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Judgment
Dr. C.K.G. Nair, Member
This order disposes of four appeals filed by three appellants, namely, Badri Lal Birla (Appeal Nos. 524 of 2019 and 605 of 2019), Chandrakanta Laddha (Appeal No. 601 of 2019) and Arihant Capital Markets Limited (Appeal No. 334 of 2020). Appeal No. 605 of 2019 has been filed challenging the order of the Whole Time Member ("WTM‟ for short) of Securities and Exchange Board of India ("SEBI) dated March 19, 2019 whereby Badri Lal Birla and Chandrakanta Laddha, among others, had been restrained from dealing in the securities market for a period of five years. However, only Badri Lal Birla has filed appeal against this order. Three other appeals are filed against the orders of Adjudicating Officer ("AO‟ for short) of SEBI dated September 24, 2019 (Appeal No. 601 of 2019); August 30, 2019 (Appeal No. 524 of 2019 and May 29, 2020 (Appeal No. 334 of 2020). By these adjudication orders penalty of respectively Rs. 6 lakh, Rs. 10 lakh and Rs. 5 lakh has been imposed on appellants Chandrakanta Laddha, Badri Lal Birla and Arihant Capital Markets Limited ("Arihant‟ for short). Though, the dates of the AO orders are different all 3 AO orders and the WTM order are passed in respect of trading in the scrip of Moryo Industries Ltd. ("Moryo‟ for short) during the year 2013-14 held to be violative of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ("PFUTP Regulations‟ for short). Accordingly, by consent of the parties all appeals have been heard together and are disposed of by this common decision.
Facts relating to two appeals are similar; SEBI investigation found that appellants Birla and Laddha and some other noticees were instrumental in raising the price of the scrip of Moryo and in contributing to positive Last Traded Price (LTP). These appellants had placed miniscule buy and sell orders which resulted in artificially raising the price of the scrip of Moryo. The allegation against Arihant is violation of Code of Conduct of Stock Brokers since it did not exercise due care and diligence while executing the trades of Birla who was its client. Accordingly a show cause notice was issued on December 5, 2017 and WTM passed the order on March 19, 2019. Thereafter, after issuing SCNs on different dates AO passed other three separate orders imposing monetary penalty as given in paragraph1of this Order.
Dr. S.K. Jain, Authorised Representative appearing for the appellant in Appeal No. 605 of 2019 made an attempt to demonstrate that the appellant was not in receipt of the show cause notice. However, we note from the reply filed by respondent SEBI that the show cause notice issued by SEBI through speed post returned "unclaimed" and thereafter it was served by affixture. Moreover, the appeal has been filed with a delay of 254 days; even subsequent to filing the appeal against the AO order which was issued five months after the WTM order. Therefore, we are of the view that the appellant has filed this appeal belatedly. Further, while the WTM order was issued against five entities only Badri Lal Birla has appealed against the same; even Chandrakanta Laddha who is appealing against the AO order has not appealed against the WTM order.
In Appeal No. 524 of 2019 (Badri Lal Birla), Dr. S.K. Jain, Authorized Representative contended that the appellant is a 78 years old senior citizen; did not violate any securities laws; SEBI cherry-picked 18 buy orders for 23 shares and 14 sell orders for 23 shares in an arbitrary manner and concluded that the appellant contributed to positive LTP, ignoring other trades which had negative or no LTP; even during the pre-investigation period price of the scrip was rising but was not investigated; there were fluctuations in prices during the investigation period and therefore the conclusion relating to LTP is not correct; appellant is a small investor and resorted to the same trading pattern in 30 scrips; total investment is that of 2-3 lakh, however, the penalty is Rs. 10 lakh which is highly disproportionate; no connection between buyer and seller or to the company was established and no synchronized, reversal or circular trades have been alleged. The Authorized Representative has placed reliance on a number of orders as follows (i) Order of this Tribunal in the matter of Vikas Ganeshmal Bengani vs Securities and Exchange Board of India (Appeal No. 225 of 2009 decided on February 25, 2010), (ii) Order of this Tribunal in the matter of M/s. Nishith M. Shah (HUF) vs Securities and Exchange Board of India (Appeal No. 97 of 2019 decided on January 16, 2020), (iii) Order of WTM, SEBI in the matter of Mr. Amit H. Tilala dated May 31, 2019, (iv) Order of WTM, SEBI in the matter of Mr. Jayendra Chandulal Sheth dated February 27, 2019, (v) Order of WTM, SEBI in the matter of Moryo Industries Limited dated September 21, 2017, (vi) Order of AO, SEBI in the matter of Ever Bright Trading Private Limited (earlier known as Mould Trading Private Limited) dated September 30, 2019, (vii) Order of AO, SEBI in the matter of Radford Global Ltd. dated March 6, 2020 and (viii) Order of AO, SEBI in the matter of Winsome Yarns Limited dated February 24, 2020 in support of his contention and, particularly, emphasized the order in respect of M/s. Nishith M. Shah HUF(supra).
We further note the following from the impugned Order in appeal No. 524 of 2019 Badri Lal Birla that total buy trades were 22, out of which 18 were positive LTP contributing trades; there were 12 trades wherein the buy order was placed for less than or equal to 6 shares while the disclosed quantity of sell order was more than or equal to 100 shares. These 12 trades were executed on 12 different days resulted in positive LTP contribution of Rs. 56.65 (19.97% of total market positive LTP) during Patch 1. Details of these 12 positive LTP contributing buy trades are given below:-
Sl. No
Batch Date
Buyer Name
Seller Name
Trade Time
Buy Order Time
Sell Order Time
Trade Price
LTP Diff
Buy Order Price
Sell Order Price
Trade d Quant ity
`Sell Order Disclo se Volum
Buy Order Original Quantiy
1.
31.01. 2013
Badri Lal Birla
Rakesh Kumar Modi
09:54:43. 5050340
09:54:43. 4767400
09:44:49. 7451510
113.6 0
2020
113.6 0
60
6
100
6
2.
16.04. 2013
Badri Lal Birla
Vinod Banwari lal Sharma
14:15:33. 5017690
13:58:34. 4683990
13:5 7:34.4912 230
760.0 0
3.60
76.00
76.0 0
1
300
1
3.
06.05. 2013
Badri Lal Birla
Rakesh Kumar Modi
15:15:26. 3704090
15:09:40. 7919310
15:03:58. 9738280
104.0 0
4.40
104.0 0
00
1
500
1
4.
07.05. 2013
Badri Lal Birla
Sunil Kr Bagaria Huf
15:15:21. 8107230
15:01:15. 8389440
15:01:52. 1442820
109.2 0
5.20
109.2 0
20
1
1000
1
5.
15.05. 2013
Badri Lal Birla
Insight Multitra ding Private Ltd
14:15:23. 8931650
14:02:44. 4628580
13:43:02. 6466090
132.0 0
5.00
132.0 0
00
1
500
1
6.
20.05. 2013
Badri Lal Birla
Prem Ratan Bhaiya
11:1529. 3936290
10:35:2 3.40131 20
11:09:29. 4392630
138.5 0
6.50
138.6 0
50
1
100
1
7.
22.05. 2013
Badri Lal Birla
Sunil Kr Bagaria Huf
15:15:24. 6336290
14:49:4 4.46993 00
14:50:46. 2692270
5.00
00
137.0 0
1
400
1
1
8.
06.06. 2013
Badri Lal Birla
Vivekan and Bagadia Huf
15:15:21. 6561930
15:3:43. 8089390
15:06:28. 3626280
108.0 0
7.45
111.0 5
00
1
170
1
9.
11.06. 2013
Badri Lal Birla
Narendr a G Navalak ha
15:15:23. 5523810
15:09:1 1.94841 30
14:55:04. 5389920
107.2 5
4.60
107.2 5
25
1
250
1
10.
12.06. 2013
Badri Lal Birla
Narendr a G Navalak ha
15:15:29. 9985050
15:08:2 5.74401 70
14:30:04. 8607650
114.4 0
4..15
111.4 0
40
1
250
1
11.
15.07. 2013
Badri Lal Birla
Coline Comput er Private Ltd
15:15:30. 3478120
15:00:19. 3921620
14:37:34. 3355630
112.0 0
4.80
112.0 0
00
1
100
1
12.
18.07. 2013
Badri Lal Birla
Vinubh ai Khushal bhai Patel
15:15:29. 1054690
14:56:55. 3713750
14:32:21. 4881380
100.0 0
3.75
106.0 0
00
1
122
1
In respect of trades at sl.no.4, 6 and 7 (i.e., where buy order was placed before the sell order), the buy order was placed for 1 share at prices significantly above LTP, which were subsequently matched by sell orders. In the remaining trades (i.e., where buy order was placed after the sell order), while the disclosed volume of the sell orders was large, buy orders were placed for small quantities, for which quantity the above trades were executed. These trades for small quantity were executed on 12 days and contributed to significant positive LTP. Further, out of these 12 days, on 7 days the trade of the Noticee was the only trade of the day.
Thus, it was alleged that the Noticee was not acting as genuine buyer and had no bona fide intention to buy but to mark the price higher because despite availability of large disclosed quantity of sell orders, he was placing small quantity buy orders by either matching or placing orders at prices higher than sell order price which were already above LTP or by placing buy orders at prices above LTP which were subsequently matched by sell orders thereby contributing to significant positive LTP.
It was also observed that the Noticee was one of the entities who contributed more than 5% to market positive LTP during patch 1 as seller as well . Upon analysis of his LTP contribution, it was observed that the Noticee contributed Rs.68.65 of positive LTP (24.20% of market positive LTP) through 14 trades for 23 shares. The details of the trades of the Noticee as seller is as follows:
Sl. No
Batch Date
Buyer Name
Seller Name
Trade Time
Buy Order Time
Sell Order Time
Trad e Price
LTP Diff.
Buy Order Price
Sell Order Price
Trad e Qua ntity
Seller Order Volu me
Buy Order Volu me
No. of shares held before these trades
1.
10.04. 2013
Chandra kant Laddha
Badri Lal Birl
15:15:12 8.01978 30
15:09:2 5.35118 50
15:11:5 1.87883 70
66.0 0
5.00
66.0 0
66.0 0
1
1
5
700
2.
11.04. 2013
Chandra kant Laddha
Badri Lal Birla
15:15:2 0.96096 80
14:30:3 9.55645 40
14:32:1 9.90570 80
69.0 0
3.00
69.0 0
69.0 0
1
1
10
699
3.
17.04. 2013
Shyam Kanheyl al Vyas
Badri Lal Birla
11.15:3 6.57076 50
10:30:0 5.09604 30
10:32:2 7.20759 50
79.8 0
3.80
79.8 0
79.8 0
1
1
500
700
4.
17.04. 2013
Badri Lal Birla
Badri Lal Birla
15:15:3 2.78751 70
14:51:1 6.12987 50
14:34:0 9.01993 40
79.8 0
7.30
79.8 0
79.8 0
1
1
1
699
5.
18.04. 2013
Badri Lal Birla
Badri Lal Birla
15:15:2 1.55698 10
14:35:5 2.06683 8 60
15:04:1 4.62302 20
83.7 5
3.95
83.7 5
83.7 5
1
1
1
699
6.
13.05. 2013
Chandra kant Laddha
Badri Lal Birla
15:15:2 9.09312 30
14:31:4 3.93797 30
14:32:4 7.96920 90
20
5.20
20
20
3
3
5
703
7.
17.05. 2013
Chandra kant Laddha
Badri Lal Birla
15:15:3 1.55132 70
14:30:3 4.67341 80
14:31:1 5.34542 40
00
5.50
00
00
2
2
10
702
8.
21.05. 2013
Chandra kant Laddha
Badri Lal Birla
15:15:3 0.78556 00
15:06:0 1.15232 90
15:04:1 4.9676 00
00
6.00
00
00
1
1
2
701
9.
24.06. 2013
Amritlal Kanji Haria
Badri Lal Birla
10:15:2 7.01513 50
09:59:5 5.63608 40
10:04:2 8.81002 30
35
4.75
35
35
1
1
1
704
10.
27.06. 2013
Chandra kant Laddha
Badri Lal Birla
15:15:2 6.55241 20
14:33:1 0.32731 00
15:13:3 5.99567 50
00
2.65
35
95
1
1
2
703
11.
01.07. 2013
Chandra kant Laddha
Badri Lal Birla
15:15:3 0.35493 10
14:53:0 6.63273 80
14:59:5 5.91482 70
80
4.15
80
75
2
2
5
704
12.
02.07. 2013
Chandra kant Laddha
Badri Lal Birla
15:15:3 5.18184 70
14:39:3 6.14664 30
14:48:1 6.24153 70
90
3.10
90
85
1
1
3
702
13.
04.07. 2013
Chandra kant Laddha
Badri Lal Birla
10:15:4 6.28640 50
10:03:3 6.64946 30
10:04:3 5.08060 30
80
4.90
85
80
5
5
5
701
14.
19.07. 2013
Chandra kant Laddh
Badri Lal Birla
15:15:3 6.14181 60
14:48:2 1.95496 90
15:04:4 7.15317 70
45
9.35
00
45
2
2
2
705
In Appeal No. 601 of 2019 filed by Chandrakanta Laddha, the learned counsel for the appellant, Shri Saurabh Bachhawat contended that the appellant is a senior citizen and has been trading in the securities market for 40 years as a small investor in similar fashion; traded in the normal manner and made a profit of about one lakh rupees during the relevant time; did not challenge the WTM order due to financial constraint and therefore the penalty of Rs. 6 lakh imposed is disproportionate and harsh. It was also contended that the appellant conducted 10 trades and the quantity traded was 23 shares with positive LTP impact. Details of these 10 trades along with their LTP contribution is given below:-
Sl. No
Batch Date
Buyer Name
Seller Name
Trade Time
Buy Order Time
Sell Order Time
Trade Price
LTP Diff
Buy Order Price
Sell Order Price
Trade d Quant ity
`Sell Order Disclo se Volum
Buy Order Original Quantiy
1.
10.04. 2013
Chandrakanta Laddha
Badri Lal Birla
15:15: 28.01 97830
15:09: 25.351 1850
15:11:5 1.87883 70
66.00
5.00
66.00
66.00
1
1
5
2.
11.04. 2013
Chandrakanta Laddha
Badri Lal Birla
15:15: 20.96 09680
14:30: 39.556 4540
14:32:1 9.90570 80
69.00
3.00
69.00
69.00
1
1
10
3.
13.05. 2013
Chandrakanta Laddha
Badri Lal Birla
15:15: 29.09 31230
14:31: 43.937 9730
14:32:4 7.96920 90
121.20
5.20
121.20
20
3
3
5
4.
17.05. 2013
Chandrakanta Laddha
Badri Lal Birla
15:15: 31.55 13270
4:30:3 4.6734 1 80
14:31:1 5.34542 40
132.00
5.50
132.00
00
2
2
10
5.
27.06. 2013
Chandrakanta Laddha
Badri Lal Birla
15:15: 26.55 24120
14:33:1 0.3273 1 00
15:13:3 5.99567 50
108.00
2.65
109.35
95
1
1
2
6.
01.07. 2013
Chandrakanta Laddha
Badri Lal Birla
15:15: 30.35 49310
14:53:0 6.6327 380
14:59:5 5.91482 70
106.80
4.15
106.80
75
2
2
5
7
02.07. 2013
Chandrakanta Laddha
Badri Lal Birla
15:15: 35.18 18470
14:39:3 6.1466 4 30
14:48:1 6.24153 70
109.90
3.10
109.90
85
1
1
3
8.
04.07. 2013
Chandrakanta Laddha
Badri Lal Birla
10:15: 46.28 64050
10:03:3 6.6494 6 30
10:04:3 5.08060 30
114.80
4.90
114.85
80
5
5
5
9.
08.07. 2013
Chandrakanta Laddha
Badri Lal Birla
15:15: 32.67 66650
14:43:0 7.8061 160
15:13:0 6.92536 30
118.70
3.70
120.65
65
5
5
10
10.
19.07.2013
Chandrakanta Laddha
Badri Lal Birla
15:15: 36.14 18160
14:48:2 1.9549 690
15:04:4 7.15317 70
104.45
9.35
105.00
104.45
2
2
2
It is observed from these trades of the Noticee that the Noticee placed buy orders before the sell orders at prices significantly above LTP, which were subsequently matched by sell orders. Further, 5 trades took place between June 27, 2013 to July 08, 2013 i.e. during 7 trading days. Moreover, out of the above 10 trading days, on 3 days the trades of Noticee were the only trades of the day. Appellant Laddha also had executed sell trades also in similar fashion.
Thus, it was alleged that the Noticee was not acting as genuine buyer and had no bona fide intention to buy but to mark the price higher because she was placing small quantity buy orders at prices significantly above LTP which were subsequently matched by sell orders thereby contributing to significant positive LTP. The Noticee, by trading in the aforesaid manner, manipulated the scrip price and created a misleading appearance of trading in the scrip by such trades and thereby allegedly violated Regulations 3(a), (b), (c), (d), 4(1), 4(2)(a), and (e) of PFUTP Regulations.
The appeal filed by Arihant Capital Markets Limited (Appeal No. 334 of 2020) who is a stock broker and the broker of appellant Badri Lal Birla. The charge against the appellant broker is that it failed to exercise due skill, care and diligence and thereby violated Clause A(2) of the Code of Conduct for stock brokers as specified under Schedule II read with Regulation 7 of the Stock Broker Regulations. It is the contention of the learned counsel appearing for the appellant that the concerned transactions were carried out in the year 2013 and the show cause notice was issued on April 24, 2018 with the delay of 5 years and the said transactions were executed through Bhilwara office and it is not possible at this stage to recollect or recall the documents, particularly, when the appellant has more than 1.65 lakh customers including 75 active institutional clients with operations spread in 200 cities. Further, it was contended that the impugned order itself states that the appellant has not derived any benefit from the same. Moreover, the appellant had no connection with Badri Lal Birla except a client-broker relationship for share trading activities during 2005-18 and in these 13 years there was no other adverse finding against the appellant vis-à-vis Badri Lal Birla. It was further submitted that during his 25 years of functioning as a broker, the appellant never faced any punitive or other action in any manner relating to price manipulation, exercise of inadequate care and negligence.
The learned counsel Shri Kumar Desai representing respondent SEBI, on the other hand, submitted that the two appellants Badri Lal Birla and Chandrakanta Laddha had manipulated the market as held in the impugned order since they had indulged in trading in miniscule quantity on the buy and sell side when larger quantity of counter party orders were available in the system. Such trade orders were at prices substantially different from the LTP. Thus it is clearly non-genuine trading and violative of the stated provisions of PFUTP Regulations. Appellant Arihant Capital Markets Limited did not exercise due skill, care and diligence when its client was trading in a manipulative manner. Therefore, the finding in the impugned order that, both the investors and the broker of one of them are liable for the violations and hence the monetary penalty which are not harsh and hence need no interference. In support of his contentions the learned counsel for the respondent SEBI relied on a number of judgments as follows- (i) Securities and Exchange Board of India vs. Rakhi Trading Private Limited, (2018) 13 SCC 753, (ii) Securities and Exchange Board of India vs. Kishore R. Ajmera, (2016) 6 SCC 368, (iii) Securities and Exchange Board of India vs. Kanaiyalal Baldevbhai Patel and other connected cases, (2017) 15 SCC 1, (iv) N. Narayanan vs. Adjudicating Officer, Securities and Exchange Board of India, (2013) 12 SCC 152, (v) Systematix Shares & Stocks (India) Limited vs. Securities and Exchange Board of India, 2012 SCC OnLine SAT 69: [2012] SAT 69, (vi) Shailesh Jain vs Securities and Shri Lakhi Prasad Kheradi vs. Securities and Exchange Board of India (Appeal No. 232 of 2017 decided on June 21 2018), (viii) Saumil Bhavnagari vs. Securities and Exchange Board of India, 2014 SCC OnLine SAT 54, (ix) Exchange Board of India, 2012 SCC OnLine SAT 76 : [2012) SAT 76, (vii) Order of this Tribunal in the matter of Kalpana Dharmesh Chheda & Anr. vs. Securities and Exchange Board of India, 2020 SCC OnLine SAT 52, (x) Jayprakash Bohra vs. Securities and Exchange Board of India, 2019 SCC OnLine SAT 368 and (xi) Giriraj Kumar Gupta HUF vs. Securities and Exchange Board of India, 2020 SCC OnLine SAT 111.
Having heard the learned counsel for the parties and having perused the documents, we are of the considered view that the period of restraint and amount of penalties imposed on the appellants are harsh and disproportionate. The impugned order elaborates the trades done by the appellants in terms of various parameters which reveals the fact that a few miniscule orders have been placed by the appellants Badri Lal Birla and Chandrakanta Laddha which looks manipulative in nature. It is also true that they are counter parties to the some of the trades. It is also the fact that through some of their trading the LTP has been impacted. Thus there is merit in the findings in the impugned orders that the pattern of appellants‟ trading had been of a market manipulating nature. Hence the reliance placed by the appellants in various orders is misplaced as they are distinguishable on facts.
However, at the same time, we also note that the number of trades which are found to be manipulative and hence falling foul of the charging provisions as in the impugned order is not too large; 18, 14 and 10 etc and the volumes and are also too small, 36, 23, 24 shares etc. and cannot impact the market in any significant manner and only a limited impact on the price has happened. It is also a fact that some of their trades also resulted in no impact on LTP or impacted LTP negatively. Further on some of these days prices were fluctuating thereby raising difficulty in calculating the LTP in a market impacting manner. No connection between the buyers and sellers, except some of their trades matching, nor between Moryo and the appellants has been established. Given these reasons and juxtaposing the same with limited magnitude of the violation we consider that the penalty imposed on the appellants is too harsh. As far as appeal by the broker Arihant Capital Markets Limited is concerned we are of the considered view that there is merit in its contention that while a large number of miniscule orders must warrant the attention of the broker, a few trades, that too occasionally, may skip the attention particularly when the broker has large number of clients running into several thousands. Moreover, the broker of only one of the appellants (Birla) has been found to be violative of the Code of Conduct, not the broker of Chandrakanta Laddha, though the nature of violation by both Birla and Laddha is the same. Further, the impugned order itself states that the broker was not a beneficiary in the said trades in any way other than the broker fee and no link has been established with Badri Lal Birla in any other manner.
In the light of the aforesaid facts: limited number and volume of trades, limited impact on LTP, no connection between the parties or with the company and other given reasons we are of the considered view that 5 year restraint imposed on appellant Badri Lal Birla is too harsh. We, therefore condone the delay in filing appeal No 605/2019 and consider the appeal. For the same reasons we are also of the considered view that penalty of Rs. 10 lakh and Rs. 6 lac imposed on appellants Birla and Laddha respectively is also harsh and deserve mitigation. In the case of Arihant Capital Markets Limited the alleged lack of due care, skill, and diligence in a few trades done by one appellant we are of the considered view that the alleged lack of care and due diligence in this matter is not sufficiently established and therefore cannot be sustained.
Given the aforestated reasons, Appeal No. 334 of 2020 filed by Arihant Capital Markets Limited, is allowed and the impugned order is quashed. Appeal No 605/2019 filed by Badri Lal Birla is partly allowed by reducing the period of 5 years restraint imposed on the appellant to that of the period already undergone by the appellant. Appeal Nos. 524 of 2019 and 601 of 2019 filed by Badri Lal Birla and Chandrakanta Laddha respectively are partly allowed. Penalty imposed is reduced from Rs.10 lac and Rs.6 lac to Rs. 1 lakh each. Appellants are directed to pay the penalty to SEBI within 30 days from the date of this Order.
The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor a certified copy of this order could be issued by the registry. In these circumstances, this order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally signed copy sent by fax and/or email.