of penalty was determined by the adjudicating officer having regard to
   the large volumes of trades in comparison to the cases cited by the appellant’s learned
   counsel and the action of the adjudicating o fficer was well within the power conferred
   under section 15I of the Act.
4. We have considered the rival submissions . There is no denying the fact that the
   appellant had executed trades which did not result in transfer of beneficial ownership but
   merely created artificial volume in the scrip of AEL. It is to be noted that the appellant
   failed to furnish any reply to the show cause notice even though he had sought extension
   of time on his own. The adjudicating officer has proceeded on the basis of the material
   available on record and this cannot be faulted. The gravity of the manipulative trades has
   been well brought out by the adjudicating officer in the impugned order. The crux of the
   transaction reads as under: 3

“I have carefully examined the allegations against the Noticee and the
material available on record. I find from the Investigation Report (IR) that
the Noticee had traded for a huge volume of shares in AEL during the
period under investigation. I find from trade and order logs contained in
Annexure 5 of the IR that during the period from July 28, 2004 to January
14, 2005 the Noticee (client code-S043) had executed a large number
reversal trades. Almost all his trad es were with a single counterparty
client, namely Shri Saumil Bhavna gari (Client Code-087V001), on BSE.
Throughout the said period, the Notic ee was continuously buying from
and selling to the same counterparty client thereby reversing his trades
without change of beneficial ownership. It is seen that the time difference
between the buy and sell order for each of the trades between the Noticee
and the said counterparty client wa s less than 60 seconds. Similarly, I
further observe from Annexure 8 of th e IR that during the period from
October 15, 2004 to January 14, 2005 the Noticee had also executed a
large number of reversal trades in similar fashion with another client, V &
S Intermediaries (Client Code-V501), which was a proprietary firm of Shri
Saumil Bhavnagari, for a huge volume of shares on the NSE. The Noticee
and the said client had acted as th e counterparty client for each other’s
trades and had created a huge volume i.e. they purchased from and sold to
each other thereby reversing their trad es between themselves. Further, the
time difference between the buy order and the sell order for all such trades
was less than 60 seconds. I find that the Noticee has created a huge
volume in the scrip by trading in the abovementioned fashion.”
The gravity assumes larger proportion when it is noticed that all the transactions were
with one counter party. This would suggest that the appellant was knowingly transacting
with the counter party and the object was nothing but to inflate the volumes. The volume
of transactions and nature of the counter pa rty have been taken into due consideration by
the adjudicating officer in fixing the quantum of penalty.

5. The appellant’s learned counsel laid much thrust on th e provisions of section 15J
   of the Act. The relevant provision reads as under:
   “15J.Factors to be taken into account by the adjudicating officer.-
   While adjudging quantum of penalty under section 15 I, the adjudicating
   officer shall have due regard to the following factors, namely:

(a) the amount of disproportionate gain or unfair advantage,
wherever quantifiable, made as a result of the default;
(b) the amount of loss caused to an investor or group of investors
as a result of the default;
(c) the repetitive nature of the default.”
In the present case, penalty has been imposed under section 15HA of the Act for
indulging in fraudulent and unf air trade practices. Sectio n 15I confers power on the
adjudicating officer to impose such penalty as he thinks fit in accordance with the
provisions of the Act. Sec tion 15J lays down a few guiding factors for determining the
quantum of penalty. These factors are laid down to provide certain basic parameters for

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deciding the quantum of penalty. It cannot be inferred that the three factors mentioned in
section 15J should be straight jacketed and the penalty should be strictly proportionate to
the three factors. The adjudicating officer has to consider the totality of circumstances in
a given case in adjudging the quantum of pena lty. However, the three factors laid down
in section 15J are to be given appropriate consideration so as to avoid arbitrariness. So
the argument of the appellant’s learned counsel with regard to the provisions of section
15J and their non applicability to the facts of the case may not help the appellant in any
manner. As observed above, the adjudicating officer appears to have acted in due regard
to the provisions of section 15J as well as other attendant circumstances of the case.

6. The argument of the appellant’s learned counsel that the quantum of penalty in
   the present case should be the same as in the case of Ms. Rina Shah, Shri Haresh Posnak,
   Shri Ankit Vairana, Shri Mangeram S. Sharma cannot also be accepted since in the facts
   of the case, the volumes and number of transactions are much higher. In other words, the
   contribution of the appellant to synchronise th e trades to inflate volumes is of a much
   higher order.
   This Tribunal had decided another matter relating to same investigation period in
   the scrip of AEL in the case Mahesh H. Bissa vs. Securities and Exchange Board of India
   [Appeal no.202 of 2011 decided on 5.1.2012]. The facts of the present case and conduct
   of the appellant are almost similar to those in the appeal mentioned above. Having regard
   to the facts of the case and the totality of circumstances we ar e of the view that ends of
   justice would be met if a penalty of 2.5 lacs is imposed in the present case also. In view of the above, we reduce the penalty to 2.5 lacs. We order accordingly. The
   appeal is disposed of as above with no order as to costs. Sd/- P.K. Malhotra Member Sd/- S.S.N. Moorthy
   Member
   23.1.2012
   Prepared and compared by
   RHN 5