BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Hearing : 09.05.2019 Date of Decision : 24.05.2019 Appeal No. 77 of 2018

1. Nirmal Pujara Director, Amar Investments Ltd., Rishra Investments Ltd., Shibir India Ltd., 25, Princep Street, Kolkata – 700072.

2. Jayant Pujara Authorized Signatory, Amar Investments Ltd., Rishra Investments Ltd., Shibir India Ltd., 25, Princep Street, Kolkata – 700072.

3. Mrinal Kanti Roy Director, Rishra Investments Ltd., 25, Princep Street, Kolkata – 700072. ….. Appellants

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. Ravichandra S. Hegde, Advocate with Mr. Paras Parekh, Ms. Mitravinda Chunduru, Advocates i/b Parinam Law Associates for the Appellants. Mr. Gaurav Joshi, Senior Advocate with Mr. Anubhav Ghosh, Ms. Rashi Dalmia, Advocates i/b The Law Point for the Respondent. CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C. K. G. Nair, Member Justice M. T. Joshi, Judicial Member Per : Justice M. T. Joshi, Judicial Member

1. Aggrieved by the direction of the Whole time Member

(hereinafter referred to as, ‘WTM’) of Securities and Exchange Board of India (hereinafter referred to as, ‘SEBI’) dated February 23, 2018 prohibiting the appellants from buying, selling or dealing in the securities market directly or indirectly for a period of five years, for the violations of Regulations 4(1), 4(2)(a) and 4(2)(e) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003, in exercise of the powers under Section 19 read with Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992, the present appeal is preferred.

2. The admitted facts of the case are as under:-

1. The present appellants were the directors of either of the

three non banking financial companies listed on the stock exchange.

2. These companies are Amar Investments Ltd., Rishra

Investments Ltd. and Shibir India Ltd.,

3. The main promoters of these companies were Damodardas

J. Wadhwa, Gordhandas J. Wadhwa and Shakuntala D. Wadhwa.

4. One Aditya Kumar Sharma was an employee of Shibir

India. However, his services were also used by other two companies. One Abhilash was also found to be connected with Aditya. The respondent SEBI found that Abhilash was sharing the same residential address as that of Aditya.

3. The Respondent SEBI found that for a period from January 1,

2008 to May 31, 2008 Aditya, Abhilash as well as three companies and Shakuntala entered into 13 sets of transactions as listed in the show cause notice. These transactions were in barely liquid shares. According to the respondent SEBI, all these transactions originated with a sell from either of the three investment companies to Aditya and Abhilash at a price much below than the last traded price. There was a minimum time difference almost for a similar price and volume. The Volume is to be very high. Thus, those were matching transactions. Thereafter, Aditya and Abhilash used to place sell orders for the same scrip almost matching in price and volume with a buy orders from one of the three investment companies or Shakuntala. The prices placed by Aditya / Abhilash were much above the last traded market price. Aditya or Abhilash executed buy orders at much below the prevalent market price i.e. last traded price and sell on exchange at higher price making profit in the market. Unmistakably Aditya or Abhilash used to make a windfall profit at the expense of these three investment companies or Shakuntala as there used to be a huge volume of both buy and sell which matched each other. Thus, finding that these are the fraudulent transactions, show cause notices were issued to the present appellants.

4. In response to the show cause notices initially vide reply dated

October 23, 2008, it was replied that the main business of the companies was dealing in shares and securities. As such these transactions were carried as a part of the business activity. Subsequently, vide letter dated November 15, 2010 the appellant No. 1 Nirmal Pujara submitted a letter dated November 15, 2010 wherein he replied that all the companies have large portfolio. In order to shuffle portfolio within the companies for tax planning purposes through stock exchange mechanism all these transactions were undertaken.

5. Subsequently, the appellants filed regular replies wherein they

took a stand that these investment companies are victims of the fraud and suffered heavy losses at the hands of said Aditya Sharma. According to the companies, said Aditya Sharma being an employee of one of the company and connected with the other companies used to interact with various stock brokers and used to have discussions with Mr. Wadhwa and the present appellants. The decision used to be taken regarding sell or purchase of the scrip and it was used to be informed to the Aditya Sharma to place the respective orders with trading members. In the situation, Aditya Sharma used to propose and the Board of Directors upon considering the suggestion used to give direction to Aditya Sharma. Thereafter, Aditya Sharma used to communicate to the broker to execute the orders. This process was prevalent since the year 2003. From the show cause notice, it was gathered that in the transactions in question Aditya Sharma in fact has taken undue advantage of the decision communicated to him and, thus, front running by himself or through Abhilash had made huge gain. Thus, in fact, the companies are a victim of fraud. After receiving the show cause notice from respondent SEBI, the appellants came to know of the said fraud. Therefore, a criminal complaint has also been filed against the said Aditya Sharma and Abhilash Sharma. In the circumstances, the appellants wanted that the proceedings against them be dropped.

6. The WTM, however, found that the appellant no. 3 is in fact the

Chartered Accountant and, therefore, it cannot be digested that she as well as the other directors were unaware continuously for five months, of the fact that the companies were deceived by Aditya Sharma / Abhilash and only after receiving the show cause notice by respondent SEBI they came to know of the activities.

7. The WTM further took into consideration the initial letters of

the appellants that shuffling of the portfolio was done by the companies for tax planning purposes. He, therefore, relying on the ratio of SEBI vs. Rakhi Trading Pvt. Ltd. (2018) SCC OnLine SC 101 held that technique of shuffling of portfolio for the purposes of tax planning is in fact misuse of the stock exchange mechanism. As regard to the subsequent reply, the WTM has found that the pattern of the transactions in the barely liquid scrips would show that there was ulterior objective underlying such trades and, therefore, the impugned order came to be passed. Aggrieved by the said order the present appeal has been filed.

8. Heard Mr. Ravichandra Hegde, the learned counsel for the

appellants and Mr. Gaurav Joshi, the learned senior counsel for the respondent. Upon hearing both sides in our view the appeal is liable to be dismissed for the reasons as follows :-

REASONS

9. The leaned counsel for the appellant submitted that in fact as

show cause notice is not on the footing that the manipulative purpose was tax planning, the ratio of SEBI vs. Rakhi Trading (supra) would not be applicable. He submits that all the material on record as per the respondent SEBI itself would point towards the fact that the appellants and / or Shakuntala suffered heavy loss, while employee Aditya and his companion Abhilash made a windfall profit at their expenses. In the criminal complaint filed against Aditya, trial is pending. No meeting of the minds between the directors or the promoters of the companies on one hand and Aditya or Abhilash on the other hand is shown or proved. The appellants were not allowed to cross-examine Aditya and Abhilash though vide their reply dated February 11, 2017 they requested for the same.

10. The WTM has observed that the appellants were not serious

about the request for cross-examination as no oral request was made and even arguments on merit were advanced. This finding, according to the learned counsel, is wrong. The brokers through whom these orders were placed namely, SMC Global Securities Ltd. was held to be not liable for violation in Appeal no. 176 of 2011 decided on November 25, 2011. On this ground, the learned counsel wanted that the order to be set aside.

11. The learned senior counsel for SEBI, however, submitted that

the synchronized trade, high volume and incidence is an admitted fact. The appellants initially made a plea that these transactions were entered into for tax planning. Thereafter they have tried to play a victim card at the hands of Aditya Sharma and Abhilash. First Information Report against Aditya and Abhilash was filed after receiving show cause notice. Therefore, relying on the ratio of Rakhi Trading (supra) and SEBI vs. Kishore R. Ajmera [(2016) 6 SCC 368], the learned counsel wanted that the appeal be dismissed.

12. To conclude, we find that, the initial response of the present

appellants was that for the purpose of tax planning the trades were carried out by the companies with the help of Aditya and Abhilash. In the case of Rakhi Trading (supra) similar claim was made by Rakhi Trading. The Hon’ble Supreme Court has held as under :- “38. Having regard to the fact that the dealings in the stock exchange are governed by the principles of fair play and transparency, one does not have to labour much on the meaning of unfair trade practices in securities. Contextually and in simple words, it means a practice which does not confirm to the fair and transparent principles of trades in the stock market. In the instant case, one party booked gains and the other party booked a loss. Nobody intentionally trades for loss. An intentional trading for loss per se, is not a genuine dealing in securities. The platform of the stock exchange has been used for a non-genuine trade. Trading is always with the aim to make profits. But if one party consistently makes loss and that too in preplanned and rapid reverse trades, it is not genuine; it is an unfair trade practice. Securities market, as the 1956 Act provides in the preamble, does not permit “undesirable transactions in securities”. The Act intends to prevent undesirable transactions in securities by regulating the business of dealing therein. Undesirable transactions would certainly include unfair practices in trade. The SEBI Act, 1992 was enacted to protect the interest of the investors in securities. Protection of interest of investors should necessarily include prevention of misuse of the market. Orchestrated trades are a misuse of the market mechanism. It is playing the market and it affects the market integrity.”

13. The learned counsel for the appellants submitted that the

show cause notice is silent on this aspect. It is, however, to be noted that finding that synchronized non-genuine trades were made between the parties, the show cause notices were issued by SEBI. Naturally SEBI was not aware of the fact that these non-genuine transactions were made for certain tax planning, by the companies and Aditya / Abhilash in advance.

14. Regulation 3(a) of the PFUTP Regulations provides as under :-

“3. Prohibition of certain dealings in securities No person shall directly or indirectly— (a) buy, sell or otherwise deal in securities in a fraudulent manner;”

15. Regulation 4(2) declares that such trades shall be deemed to be

fraudulent if the trader indulges in an act which creates a false and misleading appearance of trading in the securities market. This provision would make it amply clear that any transaction otherwise than a genuine trade would be deemed as a fraudulent act. In the situation, no fault can be found with the order of WTM.

16. Even if this aspect is kept aside for a moment, the record

admittedly reveals the large volumes of trades of sell and buy matching within minutes as detailed in the show cause notice. According to the appellants though the same is true, it was a device used by Aditya / Abhilash for windfall gain. The fact, however, was revealed that companies in which the present appellants were directors has huge investments and appellant no. 3 is a Chartered Accountant, but it dawned upon the appellants that the fraudulent practices were carried out by Aditya and Abhilash only after receiving a show cause notice issued by SEBI. Thereafter also they replied that for tax planning purpose these transactions were carried out and later on they took other pleas as detailed above and thereafter filed FIR against Aditya and Abhilash. All these facts clearly show that the transactions in question were non-genuine trade.

17. In the result, the appeal is hereby dismissed.

Sd/- Justice Tarun Agarwala Presiding Officer Sd/- Dr. C. K. G. Nair Member Sd/- Justice M. T. Joshi Judicial Member 24.05.2019 Prepared & Compared by PTM