BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 20 of 2012
Date of decision: 30.03.2012 Mayrose Capfin Private Limited
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.
Dr. Mrs. Poornima Advani, Advocate for the Respondent.
Coram : P. K. Malhotra, Member
S.S.N. Moorthy, Member
Per : P. K. Malhotra, Member
This appeal has been filed by the appellant against the order dated December 26,
2011 passed by the whole time member of the S ecurities and Exchange Board of India
(for short the Board) under Section 11 and 11B of the Securities and Exchange Board of
India Act, 1992 (for short the Act) holding th e appellant guilty of violating regulations
4(a), (b), (c) and (d) of Securities and Exchange Board of India (Prohibition of
Fraudulent and Unfair Trade Practices relati ng to Securities Market) Regulations, 1995
read with regulations 4(1), 4( 2) (a), (b), (e), and (g) of the Securities and Exchange
Board of India (Prohibition of Fraudulent and Unfair Tr ade Practices relating to
Securities Market) Regulations , 2003 and restraining the a ppellant, along with five
other entities, from accessing th e securities market and proh ibiting them from buying,
selling or otherwise dealing in securities, directly or indirectly, for a period of one year.
- The facts of the case, in brief, are that the appellant is stated to be a trader/jobber
and a short term investor in securities ma rket trading through Nirmal Bang Securities 2
Private Limited, a stock broke r registered with the Board. In or around 2001, the
appellant traded in several scrips including the scrip of Sun Infoways Limited (for short
the company) on the Bombay Stock Exchange Ltd. The Board carried out investigations
into the irregularities in the trading of th e scrip of the company during the period from
February 5, 2001 to May 2, 2001 and obser ved that some brokers had executed
circular/synchronized trades on behalf of th eir clients and the said trades generated
artificial volumes in the scrip of the co mpany through circular trades which were
synchronized in terms of order, price, time and quantity. The appellant is alleged to
have traded in the scrip of the company through its broker for 18 days out of which
trades on 12 days were circular/reverse. A show-cause notice dated October 7, 2008
was issued to the appellant along with 13 other entities asking them to show-cause as to
why suitable direction should not be issued against them under Sections 11 and 11B of
the Act. The appellant filed reply dated Se ptember 21, 2010 and denied the allegations.
The appellant also made a preliminary subm ission stating that it had not been provided
with a complete copy of investigation report and complete trade and order logs and that
it had been provided only with extract thereof. The appell ant requested that it may be
provided with complete investigation report and complete trade and order logs along
with documents such as KYC forms execu ted by counterparty clients and other
documents and records which have been relied upon by the Board. An opportunity of
personal hearing was granted to the appellant along with ot her entities whereafter the
whole time member passed the impugned or der on December 26, 2011 restraining the
appellant from accessing the securities market as stated above. It is against this order
that the present appeal has been filed. - We have heard learned counsel for th e parties who have taken us through the
records of the case. It was strenuously ar gued by the learned counsel for the appellant
that it did not have a proper opportunity to defend itself because the Board has not
provided copy of the investigation report and complete trade and order logs. It was also
submitted that all trades were done in the ordinary course of business and on the
anonymous and automated trading system of the stock exchange through a registered 3
stock broker. The orders we re placed with the stock broker and the appellant was not
aware of the identity of count erparty broker or client. The trading in the scrip of the
company was in the short term and therefor e the appellant did not have large delivery
positions. It was further contended that since the appellant is not related or connected to
counterparty clients or brokers, its trades ought to be consider ed separately and if they
are so considered, its trades constitute onl y a miniscule portion of the total trades
alleged to be irregular and therefore are not capable of creating artificial market.
Learned counsel for the appellant also drew our attention to the findings recorded by the
whole time member in para 25 of the impugne d order where he has given example of
reversal trade in respect of trading done between the appellant and Adinath Propcon
Pvt. Ltd. (one of the noticee) and stated that this finding is not borne out of the extract
of trade/order logs made available to the appellant. In fact, according to the learned
counsel for the appellant, this was not a reversal trade and the Mayrose was only a seller
and Adinath Propcon was the buyer. The learned counsel for the appellant, therefore,
stated that the whole time member has not a pplied his mind to the facts of the case and
has come to the conclusions which are not supported by the material available on
record. He, therefore, strenuously argued that the order needs to be set aside on the
ground of violation of principles of natura l justice for not providing the relevant
material or alternatively needs to be sent back for fresh consideration in accordance
with law and the material available on the record. - Learned counsel for the respondent Board submitted that there has been no
violation of principles of natural justice as relevant extract of the trade/order logs were
provided to the appellant along with show cause notice at Annexure-8 and another
chart–Annexure 3A giving details of brokers and clients who are either connected to the
company or connected to its directors/prom oters. It was further submitted by her that
the two transactions mentioned in para 25 of the impugned order are only illustrative
and in so far as transaction between the appellant and Adinath Propcon is concerned, it
is in fact a synchronized trade and not a reve rsal trade. However, this omission on the
part of the whole time member does not vitiat e the order. After gi ving the illustration, 4
the whole time member has recorded a definite finding that the appellant traded through
its broker for 18 days and executed reversal/c ircular trades on 12 da ys for a total of
39,100 shares which amount to 4.28% of the mark et traded quantity. These trades were
executed with related entities, 31 buy orders and 32 sell orders placed by the appellant
resulted in 178 buy trades and 192 sell trades and these trades were circular/reversal in
nature. According to the whole time member, during the investigation period, circular
trading accounted for 68.47% of the appellant trading in the scrip. His findings are
supported with annexure 3A of the s how-cause notice which indicates the
interconnection between the pa rties and annexure-8 of the show cause notice which is
extract of the trade/order logs of the appellant. - After hearing learned counsel for the pa rties and perusing the record, we are of
the view that the order does not call for a ny interference by this Tribunal. Admittedly,
investigation in this case was carried out in the scrip of the company for the
investigation period from February 5, 2001 to May, 2001. This investigation was
confined not only to the appellant but involv ed 13 other ent ities also. What has been
provided to the appellant along with the show cause notice is the chart indicating the
interconnection between the parties and also extract of the trades which were executed
by it through its brokers. The interconnection between the parties has not been denied
by the appellant. The only submission made in this regard is that it is erroneous and
unjust to ascribe fraudulent and manipulative intent to its trades based on such relations.
We are of the view that interconnection betw een the parties is only one of the factors
which has been considered by the Board while arriving at its finding which is supported
by other material collected by it during the course of investigation, more particularly the
trade logs/order logs. Although the whole time member has not specifically dealt with
the request of the appellant wi th regard to complete copy of the investigation report or
the complete trade and order log, we are of the considered view th at no prejudice has
been caused to the appellant on this count as the extract of the relevant trade logs and
order logs pertaining to the appellant was made available which was enough for him to 5
defend himself or to make proper representa tion against the proposed action. No other
document has been pointed out by the appellant which might have been relied upon by
the whole time member in arriving at its fi nding and copy of which has not been made
available to the appellant. The principles of natural justice require that the inquiry
officer should make available such documen t and material to the delinquent on which
reliance is being placed in the inquiry. It is not necessary for the inquiry officer to make
available all the material that might ha ve been collected during the course of
investigation but has not been relied upon for proving charge against the delinquent. No
prejudice can, therefore, be said to have been caused to the appellant on this count.
After giving the two illustrations in para 25 of the impugned order regarding
reversal/synchronized trades, the whole ti me member has given the details of the
trading done by the appellant supported with th e extract of the trade/order logs. These
trades are not denied by the appellant. A large number of reverse trades are by
themselves reflective of the manipulation meant for increasing volumes on the screen of
the trading system. There is no change of beneficial ownership in the traded scrip. Since
the transactions were found between the c onnected parties, we cannot look into the
trades of the appellant in is olation. Out of 18 days of trad ing, reversal of trades on 12
days in respect of 39,100 shares resulting in 178 buy trades and 192 sell trades cannot
be a coincidence. We, therefore, cannot find any fault with the findings arrived at by the
whole time member of the Board.
In the result, the appeal stands dismissed with no order as to costs.
Sd/-
P. K. Malhotra
Member
Sd/-
S.S.N. Moorthy
Member
30.03.2012
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