SEBI- SAT order A case of confirmation of penalty due to lacking of proper grounds, contentions and pleadings either not raised or ignored by the SAT

[DEV KUMAR KOTHARI]

Case under study:

2020 (9) TMI 1254 - SECURITIES APPELLATE TRIBUNAL, MUMBAI in case of

GLOBAL EARTH PROPERTIES AND DEVELOPERS PVT. LTD and others -

A case of confirmation of penalty   due to lacking of proper grounds , contentions and pleadings either not raised or ignored by the SAT

On reading of the judgment of  the SAT  author observes that the order passed in case of several appeals which were heard together, is not up to mark . It indicates as if even pooling of minds of  so many senior Counsels and  so many appellants  there was lacking of proper grounds of appeals and contentions raised and argued.

However, the way in which order is written, it can also be a case that several grounds and contentions  might have been raised and pressed but  have not been recorded and considered by SAT  by adopting choose and  discuss only such contentions and ignore many others just in zeal to dispose of so many appeals and to confirm penalty.

About notices and orders under challenge:

On reading of the judgment author could not find any copy or summary of notices issued and charges levied in so many cases. In  entire order we find twice mention of word ‘notice’ in paragraph 6 and 7 which are reproduced below with highlights added :

Quote with highlights:

            “ 6. Based on the aforesaid findings in the investigation report a show cause notice was served upon the Appellants indicating that the Appellants had indulged in execution of reversal trades with the same entities on the same day and that such trades were found to be non-genuine trades in nature which created false/misleading appearance of trading in terms of artificial volumes in Stock Options Segment and, therefore, these trades were manipulative, deceptive and fraudulent thereby violating Regulations 3 and 4 of the PFUTP Regulations.

7. All the Appellants denied the allegations in the show cause notice and filed their responses. The Adjudicating Officer after affording an opportunity of hearing passed different orders imposing a penalty of Rs.6 lakhs on Global, Rs.5 lakhs on Pintail, Rs.25 lakhs on Blue Bell and Rs.8 lakhs on Ashok. The Adjudicating Officer in the impugned order found that the Appellants had indulged in the execution of reversal trades in Stock Options Segments with the same entities on the same day thereby creating artificial volumes leading to false and misleading appearance of trading in illiquid stock options at BSE. The Appellants have thereafter filed the present appeals.”

Un quote:

Surprisingly it is observed that as per order, in any appeal validity of notice has not been challenged on grounds of contents, non -specific charges and time barred. If it is true then it is shocking and surprising that senior counsels has missed a very vital point of challenge.

Another point is that SAT has taken at face value the investigation report and finding of AO. Although any evidence about indulging into unfair trade practices is not found.

The order is based on assumption that each of appellant has violated all the provisions of  Regulations 3 and 4 of the PFUTP Regulations. These regulations contain variety of violations most of them are independent and mutually exclusive. As per practices observed on reading of many orders of adjudication it is noted that in most of cases in show cause notices specific charges were not mentioned to enable notice to understand what is charge and how to rebutt it.  

The order seems totally silent about limitation, time barred, defective notice etc. On search within the order no result was found for limitation, time barred, defective  etc.

 In case ground was taken challenging validity of notice and that ground has not been considered by SAT, then it is a case of serious mistake by SAT and that must be rectified.

Grounds of appeal are not mentioned:

It appears that there is no mention of grounds of appeal. In any appeal order, grounds of appeal and statement of facts must found place either as submitted or at least in a summary made by appellate authority. Now-a-days ,, due to ITES facility copy paste is found a convenient method, but that has also not been done. There is no indication of facts and grounds as submitted by appellants in their appeals.

In search within document   of order author  did  not find any matches for search of grounds of appeal, grounds, contentions , argument, argued etc. However contentions raised by counsel  have been mentioned in paragraph 9 of the order , some of which are summarized below:

           It was urged that no alerts were generated with regard to the trades executed by the Appellants and, therefore, it leads to an irresistible inference that the trades were genuine and were not violative of Regulations 3 and 4 of the PFUTP Regulations.

It was also urged that the Appellants had traded in other stocks which were highly liquid stocks and, therefore, it is wrong to contend that the Appellants had violated the PFUTP Regulations for trading in illiquid stock options.

 It was also urged that the Appellants had no connection with the counter party nor was there any prior meeting of minds and, therefore, the findings of the Adjudicating Officer was purely based on surmises and conjectures and on a preponderance of probability.

It was contended that there has to be a specific finding on the question of having connection with the counter party in order to substantiate the charge of manipulation against the Appellants for violation of Regulations 3 and 4 of the PFUTP Regulations.

It was further urged that the trades done by the Appellants with the counter party cannot be termed as synchronised trades and, in any case, out of the total non-genuine trades of 2,91,643 the Appellants had carried out only 94 trades in the case of Global, 36 trades in the case of Pintail, 507 trades in the case of Blue Bell and 157 in the case of Ashok which was wholly negligible. It was contended that the transactions in the case of Global turns out to be .03% and the alleged artificial volumes is only 0.23%. It was, thus, contended that even if it is found to be non-genuine trades the percentage was very negligible and, therefore, the penalty amount was not justifiable. It was contended that the amount of penalty is excessive and does not commensurate the alleged violations. Similar contention was raised by the other appellants.

In para 21    “ As urged by the learned counsel for the Appellants that the penalty awarded is excessive and harsh and, therefore, prayed that in the event the order is affirmed the Tribunal may consider reducing the penalty amount taking into consideration the financial status of the Appellants and the negligible transactions executed by the Appellants.”

Penalty confirmed:

Order confirms penalty for violation of Regulations 3 and 4 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’)

Counsels appeared :

Paragraph 8 names counsels who appeared before the SAT. As per such information the following  counsels  appeared:

1.  Mr. Prakash Shah, Advocate
2.  Mr. Kushal Shah, Chartered Accountant
3. Mr. Gaurav Joshi, Senior Advocate
4. Mr. Abhiraj Arora
5. Ms. Rashi Dalmia, Advocates
6. Mr. Saurabh Bacchawat, Advocate
7. Mr. Aditya Bhansali
8. Ms. Khyati Bhandari, Advocate
9. Ms. Nirali Mehta, Practicing Company Secretary
10. Mr. Deepak Dhane, Advocate for the Appellant
11. Mr. Shrey Sancheti, Advocate
12.  Ms. Aparna Wagle, Advocate

From reading of the judgment of SAT, it is shockingly surprising that so many senior counsels have not raised many vital contentions.

Or it may be a case where SAT has passed order in a summary manner and with a view just to confirm penalties.

SAT is a very senior authority and is expected to do justice. However  it appears that justice has been denied in an unjust manner and style. This is evident from facts that even summary of notices , statement of facts and grounds of appeal even from one or two lead cases have not been mentioned  in the order of SAT.

 Penalty for violation of  entire regulations 3 and 4 of ‘PFUTP Regulations’has been confirmed without pointing out and specifically examining under which provision penalty was triggered and could be levied.

As observed by SAT in the order in paragraph 6  the SCN was issued for alleged violation of  Regulations 3 and 4 of the PFUTP Regulations. This means that notices were non-specfic of charges but were omnibus notices alleging violation of so many possible violations.

In this regard it is necessary to read said regulations and just to check whether that provision can have any applicability in case of appellant. On such analysis it is found that only few of clauses can have applicability in  cases which were in appeal.

Therefore, it is a clear case of very wide assumption by  various Adjudicating Officers  that all notices before him  have violated said two regulations which are very wide and  varied in  scope for levy of penalty.

Unfortunately, SAT has confirmed such assumption. Therefore, the order passed by the SAT need a reconsideration in proper proceeding for these cases and in other new cases to be decided by the SAT.

Readers are requested to refer to more articles by the author on related topics.