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2013 (2) TMI 464 - AT - Companies LawPenalties imposed for violation of regulations 3 of the SEBI(Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 - whether regulation 4(2)(q) is applicable only to intermediaries and not on trades - SEBI conducted investigations into the trading activity of Shri Kanaiyalal Baldevbhai Patel ( 'KB') an individual trader and Passport India Investment (Mauritius) Ltd.( 'Passport') it was noted that KB had placed and executed orders before the order of Passport and consequently squared off his position when the orders of Passport were placed in the market. Dipak was the portfolio manager of Passport and is also cousin of KB thus providing information regarding forthcoming trading activity of Passport - Held that:- There is no hesitation in holding that the alleged transactions of the appellant are in the nature of "front running" As it is an admitted position on both sides that the regulation 4(2)(q) applies only to intermediaries and not to traders trading in the securities market the appellants were right in stating that front running has been prohibited only by intermediaries. In the absence of any specific provision in the Act, rules or regulations prohibiting front running by a person other than an intermediary, it is opined that the appellants cannot be held guilty of the charges levelled against them. On considering the fact that when the appellants placed their order, these were screen-based and at the prevalent market price. Admittedly Passport was the major counter-party for trading in the market and was placing huge orders and, hence, possibility of order of traders placing orders for smaller quantities matching with orders of Passport cannot be ruled out. Therefore, it cannot be said that they have manipulated the market. The alleged fraud of Deepak may be a fraud against its employer for which the employer has taken necessary action. In the absence of any specific provision in law, it cannot be said that a fraud has been played on the market or market has been manipulated by the appellants. thus SEBI has erred in holding the appellant guilty of violating regulation 3.
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