BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

                            Appeal No.  220 of 2011 
                              Date of decision: 1.5.2012 

Manish Pancholi
16-G, Babulnath Temple,
Babulnath Road,
Mumbai – 400 007.

                         ……Appellant 

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

                            …… Respondent 

Mr. J. J. Bhatt, Advocate for the Appellant.
Mr. Kumar Desai, Advocate with Ms. Daya Gupta, Ms. Harshada Nagare,
Advocates for the Respondent.
CORAM : P. K. Malhotra, Member & Officiating Presiding Officer
S. S. N. Moorthy, Member

Per : P. K. Malhotra

The present appeal has been filed challenging the order dated November
11, 2011 passed by the adjudicating officer of the Securities and Exchange Board
of India (for short the Board) holding th e appellant guilty of violating regulations
4(1) and 4(2)(a) of the Securities and Ex change Board of India (Prohibition of
Fradulent and Unfair Trade Practices Rela ting to Securities Market) Regulations,
2003 (for short the regulations ) and imposing a penalty of ` 2,50,000/- under
Section 15HA of the Securities and Exchange Board of India Act, 1992.

2. The appellant is said to be a day trader doing intra-day trading through
   M/s. Ajmera Associates Pvt. Ltd., a br oker registered with the Bombay Stock
   Exchange (for short the broker). The Board conducted investigations in trading in

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the scrip of M/s. Advik Laboratories Lt d. (the company) for the period from
September 2003 to January 2004 and observed that the price of the scrip had risen
59 per cent in 67 trading days . Investigations conducte d by the Board revealed
that the company made a number of premature and misleading announcements
and the promoters of the company transf erred shares to th e connected/related
entities and traded among themselves and entered into synchronized transactions
in the market thereby creating artificial volumes and generating demand in the
scrip which resulted in increase in the price of the shares. Subsequently, the
promoters off-loaded their own shares. It was alleged that the appellant had
introduced the promoters to the broker th rough whom they off-loaded the shares
in the market. It was furthe r alleged that the appellant al so traded in the scrip of
the company and indulged in synchroni zed trading with the promoters and
connected entities and manipulated the market.

3. A show cause notice dated Sept ember 30, 2010 was issued to the
   appellant alleging violation of Regulations 4(1), 4(2)(a), (b), (e) and (g) of the
   Regulations and asking him to show cau se why enquiry should not be held and
   penalty imposed in accordance with the law. The appellant filed his reply to the
   show cause notice vide letter dated October 17, 2011 denying all the allegatiions.
   The adjudicating officer granted personal hearing to the appellant after which the
   impugned order was passed. In the impugne d order, the appellant has been
   exonerated from the charge of violating Regulation 4(2)(b), (e) and (g).
   However, it is concluded that the appellant aided and abetted the promoters of the
   company in fradulently dealing in the sh ares and creating misleading appearance
   of trading in the market thereby violat ing Regulations 4(1) and 4(2)(a) of the
   regulations and a penalty of ` 2,50,000/- has been imposed. Hence this appeal.
4. Mr. J. J. Bhatt, Advocate for the appellant prayed for setting aside the
   impugned order stating that the trade da ta does not show the features of
   synchronization. It was submitted by him that the appellant did not act in concert
   with anyone and the alleged synchronizati on of trades in the scrip of company

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was insignificant and the appellant was unaware that his clients were the
promoters of the company or, in any way, related to the promoters. The
appellants’ purported synchroni zed volumes itself is insignificant which is less
than 0.50 per cent of the market volume a nd, therefore, cannot create artificial
volume. Further, the trading pattern of the appellant and that of the promoters
was different and, therefore, the charge of aiding and abetting the clients does not
arise. In any case, there was no such charge against the appellant in the show
cause notice. The adjudicating officer has given a categorical finding that the
trades of the appellant had not influenced price of the scrip. It was further stated
by the appellant that the adjudicating officer has failed to establish nexus between
the appellant and client of counter brokers . It was, therefore, submitted that
adjudicating officer has erred in holding the appellant guilty of violating the
provisions of regulations 4(1) and 4(2)(a) of the regulations and imposing penalty
for the same.

5. Mr. Kumar Desai, learned counsel for the respondent Board supported
   the order passed by the adjudicating officer stating that the appellant traded in the
   scrip, indulged in synchronized trading w ith the promoters and other connected
   entities and manipulated the market. According to the learned counsel for the
   Board, the share price of the company opened at 19.91 on September 29, 2003 and touched a high of 31.70 on December 30, 2003. Th e trading volume also
   registered sharp rise from daily average of 400 shares before the investigating
   period to daily average of 8,50,000 shares du ring the investigation period. The
   promoters of the company and certa in entities who are found to be
   connected/related to the promoters and the appellant traded in the market through
   their brokers. With reference to the deta ils of such tradings, a summary of which
   is given in para 12 of the impugned order, it was stated by him that the appellant
   introduced Rajkumar Jain, Vivek Jain, Shivani Jain and Kimud Jain to the broker.
   He also bought 8,99,544 shares and sold 8,87,712 shares during the investigation
   period in his own account. The instances where the buy and sell orders of the
   appellant were synchronized are gi ven on page 12, 13 and 14 of the impugned

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order. It was argued that in 139 instan ces the buy trade of the noticee matched
with that of promoters or the entities related to the promoters in price-time
priority on 28 days of trading. Similarly, in 58 instances on 13 days, the sell trade
of the appellant matched with that of the promoters or entities related to them.
According to the learned counsel for the Board, this cannot be a coincidence that
on so many occassions, the counter party would be the promoter/promoter entities
and the buy orders and sell orders matched within seconds. Therefore, he
submitted that the trades executed by the appellant were synchronized and created
artificial volume. According to him, the impugned order does not call for any
interference.

6. We have considered the rival submissions and also perused the
   documents available on record and are of the view that the appeal should succeed
   for the reasons given hereunder. The onl y connection between the appellant and
   the promoter entities which has been br ought on record is that the appellant had
   introduced Rajkumar Jain, Vivek Jain, Shivani Jain and Kimud Jain to the broker.
   The appellant had bought 8,99,554 shares and sold 8,87,712 shares of the
   company during the investigation period and traded through the broker. The total
   number of shares traded and synchr onised among the group in respect of the
   appellant are 1,55,724 on the buy side and 59,965 on the sell side. Admittedly,
   the beneficial ownership in the shares had changed. It is also a matter of record
   that the scrip is illiquid and having re gard to the total volume traded, the
   possibility of these trades being s ynchronized cannot be ruled out. The
   adjudicating officer has come to the conclusion that there is no findings on record
   to establish that there was no change in beneficial ownership and also that there
   was no evidence on record to show that the trades of the noticee influenced the
   price of the scrip. The appellant has not been found to be related or connected to
   any other person dealing in the scrip of the company. As per findings of the
   Board, the company made several prem ature and misleading announcements
   which according to the Board, generated demand in the scrip and share price went
   up. We were told during the course of hearing that the Board has initiated

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appropriate action against the company a nd its promoters/group entities also. If
the appellant has not been found responsible for influencing the price of the scrip
and beneficial ownership in the shares traded by him ha s also changed, it is not
clear how he can be held responsible fo r manipulating the scrip. There is yet
another reason as to why the charge agains t the appellant will not stand. In the
show cause notice, the charge against the appellant is that he was introducer of the
promoter entities to the broker and he used to place order on behalf of the
promoters/their associates. It is also a lleged in the show cause notice that when
the misleading announcements were made by the company and the price of the
scrip went up, the appellant started trading in the scrip alongwith the promoters of
the company. However, in the impugned order the appellant has been found
guilty of aiding and abetting the promoters of the company in fraudulently dealing
in the shares and creating misleading appearance of trading in the market. We fail
to understand how appellant can be held guilty of aiding and abetting the
promoters of the company when there was no such charge against him in the show
cause notice. Further, if the beneficial ownership in the tr ades executed by him
has changed and synchronization of trades in an illiquid scrip with the promoter
group entities is miniscule, how can his tr ading be said to be creating misleading
appearance of trading in the market. We are, therefore, clearly of the view that in
the facts and circumstances, no case for viol ation of regulations 4(1) and 4(2)(a)
of the regulations is made out against the appellant.
The appeal is allowed and the impug ned order set aside with no order as
to costs.
Sd/-
P. K. Malhotra
Member &
Officiating Presiding Officer
Sd/-
S. S. N. Moorthy
Member
1.5.2012
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