ANITA DALAL 13, GANGA VIHAR, B WING, 1ST FLOOR, C ROAD, 55-MARINE DRIVE, MUMBAI - 400 020 Vs. SECURITIES AND EXCHANGE BOARD OF INDIA SEBI BHAVAN, PLOT NO. C4-A, G BLOCK, BKC, BANDRA (E), MUMBAI-400051

JUDGEMENT

(1.) THE appellant is an individual investor and also a trader in the securities market. The present appeal is directed against an order passed by the whole time member of the Securities and Exchange Board of India (the Board) on September 25, 2012 by which the appellant was restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities directly or indirectly or being associated with the securities market in any manner for a period of 18 months. The whole time member passed the impugned order in exercise of the powers conferred upon him by the provisions of Section 19 read with Sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 (the Act) and Regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (FUTP regulations). The Board detected synchronized trades while investigating the dealings in the scrips of Temptation Foods Limited, Bang Overseas Limited (Bang), Confidence Petroleum India Ltd. (Confidence), Cals Refineries Limited (Cals) and Shree Precoated Steels Limited. It was found that a group of connected clients indulged in synchronized trades in the scrips mentioned above contributing to artificial volumes therein. The appellant was found to be connected with the client group which indulged in inflation of volumes in the scrip. A show cause notice was issued to the appellant on July 26, 2011 alleging that the appellant was involved in creating artificial volumes in the scrips of Bang, Confidence and Cals through synchronized/reversal/self trades and so there was violation of the provisions of Regulation 3 and 4 of the FUTP regulations. The appellant replied to the show cause notice denying all the allegations. However, the whole time member of the Board after providing an opportunity of personal hearing to the appellant, passed an order on September 25, 2012 imposing restraint in market operations of the appellant for a period of 18 months as mentioned above. We have heard Shri Gaurav Joshi, learned counsel for the appellant and Shri Shiraz Rustomjee, learned senior counsel for the Board who took us through the records of the case.

(2.) THE appellant's learned counsel submitted that the appellant cannot be held guilty of synchronization and matching of trades since the appellant was acting as per normal business standards and there was no knowledge about the manipulation indulged in by the connected group who dealt in the same scrip. When the appellant traded in the scrips which were traded by a specific group of entities who indulged in creation of artificial volumes it was but natural that the appellant's trades also got matched though the appellant had no role in it. It is submitted that the appellant acted through her husband Shri C.J. Dalal, who happens to be a broker for the connected group of entities, and this cannot be taken as a ground for clubbing her with the connected entities. There is no allegation of benami trades on behalf of her husband and in such a scenario she cannot be held to have acted in collusion with the connected group involved in the dealings. The appellant is stated to be a regular trader in various scrips and her percentage of transactions in the impugned scrips is insignificant i.e. about less than 3 per cent. If overall trades of the appellant had been taken into account she could not have been held guilty of manipulation of volumes. According to the appellant, there is no default in pay out and delivery in her transactions and she has not derived any undue profit by way of inflation of volumes. With reference to the trade logs it is submitted that there is a vast difference between the quantity of shares transacted and that which got matched. Special emphasis is laid by the appellant on this aspect to point out that the matching of quantities is a crucial factor in trade manipulation and in the present case there is a vast difference between the quantity traded and the quantity matched. The appellant questions the pick and choose attitude of the whole time member as against the consideration of the trades as a whole which would have revealed the fact that the appellant's volume of transactions was too insignificant to be matched. There was no financial connection among the parties and the whole time member has not brought on record the necessary factors to prove close connection of the appellant with the entities in question to establish a case of meeting of minds. It is also contended by the appellant that the allegation of self trade cannot be sustained since it related to only shifting of position from one broker to another which has been explained by way of an additional affidavit during the hearing of the appeal. A reference was made to the case of Lalkar Securities P. Ltd. in which an order has been passed by the whole time member (WTM/RKA/ID -4/47/2012 dated October 9, 2012) in which the appellant was let off with a warning and it is argued that the appellant's case is also similar in nature.

(3.) WE have considered the rival submissions. The trades of the appellant in the scrips of Bang, Confidence and Cals remain undisputed. The appellant acted through Shri C.J. Dalal, her husband, who is a broker. The appellant is the director of Krishvi Securities Pvt. Ltd. Major counter party clients in the dealings in the scrip of Bang were Maruti and Maniar Group. They also traded through broker Shri C.J. Dalal, appellant's husband. The trades of the appellant convincingly demonstrate that the appellant has indulged herself in synchronized/reversal transactions. We cannot accept the theory of coincidence in the backdrop of the trade logs which show the transactions of the appellant in a synchronized manner. The appellant has consistently indulged herself in synchronized and reversal trades on various dates. On March 10, 2008, 5000 shares got matched in its transaction with the counter party client. It is true that the order quantity was 92,596. But similar matching has taken place repeatedly on several dates during 2008. This cannot be brushed aside as casual or coincidental. The contention of the appellant that there is a vast difference between the quantity order and the quantity matched cannot be taken as a ground to prove the innocence of the appellant. In market manipulation perfect synchronization and exact matching of trades may not be available. In the present case matching/reversal, though of different quantities, has taken place consistently over a period of time. This has happened because the transactions were put through a central broker Shri C.J. Dalal, appellant's husband. We cannot agree with the submission that the appellant's trades were insignificant compared to the market volume. It is not a case of a few shares getting matched on one or two occasions. It is a process of continuous, periodical and conscious matching in several trades over a period of time. The whole time member has stated in the order that he has taken into consideration only the appellant's transactions related to the dealings in the impugned scrips. He has also stated that the appellant was not found to be part of the group indulging in manipulative transactions when the initial interim order was passed in the group of cases. However, this cannot mitigate the gravity of the manipulation to which the appellant is found to be a party. The appellant's consistent participation in the synchronized trades along with the group entities has surely contributed to the creation of artificial volumes. The argument of the learned counsel that the appellant's role in the scheme of manipulation has to be viewed in the background of her overall trades does not merit consideration. The relationship of the parties, the continuous and consistent matching of trades and the transactions in the same scrips by all the group entities through a central broker would amply illustrate the game plan of the entities involved.