TMI Blog2013 (8) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... in volumes of trading on the Company's scrip. the SCN was based on the trade and order logs were not supplied to the Appellant, and most of the documents, in legible form, were supplied only after more than 10/11 years of occurrence of the event. HELD THAT:- The court quashed and set aside the impugned order in each case and allow the three appeals on merit as well as on the ground of unconscionable and unexplained delay of about 12 years in initiating and completing the proceedings against the three Appellants in question. Regarding the abnormality in the volume of the scrip as a result of the Appellants' trades. The court observed that the SCN as well as documents, other material and certain graphs produced by the parties before us. The facts clearly indicate that fluctuations of a similar nature in the volumes of the scrip existed even during the period when the Appellants did not execute any trade. The SCN itself makes it clear that there were ups and downs in the volume during the preceding and subsequent six months of the period of investigation in question. Therefore, we find that the charge of volume manipulation is also hollow and baseless. Also the existence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at are listed on stock exchanges, including Delhi Stock Exchange Ltd. (DSE) and on NSE, through members of such stock exchanges. One of the companies whose shares Appellants traded in, in year 2000, was Jagsonpal Pharmaceuticals Ltd. ( the Company ). 2. Brief facts leading to the present appeals are that the Respondent-SEBI is stated to have conducted some investigation into dealings in the scrip of the Company and reaching prima facie conclusion that all three Appellants had undertaken synchronized trades during August 2000 to December 2000 (the first period) and thereby the Appellants are alleged to have manipulated the price of the scrip during relevant time. Price of the scrip on NSE increased from ₹ 599/- as on August 18, 2000, touched a high of ₹ 700/- on September, 11, 2000 and thereafter decreased to ₹ 660/- on November 1, 2000. The Respondent also claims that there were irregular patterns in volumes of trading on the Company's scrip, which varied between 39, 200 shares on October 31, 2000 to 5 shares as on August 18, 2000 and such a phenomenon was observed on both stock exchanges, only on days, when the three Appellants traded in the scrip of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant raised certain preliminary issues besides reiterating their request for the supply of additional documents, as requested vide its letter dated October 27, 2006 to file an effective and proper reply. However, nothing was done by the Respondent to supply these additional documents for years together. 6. For more than four years after the hearing conducted by the learned WTM, the Appellant received no communication from the Respondent and suddenly on April 1, 2011 a notice of personal hearing-to be held on April 25, 2011, was received by the Appellant. Based on whatever material was supplied by the Respondent, the Appellant presented its written submissions, inter alia, contending that the long delay in concluding proceedings against the Appellant itself was antithetic to the rule of law, fairness and justice and as such proceedings in the matter, stood vitiated. On persistent requests made by the Appellant, it received certain more documents on May 10, 2011. The Appellant preferred an additional reply on May 27, 2011 and once again reiterated their request for the following documents:- i. Investigation Report of SEBI based on which the SCN was issued. ii. Statements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Noticee to manipulate price. xviii. Details of notices issued to/enquiry initiated and result thereof to other entities who are parties to the alleged structured/synchronized transactions. xix. All other documents referred to in the SCN. 7. It is submitted by the Appellant that the most important and crucial material on which the SCN was based, i.e., the trade and order logs were not supplied to the Appellant, and most of the documents, in legible form, were supplied only after more than 10/11 years of occurrence of the event. 8. In this background, the impugned order was passed on May 9, 2012 i.e. after a lapse of about one year even from the last personal hearing granted to the Appellant on April 25, 2011 and the subsequent supply of additional documents and filing of additional affidavit by the Appellant. 9. Learned senior counsel Mr. Rohit Kapadia, Mr. P.N. Modi with Mr. Joby Mathew submitted on behalf of the Appellants that the main allegation of price manipulation by way of synchronization of trades could not be proved during the proceedings conducted before the learned WTM and, therefore, the Appellants were exonerated of the main charge of price manipul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed senior counsel is that the Appellants have been gravely prejudiced in the matter of their proper defence before the Respondent. The proceedings are, therefore, liable to be quashed on the ground of such a long and unexplained delay of 5 years in initiating an enquiry, and 11 years in completing the proceedings against the Appellant, besides the ground of not finding any credible evidence of price and volume manipulation by the Appellants. 12. Learned counsel for the Appellants have placed reliance on the following judgments:- i. Subhkam Securities Private Limited vs. SEBI, Appeal no. 73 of 2012 decided by this Tribunal on July 25, 2012; ii. Libord Finance Ltd. vs. WTM, SEBI, Appeal no. 165 of 2012, decided by this Tribunal on March 31, 2008; iii. Viram Investment Pvt. Ltd. vs. SEBI, Appeal no. 160 of 2004 decided by this Tribunal on February 11, 2005; iv. Nirmal Bang Securities Pvt. Ltd. vs. SEBI, Appeal no. 54 of 2002 decided by this Tribunal on October 31, 2003; v. Porecha Global Securities Pvt. Ltd. vs. SEBI, Appeal no. 164 of 2009 decided by this Tribunal on August 5, 2010; vi. Khandwala Securities Limited vs. SEBI, Appeal no. 19 of 2012 decided by this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce on the following judgments:- i. H.J. Securities Pvt. Ltd. vs. SEBI, Appeal no. 76 of 2012 decided by this Tribunal on May 11, 2012; ii. M/s. Rajesh N. Jhaveri vs. SEBI, Appeal no. 49 of 2012 decided by this Tribunal on April 16, 2012; iii. Anita Dalal vs. SEBI, Appeal no. 211 of 2011 decided by this Tribunal on December 3, 2012; iv. Ketan Parekh vs. SEBI, Appeal no. 2 of 2004 decided by this Tribunal on July 14, 2006; v. SEBI vs. Ajay Agarwal, Civil Appeal no. 1697 of 2005 reported in [ (2010) 3 SCC 765]; vi. Ramrakh R. Bohra Ors. vs. SEBI reported in [(1998) 18 SCLR 543]. 15. We have heard the learned counsel for both the parties at length and have minutely gone through the pleadings and written arguments etc. brought on record by the parties as well as judgments cited before us. It is an admitted position that the major charge of price manipulation has not been proved by the learned WTM on basis of the documents and evidence brought before him. Thus, the only question which remains for us to look into is whether there was any abnormality in the volume of the scrip as a result of the Appellants' trades. In this regard we have minutely perused the SCN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als are ipso facto not illegal. SEBI has also confirmed that in the screen based trading that is prevalent in the stock exchanges, now, the buyer or the broker will not be aware of the identity of the seller or the broker. This fact is not denied by the Respondent. The Respondent has also given an evasive reply as to the supply of complete trade and order logs of stock exchanges which were not supplied to the Appellants by the Respondent at any stage of the proceedings. Some extracts were, however, supplied to the Appellants only when the proceedings were on the verge of completion and some even thereafter. This undoubtedly prejudiced the Appellants in exercising a crucial and valuable right to make an effective and proper representation/defence against the charges in question. The evasive reply given by the Respondent that the Appellants could have obtained the documents from other sources is not only unacceptable to this Tribunal but is also considered misconceived, since along with avoiding the responsibility of supply of documents which are relied upon by the Respondent it also suggests that the supply of relevant documents is not their responsibility and that the same may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... silent for a period spanning more than four and a half years when abruptly a notice was issued calling upon the Appellants to appear for a personal hearing on April 25, 2011. At this point we find it pertinent to note that human memory has a short shelf life. Allowing matters to go on and on for years together by the Respondent serves no purpose, rather it risks loss of evidence such as important documents which may get destroyed while the issue gathers dust. Such systemic failures occur to the disadvantage of all parties concerned and lead to consequences such as genuine violators being allowed to function normally in the capital market for years together, whereas in some situations the reputation of innocent entities gets tarnished as they wait for the wheels of justice to turn a bit faster than the pace at which they seem to be going. 20. Further, adverse consequence of such a long delay on the Appellants also needs to be noted. The Appellants did attend the personal hearing and reiterated their request for supply of the investigation report and complete trade and order logs of stock exchanges for the relevant period in question. The same were not supplied and only certain ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posal of proceedings alone would ensure that SEBI carries out its duty of protecting investors' interests effectively. It was further held that inordinate delay in conducting inquiries hangs like Damocles' sword on market players and has a rather demoralizing effect on them when they are ultimately exonerated of all charges. In the case in hand too we note that an unexplained delay of around 13 years taints the entire process of the investigation conducted by SEBI. 22. Next, in the case of Libord Finance Ltd. vs. SEBI, decided by this Tribunal on March 31, 2008, it was alleged that promoters of one Mazda Fabrics and Processors Ltd., which had come out with an IPO, manipulated the issue and arranged applications to be made from various entities so as to try and bail the issue out. The appellant, i.e., Libord, was lead manager to the issue. The allegation against the appellant was that on the one hand, as lead manager, it had failed to ensure that registrar to the issue was not making irregular allotments with the sole purpose of bailing the issue out, and on the other, having failed to notice irregularities the appellant helped Mazda in reaching its subscription level. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t been made to establish that the prices of the scrips in question had in fact fallen. No exercise had been undertaken to determine the impact of the trades executed on the price of the scrips before inferring that these trades led to any artificial depression in the prices of the scrips. The appeal was, therefore, partially allowed by setting aside the part of the impugned order cancelling the certificate of registration. 25. In Porecha Global Securities Pvt. Ltd. vs. SEBI, Porecha had acted as stock broker for both the parties in a particular transaction, making it a cross deal. Being a negotiated deal executed through the price and order matching mechanism of the BSE, the buy and sell orders matched perfectly which led SEBI to enquire into the concerned deals. After completion of the investigation SEBI came to the conclusion that the Appellants had executed structured and cross deals distorting the equilibrium of the scrip of Mobile Telecommunications Ltd. The impugned order dated September 9, 2009, disposing off the matter in which the impugned transaction took place in October 2000 and the show cause notice was issued in 2004, held that the appellants had failed to exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the appellant operated through 19 jobbers from various locations and it resulted in fictitious trades being executed. Such trades indeed created artificial volumes in the scrip sending wrong signals to the investors with regard to the trading in the said scrip. Moreover, the Appellant had executed self trades for 2,00,725 shares on the date of listing of the scrip itself. In this background, the Tribunal dismissed the appeal upholding the order of the Respondent. However, in the case in hand there are hardly two or three self trades of an insignificant amount of shares and that too as a result of incorrect punching in of data. Therefore, the case of H.J. Securities Pvt. Ltd. (supra) does not advance the case of the Respondent. Further, in the case of H.J. Securities Pvt. Ltd. (supra), the investigation was promptly conducted by the BSE as well as the NSE, and SEBI issued the SCN soon thereafter, with the result that within a period of about one year, the impugned order came to be issued against the appellant. There was no unnatural or undue delay in conducting the proceedings against the appellant therein and in passing the final order. In the case in hand, however, it has take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly so, on the basis of the material on record. In fact, trade logs were also duly supplied to the appellant and reverse trades were also conducted which were clearly found to be against the regulations assisted by concrete evidence brought on record in the case. In the case in hand we, however, note that Gloria the counter party which is alleged to have acted in the matter of synchronization of trades with the three Appellants has been exonerated. So there is no guilty counter party in the present case with whom any meeting of minds could be alleged and proved. Therefore, the present case is distinguishable from the case of Anita Dalal (supra) and does not advance the case of the Respondent. 30. Another case referred to by Mr. Kumar Desai is the case of Ketan Parekh decided on July 14, 2006 in Appeal no. 2 of 2004. In Ketan Parekh, the appellant himself was involved in an IPO scam and was debarred from associating with the securities market for a period of 14 years. The impugned order was based on two show cause notices dated March 27, 2002 and July 30, 2002 issued for manipulation in the scrip of Lupin Laboratories Ltd., a pharmaceutical company. The persons intimately involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd by doing so the Tribunal came to the conclusion that it was Ketan Parekh who was lurking behind the corporate curtain in the entire scam. This case cannot be applied to the present three appeals, being totally different in facts. 31. We have also perused the judgment of the Hon'ble Supreme Court in the case of Ajay Agarwal (supra) as well as the judgment of the Hon'ble Bombay High Court in the case of Ramrakh R. Bohra Ors. vs. SEBI [(1998) 18 SCLR 543]. Ajay Agarwal's case basically reiterates the settled position of law that an amendment which is procedural in nature can be applied retrospectively. This was held by the Hon'ble Supreme Court in the context of the amendment of the Securities and Exchange Board of India Act, 1992 bringing into the statute book Section 11B in the year 1995 and Section 11(4)(b) in the year 2002. Similarly, the case of Ramrakh R. Bohra deals with the issue of rigging of certain scrips by a group of stock brokers. They were restrained by SEBI from undertaking any fresh business during the pendency of enquiry proceedings launched against them. On being challenged before the Hon'ble High Court of Bombay, the Writ Petitions were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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