BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

                          Appeal No. 225 of 2011  

                                  Date of decision: 20.12.2012  

Sandeep Jain
2,CH 15, Hiran Magari,
Sector No. 5,
Udaipur,
Rajasthan 313002

… … Appellant

Versus

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

…… R   

Mr. Rajeev Kumar, Advocate for the Appellant.

Mr. Kumar Desai, Advocate with Ms. Harshada Nagare, Advocate for the

Respondent.

CORAM : P. K. Malhotra, Member & Presiding Officer (Offg.)
S. S. N. Moorthy, Member

Per : P. K. Malhotra

This appeal has been filed against the order dated November 22, 2011

passed by the adjudicating officer of the Securities and Exchange Board of India

(the Board) against the appellant holding him guilty of violating the provisions of

Regulations 3, 4(1) and 4(2)(a), (b), (e) and (g) of the Securities and Exchange

Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to

Securities Market) Regulations, 2003 (for short the FUTP regulations) and

imposing a penalty of ` 8 lacs under Section 15HA of the Securities and Exchange

Board of India Act, 1992 (the Act).

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2. The facts of the case, in brief, are that the appellant, an individual, is an

investor and a trader in the share market. The Board conducted investigations into

buying, selling and dealing in the scrip of Asian Star Company Ltd. (the company)

for the period October 10, 2008 to November 20, 2008 and noticed wide variation

in the price of the scrip. The role of the brokers and their clients, who traded in the

scrip of the company on the Bombay Stock Exchange, was scrutinized and it was

observed that certain entities, connected to each other, had indulged in

circular/reversal/synchronized trades in a manner which lead of creation of

artificial volume in the scrip. The appellant was identified as one of the persons

who traded in the scrip and was alleged to be involved in manipulative trades.

3. A show cause notice dated November 23, 2010 was issued to him giving

the details of the trades and observing that the appellant and other clients who

traded in the shares of the company and executed synchronized/reversal trades

were Jitendra Manilal Jain, Suresh Hanswal, Pradesh Nimawat, Sunil Kumar

Mehta, Usha Mehta, Bharat C. Jain, Arun Manohar Sakpal, Narendra Sanghi,

Meen Been Elastomers, Dilip Rathore, Bhanwar Lal Paliwal, Alpensh G. Dand,

Manisha Mardia, Rajnish Jain. These persons were found linked with each other

through Sunil Mehta, Ajay Roongta, Manish Mathur and were together named by

the as gro relationsh other exand

the details of trading done by the Mehta group were also provided in the show

cause notice and the impugned order. It was alleged that the group had dealt in

synchronized and structured trades which amounts to significant percentage of

total market value. It was also alleged that 87.33 per cent of the total market

volume and 72.33 per cent of the total number of trades were contributed by

synchronized trading and 44.95 per cent of the total market volume and 85.51 per

cent of the total number of trades were contributed by structured trades. The

details of the trading done by the appellant through Swastika Investment Mart

Ltd., a market intermediary, were also provided to the appellant. It was noted that

the appellant had lent his name and allowed trading in his account. The

appellacwas bP Nimawat and Suresh Hanswal who

were the entities trading in the shares of the company. It was, therefore, alleged

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that the appellant, in connivance with Swastika, Pradesh and Suresh, entered into

these fraudulent transactions which affected the price of the shares leading to

market manipulation.

4. The appellant filed its reply to the show cause notice denying the charges

and stating that Pradesh and Suresh have misused his name and account. He never

authorised the trading entered into by them on his behalf through broker Swastika

Investment Mart Ltd. The appellant has also filed FIR against Swastika

Investment Mart Ltd., Pradesh and Suresh as he never authorised them to enter

trades on his behalf. It was further submitted that he does not have knowledge of

English language and has not understood the proceedings properly. The appellant

had responded to the show cause notice in Hindi. After giving an opportunity of

hearing, the adjudicating officer of the Board did not agree with the submissions

made by the appellant and held him guilty of violating the FUTP Regulations as

stated above. Hence this appeal.

5. When this appeal was posted for hearing, learned counsel for the appellant

raised a preliminary objection with regard to the appeal being heard by this Bench

in the absence of a regular Presiding Officer. It was adjourned on a number of

occasions as a Writ Petition No. 5847 of 2012 was filed by the appellant before

the High Court of Judicature at Bomba Hon’ble gh ourt , by its order

dated November 26, 2012, has since dismissed the Writ Petition holding that there

is iment the tiappeal g bthe atTribunal

which presently consist of two Members, one to whom is authorised to preside

over the sittings of ate The High ourt clarified

the Court has not gone into merits of the challenge to the adjudication order. We,

therefore, now proceed to dispose of the appeal after hearing learned counsel for

the parties.

6. Learned counsel for the appellant has filed his written submissions

challenging the procedure of adjudication followed by the Board and also alleging

that the penalty of ` 8 lacs has been imposed on the appellant merely on the basis

of conjectures and surmises. It has been further submitted that the findings arrived

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at by the adjudicating officer are without any evidence and are based on her ipse

dixit. Learned counsel for the appellant has also submitted that the penalty is

highly excessive and grossly disproportionate to the act allegedly done by the

appellant. The requirements as laid down under Section 15J of the Act have not

been given due consideration by the adjudicating officer while imposing the

penalty. In his written submissions, he had referred to certain case laws on the

propositions advanced by him.

7. On the other hand, learned counsel for the respondent Board supported the

order passed by the adjudicating officer and also placed on record the ‘KnYour

Cent’ (KYC) form submitted by the appellant to its broker namely, Swastika

Investment Mart Ltd., and also a copy of the letter dated January 27, 2009

submitted to the Board with regard to his trading in the scrip of the company. All

these documents are in English and even the signatures of the appellant are in

English. It was, therefore, submitted that it is incorrect to say that the appellant

does not understand the language of the proceedings. In the letter dated January

27, 2009, the appellant has stated that the trades in the said scrip were entered into

in normal market condition and on the basis of price prevailing in the market at the

time of trading. It shows that he was aware of the trading being done in his

account by Pradesh and Suresh. A copy of the FIR filed by the appellant in

Udaipur has also been placed on record. This FIR was filed much after the

personal hearing granted to the appellant just to cover his lapse. In case the trades

entered into by Pradesh and Suresh on behalf of the appellant were without

appellauthorittheappellwould not have justified the trades in his letter

dated January 27, 2009 and would have filed FIR immediately when he came to

know about the trades. Filing of FIR on March 10, 2011 is only an afterthought to

cover up the default of the appellant.

8. After hearing learned counsel for the parties and perusing the material

available on record, we are not inclined to interfere in the order passed by the

adjudicating officer. We agree with learned counsel for the respondent Board that

the alibi, that appellant does not understand English is not acceptable as he has

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given all his information in the KYC form in English and has also signed the said

application form in English. His reply dated January 27, 2009 to the show cause

notice is also in English where he has admitted the trades and claimed that they

were entered in the normal market condition and on the basis of price prevailing in

the market at the time of trading. We have also taken note of the fact that the

transactions pertain to the year 2008 and the appellant was asked to provide details

of his transactions which he justified by his letter dated January 27, 2009.

Thereafter, a show cause notice was issued to him on March 20, 2010. A personal

hearing was granted on February 8, 2011. Till then he had not filed any complaint

with the police authorities. If the transactions entered into on his behalf by

Pradesh and Suresh through Swastika Investment Mart Ltd. were not authorised by

him, he would not have justified these transactions in his reply to the show cause

notice and would have immediately taken corrective measures. Filing of FIR only

on March 10, 2011 i.e. much after the personal hearing is only an afterthought and

cannot be accepted as a good defense. We are not inclined to agree with learned

counsel for the appellant that adjudicating officer has not followed the procedure

while conducting the adjudication proceedings. While the propositions as laid

down in various cases cited by learned counsel for the appellant are not disputed,

the appellant has not been able to demonstrate as to how these principles have

been violated in dealing with his case. Perusal of the record shows that the

appellant was given a show cause notice which was replied by him. Thereafter, a

personal hearing was also granted and after considering the material available on

record, the impugned order was passed. It, therefore, cannot not be said that the

principles of natural justice were not followed. We are also not inclined to agree

with learned counsel for the appellant that the order is based on conjectures and

surmises. The adjudicating officer has given details of the transactions as well as

the interconnection between the parties in the show cause notice as well as in the

impugned order. In such transactions of manipulative trades, it is difficult, nay

impossible, to find direct evidence. Findings in such cases are based on

circumstantial evidence. We are fully satisfied that the adjudicating officer has

placed sufficient material on record to conclude that the transactions were

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manipulative in nature. The appellant in its letter dated January 27, 2009 has not

denied these transactions. We are also not inclined to agree with the learned

counsel for the appellant that either the penalty is excessive or that the

adjudicating officer has not taken into account the factors for adjudging the

quantum of penalty as stated in Section 15J of the Act. We have read paragraphs

22 and 23 of the impugned order which deal with penalty. Section 15HA of the

Act provides that if any person indulges in fraudulent and unfair trade practices

relating to securities, he shall be liable to a penalty of ` 25 crore or three times the

amounts of profit made out of such practices, whichever is higher. The

adjudicating officer has imposed a penalty of ` 8 lacs only. We do not find it

disproportionate to the allegation established against the appellant.

In view of the foregoing discussion, we have no hesitation in upholding the

impugned order passed by the adjudicating officer. The appeal stands dismissed

with no order as to costs.

Sd/-
P. K. Malhotra
Member &
Presiding Officer (Offg.)

Sd/-
S. S. N. Moorthy
Member

20.12.2012
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