TMI Blog2020 (7) TMI 831X X X X Extracts X X X X X X X X Extracts X X X X ..... usually within a short time period. However, as held by the Hon ble Tribunal in the matter of Anita Dalal, in a given case reversal transaction could also happen over multiple days. What is important is the intention of the parties to manipulate the scrip as can be noted from the nature of their trades across multiple days. The Hon ble Supreme Court in the matter of SEBI v. Rakhi Trading [ 2018 (2) TMI 580 - SUPREME COURT ] had held that Once the reversal transactions are shown to be non-genuine or shown to be fictitious creating a false or misleading appearance in the market for ulterior purpose and that the stock market was misused by such manipulative device, this is in clear violation of the provisions of PFUTP Regulations, 2003. In the present case, since it is established that all the Noticees were acting as a group and were engaged in manipulative trading in the scrip, have no hesitation in holding that the back and forth transaction in scrip between the Noticees have to be considered as reversal trades even though such trades happened across days. Computation of the ill-gotten gains - Noticees have submitted that as per the data available from the BSE Price Vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of illegal gains made by the Noticees through the fraudulent and manipulative trades. SEBI was also directed to bring out the date-wise reversal of trades done by the trading Noticees and pass a fresh order within a period of three months after granting an opportunity of hearing. 3. An opportunity of personal hearing was granted to Noticees on July 14, 2020. Reply of the Noticee 4. Pursuant to the hearing, the Noticees submitted replies dated July 21, 2020 wherein they have made elaborate submissions. However, I would remain within the scope of the limited review directed by the Hon ble Tribunal and consider only the submission related to issue of reversal of trades and calculation of ill-gotten gains. The Noticees made submissions on similar lines during the hearing and the written submissions and summary of the same is given below,- i. SEBI has not provided complete details as directed by the Hon ble Tribunal and has therefore not complied with the directions. In order to comply with the direction of the Tribunal, SEBI was required to establish the charge of reversal trades and providing details of all trades carried out over the 8 months is not sufficient. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the profit from Trading Noticees to Financing Noticees does not arise. viii. The Trading Noticees had suffered huge losses in the scrip of Polytex which is evident from the Arbitration Awards passed by the Arbitrator wherein it is recorded that several Trading Noticees had suffered losses in the said scrips and had defaulted in honouring their payments. ix. As per SEBI s own judgement disgorgement is individual liability and person who suffered losses has to be let off by SEBI. x. Allegation have been made against 5 Noticees regarding Reversal of Trade in the scrip of Gemstone. However, after remanding back of the matter, no details has been provided of Reversal of Trades in the scrip of Gemstone. xi. The Noticees placed reliance on certian Orders passed by the SEBI and the Hon ble Tribunal to support their submission that the liability to disgorge the amount has to be an individual liability and not collective. xii. SEBI has not made any allegation of connection in between the Noticees and the Company and/or its Promoters/Director. SEBI has also not received a single Complaint from investor or shareholders of Polytex. xiii. It was also submitted that the Notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reads as: (i) Bring out date-wise details of reversal trades in respect of the trading Noticees. (ii) Bring out details of calculation of profits in respect of all the trading Noticees. Consideration 7. I note that SEBI in its order has held that six of the Noticees namely 1) Dilip Jain, 2) Kiran Bhanaes, 3) Kishan Shigvan, 4) Jigar Ghoghari, 5) Kiran Sheth and 6) Jinal Rawal had executed synchronized trades amongst themselves which resulted in creation of artificial volume in the market. Further, 8 Noticees, which included the 6 Noticees who had engaged in synchronised trades mentioned above, and Noticees Bhupesh Rathod and Janak Dave, had engaged in reversal trades amongst themselves which resulted in creation of artificial volume in the market. The Order also noted that 7 Noticees, which included all the Noticees who had engaged in reversal trades apart from Bhupesh Rathod, had also indulged in self trades. The order further noted that all the trading Noticees had contributed to positive LTP by their fraudulent trades. Order further held that 8 Noticees had made unlawful gains of Rs. 3,05,99,174 by their fraudulent and manipulative trades in the scrip. Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time. 11. I note that the Hon ble Tribunal has observed in the remand order that the interpretation of reversal trade is different from its standard /normal interpretation . The difficulty in adopting a straitjacket approach towards defining such manipulative practises is now well recognised by courts in India. The Hon ble Supreme Court in the matter of SEBI v. Kanaiyalal [MANU/SC/1188/2017] had acknowledged the difficulty in defining such practises by making amendments to the FUTP Regulations. The Hon ble Court had observed that,- 11. It is important to note that SEBI has amended the Regulation, a number of times, to keep up with the technology and times. .. 12. Although aforesaid amendments are made to the Regulation, yet such amendments sometimes fail to live up to human ingenuity and growth of technology. Usurpation of reprehensible profits by fraudsters, who are not entitled to them, must be made answerable by this Court as per established tenants of Rule of law without leaving incentives for fraudulent practices, based on creativity of disingenuous, to survive the legal gambits. 26 A generalized meaning may be difficult to be attributed, as human inge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 547 56,04,309 2 JANAK CHIMANLAL DAVE 5,91,428 13,49,01,303 228.09 5,60,947 12,97,56,403 231.31 30,481 76,75,349 Total 5,91,428 13,49,01,303 5,91,428 13,74,31,752 25,30,449 3 BHUPESH HARISHCHAN DRA RATHOD 12,58,640 22,95,75,527 182.39 11,72,846 21,49,45,454 183.26 85,794 2,16,44,084 Total 12,58,640 22,95,75,527 12,58,640 23,65,89,538 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,053 22,42,98,774 217.33 10,79,497 23,30,56,559 215.89 47,444 64,44,545 Total 10,79,497 23,07,43,319 10,79,497 23,30,56,559 23,13,240 9 JIGAR PRAFULCHA NDRA GHOGHARI 18,09,523 40,47,51,928 223.67 19,55,124 43,11,56,517 220.52 1,45,601 2,00,40,247 Total 19,55,124 42,47,92,175 19,55,124 43,11,56,517 63,64,342 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same scrip for a different time period. I, therefore, note that there is no merit in this contention put forward on behalf of the Noticees. 18. The next submission on behalf of the Noticees was that the expenses incurred in course of the transactions have to be excluded while calculating ill-gotten gains. In this regard, I am of the view that while calculating the ill-gotten gains made by entity through fraudulent and manipulative transactions in the securities market, what is to be taken into account is the price at which the shares were acquired and disposed of. The brokerage and other expenses associated with the purchases and sales done by the Noticees in relation to the transactions that are stamped as fraudulent or unlawful can only be treated as costs of committing fraud and cannot be given benefit of. The only exception can be statutory levies borne by the Noticees while executing such trades. I therefore note that out of the expenses claimed by the Noticees, only securities transaction tax and SEBI turnover fee would be eligible for set off from ill-gotten gains. STT applicable for Equity Transactions during the investigation period Del ..... X X X X Extracts X X X X X X X X Extracts X X X X
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