Bharat Natwarlal Patel vs Securities and Exchange Board of India

Tarun Agarwala, Presiding Officer

Delay in filing the reply is condoned. The application is allowed.

We have heard the learned counsel for the parties. The appellant has challenged the order dated December 16, 2022 passed by the Adjudicating Officer (“AO” for convenience) of the Securities and Exchange Board of India (“SEBI” for convenience) wherein a penalty of Rs. 25 lakhs has been imposed to be paid jointly and severally by the appellant along with 14 other noticees.

We find that investigation in the trading in the scrip of Edynamics Solutions Limited by certain entities was carried out by SEBI for the period March 02, 2017 to October 06, 2017. The investigation indicated that was circular trading on 4 days by these entities, namely, on March 02, 2017, March 03, 2017, April 11, 2017 and April 13, 2017. Based on this investigation, a show cause notice dated March 24, 2021 was issued alleging that the appellant along with the other noticees created a misleading appearance of the trading in the scrip of Edynamics Solutions Limited through circular and synchronized trades amongst connected entities without intention of change of ownership of securities thereby manipulating the volume of the scrip upwards at the Bombay Stock Exchange and consequently violated the provisions of Section 12A of the SEBI Act read with Regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (“PFUTP Regulations” for convenience).

In Paragraph 27 and 28 the AO observed that the appellant had placed a single sell order for 20,000 shares at Rs. 10.65/-per share and immediately thereafter the appellant had placed multiple buy orders for 20,000 shares at Rs. 10.70/- per share. These trades have been found to be manipulative, circular and synchronized by the AO along with other noticees. The AO also found the appellant to be connected with other noticees as indicated in paragraph 21.

Upon a perusal of the impugned order, we find that the appellant is not connected to any other noticees. Paragraph 21 of the impugned order clearly indicates that there is no connection between the appellant and other noticees. The connection has been alleged on the basis of trades carried out by the appellant which in the instant case was only carried out on one day i.e. on March 02, 2017.

In our opinion, in the absence of any connection with the other noticees coupled with the fact that the appellant had only carried out one trade on March 02, 2017 we are of the opinion, that one trade cannot lead to a conclusion of misleading appearance of trading in the scrip in question nor can it lead to a conclusion that the appellant was carrying out circular or synchronized trades since connection with other entities has not been found.

Circular and synchronized trades can only happen if there is a connection with the other entities and there is a meeting of minds. In the absence of any connection, the involvement of the appellant through trading pattern cannot be the sole basis of implicating the appellant for violation of Regulations 3 and 4 of the PFUTP Regulations.

In view of the aforesaid, we are of the view, that the appellant was not involved in circular or synchronized trading. The order imposing a penalty against the appellant cannot be sustained and is therefore quashed. The appeal is allowed in so far as the appellant is concerned.

By our order dated April 26, 2023 we had directed the appellant to deposit a sum of Rs. 1.5 lakhs which they have deposited. Since we have allowed the appeal the respondent is directed to refund the amount within four weeks from today.