BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved On: 24.07.2019
Date of Decision : 06.08.2019
Appeal No. 336 of 2017
Shri Nagad Sarvar
1/4025, Behind Old Civil Hospital
Chawk Bazaar,
Surat- 395 001
…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. Nagad Sarwar, Appellant in Person.
Mr. Vishal Kanade, Advocate with Mr. Chirag Bhavsar,
Advocate i/b MDP & Partners 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) dated November
27, 2015. By the said order a penalty of ` 16 lakhs has been
imposed on the appellant under Section 15 HA of the Securities
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and Exchange Board of India Act, 1992 (“SEBI Act” for short)
for violation of Regulation 3 and Regulation 4(2) of SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations, 2003 (“PFUTP Regulations” for
short).

2.

SEBI conducted an examination relating to trading in the
scrip of Vamshi Rubber Limited (“VRL” for short) during the
period January 01, 2011 to June 30, 2011. The shares of VRL
were traded on 124 days on BSE Limited during this
examination period.

The impugned order records that the
appellant had indulging in wash trades/ self trades on multiple
days during the examination period. The total number of shares
of VRL bought and sold by the appellant during this period
comes to 19727 shares. Trading was in small quantities of
shares in the range of 2 shares to 2000 shares on the buy side
and 1 to 2016 shares on the sell side during these days. It is also
stated in the impugned order that these quantities though appear
small, are substantive percentage of the overall volumes in the
scrip given its relative illiquid nature as given in the show cause
notice. In conclusion, it is noted in the impugned order that the
appellant had executed 187 self trades involving 19727 shares in
47 days and thereby violated Regulation 4(2)(g) of the PFUTP
3
Regulations.

For facility, Regulation 4(2)(g) is extracted
hereunder:“4. Prohibition of manipulative, fraudulent
and unfair trade practices
(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:(g)
entering
into
securities
a
without
transaction
in
intention
of
performing it or without intention of
change
of
ownership
of
such
security;”
3.

Appellant, appearing in person submitted that he is a small
investor who used to invest in small quantities as a day trader;
traded in the VRL without having any knowledge or intention to
violate any laws; his buying and selling small quantities were on
different days or after substantive time on the same day in the
open market. The appellant also states that he incurred losses
also on several occasions.

Further, the appellant strongly
pitched for appropriate amount of compensation for issuing a
highly arbitrarily order devoid of any merit by SEBI and
thereby causing both financial and mental agony to the
appellant.

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4.

The learned counsel Shri Vishal Kanade appearing on
behalf of the respondent SEBI on the other hand contended that
self trades or wash trades are trades without any change in
beneficial ownership and as such when the same entity is
indulging in such trades on a repetitive basis it is clearly
violation of PFUTP Regulations and hence the penalty imposed
on the appellant is just and fair. The learned counsel for the
respondent also relied on the judgment of this Tribunal in the
matter of Angel Broking Private Limited vs. SEBI (Appeal No.
25 of 2013 decided on 22.10.2013) to emphasise that if
violation is established penalty must follow.

5.

We have gone through the documents produced before us
and taken note of the submissions made by both the parties. We
note that, on many of the days the appellant has bought and sold
the shares and on some of those days the quantities bought and
sold also matched. However, there were also several days on
which there was only either a buy trade or a sell trade.

6.

Generally, only when trades placed by the same party are
matched within a short period of time it can be categorized as
self trades. Here, it is on record that the appellant did not do
multiple trades on the same day. There are a few days when
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both buy and sell orders of the same quantity were placed. Even
on those days when perfect matching is noticed there is nothing
on record to show that those trades were entered within a short
time interval.

In the absence of which, we are constrained to
accept the submission of the appellant that being a day trader,
on some days, he was placing orders in both the directions with
substantive time gap. It is also claimed by the appellant that on
some of the days he actually did take delivery and therefore the
beneficial ownership also got changed. The impugned order
does not indicate the timing of the alleged trades nor it goes into
change in beneficial ownership nor does it bring out any
element relating to how it adversely affected the market. Even
though preponderance of probability is sufficient to prove
PFUTP violations still fraudulent and unfair trade has to be
established with some degree of confidence. Given the absence
of such findings and given the undisputed fact that the appellant
was a day trader we are constrained to give benefit of doubt to
the appellant. However, given the facts and circumstances of
the matter, we do not find any reason to award cost to the
appellant though the appellant has made a high pitched demand
for exemplary costs.

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7.

In the result, the appeal is allowed and the impugned order
is quashed. No orders on costs
Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C.K.G. Nair
Member
Sd/Justice M. T. Joshi
Judicial Member
06.08.2019
Prepared & Compared By: PK