BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

Appeal No. 211 of 2012

Date of Decision : 03.12.2012

Anita Dalal
13, Ganga Vihar, B Wing,
1st Floor, C Road,
55-Marine Drive,
Mumbai – 400 020.

…Appell

Versus

Securities and Exchange Board of India
SEBI Bhavan,
Plot No.C4-A, G Block, BKC,
Bandra (E), Mumbai – 400051.

…Respondent

Mr. Gaurav Joshi, Advocate with Mr. Rajesh Khandelwal and Ms. Mamta Pati,
Advocates for the Appellant.

Mr. Shiraz Rustomjee, Senior Advocate with Mr. Mihir Mody, Advocate for the
Respondent.

CORAM : P.K. Malhotra, Member & Presiding Officer ( Offg.)
S.S.N. Moorthy, Member

Per : S.S.N. Moorthy

The appellant is an individual investor and also a trader in the securities

market. The present appeal is directed against an order passed by the whole time

member of the Securities and Exchange Board of India (the Board) on September 25,

2012 by which the appellant was restrained from accessing the securities market and

further prohibited from buying, selling or otherwise dealing in securities directly or

indirectly or being associated with the securities market in any manner for a period of

18 months. The whole time member passed the impugned order in exercise of the

powers conferred upon him by the provisions of Section 19 read with Sections 11 and

11B of the Securities and Exchange Board of India Act, 1992 (the Act) and

Regulation 11 of the Securities and Exchange Board of India (Prohibition of

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Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations,

2003 (FUTP regulations). The Board detected synchronized trades while investigating

the dealings in the scips of Temptation Foods Limited, Bang Overseas Limited

(Bang), Confidence Petroleum India Ltd. (Confidence), Cals Refineries Limited

(Cals) and Shree Precoated Steels Limited. It was found that a group of connected

clients indulged in synchronized trades in the scrips mentioned above contributing to

artificial volumes therein. The appellant was found to be connected with the client

group which indulged in inflation of volumes in the scrip. A show cause notice was

issued to the appellant on July 26, 2011 alleging that the appellant was involved in

creating artificial volumes in the scrips of Bang, Confidence and Cals through

synchronized / reversal / self trades and so there was violation of the provisions of

Regulation 3 and 4 of the FUTP regulations. The appellant replied to the show cause

notice denying all the allegations. However, the whole time member of the Board

after providing an opportunity of personal hearing to the appellant, passed an order on

September 25, 2012 imposing restraint in market operations of the appellant for a

period of 18 months as mentioned above.

2. We have heard Shri Gaurav Joshi, learned counsel for the appellant and

Shri Shiraz Rustomjee, learned senior counsel for the Board who took us through the

records of the case.

3. The ant’s arned submitted that the appellant cannot be held

guilty of synchronization and matching of trades since the appellant was acting as per

normal business standards and there was no knowledge about the manipulation

indulged in by the connected group who dealt in the same scrip. When the appellant

traded in the scrips which were traded by a specific group of entities who indulged in

creation of artificial volumes it was but natural th at appelltdes also got

matched though the appellant had no role in it. It is submitted that the appellant acted

through her husband Shri C.J. Dalal, who happens to be a broker for the connected

group of entities, and this cannot be taken as a ground for clubbing her with the

connected entities. There is no allegation of benami trades on behalf of her husband

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and in such a scenario she cannot be held to have acted in collusion with the

connected group involved in the dealings. The appellant is stated to be a regular

trader in various scrips and her percentage of transactions in the impugned scrips is

insignificant i.e. about less than 3 per cent. If overall trades of the appellant had been

taken into account she could not have been held guilty of manipulation of volumes.

According to the appellant, there is no default in pay out and delivery in her

transactions and she has not derived any undue profit by way of inflation of volumes.

With reference to the trade logs it is submitted that there is a vast difference between

the quantity of shares transacted and that which got matched. Special emphasis is laid

by the appellant on this aspect to point out that the matching of quantities is a crucial

factor in trade manipulation and in the present case there is a vast difference between

the quantity traded and the quantity matched. The appellant questions the pick and

choose attitude of the whole time member as against the consideration of the trades as

a ealedthe ct theappell e

transactions was too insignificant to be matched. There was no financial connection

among the parties and the whole time member has not brought on record the

necessary factors to prove close connection of the appellant with the entities in

question to establish a case of meeting of minds. It is also contended by the appellant

that the allegation of self trade cannot be sustained since it related to only shifting of

position from one broker to another which has been explained by way of an additional

affidavit during the hearing of the appeal. A reference was made to the case of Lalkar

Securities P. Ltd. in which an order has been passed by the whole time member

(WTM/RKA/ID-4/47/2012 dated October 9, 2012) in which the appellant was let off

with a warnin is aed that the appant’simar in na

4. The learned senior counsel appearing for the Board submitted that trades have

taken place in the impugned scrips through a group of connected entities like Maruti

Group and Maniar Group through reversal, self trades and off market transactions and

the trades of the appellant also substantially fell in the same category and hence the

theory of mere coincidence cannot be accepted. It is the case of the Board that

reversal, self trades and matching trades have taken place in the dealings of the

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appellant and the percentage of transactions highlighted by the appellant cannot be

considered to be relevant. There cannot be cases of perfect synchronization of time,

quantity and volume. The appellant has contributed in the creation of artificial

volumes in the scrips when the connected group traded in a manipulative manner. The

appellant has acted through her husband who is the central broker in the transactions

and the dealings have shown a common pattern in matching of volume, time and

quantity. Self trades, according to Boaleseniocounse l, are by nature

reprehensible and the explanation offered by the appellant is totally unacceptable. The

explanation given by the appellant in the affidavit filed during the hearing of the

appeal is stated to be an after thought and even therein the appellant could not explain

the self trades involving 500 shares. With specific reference to the trades in the scrip

of Bang, it is submitted that major portion of buy trades of the appellant are with the

counter parties and they got matched. There is no infirmity in considering the

appelltrades the pugned alone vis-à-vis her whole traders since they

have contributed to artificial volumes in this case. So, according to the learned senior

counsel for the Board, there is meeting of minds between the appellant and the

connected entities in the transactions under consideration and the appellant has

contributed to the manipulative activity of the group through her matched trades.

5. We have considered the rival submissions. The trades of the appellant in the

scrips of Bang, Confidence and Cals remain undisputed. The appellant acted through

Shri C.J. Dalal, her husband, who is a broker. The appellant is the director of Krishvi

Securities Pvt. Ltd. Major counter party clients in the dealings in the scrip of Bang

were Maruti and Maniar Group. They also traded through broker Shri C.J. Dalal,

appellhusband. The trades of the appellant convincingly demonstrate that the

appellant has indulged herself in synchronized / reversal transactions. We cannot

accept the theory of coincidence in the backdrop of the trade logs which show the

transactions of the appellant in a synchronized manner. The appellant has consistently

indulged herself in synchronized and reversal trades on various dates. On March 10,

2008, 5000 shares got matched in its transaction with the counter party client. It is

true that the order quantity was 92,596. But similar matching has taken place

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repeatedly on several dates during 2008. This cannot be brushed aside as casual or

coincidental. The contention of the appellant that there is a vast difference between

the quantity order and the quantity matched cannot be taken as a ground to prove the

innocence of the appellant. In market manipulation perfect synchronization and exact

matching of trades may not be available. In the present case matching / reversal,

though of different quantities, has taken place consistently over a period of time. This

has happened because the transactions were put through a central broker Shri C.J.

Dalal, ant’ s husband. We cannot agree with the submission that appell

trades were insignificant compared to the market volume. It is not a case of a few

shares getting matched on one or two occasions. It is a process of continuous,

periodical and conscious matching in several trades over a period of time. The whole

time member has stated in the order that he has taken into consideration only the

appelltrons to e ali in the impugned scrips. He has also

stated that the appellant was not found to be part of the group indulging in

manipulative transactions when the initial interim order was passed in the group of

cases. However, this cannot mitigate the gravity of the manipulation to which the

appellant is found to be a party. The appel laconsi participation in the

synchronized trades along with the group entities has surely contributed to the

creation of artificial volumes. The argument of the learned counsel that the

appellrolein sheme matihato vie wed in the background of

her overall trades does not merit consideration. The relationship of the parties, the

continuous and consistent matching of trades and the transactions in the same scrips

by all the group entities through a central broker would amply illustrate the game plan

of the entities involved.

6. It has been held by this Tribunal in the case of M/s. Galaxy Broking Ltd. vs.

Securities and Exchange Board of India (Appeal no. 3 of 2010 dated January 29,

2010) that reverse trades happen on the trading system when the client and broker are

in league with each other. In the case of GIR Marketing & Trading Co. Pvt. Ltd. vs.

Securities and Exchange Board of India (Appeal no. 113 of 2011 decided on August

5, 2011) it has been held by this Tribunal that “ cross deals per se are not illegal but

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the common broker executing the buy and sell orders is not expected to match those

orders by putting in orders for the same quantity, at the same price and at the same

time ” . In the present case also, the trades got matched because they were operated

through a common broker and the trades got matched / reversed in a consistent

manner over a period of time.

7. The appellant has been found guilty of self trade as well. Self trades

admittedly are illegal. This Tribunal has held in several cases that self trades call for

punitive action since they are illegal in nature. In M/s. Jayantilal Khandwala & Sons

Pvt. Ltd. vs. Securities and Exchange Board of India (Appeal no. 24 of 2011 decided

on June 8, 2011) this Tribunal has held that “ one cannot buy and sell shares from

himself. Such transactions are obviously fictitious and meant only to create false

volumes on the trading screen of the exchange ” . The appellant has executed self

trades in the shares of Bang and Confidence. There has been no convincing

explanation for the self trades in the reply to the show cause notice. However, during

the hearing of the appeal, an affidavit was filed stating that the self trades were for

shifting of position from one broker account to another broker account. Again we

cannot accept this contention. The appellant has not clarified as to why this has been

put through in the form of purchase and sale instead of through proper book entries.

In the affidavit, while dealing with self trades of 28,968 shares the appellant would

give credit for the so-called transfer entries to the impugned shares except 500 shares.

This means that the self trades in respect of 500 shares remain admitted.

8. It is not necessary to consider the issue of extra benefits accruing from volume

manipulation since it is evident that the appellant has indulged herself in manipulative

activity which is prohibited in FUTP regulations.

9. In view of the discussion above, we uphold the finding arrived at by the whole

time member that the appellant has violated Regulations 3 and 4 of the FUTP

regulations.

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10. The ant’s arned also submitted that the restraint from market

operations imposed on the appellant for a period of 18 months is highly excessive and

disproportionate. According to him, the contribution of the appellant, if any, to the

manipulative game plan was insignificant. It is also submitted that the appellant is a

regular trader in various scrips and the volume of trade in the impugned scrips is not

of a high order as compared to dealings in other scrips and the debarment for 18

months has not taken into account the nature and circumstances of the dealings. The

learned senior counsel appearing for the Board, on the other hand, made a reference

to the order of the whole time member (WTM/RKA/IVD/ID-4/39/2012 dated

September 25, 2012) in which some entities have been debarred for a period upto four

years in the transactions in the impugned scrips.

11. On a consideration of the facts and circumstances of the present case, we find

that thereis aroftheappellt’s ed Inthimed

order it is stated by the whole time member himself that the contribution of the

appellant to the total artificial volume created in the scrips appears to be relatively

less. He has taken into account contribution to the artificial volume in absolute terms

and the overall manipulative strategy of the appellant. Considering these factors we

are of the view that restraint from market operations for a period of 18 months is

excessive. Having regard to the facts of the case, we reduce the period of restraint to

three months from the date of the impugned order.

Appeal is partly allowed. No costs.

                        Sd/-  
      P.K. Malhotra  
                      Member &  

Presiding Officer ( Offg.)

                Sd/-  
                     S.S.N. Moorthy   
                 Member  

03.12.2012
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