BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 4 of 2011

Date of Decision : 11.02.2011

Monika Jain
413, Manish Chamber,
Sonawala Lane,
Opp. Hotel Karan Palace,
Goregaon (E),
Mumbai – 400 063.

…Appellant

Versus

Ms. Branali Mukharji
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. Ravi Ramaiya, Chartered Accountant for the Appellant.

Dr. Poornima Advani, Advocate with Mr. Ajay Khaire, Advocate for the Respondent.
CORAM : Justice N.K. Sodhi, Presiding Officer
S.S.N. Moorthy, Member

Per : Justice N.K. Sodhi, Presiding Officer (Oral)

The appellant before us is a trader who traded in two scrips of Allcargo Global
Logistics Ltd. and Unity Infraprojects Ltd. (hereafter referred to as Allcargo and
Unity respectively). Both the scrips are li sted on the Bombay Stock Exchange Ltd.,
Mumbai and the National Stock Exchange of India Ltd. (for short BSE and NSE
respectively). The appellant traded for a period of 15 days during the period from
April 1, 2008 to May 15, 2008 which is the investigation period. There were only 30
trading days during this period. The appellant is said to have executed circular trades
in both the scrips on both the exchanges. Her statement was recorded by the
investigating officer during th e course of the investiga tions whereafter adjudication
proceedings were initiated against her. She was served with a show cause notice
alleging violation of Regulation 4 of the Securities and Exchange Board of India
(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations, 2003 (for short the regulations). She filed a reply denying the

2
allegations. On a consideration of the mate rial collected during the course of the
investigations and the enquiry conducted by the adjudicating officer, he came to the
conclusion that the appellant executed along wi th others, circular trades in both the
scrips and on both the exchanges. Accordingly, by her order dated
November 29, 2010 she imposed a monetary penalty of ` 3 lacs on the appellant. It is
against this order that the present appeal has been filed.

2. We have heard the authorised represen tative of the appellant and the learned
   counsel appearing for the respondent Board who have taken us through the record.
   The fact that the appellant executed circul ar trades in the tw o scrips on both the
   exchanges has not been disputed before us. What is strenuously argued by the
   authorised representative is that the a ppellant was not a part of any group which
   indulged in circular trading and that the adjudicating officer was wrong in recording a
   finding to this effect. We have perused the trades executed by the appellant and they
   are, admittedly, circular in nature. We ca nnot agree with the representative of the
   appellant that the appellant was not a part of the group. May be, she is not related to
   any of the other persons who formed the group but the fact that ci rcular trades were
   executed among a group of traders including the appellant is enough to establish the
   link as, without her, the chain or link w ould have broken. The trades executed by the
   appellant along with th e others clearly show that on April 1, 2008 one Rajnish Jain
   who is also part of the group transferred 1000 shares of Allcargo on BSE to the
   appellant and another 255 shares to Anjana Mehta who was also a part of the group.
   Anjana Mehta, in turn, transferred those 255 shares to the appellant and the appellant
   transferred 1255 shares (1000 sh ares received from Rajnis h Jain directly and 255
   shares received from Anjana Mehta) to Ra jnish Jain. The circle, thus, got completed.
   The shares which started from Rajnish Jain were received back by him within
   seconds. This is not a solitary instance. A large number of trades in the same fashion
   were executed by this group of persons including the appellant where shares in both
   the scrips were traded among themselves on both the exchanges and were not allowed
   to go out of the circle. We are, therefor e, satisfied that the charge of executing
   circular trades levelled against the appellant stands estab lished and that she indulged
   in unfair trade practices and thereby violated regula tion 4 of the regulations. 3
   A circular trade is a fictitious trade which is executed on the trading screen of the
   exchange which does not result in the transf er of beneficial owne rship in the traded
   scrip. Such trades only create false or misleading appearance of trading in the
   securities market and thereby lure the lay investors to jump into the fray. In this view
   of the matter, no fault can be found with the impugned order. The learned
   representative of the appellant contends that the appellant was a victim of
   misrepresentation made by one Sunil Mehta on whose instructions she had traded in
   the two scrips. It is further contended th at it was Sunil Mehta who was executing the
   trades in her name. That may be so, but the fact remains that the trades that were
   executed were circular in nature and would be regarded as unfair trade practices in the
   securities market and this is what is prohibited by regulation 4 of the regulations.
3. The authorised representative of th e appellant then urged that since the
   appellant had traded only for a small pe riod of 15 days dur ing which period the
   volumes did not increase on the trading screen and that she made no profits out of the
   trades executed by her and that she stopped trading as she incurred some losses and in
   this background, the amount of penalty levied may be reduced. Having regard to the
   peculiar facts and circumstances of this case and taking a sympathetic view, we
   reduce the penalty to ` 1.5 lacs. This shall not be treated as precedent for other cases. In the result, we uphold the order of the adjudicating officer holding the
   appellant guilty but reduce the penalty to ` 1.5 lacs. The appeal stands disposed of
   accordingly. No costs.
   Sd/-
   Justice N.K. Sodhi
   Presiding Officer Sd/- S.S.N. Moorthy Member 11.2.2011
   Prepared and compared by:
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