BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 104 of 2012
Date of decision: 03.07.2012 Mr. Bhavesh Pabari
196/A, Tara House, Dr. Viegas Street
X lane No. 8, First Floor, Flat no. 16,
Chira Bazaar,
Mumbai – 400 002.
… 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 Mr. Pr atham Masurekar, Ms. Pragati Shetty,
Advocates for the Appellant.
Mr. Prateek Seksaria, Advocate with Mr. Mobin Shaikh, 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 under Section 15T of th e Securities and
Exchange Board of India Act, 1992 (the Act) against the order dated March 10,
2011 passed by the adjudicating officer of the Securities and Exchange Board of
India (the Board) imposing a consolidated penalty of ` 12 lacs on the appellant
under Section 15HA and Section 15A(b) of the Act. The a ppellant has been
found guilty of violating provisions of regulation 4 of the Securities and Exchange
Board of India (Prohibition of Fraudulent and Unfair Trade Pr actices Relating to
Securities Market) Regulation, 2003 (for short the FUTP regulations), regulation
7 of the Securities and Exchange Boar d of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997 (for short the takeover code) and
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regulation 13 of the Securities and Exch ange Board of India (Prohibition of
Insider Trading) Regulations, 1992 (for short the insider trading regulations).
- The appellant is said to be an investor carrying on trading and
investment in equity shares of differe nt companies through its brokers. The
Board carried out investigations into the trading of the scrip of Gemstone
Investments Limited (the company) fo r the period August 2006 to August 2008.
It was noticed by the Boar d that the promoter group of the company, which was
holding 69.65 per cent of the total share capital of the company during the quarter
ending June 30, 2006 had reduced its shareh olding in the company to a meagre
1.22 per cent by the quarter ending June 30, 2006. A group of persons named as
Narendra Ganatra group, of which the appe llant was also a member, is said to
have connived with the promoter group and helped them to off-load their stakes in
the company at a higher price by indulging in circular and s ynchronized trades
and also by entering into reversal of trades thereby creating artificial volumes and
misleading appearance of trading in the sc rip which resulted in the increase of
price of the scrip. A show cause notice was issued to the appellant on June 8,
2010 and the allegation therein was summarised as under:-
“16. ………………… it is alleged that the Noticee, acting in
collusion with other entities of Narendra Ganatra Group and with
the Promoters/directors of the Company, indulged into circular and
synchronized trades in the scrip an d also entered into reversal of
trades and thereby created artificial volume and misleading
appearance of trading in the scri p and raised its price, which
induced investors to deal in the shares of GIL and enabled
promoters/company related entities to off lead their stakes in the
Company.
- It is alleged that the Noti cee, who belonged to the Narendra
Ganatra Group entities, acting in combination and with prior
understanding with the other group entities and with the
promoters/directors of the Comp any, traded in the scrip in
circular/synchronized and reversal manner with the intention to
create false and misleading appearance of trading in the market and
to artificially raise the price of the scrip in order to enable
promoters/directors of GIL to off-load their stake in the Company
at higher prices which were not genuine.” 3
In spite of a number of opportunities afforded to the appellant to make
submissions on the show cause notice a nd to appear before the adjudicating
officer for personal hearing, the appellant did not furnish any information and the
adjudicating officer, after considering the material available on record, held the
appellant guilty of following counts :-
“39. ……. the Noticee acted in collusion with others and created
artificial volumes in the market and also influenced the price of the
scrip by placing and executing larg e numbers of buy orders at a
price higher than the last traded price, by way of abovementioned
manipulative trades and by indulging into such unfair trade
practices. Therefore, based on the abovementioned facts and
circumstances of the case I arrive at the conclusion that the Noticee
has violated the provisions of Regul ations 4(1), 4(2) (a), (b), (e)
and (g) of the PFUTP Regulations ………………………………..”
40 to 42 ……………………………………………………………
“43. …………………………………………… the Noticee
crossed the shareholding/voting rights in the Company beyond the
threshold of 5% /10% on at least two occasions. On crossing the
said bench mark, on each occasion, the Noticee was required to
disclose the aggregate of his sh areholding/voting rights to the
Company and to the Stock Exchange, where its shares were listed,
in terms of regulation 7(1) read with regulation 7(2) of the SAST
Regulations. I found that the Noticee failed to do so and therefore,
he has contravened/violated the pr ovisions of the regulation 7(1)
read with regulation 7(2) of the SAST Regulations.”
“44. Further on crossing the benchmark of 5% shareholding in
GIL, the Noticee was also under as obligation to make disclosure
to the Company in accordance with the provisions of regulation
13(1) of the PIT Regulations. Thereafter, as has been detailed
above, on acquisition of 1,69,800 shares (i.e. 5.55% of the paid up
capital) on 15/02//2007 his shareh olding increased to 12.55% and
on his disposing of 2,70,000 shares on 21/02/2007 his shareholding
was reduced to 4.79%. Therefore, on each of these occasions the
requirement of regulations 13(3) and (5) were triggered and the
Noticee was under obligation to make the required disclosures
under the said PIT regulations, which he has failed to do.
Therefore, I hold him guilty of violation/contravention of
regulation 13(1) and 13(3) read wi th regulation 13(5) of the PIT
Regulations.”
In view of the above findings, by his order dated March 10, 2011, the adjudicating
officer imposed a penalty of 10 lacs on the appellant under Section 15HA of the Act for violating/contravening the provi sions of the FUTP regulations and 2
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lacs under Section 15A(b) of the Act for violating the provisions of the takeover
code and insider regulations. Hence this appeal.
- We have heard learned counsel for the parties who have taken us through
the records. Mr. J. J. Bhatt, learned c ounsel for the appellant submitted before us
that the appellant had not indulged in a ny fraudulent and unfair trade practices
while dealing in the scrip of the company. All the transactions were carried out
through the exchange mechanism during tr ading hours and were delivery based.
There was real and effective transfer of beneficial ownership. The transactions of
the appellant are individual transactions and have nothing to do with the
transactions entered into by the Ganatra group entities. The appellant is not
connected to other entities as observed by the adjudicating officer in the
impugned order. It was further submitted by him that this Tribunal had earlier
passed two orders in Appeal No. 192 of 2010 and Appeal No. 47 of 2011 whereby
the promoter group entities of the compa ny and Mr. Narendra Ganatra have been
exonerated of the charge of violating the FUTP regulations. The facts of the
appellant’s case are identical and following the earlier orders of the Tribunal the
appellant should also be exonerated of the charge under FUTP regulations. - Mr. Prateek Seksaria, learned c ounsel for the respondent Board,
distinguished the orders passed by this Tribunal earlier and also brought our
attention to the role played by the appella nt in executing the synchronized trades.
He has drawn our attention to the releva nt findings arrived at by the adjudicating
officer against the appellant and submitted that the impugned order has been
passed after following the due process of law and is supported with sufficient
material on record and hence does not call for any interference by this Tribunal. - Having heard the learned counsel for the parties and after perusing the
record, we are inclined to agree with the learned counsel for the Board that the
impugned order does not call for any interference by this Tribunal. The order
passed by this Tribunal on February 21, 2011 in Appeal No. 192 of 2010 in the 5
case of Premchand Shah vs. Adjudicating Officer, SEBI, was against the promoter
group entities and it was held by this Tri bunal that the promoter group and the
Ganatra Group cannot be held to have conni ved to increase the price of the scrip.
We find that in the case in hand, the alle gation in the show cause notice was that
the appellant who belonged to the Narendra Ganatra group, acting in combination
and with prior understanding with the other group entities and with the
promoters/directors of the company, traded in the scrip in ci rcular/synchronized
and reversal manner in order to enable promoters/directors of the company to off-
load their stakes at a higher price. However, after examining the material
available on record, the adjudicating officer has not held the appellant guilty of
conniving with the promoters/directors of the company. There are no findings
recorded to this effect. The appellant has been held guilty only of conniving with
the other group entities who were dealing in the scrip in circular/synchronized
manner. Therefore, the order passed by this Tribunal in Appeal No. 192 of 2010
is of no help to the appellant. Similarly, the order dated July 29, 2011 passed by
this Tribunal in Appeal No. 47 of 2011 is also of no help to the appellant because
the trades of the appellant in that case were not considered significant and in the
absence of any evidence on record regarding manipulation of trades or raising the
price of the scrip, the appellant in that case was given the benefit of doubt. When
a large number of entities are involved and allegation is of fraud and manipulating
the securities market, case of each entity is to be viewed with reference to its role
in manipulating the trades and its role in executing synchronized/circular/reversal
trades. We find that in the case in ha nd, the adjudicating offi cer has recorded a
categorical finding with regard to the connection of the appellant with other
entities of the Narendra Ganatra group and the relevant portion of the order reads
as under :-
“16. It has been alleged in the SCN that the Noticee is
connected/related to Narendra Ganatra Group entities and in
collusion with them; he executed the alleged manipulative trades
and thereby, artificially increased the price and volumes of the
scrip. Now, as regards the links/relation of the Noticee with the
above said entities with whom th e transactions were allegedly
found to have been done, it is observed from the available records
i.e. Annexure II attached with the SCN, that the address of the
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Noticee was same as that of Rajesh Bhanushali, Bharat Thakkar
and Narendra Ganatra. It is also observed from available records,
that the noticee had fund movement as well as shares movement
with Nimesh Ganatra, Prem Pa rekh, Ankit Sanchaniya, Kishore
Chauhan and Rajesh Bhanushali. It is also observed that the
Noticee had mainly dealt with Jayesh Kuwadia, Mala Sheth,
Rajesh Bhanushali and Ashish Ganatra, in off market transactions.
He received about 18,93,005 shares and transferred 23,75,452
shares in off market from/to the said related group entities. Details
in regard to such off market deals were provided to the Noticee in
Annexure IX to the SCN. Further, the Noticee had a joint bank
account with Hemant Sheth in Axis Bank Ltd. As admitted by him
Bharat Thakkar is his uncle. In regard to the issue of
connection/relation of the Noticee with the above said Narendra
Ganatra Group entities, I have also noted that the details provided
to the Noticee in Annexures VII to IX of the SCN are in regard to
his alleged indulgence in manipula tive trades, mainly with Rajesh
Bhanushali, Hemant Sheth, Mala Sheth, Prem Parikh and Kishor
Chouhan (Narendra Ganatra Group entities) as counterparties
duing the relevant period. The details of relation/connection of the
group entities with the Noticees and/or among others members of
the group were provided to the Noticee in Annexure II of the
SCN.”
We are inclined to agree with the findi ngs of the adjudicating officer that the
entities with whom the appellant is sharing his address, is having bank
transactions and also dealing in off market transactions cannot be a stranger and,
therefore, the appellant has rightly been held to be a part of the Narendra Ganatra
group.
- On the issue of the appellant havi ng indulged in synchronized, reversal
and circular trades, the role of the appe llant viz-a-viz the other Narendra Ganatra
entities has been discussed in detail in paragraphs 20 to 39 of the impugned order.
The trades discussed in these paragraphs and attributed to the appellant have not
been disputed. The only defence raised is that the appellant has traded in his
individual capacity and not as a part of the group. However, the evidence on
record on the basis of which the findings have been arri ved at, proves otherwise.
In the findings arrived at by the adjudicat ing officer, the trading in the scrip had
been divided into two parts. In the first part, during the period between August
28, 2006 to March 16, 2007, out of 13,03,800 shares sold by the promoter group
entities, 9,45,500 shares were bought by the Narendra Ganatra group as counter
party. During this phase, the appellan t had purchased a to tal of 2,59,736 shares 7
out of which 55,200 shares were purchased from Manish Joshi and Hemant Seth,
two other entities of Narendra Ganatra group in which buy orders were placed at a
price higher than the last tr aded price. In the second phase of investigation from
March 20, 2007 to August 21, 2008, the pr omoter group entities sold 11,60,380
shares and the Narendra Ganatra gr oup bought 8,96,619 shares as counter party
out of which the appellant purchased 5,89,634 shares mostly from Kishor
Chauhan, Ankit Sanchaniya, Mala Sh eth, Prem Parikh, Bhupesh Rathod and
Bharat Thakker, all Narendra Ganatra entities at a price higher than the last traded
price. Out of 223 days of trading, on 168 days the appellant entered into circular
trades on buy side and out of 221 days of trading, the appellant indulged in
circular trading on 149 days. The charts drawn on pages 15, 16, 17, 18 and 19 of
the impugned order clearly bring out the case of circular/reverseal trades executed
by the group entities where appellant is a party. We agree with the adjudicating
officer that matching of a large number of trades between the selected set of
persons/entities for a considerable period of time in illiquid scrip cannot be a
coincidence. Therefore, the adjudicating officer has rightly concluded that on the
basis of the material on r ecord, it is established that the appellant acted in
collusion with others and created artifi cial volumes in the market and also
influenced price of the scrip by placing and executing a large number of buy
orders at a price higher than the last traded price and indulged in unfair trade
practices. Therefore, we have no hes itation in upholding his findings that the
appellant violated the provisions of regulation 4(1), 4(2)(a), (b), (e) and (g) of the
FUTP regulations. - From the data available on record, it is also clear that the appellant
acquired 2,06,900 shares of the company on February 9, 2007 which works out of
6.89 per cent of the paid up capital of the company. He further acquired 1,69,800
shares on February 15, 2007 increasing his holding to 12.55 per cent of the paid
up capital. The appellant crossed the shareholding of the company beyond the
threshold limit of five per cent and ten per cent on these occassions and he was
required to disclose the aggregate of the sharehol ding/voting rights to the 8
company and to the stock exchange where the shares of the company are listed in
terms of regulation 7(1) read with regulat ion 7(2) of the takeover code. Further,
on crossing the limit of 5 per cent shareh olding, the appellant was required to
make disclosures to the company in accordance with regulation 13(1) of the
insider trading regulations. Again, on acquisition of shares increasing his holding
to 12.55 per cent and on disposal of shar es when his holding was reduced to 4.79
per cent, the appellant was required to ma ke disclosures in accordance with the
requirements of regulation 13(3) and (5) of the insider trading regulations.
Admittedly, these declarations were not made and the appellant violated the
provisions of takeover code as well as th e insider trading regulations. No fault
can, therefore, be found with regard to the findings arrived at by the adjudicating
officer in this regard.
For the reasons stated above, we do not find any merit in the appeal and
the same is dismissed with no order as to costs. Sd/-
P. K. Malhotra
Member &
Presiding Officer ( Offg .) Sd/-
S. S. N. Moorthy
Member
03.07.2012
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