BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved On: 20.03.2019
Date of Decision : 26.04.2019
Appeal No. 378 of 2018
P. J. Chaudhary
B-1401, 14th Floor, HDIL Metropolis,
Near Four Bunglow, J. P. Road,
Opp: Gurudwara, Andheri (W),
Mumbai- 400 053
…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. J. J. Bhatt, Advocate with Ms. Rinku Valanju, Advocate i/b
R.V. Legal for the Appellant.
Mr. Gaurav Joshi, Senior Advocate with Mr. Abhiraj Arora,
Ms. Misbah Dada and Mr. Vivek Shah, Advocates for the
Respondent.
CORAM: Justice Tarun Agarwala, Presiding Officer
Dr. C.K.G. Nair, Member
Justice M. T. Joshi, Judicial Member
Per: Dr. C.K.G. Nair
1.

This appeal has been filed challenging the order of the
Adjudicating Officer (“AO” for short) of the Securities and
Exchange Board of India (“SEBI” for short) passed on June 01,
2
2018.

By the said order a penalty of ` 16 lakh has been
imposed under Section 15HA of the Securities and Exchange
Board of India Act, 1992 (“SEBI Act” for short) and ` 6 lakh
under Section 15HB of the SEBI Act for violation of the
Securities and Exchange Board of India (Prohibition of
Fraudulent and Unfair Trade Practices relating to Securities
Market) Regulations, 2003 (“PFUTP” Regulations” for short)
and the SEBI (Stock Brokers and Sub-Brokers) Regulations,
1992 (“Brokers Regulations” for short).

2.

The appellant is a broker having trading rights of BSE
Limited. He stopped his business since April 13, 2011 prior to
which he was doing proprietary trading. SEBI conducted an
investigation into certain alleged irregularities of trading in the
shares of M/s SKS Logistics Limited (“SKS” for short) during
the period June 01, 2004 to October 29, 2004. The investigation
revealed certain irregularities in the form of circular/
synchronized trading by the appellant in connivance with
certain clients and brokers/ sub-brokers and created artificial
volumes in the scrip of SKS.

A show cause notice dated
December 15, 2009 was issued directing the appellant to show
cause as to why an inquiry should not be held and penalty not
imposed under Section 15HA and 15HB of the SEBI Act for
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alleged violation of the provisions of Regulation 4(1), 4(2)(a)
and 4(2)(g) of PFUTP Regulations and Regulation 7 read with
Clauses A(1), A(2), A(3), A(4) and A(5) of Code of Conduct for
stock-brokers specified under Schedule II for the SEBI (Stock
Brokers and Sub-Brokers) Regulations, 1992.

3.

Subsequently, after providing personal hearing etc. an
order was passed on August 28, 2014 by which a total penalty
of ` 22 lakh was imposed on the appellant. An appeal was filed
against this order before this Tribunal. Vide order dated March
29, 2016 this Tribunal set aside the order impugned therein and
remanded the matter back to the AO of SEBI for passing afresh
order on merits and in accordance with law. After providing a
fresh opportunity of hearing and considering the matter afresh
the order dated June 01, 2018 impugned in this appeal was
passed by the AO for violating provisions of PFUTP
Regulations and Code of Conduct for stock brokers.

4.

The relevant provisions of the PFUTP Regulations, 2003
and Code of Conduct are reproduced as below for convenience.
“PFUTP Regulations
4.

Prohibition of manipulative, fraudulent
and unfair trade practices
4
(1) Without prejudice to the provisions
of regulation 3, no person shall
indulge in a fraudulent or an unfair
trade practice in securities.
(2) Dealing in securities shall be deemed
to be a fraudulent or an unfair trade
practice if it involves fraud and may
include all or any of the following,
namely:(a)
(b)
(c)
(d)
(e)
(f)
(g)
indulging in an act which creates
false or misleading appearance
of trading in the securities
market;
……..
……..
……..
……..
……..
entering into a transaction in
securities without intention of
performing it or without
intention
of
change
of
ownership of such security;”
“CODE OF CONDUCT
BROKERS- Regulation 7
FOR
STOCK
A. General.
(1) Integrity: A stock-broker, shall maintain
high standards of integrity, promptitude and
fairness in the conduct of all his business.
(2) Exercise of due skill and care:
A stock-broker shall act with due skill, care
and diligence in the conduct of all his
business.
(3) Manipulation: A stock-broker shall not
indulge in manipulative, fraudulent or
deceptive transactions or schemes or spread
5
rumours with a view to distorting market
equilibrium or making personal gains.
(4) Malpractices: A stock-broker shall not
create false market either singly or in
concert with others or indulge in any act
detrimental to the investor’s interest or
which leads to interference with the fair and
smooth functioning of the market. A
stockbroker shall not involve himself in
excessive speculative business in the market
beyond reasonable levels not commensurate
with his financial soundness.”
(5) Compliance with statutory requirements: A
stock-broker shall abide by all the
provisions of the Act and the rules,
regulations issued by the Government, the
Board and the Stock Exchange from time to
time as may be applicable to him.

5.

The learned counsel Shri J. J. Bhatt appearing on behalf of
the appellant submitted that the AO has not reconsidered the
facts of the matter as directed by this Tribunal, because, the
same amount of penalty of ` 22 lakh has been imposed again;
the fact that the penalty imposed on the clients involved in the
same violation was only ` 1 lakh each has not been considered;
the appellant is only a small, individual broker; the appellant
does not know any of the counter- parties to the trades as
alleged in the impugned order; no proof of any connection has
been provided in the impugned order; the appellant has not in
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any way violated any regulations or Code of Conduct as alleged
in the impugned order.

6.

The learned counsel also relied on the order of this
Tribunal in the matter of Kapil Chatrabhuj Bhuptani V/s
Securities and Exchange Board of India (Appeal No. 95 of
2013 decided on 10.10.2013) wherein it was held that
synchronized trading is itself would not tantamount to any
wrongdoing unless mischievous meeting of minds amongst
certain parties is proved.

7.

Shri Gaurav Joshi learned senior counsel appearing for
respondent SEBI submitted that it is a clear case of market
manipulation as is evident from the order. The price of the scrip
of SKS increased from ` 19.9 on August 05, 2004 to ` 39.10 on
August 20, 2004.

On 7 out of these 12 trading days the SKS
reached the upper circuit limited. Further from September 20,
2004 the price increased from ` 34.75 to ` 68.40 on October 12,
2004. The daily volumes increased from around 9000 shares
during the first period to around 31000 shares during the second
period. Similarly, the quantity traded in a circular fashion by
the parties involved was in the range of 11% to 71% of the total
quantity traded in the market during September-October 2004.

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The entire scheme was executed by a group of brokers and
clients and the trading was done in a circular and synchronized
manner.

In respect of the appellant the instances of such
circular/ synchronized trading on 6 days is clearly brought out at
pages 8 and 9 of the impugned order. It is through proprietary
trading, not even by clients, that the appellant helped in
manipulation.

Further, since as a broker the appellant was
expected to follow the Regulations and Code of Conduct in
letter and spirit a higher penalty is imposed on the appellant viz
a-viz that of the clients in the matter.

8.

We find no merit in the submissions of the learned counsel
for the appellant that he had no role in the matter. There is
enough evidence to support the contention in the impugned
order that the appellant was part of the group who manipulated
the market in the scrip of SKS. Timing, synchronization and the
circular nature of his trading is evidenced at pages 8 and 9 of the
impugned order. Manipulation in the scrip to raise the price
from around ` 34.75 to ` 68.40 in a matter of 6 trading days
during September- October 2004 is clear and cannot be
considered as an automatic market movement. However, we
find some merit in his submission that the penalty imposed on
the client involved in the same matter is only ` 1 lakh while that
8
on the appellant under PFUTP Regulations is ` 16 lakhs. This
Tribunal while remanding the earlier appeal filed by the
appellant in P. J. Chaudhary V/s SEBI (Appeal No. 22 of 2015
decided on 29.03.2016) citing the order of this Tribunal in the
matter of Vijay J. Thakkar V/s SEBI (Appeal No. 381 of 2014
decided on February 09, 2016), held that the inordinate delay in
passing the order impugned therein has caused serious prejudice
to the appellant because the said order did not take into
consideration the orders passed on April 13, 2012 in respect of
the clients who indulged in synchronized/ circular trades and
where only an amount of ` 1 lakh each has been imposed as
penalty. Though, the detailed arguments relating to the merit of
each appeal were not heard, prima-facie, it was held that if the
Adjudicating Officer had to impose differential penalty on the
various entities involved in the same violation the reasons for
imposing such differential penalty have to be explicitly stated.
Though, some of the reasons are now forthcoming, we are of the
view that an amount of ` 16 lakh imposed on the appellant is
harsh particularly when a separate penalty of ` 6 lakh is
imposed for violation of the Code of Conduct under the Stock
Brokers Regulations, 1992. At the same time, we cannot accept
the submissions of the appellant that the penalty has to be on par
with that of what was imposed on the clients in the same matter
9
particularly when the appellant in this appeal is a broker who
was doing proprietary trading and while doing so violated the
PFUTP Regulations. The due diligence required from a broker
and that too while doing proprietary trading is that of a much
higher order than that of a client and equating the two for
imposition of penalty even for the same violation, is not
justifiable. However, some degree of parity between the two
needs to be brought in particularly when the alleged charges are
based on similar facts in the same matter. Moreover, a separate
amount of penalty of ` 6 lakh has also been imposed on the
appellant for violation of Code of Conduct for stock-brokers.
Accordingly, while upholding the impugned order on merit, we
hold that this is an appropriate case of reducing the amount of
penalty imposed on the appellant given the facts of the matter.

9.

Therefore, considering all the relevant factors we reduce
the quantum of penalty imposed under Section 15HA of SEBI
Act from ` 16 lakh to that of ` 8 lakh and retain the amount of
penalty of ` 6 lakh imposed under Section 15HB of SEBI Act.
The appellant is directed to pay the total amount of ` 14 lakh
within four weeks from today.

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10. Appeal is partially allowed with no order on costs.

Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C.K.G. Nair
Member
Sd/Justice M. T. Joshi
Judicial Member
26.04.2019
Prepared & Compared By: PK