Tanuj Khandelwal vs Securities And Exchange Board Of India

Tarun Agarwala, Presiding Officer

The present appeal has been filed against the order dated August 31, 2020 passed by the Adjudicating Officer (‘AO’ for short) of Securities

and Exchange Board of India (‘SEBI’ for short) imposing a penalty of Rs. 8 lakh for violation of Regulation 3 and 4 of SEBI (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (‘PFUTP Regulations’ for short).

We have heard Mr. Vikas Bengani, the learned counsel for the appellant and Mr. Suraj Chaudhary assisted by Ms. Nidhi Singh and Ms. Kinjal

Bhatt, the learned counsel for the respondent through video conference.

A show cause notice was issued in the trading of the scrip of Malabar Trading Company Ltd. (‘MTCL’ for short). It was alleged that the

appellant had contributed to more than 5% of the total market positive LTP though 63 trades for a total quantity of 4304 shares during patch-1. It was

further alleged that the appellant placed sell orders in the range of 1 to 500 shares when the respective buy order quantity was in the range of 100 to

3400 shares especially when more shares were available, inspite of which the appellant on most of the dates traded only on one share. It was, thus,

alleged that the appellant was manipulating the share price and created misleading appearance of trading in the scrip by such trades thereby violating

Regulation 3 and 4 of PFUTP Regulations.

The AO after giving an opportunity of hearing and after considering the material evidence on record found that the appellant was guilty of the

allegations made in the show cause notice. The AO found that the appellant had no bonafide intention to sell when sufficient buy orders were available

and despite having adequate holdings in the scrip of MTCL sold only one share per transactions which resulted in creation of positive LTP and thus

created false misleading appearance of trading in the securities market. The AO, thus, held that such trading pattern amounts to manipulation of the

price of the scrip.

The learned counsel for the appellant vehemently contended that the controversy involved in the present appeal is squarely covered by a decision of

this Tribunal in M/s. Nishith M. Shah HUF vs. Securities and Exchange Board of India (Appeal No. 97 of 2019 decided on January 16, 2020) and also

Rajesh Marchya (HUF) vs. Securities and Exchange Board of India (Appeal No. 496 of 2019 decided on February 7, 2020) which are related to the

trading in the same scrip, namely, MTCL.

The learned counsel for the appellant also placed reliance on the order passed by AO in the matter of Mr. Jayant Indulal Sethna dated April 26,

2018.

Having heard the learned counsel for the appellant and upon perusal of the impugned order we are of the opinion that the case of the appellant is

distinguishable and consequently the decision in M/s. Nishith M. Shah HUF (supra), Rajesh Marchya (supra) and Mr. Jayant Indulal Sethna (supra)

cases are not applicable and are distinguishable on facts. We find that except on three occasions the appellant only sold one share at a time on a daily

basis. This trading pattern created misleading appearance with intention to manipulate the market if not the price. Thus, even if there is no connection

with the buyer the trading pattern shows a concerted effort to manipulate the market and therefore we are of the opinion that the appellant was not

acting as a genuine seller. We also find that the appellant had no bonafide intention to sell because inspite of sufficient buy orders being placed with

abundant quantity being available in the market the appellant was only placing sell orders of one share at a time. This clearly shows his intention of

manipulating the market for vested reasons.

Consequently, we are of the opinion that the finding of the AO that the appellant had violated the provisions of Regulation 3 and 4 of PFUTP

Regulations does not suffer from any error of law.

We are, however, of the opinion that in the given circumstances when the appellant was only selling miniscule quantity the penalty of Rs. 8 lakh is

harsh and excessive and does not commensurate with the alleged violations. Given the surrounding circumstances we are of the opinion that the

penalty of Rs. 1 lakh in the given circumstances shall be just and sufficient.

In view of the aforesaid, the appeal is partly allowed. The impugned order is affirmed with the modification that the penalty of Rs. 8 lakh is

reduced to Rs. 1 lakh which shall be paid by the appellant within four weeks from today.

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.