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Kajal Nimish Shah & Another v/s Securities and Exchange Board of India SEBI Bhavan

    Misc. Application Nos. 426, 429, 427, 428, 430, 431 of 2022 & Appeal Nos. 259, 261, 260, 262 of 2022
    Decided On, 03 June 2022
    At, SEBI Securities amp Exchange Board of India Securities Appellate Tribunal
    For the Appellants: Rohan Mahadik, Shailja Patel, Advocates. For the Respondent: Suraj Chaudhary, Nishit Dhruva, Yash Garach, Meghna Ashwin, Shefali Shankar, Advocates i/b. MDP & Partners.

Judgment Text

1. For the reasons stated in the application, the delay in the filing of the appeals is condoned. The applications are allowed.

2. Appeal no.259 and 261 of 2022 have been filed against the order dated 20th November, 2020 passed by the Whole Time Member (‘WTM’ for short) whereby the appellants have been restrained from accessing the securities market and further have been directed to disgorge the unlawful gains. The same appellants have filed appeal no.260 and 262 of 2022 against the order of the Adjudicating Officer dated 23rd March, 2021 whereby for the same violation a penalty of Rs.5 lakhs has been imposed. Since the facts and issues are common all the four appeals are being taken up together. For facility, the facts stated in appeal no.259 of 2020 are being taken into consideration.

3. Show cause notice was issued to the appellants alongwith 21 other noticees calling upon them to show cause why appropriate directions/penalties should not be issued against them. The show cause notice alleged that 21 connected entities acted in concert and were part of scheme and artifice to off load large number of shares of Timbor Home Ltd. (hereinafter referred to as the ‘Company’) in the secondary market by planting unsolicited and misleading advice recommending purchase of shares of the Company to induce gullible investors to purchase shares. Further, the allegation against one of the appellant, Mr. Nimish Pankaj Kumar Shah is that he has also indulged in price manipulation in the scrip of the Company and, therefore, the appellants have violated Regulations 3 and 4 including Regulation 4(2)(a) and (e) of the 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’).

4. The appellants Mrs. Kajal Nimish Shah and Mr. Nimish Pankaj Shah appeared through another noticee before the WTM but chose not to file any reply. The allegation against them therefore remains unrebutted. However, appropriate reply was filed by them in proceedings before the AO wherein they have denied the allegations made in the show cause notice.

5. The WTM and the AO after considering the material evidence on record came to the conclusion that the appellants not only manipulated the price of the scrip of the Company but also contributed to positive LTP. Further, the appellants received shares off market from the promoters without any consideration and, thereafter, transferred it to 14 entities who sold it to the gullible investors. The authorities found that the trades made by them were violative of Regulations 3 and 4 of the PFTUP Regulations and, accordingly, appropriate direction was passed by the WTM under Section 11 of the Securities and Exchange Board of India Act and appropriate penalty was also imposed by the Adjudicating Officer.

6. We have heard Mr. Rohan Mahadik, Advocate assisted by Ms. Shailja Patel, Advocate for the appellant and Mr. Suraj Chaudhary, Advocate assisted by Mr. Nishit Dhruva, Mr. Yash Garach, Ms. Meghna Ashwin and Ms. Shefali Shankar, Advocates for the respondent.

7. Having heard the learned counsel for the parties and having perused the record, we find that the modus operandi was that four promoters of the Company had transferred shares directly or indirectly to other connected entities who in turn sold the shares in the market. Prior to sending bulk SMS by one of the connected entity, some of the entities bought small quantities of shares in each transaction which contributed to the increase in the price of the scrip. Around the same time, promoters of the Company transferred shares to other connected entities off market and, thereafter, one of the entities, namely, Mr. Soni Sanjay Jethalal circulated bulk SMS recommending purchase of shares of the Company which led gullible investors to buy the shares of the Company. Based on these bulk SMS the promoters and connected entities off loaded their shares and made unlawful gains.

8. In the facts and circumstances the authorities observed that the 21 connected entities devised a scheme to artifice and dump shares in a pre-planned manner by sending bulk sms to investors and inducing them to buy the scrip of the Company.

9. Insofar as Mrs. Kajal Nimish Shah is concerned, we find that the said appellant received shares of the Company from non-promoter noticee and, thereafter, sold the shares in the secondary market to gullible investors. The shares received by the appellant were without any consideration. A specific finding has been given that the appellant Mrs. Kajal Nimish Shah was connected to the promoter of the Company and that the promoters transferred the shares to the appellant and other connected entities without any monetary consideration. These facts have not been disputed by the appellants. Thus, the trades executed by the appellant Mrs. Kajal N. Shah was totally at the behest of the promoter being violative of Regulations 3 and 4 of the PFUTP Regulations.

10. With regard to the appellant Mr. Nimish P. Shah we find that the said appellant contributed positive LTP of Rs.55.35 which works out to 33.48% of the total market positive LTP in 205 trades in Patch 1. The said appellant received shares from the promoters off market without any consideration and then transferred it to 14 entities and also sold it in the open market. The finding against him that he not only manipulated the price of the scrip of the Company but

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also fraudulently sold shares to gullible investors does not suffer from any error nor any justification has been pointed out before us. 11. In view of the aforesaid, we do not find any merit in the present appeals. All the appeals are dismissed with no order as to costs. The misc. applications are also accordingly disposed of. 12. 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. Certified copy of this order is also available from the Registry on payment of usual charges.