BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

Appeal No. 27 of 2012  

Date of Decision: 21.2.2012  

Nitin R. Patel
373, Paldi, Patel Vas,
Ahmedabad – 380 007.

             …… 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, Advocate for the Respondent.
CORAM : P. K. Malhotra, Member
S.S.N. Moorthy, Member
Per : S.S.N. Moorthy, Member
The dispute in the present appeal re lates to the imposition of penalty of ` 5 lacs
on the appellant under section 15HA of the Secu rities and Exchange Board of India Act,
1992 read with regulation 4 of the Securities and Exchange Board of India (Prohibition of
Fraudulent and Unfair Trade Practices Rela ting to Securities Market) Regulations, 2003
(hereinafter referred to as the ‘FUTP Regulat ions). The Securities and Exchange Board
of India (the Board) investig ated 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
showed wide fluctuations during the investigation periods. During investigation, it came
to the notice of the Board that the appellant had traded substantially in the scrip of the
company through M/s. Ess Ess Intermediaries Ltd., who is a sub-broker of M/s. ASE
Capital Market. On investigation, it was pr ima facie noticed that the appellant had
entered into synchronized trades generating artificial volumes and manipulation of the
market. It was also noticed that the appellant had indulged in self trades and reversal
trades aimed at creating artificial volumes and manipulation of pr ice. A show cause

2

notice was issued to the appellant on June 20, 2008. There was no response from the
appellant within the time granted by the ad judicating officer. The appellant was given an
opportunity of personal hearin g which was attended by his au thorized representative.
Subsequently the appellant filed written submissions denying the allegations levelled by
the adjudicating officer. In the mean time, the adjudicating officer provided the appellant
with all the documents and details as requi red by him whereupon the appellant promised
to file further written submissions. However no such submissions were filed
subsequently. The adjudicating officer, after due consideration of the material on record,
came to the conclusion that the appellant had indulged in unlawful and manipulative
trades and so penalty was ca lled for. Accordingly, a sum ` 5 lacs was imposed as
penalty, as mentioned above.

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 trad es 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 5 lacs in the facts and circumstances of the case is highly excessive. He drew our attention to the order of the adjudicating officer in the case of Mahesh Kumar A. Panchal who is a counter party in the appellant’s case. He also invited our attention to the adjudication orders passed by the Board in the cases of Ms. Rina Shah, Shri Haresh Posnak, Shri A nkit Vairana, Shri Mangeram S. Sharma who traded in the same scrip during the same period. It is submitted that penalty of 1 lac
   has been imposed by the adjudicating officer in all the above cas es and there is no
   material difference in the appellant’s case for a deviation and pitching the penalty as high
   as ` 5 lacs. The appellant’s learned counsel laid special emphasis on the adjudication
   order passed in the case of Mahesh Kumar A. Panchal and argued that the transactions
   are identical and the adjudication order de als with almost identical quantum of
   transactions and the case should have been considered giving due consideration to the
   parity in dealings.
4. The learned counsel appearing for the Board defended the order of the
   adjudicating officer. According to him, penalty of ` 5 lacs was imposed by the 3

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 the multiplicity of dealings are significant. According
to him the case of Mahesh Kumar A. Panchal do es not squarely fit into the facts of the
present case. It is submitted that the appellant has indulged in reversal of trades as well
as self trades. The appellant has also tran sacted with other count er parties apart from
Mahesh Kumar A. Panchal. So, according to him, there is no parity between the two
cases and the appellant is liable to a higher qua ntum of penalty. It is submitted that the
quantum of penalty is reasonable and commensurate to the impugned violation.

5. We have considered the rival arguments. We have also gone through the order of
   the adjudicating officer in the case of Mahesh Kumar A. Panchal and those in respect of
   other individuals cited by the appellant’s le arned counsel. The f act of synchronised
   trades and self trades stands established. The appellant’s learned counsel has not brought
   on record any material to disprove the ma nipulations established by the adjudicating
   officer. The adjudicating officer has obs erved that the appellant entered into
   synchronized trades to the extent of 58,010 sh ares on the buy side and 57,860 shares on
   the sell side during the period 9.7.2004 and 27.7.2004. Out of the above 52,910 shares
   were traded fictitiously as he was the client on the buy side as well as the sell side and the
   orders were synchronized. During the period 16.7.2004 to 27.7.2004, the appellant
   entered into trades for 1,29,422 shares, orders for which were synchronized as the buy
   and sell orders were placed within a gap of one minute. Similarly during the period
   28.7.2004 and 14.1.2005, the appellant indulged in reve rsal of trades by placing orders
   for 3,04,68,962 shares which were synchron ized. The adjudicating officer has
   extensively dealt with similar instances. So the appellant’s violation in respect of
   synchronized trades and self tr ades stands established. However, there is merit in the
   contention of the appellant’s learned counsel that the quantum of penalty is on the higher
   side when the penalty imposed in the case of similarly placed market operators dealing in
   the scrip of the company is taken into account. Even though penalty provisions cannot be
   straight jacketed to fall within strict parameters they should be commensurate with the
   gravity of the violation and other attendant circumstances. It goes without saying that the
   facts and circumstances of each case have to be viewed in their proper perspective. 4

Having regard to the facts of the case, th e nature of transactions in the present
case and the penalty imposed on other entities in respect of manipulation in the scrip of
the company, we are of the view that a penalty of 2 lacs would be just and reasonable. Therefore, the penalty imposed is reduced from 5 lacs to ` 2 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
Prepared and compared by
RHN