M.T. Joshi, Judicial Member
1. Aggrieved by the direction of the Adjudicating Officer (‘AO’ for short) of respondent Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) dated 29th October, 2020 imposing a penalty of Rs.5 lakhs each under section 15HA of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) for violation of Section 12A(a), (b), (c) of the SEBI Act read with Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) and (e) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 of (hereinafter referred to as ‘PFUTP Regulations’) the present appeals are preferred against the common order.
2. There were in all 16 noticees in the proceedings. Out of them five entities have filed the present appeals before this Tribunal. Appellant Mr. Rajendra Hukumchand Gupta is noticee no.13, appellant Glorius Vincom Pvt. Ltd. was noticee no.6, appellant Ms. Anita Jajodia was noticee no.8, appellant Linkup Financial Consultants Pvt. Ltd. was noticee no.11, while appellant Ms.Sabita Jajodia was noticee no.12 before the learned AO.
3. The allegations which found favour with the learned AO in short are that all these appellants along with other noticees in collusion with each other had caused the rise in the price of Jaisukh Dealers Pvt. Ltd. (hereinafter referred to as the ‘Company’), which had no financial wherewithal, in order to give exit to the preferential allottees i.e. appellant Ms. Anita and appellant Ms. Sabita. Further, in two patches of the investigation it was found that they caused rise in the price by contributing to the positive LTP by trading in the shares of the Company which was very rarely traded on the exchange platform immediately after the same was listed with the exchanges. The preferential allotments were done before listing of the Company.
4. All the noticees including the present appellants denied any collusion between them. They defended the action. However, the learned AO upon hearing them came to the above conclusion. Hence the present appeal.
5. Heard Mr.Vikas Bengani, Advocate for the appellant in appeal no.482 of 2020, Ms.Poonam Gadkari, Advocate assisted by Ms.Payal Shah, Advocate for the appellant in appeal nos.551 and 552 of 2020 and Ms.Rinku Valanju, Advocate assisted byMr.Pratham Masurekar and Mr.Aditya Shah, Advocates for the appellant in appeal no.73 of 2021 and 309 of 2021 and Mr.Suraj Chaudhary, Advocate assisted by Ms.Nidhi Singh, Ms.Deepti Mohan, Mr.Hersh Choudary, Ms.Nipa Paka and Ms.Riddhi Pawar, Advocates for the respondent.
6. The record would show that one Mr.Somnath Gupta alongwith four other persons was the Director of the Company during the relevant period. The financial condition of the Company was so weak that for the financial years 2013-14, 2014-15 and 2015-16 its net profit was Rs.2 lakhs, Rs.5 lakhs and Rs.4 lakhs respectively. Respondent SEBI had divided the investigation period in patch I and patch II. Patch I is with effect from 11thFebruary, 2014 to 31st August, 2014 i.e. immediately after listing of the Company with the exchanges. During this period the price of the shares which opened at Rs.25 closed at Rs.323. During the patch II i.e. 1st September, 2014 to 5thJuly, 2016 it opened at Rs.323 and closed at Rs.274. The price volume chart given in paragraph no.8 of the impugned order would show that though very meagre trades were observed, the price rise was really sharp. The trading of the noticees is enumerated by the learned AO in para no.10 of the impugned order. Necessary LTP analysis of the two patches is also made. Top 10 net positive LTP contributions were noticee no.1 to 8 as detailed in para no.12. They had contributed Rs.223 price rise that is positive net LTP in 37 trades and Rs.243 in 17 trades. This came to Rs.75.47% of market positive LTP. Similar was the case regarding patch II wherein noticee nos.1 to 9 and 11 contributed above 81% of the market positive LTP. Not only this 14 trades were between noticees themselves as enumerated in the table at para no.13. Among them appellant Mr.Rajendra, appellant Glorius Vincom Pvt. Ltd., appellant Ms. Anita, appellant Linkup Financial Consultants Pvt. Ltd. appellant Ms.Sabita Jajodia and others. During patch II again some noticees including appellant Linkup Financial Consultants Pvt. Ltd. had caused price rise being one of the top 10 net positive LTP contributor in other noticees. New high price was also established by various noticees including appellant Glorius Vincom Pvt. Ltd., appellant Ms. Anita and appellant Linkup Financial Consultants Pvt. Ltd. Within 10 trades the 61.92% to the new high price was established by them. First trade analysis carried by the learned AO in both the patches also shows the similar pattern. Positive LTP of Rs.198 was seen in these trades.
7. Earlier the Company had made two preferential allotments on 15th May, 2013 and 25thSeptember, 2013 before listing of the Company on the platform of the exchanges. Appellant Ms. Anita and Ms.Sabita were allotted 50,000 shares each for a price of Rs.15 and when these shares were sold on the platform of exchanges through the above trades, these appellants had garnered a profit of Rs.66,83,000 and Rs.75,53,000 respectively.
8. As regards the connection between the noticees, appellants Ms. Anita and Ms. Sabita were the promoters of the Company. Appellant Glorius Vincom Pvt. Ltd. and appellant Linkup Financial Consultants Pvt. Ltd. had admittedly a common Director Mr. Somnath Gupta who also happened to be the Director of the Company (Jaisukh Dealers Pvt. Ltd). Appellant Mr.Rajendra had admittedly purchased shares from Moonrise Logistic Pvt. Ltd. which also had common Director with appellant Linkup Financial Consultants Pvt. Ltd. Similarly, appellant Ms. Sabita had also the same address as that of another noticee no.5 Crown Iron Merchants Pvt. Ltd.
9. In this scenario, the order came to be passed. The learned counsel for the appellant Rajendra submitted that the learned AO failed to take into consideration that the notice was issued after 5 years of the alleged incident. Only allegation against him is that he was connected with noticee no.5 as he had allegedly obtained shares of the Company in off market transactions on noticee no.5. He submitted that in fact without the knowledge of the appellant 1400 shares were transferred to him and for that purpose the appellant had started making inquiry with the authorities as to how shares were transferred to him.. He infact has no connection with the said noticee. He had purchased shares from Moonrise Logistic Pvt. Ltd., retained the same for almost 6 months and then sold these shares i.e 3300 shares through the exchange platform. This sale order dated 17th July, 2014 remained pending for 7 minutes on the exchange platform and, thereafter, noticee no.3 had placed buy orders and purchased the same. Thus, the transaction is neither synchronised nor structured.
10. On the other hand, the learned counsel for the respondent submits that as already analysed the shares of the Company were very infrequently traded and, therefore, very fact that no buyer had placed buy order for 7 minutes would show that there was no takers for the shares. It was further pointed out that it is not a mere coincidence that the buyer i.e. noticee no.3 Yogesh Bansal who after 7 minutes placed the buy order is from the very building situated in Kolkata in which the promoters of the Company namely appellants Anita and Sabita reside which is clear from the addresses of these three noticees. He submits that this very fact establishes connection between the parties. He further submitted that the explanation of the appellant that without his knowledge some shares were transferred in his demat account is unbelievable.
11. In our view, all the above facts on record that the appellant purchased shares from Moonrise Logistic Pvt. Ltd. which is connected with the Company as detailed above and sold through the exchange platform for which taker was appellant no.3 Yogesh who resides in the same building at Kolkata where other appellants promoters namely Anita and Sabita reside would clearly establishes the connection. Besides, his case that off market shares were credited in his account that too again by a connected entity is illogical.
12. Taking into consideration all these facts in our view the order of the AO in this regard cannot be faulted.
13. As regards the issue of delay in issuing the notice we find that the appellant was not at all prejudiced by the issuing of notice on 29th October, 2020, as he could not show any inability to defend the proceeding due to any delay. The respondent SEBI was required to carry investigation and then issue notice in the case and therefore this plea cannot be sustained.
14. As regards appellant Glorius Vincom Pvt. Ltd. and appellant Linkup Financial Consultants Pvt. Ltd. it is clear that they had common Director Mr.Somnath Gupta who was also the Director of Company i.e Jaisukh Dealers Pvt. Ltd. Their contribution in net LPT etc is already detailed above.
15. So far as appellants Ms. Anita and Ms. Sabita - the promoter of the Company- are concerned they did not file any reply in the proceedings nor availed an opportunity of having a personal hearing before the AO. Before us their submissions was that besides the connection with other noticees Panchshree Logistics Pvt. Ltd. and Innova Auto Distributors Pvt. Ltd., they had no o connections with other entities of the group. However, the record would show that one of the Director of the Company of which they are promoter namely Mr.Somnath Gupta also happens to be a common Director with appellant Glorius Vincom Pvt. Ltd. and appellant Linkup Financial Consultants Pvt. Ltd. involved in the trading of the shares. Besides as detailed supra there neighbour i.e notice no. 3 Yogesh Bansal had purchased shares at higher price from appellant Rajendra albeit through exchange platform where there was no taker. It is clear that the present appellants were benefited by the rise in the price of the shares in the manner as detailed supra which helped them to garner the profit. In the written submissions appellant Ms. Anita additionally submitted that only in one of the sale transaction contribution of the long term capital gain was there. The appellant’s intention was only to exit at a higher price which they had done bona fide. They also submitted that there was delay in launching the proceedings. However, they failed to appear before the AO and put a plea in this regard and only at the belated stage in the appeal they are taking this ple
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a. 16. The learned counsel for the respondent pointed out that the noticees had not only contributed in the positive LTP but also created artificial trades in 44 trades out of total 55 trades in the market during patch I period. During patch II investigation period also the similar trend was noticed. Details of the connection is given by the learned counsel in the common written submission as already highlighted in the order above. 17. Considering the facts of the case, we do not find any merit in any of the appeals hence the following order. All the appeals are hereby dismissed without any order as to costs. Misc. Application no.37 of 2021 is also accordingly disposed of. 18. 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.