SANDEEP JAIN 2, CH 15, HIRAN MAGARI, SECTOR NO. 5, UDAIPUR, RAJASTHAN 313002 Vs. SECURITIES AND EXCHANGE BOARD OF INDIA SEBI BHAVAN, PLOT NO. C-4A, G BLOCK, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI-400051

JUDGEMENT

(1.) 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 Rs. 8 lacs under Section 15HA of the Securities and Exchange Board of India Act, 1992 (the Act). 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.

(2.) 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 Board as "Mehta group". Their relationship with each other was explained and 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 appellant's account was operated by Pradesh Nimawat and Suresh Hanswal who were the entities trading in the shares of the company. It was, therefore, alleged 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.

(3.) 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 Bombay. The Hon'ble High Court, by its order dated November 26, 2012, has since dismissed the Writ Petition holding that there is no impediment to the petitioner's appeal being heard by the Appellate Tribunal which presently consist of two Members, one to whom is authorised to preside over the sittings of Appellate Tribunal. The Hon'ble High Court also clarified that 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.