9911796707
TMI Blog2023 (11) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... Ms. Purvi Jain, Ms. Hubab Sayyed, Mr. Raghav Taneja, Advocates i/b Vidhii Partners. Mr. Sumit Rai, Advocate PER : JUSTICE TARUN AGARWALA, PRESIDING OFFICER 1. Ten appeals have been filed by 14 noticees against a common order dated December 18, 2020 passed by the Whole Time Member (hereinafter referred to as 'WTM') of Securities and Exchange Board of India (hereinafter referred to as 'SEBI') against 16 noticees and separate orders of various dates have been passed by the Adjudicating Officer (hereinafter referred to as 'AO') against the appellants. Since all the appeals emanated from a common issue, the same are being clubbed and are being decided together. 2. Appeal No. 12 of 2022 has been filed by Manish Chaturvedi noticee nos. 1, Laxmi Chaturvedi noticee nos. 2 and Manohar Chaturvedi noticee nos. 3 against the order of the WTM dated October 18, 2022 wherein noticee nos. 1 Manish Chaturvedi has been debarred for a period of seven years and Laxmi Chaturvedi and Manohar Chaturvedi noticee nos. 2 and 3 have been debarred for five years. Further, these three appellants have been directed to disgorge a sum of Rs. 18,98,39,179/- including interest jointly and severally. 3. Appeal N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Abhinandan and Josh Trading against the order dated September 30, 2021 passed by the AO wherein these appellants have been imposed a penalty of Rs. 3 lakh each. 5. The facts leading to the filing of the present appeals is, that five different reports were received by SEBI from National Stock Exchange of India Ltd. (hereinafter referred to as 'NSE') indicating suspected front running trading activity by certain entities in the trades of Sterling group during the period January 1, 2010 to December 15, 2010. Based on these reports, SEBI conducted an investigation which revealed that front runners had front-run entities of the Sterling group. Further, the clients of the M/s. Sharekhan Limited (hereinafter referred to as 'Sharekhan') were front-run by Anandilal Chanda through his own account, his HUF account and Sharekhan's proprietary account. These entities had traded heavily on those days where the Sterling group has also traded. The Sterling group comprised of the following entities :- TABLE I - STERLING GROUP ENTITIES SR. NO. NAME 1. ABHI AMBI FINANCIAL SERVICES LIMITED ("ABHI AMBI") 2. STERLING FUTURES & HOLIDAYS LIMITED ("STERLING FUTURES") 3. RATHA INFRASTRUCTURE PVT. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged that the front-running activity by the front-runners was a result of facilitation by noticee nos. 1, 3, 5, 9 and 11 (Manish Chaturvedi, Manohar Chaturvedi, Abhinandan Ranka, Sandeep Maloo and Neeta Maloo). 9. It was further alleged that the clients of Sharekhan were frontrun by Sharekhan (in its proprietary account), Anandilal Chanda (Noticee nos. 14) and Anandilal Chanda HUF (Noticee nos. 15) and that Madhu Chanda (Noticee nos. 13) used / passed the information of orders placed by Manish Chaturvedi to her husband, Anandilal Chanda and had also facilitated (a) Manish Chaturvedi in frontrunning the trades of the Sterling group and (b) Sharekhan, Anandilal Chanda and Anandilal Chanda HUF to front-run the clients of Sharekhan. 10. It was also alleged that Anandilal Chanda had, in connivance with Madhu Chanda, obtained confidential information about orders placed by clients of Sharekhan and had front-run the trades of Sharekhan's clients in his own account, HUF account and proprietary account of Sharekhan. 11. As a result, the aforementioned entities / noticees nos. 1-15 were alleged to have violated the provisions of the SEBI Act and the PFUTP Regulations, 2003. 12. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i in the trades of the, Sterling group as Manish Chaturvedi and Madhu Chanda were observed to be frequently communicating during market hours and the orders placed in the trading accounts of some of the aforesaid 7 entities were also in synchronization with the call timings between them. 17. The authorities found that Madhu Chanda had used / passed the confidential information of orders placed by Manish Chaturvedi in the trading accounts of the aforesaid 7 entities to her husband, Anandilal Chanda. With the strength of such "information" passed on by Madhu Chanda, Anandilal Chanda carried out trading activity to front run the clients of Sharekhan i.e., the aforesaid 7 entities (Noticee Nos. 2, 4, 6, 7, 8, l0 and 12) in his own account, in the account of Anandilal Chanda HUF and in the proprietary account of Sharekhan. 18. The proceedings initiated against Sharekhan vide the 2nd show cause notice dated February 9, 2017 as well as adjudicating proceedings against Sharekhan were settled and disposed of vide a settlement order dated April 23, 2019 read with addendum to the settlement order dated June 4, 2019 passed by the respondent whereby Sharekhan has deposited the entire ill-gott ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res traded by the front runners was overwhelmingly high i.e. 84.68% on days when the Sterling group had traded. Further, of the shares day traded on the scrip day common with the Sterling group, 85.95% of the number of shares day traded matched with that of the Sterling group. 24. We also find that out of the total number of trades of the front runners matched with the Sterling group, 85.24% of number of trades matched was ordered at the same price by the front runners as that of the Sterling group. We find that the very nature front running refers to an extremely precise trading activity which is impossible to achieve unless the front runner had access to the non-public information about the impending orders of the Big Client (in this case the, Sterling group). For this reason, matching of common scrip days, common percentage of shares, precise matching of price by the front runner with the Big Client, earning significant amounts of profits on common scrip days with the Big Client when compared to non-common scrip days are all extremely strong indicators that the front runners were placing its orders ahead of and in tandem with the large orders of the Big Client in order to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HORT SELL TRADE TIME (HOURS) BUY TRADE TIME (HOURS) SELL QUANTITY BUY QUANTITY PROFIT (Rs.) 1. Laxmi Chaturvedi 09:15:13- 09:24:31 09:24:37- 09:24:48 1,08,719 1,05,178 91,152 99.91 2. Laxmi Chaturvedi 09:27:59- 09:36:26 09:38:31- 09:38:42 81,575 85,116 3. Laxmi Chaturvedi 12:36:55- 12:58:50 13:02:15- 13:02:32 2,48,037 2,50,000 1,06,818 100.00 4. Laxmi Chaturvedi 13:12:32- 13:19:39 13:19:44- 13:19:46 30,338 30,345 9,453 100.00 5. Laxmi Chaturvedi 13:40:45- 13:46:26 13:46:43- 13:46:50 83,768 83,768 51,122 100.00 TOTAL 5,52,437 5,54,407 2,59,135 99.98 TABLE VIII - TRADES OF E-ALLY ON 18.11.2010 SR. NO. CLIENT A B C D E % MATCHED WITH STERLING GROUP SHORT SELL TRADE TIME (HOURS) BUY TRADE TIME (HOURS) SELL QUANTITY BUY QUANTITY PROFIT (Rs.) 1. E-ALLY 12:59:04- 13:01:45 13:02:15- 13:02:32 3,03,000 3,03,000 89,247 100.00% (iii) The relevant order and trade details of the tranche highlighted above at sr. no. 3 of the above Table VII (Laxmi Chaturvedi) and sr. no. l of Table VIII (E-Ally) are analysed below in light of trades of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng sold in E-Ally's account (see column C of Table VIII above). (vii) At 13:01:09, JMFL had called Manish Chaturvedi (9790967968) while the call by Manish Chaturvedi (9967051632) to Madhu Chanda was online. The duration of the aforementioned call was 2:13 minutes. During the duration of the aforementioned call between Manish Chaturvedi and JMFL, Manish Chaturvedi was heard to be talking in the background asking the other person to sell 50,000 and a sell order was observed in E-Ally's account for the same quantity. (viii) About 20 seconds prior to the order placed in Abhi Ambi's account at Rs. 69.60 (see column F of Table X above), Manish Chaturvedi was heard to have mentioned "69.60" in the background which is the time when the buy orders were placed in the account of Laxmi Chaturvedi for 2,50,000 shares at 13:01:55 (see column D of Table VII and column A of Table X above) and in close proximity to the time when buy orders were placed in the account of E-Ally for 3,00,000 and 3,000 shares at l3:01:57 and 13:02:08, respectively (see column D of Table VIII and column A of Table X above). (ix) Thereafter, the two sell orders of Abhi Ambi were placed at 13:02:15 and 13:02:32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were being placed either before (i.e. jumping the time priority) the orders in the accounts of 7 Front Runners / clients of Sharekhan and / or at a price better (i.e. jumping the price priority) than that of the orders in the accounts of clients of Sharekhan. (ii) Due to the aforesaid strategy, the trades in the accounts of Anandilal Chanda and Anandilal Chanda HUF got executed before (due to being ahead in terms of pricetime priority) the trades in the accounts of noticee nos. 2, 4, 6, 7, 8, 10 and 12 and got matched with the trades of the Sterling group. This also resulted in orders of these clients of Sharekhan remaining unexecuted which had to be later deleted by these clients. (iii) In majority of the orders, the order price in the accounts of clients of Sharekhan was same as that of the Sterling group and the order price of Anandilal Chanda and Anandilal Chanda HUF were same as that of the clients of Sharekhan or with a difference of Rs. 0.05 (better by one tick). Out of the total number of trades matched with the Sterling group, 75.38% of number of trades executed by the dealers were ordered at the same price or at a price difference of Rs. 0.05 as that of the Sterling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Chanda and his HUF were placed based on orders of clients of Sharekhan. (v) The value of trades / number of shares traded and the average amount of profit earned by the front-runners on the scrip days common with the Sterling group and the clients of Sharekhan was much higher than that on other scrip days. 36. Thus, the WTM order and the AO order have correctly held that due to the trading based on prior information of trades of the aforesaid 7 noticees (noticee Nos. 2, 4, 6, 7, 8, 10 and 12) and of the Sterling group, Madhu Chanda, Anandilal Chanda and Anandilal Chanda HUF defrauded investors in the securities market and caused loss to other investors / deprived the investors from profits, and made unlawful gains in their respective trading accounts. 37. The appellants Manish Chaturvedi, Laxmi Chaturvedi and Manohar Chaturvedi have contended that there is an undue delay of seven years. Further, during cross-examination one person of Sharekhan was present and the witness was prosecuted. Further, investigating material, namely, the investigation report was not supplied. It was also alleged that the authorities have relied upon the voice recordings without taking voice samples ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o rejected on the aforesaid findings. The contention that no opportunity was given to cross-examine a witness (Manish) is erroneous. The breach committed by the appellants is distinct to the role of Manish and, consequently, the plea of cross-examination was only a ploy to derail the proceedings. In any case, we find that the request for cross examination was given up by the appellant before the WTM which finding has not been disputed before us. Similarly, the contention that documents were not supplied is incorrect in as much as relevant extract applicable to the appellants were supplied. These grounds raised are technical which does not cause any prejudice. 42. Praveen Kumar Jain has in his replies and submissions before the WTM and the AO admitted that the trading accounts of the front runners were those of his friends and relatives which were permitted to be used by him. He has also admitted to having provided Manish Chaturvedi with 6 trading accounts of entities, namely, Viraj Mercantile, Josh Trading, Pinky Auto, E-Ally Consulting, Shree Jaisal and Bhavesh Gadhavi, for a commission of 1 paisa for every Rs. 100 trade. Praveen Kumar Jain has further also admitted that he used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulation 2(b) of the PFUTP Regulations is an inclusive definition having a very wide connotation and meaning. (ii) Praveen Kumar Jain admittedly indulged into lending / renting the 6 trading accounts of the front runners to Manish Chaturvedi for him to carry out the front running activity, and thereby dealt in securities during the period of restraint vide the order dated 23.04.2009. It is germane to set out the periods during which the front-running activity was carried out in the 6 trading accounts, overlapping the period of restraint on the appellant vide the interim order dated 23.04.2009, viz. (i) in the account of Viraj Mercantile and (ii) Josh Trading : from 07.12.2010 to 29.03.2011, (iii) in the account of Pinky Auto : from 07.05.2010 to 30.07.2010, (iv) in the account of E-Ally Consultancy : from 03.08.2010 to 17.02.2011 (except one day of trading on 17.05.2010), (v) in the account of Bhavesh Gadhavi : from 16.07.2009 to 30.04.2010 and in the account of (vi) Shree Jaisal Electronics : from October 2010 to February 2011. (iii) Thus, Praveen Kumar Jain clearly contravened the directions issued by the respondent vide the order dated 23.04.2009, and thus, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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