Vasudev Ramchandra Kamat vs Securities And Exchange Board Of India

Tarun Agarwala, Presiding Officer

The present appeal has been filed questioning the order of the Adjudicating Officer (hereinafter referred to as ‘AO’) of Securities and

Exchange Board of India (hereinafter referred to as ‘SEBI’) dated March 20, 2020 by which a penalty of Rs. 1 lac was imposed for violating

the Regulations 3 and 4 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities

Market) Regulations, 2003 (hereinafter referred to as ‘PFUTP Regulations’).

The facts leading to the filing of the appeal is, that investigation was made in the alleged synchronized trading in the scrip of Spectacle Ventures

Ltd., on the basis of which a show cause notice was issued and thereafter the AO passed an order dated December 22, 2014 imposing a penalty of

Rs. 5 lacs for synchronized trading. It was held that the appellant was connected with Bharat Thakkar and Bhavesh Pabari, on the basis of the

common address and off-market transaction with Bharat Thakkar. This Tribunal, by an order dated March 8, 2016 allowed the appeal and set aside

the order of the AO holding that the address of the appellant was different from the address of Bharat Thakkar and Bhavesh Pabari and, therefore, on

this ground no connection could be established. The Tribunal accordingly remanded the matter to the AO for a fresh decision on merits.

It seems that nothing was done and eventually proceedings were initiated on December 13, 2017 and again on March 25, 2019 by appointment of a

fresh AO who issued a fresh show cause notice and thereafter passed the impugned order.

We have heard Mr. Vikas Bengani, the learned counsel for the appellant and Mr. Vishal Kanade, the learned counsel alongwith Ms. Nidhi Singh,

Ms. Kinjal Bhatt, Mr. Hersh Choudhary, the learned counsel for the respondent through video conference.

The contention of the appellant is, that there has been delay of 45 months in initiating fresh proceedings from the date of the remand order. It was

urged that on account of undue delay, the proceedings should be quashed on this ground itself. In this regard, we are of the opinion that pursuant to the

remand order SEBI appointed the AO on December 13, 2017 who did nothing and subsequently another AO was appointed on March 25, 2019 who

issued a fresh show cause notice and fixed December 4, 2019 for hearing and thereafter passed the impugned order dated March 20, 2020. In view of

the aforesaid, we are of the opinion that the proceedings cannot be quashed on the ground of undue delay. Even though is nothing on record to indicate

as to why the proceedings could not be decided pursuant to the remand order passed by the Tribunal we are of the opinion that when the matter is

remanded, every effort should be made by the authority to decide and dispose of the matter as early as possible. Delay in the disposal creates a

prejudice and gives an impression that the respondent are not interested in proceeding further in the matter.

The learned counsel for the appellant contended that when a show cause notice had earlier been issued, there was no occasion for the AO to issue

a fresh show cause notice on December 4, 2019 and thus contented that the issuance of the second show cause notice is illegal and therefore the

entire proceedings should be quashed. In this regard, we are of the opinion that when the Tribunal set asides the order of the AO and remits the

matter to the AO to decide the matter afresh, the AO is required to proceed on the basis of the material available on the record pursuant to the show

cause notice which had already been issued. There is no requirement to issue another show cause notice. However, in the instant case, by issuance of

a fresh show cause notice, the proceedings are not vitiated in as much as we find that in the fresh show cause notice the earlier charge was reiterated

and no fresh charges are levied against the appellant. Consequently, we treat this show cause notice as only a notice of intimation to the appellant

fixing the date for hearing in the matter. We may however, observe that when the matter is remitted by the Tribunal to the AO for fresh consideration,

no fresh show cause notice is required to be issued.

We find from a perusal of the impugned order that the charge of price manipulation against the appellant in the scrip of Spectacle Ventures Ltd. has

been dropped. We also find that the charge relating to the appellant that he was connected with Bharat Thakkar and Bhavesh Pabari on the basis of

common address shown in the KYC documents has also been dropped. No evidence on these aspects could be found against the appellant.

However, the appellant has been found to be connected with Bharat Thakkar on the basis of off-market transaction between the appellant and

Bharat Thakkar. With regard to the script in question, we find that two transactions were executed on September 10, 2009 and June 16, 2010. On the

other hand, we find that the trades were executed by the appellant on August 9, 2010, December 6, 2010 and December 7, 2010 after a considerable

period of time.

The AO found that the appellant was connected with Bharat Thakkar on the basis of off-market transaction. The AO also found that Bharat

Thakkar was connected with some of the Bhavesh Pabari entities and one such entity in the Bhavesh Pabari group was Bharat G. Vaghela. On this

basis through a circuitous route, the AO held that there was a connection between the appellant and the counter party Bharat G. Vaghela. On this

basis, one trade of appellant executed on December 6, 2010 has been found to be a synchronized trade with Bharat G. Vaghela, based on which a

finding of violation of Regulations 3 and 4 of the PFUTP Regulations has been given leading to the imposition of penalty of Rs. 1 lac.

Having heard the learned counsel for the parties on this aspect and having perused the record, we are of the view that the impugned order on this

score cannot be sustained. In the first instant, we are of the opinion that there is no connection whatsoever between the appellant and his counter

party Bharat G. Vaghela. The only indirect connection that has been found is that Bharat G. Vaghela is connected with the Pabari group in which

Bharat Thakkar is also one of the entities. No linkage has been found between Bharat Thakkar with Bharat G. Vaghela. Thus, in our view, this

circuituous route cannot make the appellant connected with Bhavesh Pabari group who were the main entities indulging in the synchronized trading.

Admittedly, the appellant had executed three trades and only one such trade executed on December 6, 2010 matched with the trade of Bharat G.

Vaghela. The matching of one trade only does not lead to a conclusion that the appellant was indulging in a synchronized trade.

Further, the quantum of the alleged synchronized trade in the case of the appellant is too miniscule to influence the market equilibrium or affect the

volume of trades. The quantum of trades was insignificant to come to any conclusion of synchronized trades. We are of the opinion that synchronized

trades per se are not illegal. It is only when synchronized trades were executed with a view to manipulate the price of the scrip that the provision of

the PFUTP Regulations get attracted. In the instant case, the AO itself dropped the charge of the price manipulation against the appellant. Thus, in the

absence of any manipulation of the price and on account of miniscule one trade we are of the opinion that it does not lead to conclusion of

synchronized trades. The provision of Regulations 3 and 4 of the PFUTP Regulations will not get attracted in the facts and circumstance of the

present case.

Consequently, the impugned order cannot be sustained and is quashed. The appeal is allowed with no order as to costs.

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.