BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 52 of 2011
Date of Decision: 28.6.2011
Mr. Lokesh Kapoor
Juhu Samdeep, Juhu Versova Link Road,
Andheri (W), Mumbai – 400 072.
…… Appellant Versus
Adjudicating Officer
Securities and Exchange Board of India
SEBI Bhavan, C-4A, G Block,
Bandra Kurla Complex, Mumbai – 400 051.
…… Respondent Mr. Zal Andhyarujina, Advocate with Ms. Prachi Pande, Advocate for the Appellant.
Mr. Kumar Desai, Advocate with Ms. Harshada Nagare, Advocate for the Respondent.
CORAM : Justice N. K. Sodhi, Presiding Officer
P. K. Malhotra, Member
S.S.N. Moorthy, Member
Per : Justice N. K. Sodhi, Presiding Officer (Oral)
Unfortunately, this is a second round of litigation between the parties and the
errors pointed out in the first round do not se em to have been rectified. The appellant
before us is a trader in the securities market and he is said to have executed trades in the
scrip of Mega Corporation Ltd. (referred to hereinafter as the company). The Securities
and Exchange Board of India (for short the Bo ard) carried out investigations in the scrip
of the company and noticed that during the period from January 25, 2005 to
September 16, 2005 the price of the scrip moved from 5.25 to 41.10. Investigations
further revealed there was a sudden spurt in the volumes as well. Board found that as
many as 42 entities including the appellant traded in the scrip of the company and
manipulated the price and volumes. Adjudicat ion proceedings were initiated against all
the 42 entities. While issuing notice to the appellant the supporting documents pertaining
to some others had been furnished to him and he was found guilty of violating
Regulation 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent
and Unfair Trade Practices) Regulations, 2003 (for short the Regulations) which prohibits
a person from indulging in fraudulent and unfair trade practices in securities. The
adjudicating officer imposed a penalty of ` 5 lacs on him. Feeling aggrieved by that
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order, the appellant filed Appeal no.244 of 2009 before this Tribunal. The appellant had
pleaded that the data furnished to him to substantiate the charge levelled against him was
erroneous and did not establish that he had ex ecuted manipulative trades as alleged. It
was also the appellant’s grie vance that supporting documents pertaining to other entities
had been furnished to him. Without going into the other contentions raised on behalf of
the appellant, this Tribunal set aside the order of the adjudicating officer solely on the
ground that the supporting documents furnished to the appellant did no t pertain to him.
The case was remanded and the adjudicating officer was directed to complete the
proceedings expeditiously.
- After remand the adjudicating officer served the appellant with a fresh show cause
notice dated December 16, 2010 alleging that he had violated the provisions of
Regulation 4 of the Regulations. The grav amen of the charge levelled against the
appellant is contained in paragraph 12 of the show cause notice which reads as under:-
“12. It thus appears that you along with the said conne cted entities as
reflected in Annexure 1 have allegedl y manipulated the scrip of MCL by
entering into transactions that are not genuine resulting in the creation of a
misleading appearance of trading in the scrip of MCL and artificial
volumes, thereby contravening the various provisions of the PFUTP
Regulations.”
Although the charge contained in the show ca use notice is generic in nature yet the
details of the trades executed by him and other entities that fo rmed the group were
furnished to him alongwith the show cause not ice. Annexure 6 to the show cause notice
contains the details of trades of all the 42 entities which are said to have created a
misleading appearance of trading in the scri p. Annexures B and C to the show cause
notice contain the details of the trades execute d by the appellant. The appellant filed his
detailed reply denying all the allegations. He pointed out in the reply that the data
furnished to him alongwith the show cause notice had the same mi stakes/errors which
existed in the earlier data that was furnished to him in the first round of proceedings.
Without taking note of the obj ections raised by the appella nt and on the basis of the
material collected by him the adjudicating officer by his order dated January 7, 2011 has
again found the appellant guilty of violati ng Regulation 4 of the Regulations and has
imposed a penalty of ` 5 lacs on him. It is this order which is now under challenge in this
appeal. 3 - We have heard the learned counsel for the parties who have taken us through the
record and the impugned order. We are clearly of the view that the data furnished to the
appellant was erroneous and did not furnish th e correct details of the trades executed by
him and that the impugned order deserves to be set aside on the ground of non application
of mind. As already noticed above, the appellant alongwith the connected entities is said
to have manipulated the scrip of the compa ny by executing non genui ne trades resulting
in creation of misleading appearance of trading in the scrip. These trades are further said
to have created artificial volumes. The adjudicating officer not ed the errors and
discrepancies pointed out by the appellant and made the following observations in
paragraph 15 of the impugned order:-
“I have noted the errors and discrepa ncies pointed out in the annexures to
the SCN. I have noted that the rise in certain names and figures were due
to typographical or spacing problems , respectively. The discrepancy in
that data as provided in the two sets of Annexures was due to the fact that
the Annexures A to E contained ex clusive figures pertaining to the
Noticee for the entire period of investigation.”
These observations do not carry us anywhere because the adjudicating officer has not
dealt with them. When we look at the data furnished to the appellant it becomes obvious
that the errors therein are so patent and grave that we canno t hold that the charge stands
established. For instance, the appellant purchased 200 shares of the company on May 23,
2005 at the rate of ` 38.90 per share. The trade is show n to have been completed at
10:22:44 hours. The details of the buy order and the broker are mentioned. The name of
the appellant is also mentioned as the buyer. These shares were sold by one Umesh
Choukikar. The seller had put in his sell order at 10: 23:03 hours and the quantity of
shares sought to be sold is shown as zero. This data is on the face of it erroneous. How
could the trade get executed even before the se ll order was put into the system. Besides,
the sell quantity was zero. There is a similar error in another trade executed by the
appellant on the same day with the same seller. When the learned counsel for the
respondent was confronted with this data he pointed out that the correct details of the
trades executed by the appellant were furnishe d to him in Annexures B and C. We have
perused these annexures as well and taken note of the details of the trades. The same
mistakes appear there. In those annexures as well the trades have been shown to have
been executed even before the sell order was put into the system. A serious charge like
execution of fraudulent trades cannot be establ ished on the basis of th is inaccurate data. 4
The adjudicating officer did not apply his mind to this material aspect of the case. These
inaccuracies in the data furnished to the appellant go to the root of the matter and we are
satisfied that he was not provided with suffi cient opportunity to meet the case as set up
against him in the show cause notice. - At this stage, the learned counsel appear ing for the Board cont ends that the case
be remanded again so that correct data coul d be furnished to the appellant. In the
circumstances of this case, we are not inclined to accept this course of action. The errors
now pointed out were there in the data that was furnished to the appellant alongwith the
first show cause notice. Inspite of the errors being pointed out in the earlier proceedings,
no effort was made to furnish the correct da ta which could establish the charge. The
appellant has already faced two enquiries by the adjudicating officer and the sword of
Damocles has remained hanging on him since the year 2005. This would have had some
effect in case he had done some mischief.
In the result, the appeal is allowed and the impugned order set aside with no order
as to costs.Sd/- Justice N.K.Sodhi Presiding Officer Sd/- P.K. Malhotra Member Sd/- </code></pre>S.S.N. Moorthy
Member
28.6.2011
Prepared and compared by
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