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TMI Blog2021 (2) TMI 1382X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulations, 2003 (hereinafter referred to as "PFUTP Regulations, 2003). 2. The facts leading to the filing of the present appeal is, that the investigation in the scrip of Dhanleela Investments and Trading Company Ltd. was conducted for the period 26th February, 2013 to 2nd March, 2015. It was found that the trading in the scrip was suspended since 2006 but was revoked in April, 2012. Thereafter, the Company issued bonus shares in February, 2013. At that time the prevailing price was Rs. 17.50 which rose to Rs. 427.85 in October, 2013. The show cause notice alleged that the appellants traded on 82 days totaling 298 trades and that the appellants held sizeable quantities of shares but sold limited shares though large orders were pending on the platform of the stock exchange. It was alleged that the trading pattern was not genuine and the appellant was instrumental in increasing the price of the scrip. It was also alleged that the notice no. 29 had evolved a scheme to jack up the price and sold certain number of shares to other entities through off market transactions who in turn sold the shares to the appellant. 3. The stand of the appellant is, that they traded in miniscule qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the remaining did not and whereas the appellant has earned only a few thousands of rupees for which the penalty has been imposed. The learned counsel has relied on the decision of this Tribunal in Appeal no. 97 of 2019 Nishith M. Shah HUF and Appeal no. 222 of 2020 Rajesh Jivan Patel. 7. On the other hand the learned counsel for the respondent laid stress that in the peculiar facts of the present case the ratio of the decision of Nishith M. Shah HUF and Rajesh Jivan Patel is distinguishable and is therefore not applicable. The learned counsel placed reliance on a decision in Jaiprakash Bohra Appeal no. 162 of 2019. It was contended that notice no. 28 had planned a scheme by which certain shares were transferred to these entities namely the appellants who in turn sold miniscule quantities thereby artificially increasing the price of the scrip. 8. Having heard the learned counsel for the parties at some length we are of the opinion that the controversy involved in this case is squarely covered in Nishith Shah case and Rajesh Jivan Patel and, consequently, the impugned order cannot be sustained. In Nishith Shah the Tribunal held :- "4. We have heard Shri Saurabh Bachhawat, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fact that should attract the attention of a vigilant trader engaged/engaging in such trades. The above would stand fortified by the note of caution issued by the Bombay Stock Exchange in the form of a notice/memorandum alerting its members with regard to the necessity of exercising care and caution in case of high volume of trading in illiquid scrips, as already noted." In order to apply the aforesaid test, the facts of the present case is, that there is no direct evidence of collusion between the appellant as a seller with that of the buyer. There is no finding that the appellant was known to the directors or promoters of the Company. Since no direct evidence is forthcoming we have to see the indirect connection which is that the appellant was selling small quantities of scrips. Trading in small quantities in scrips is per se not impermissible as held in Ajmera's case (supra). If trading in miniscule amount leads to an increase in the price of the scrips one can presume or infer that the trading is manipulative but such trading cannot happen unilaterally. There must be evidence to show collusion between the buyer and the seller. In the instant case there is none. The pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no direct evidence of collusion between the appellant and the buyer. The only indirect evidence is that the appellants have sold miniscule quantities leading to an increase in the price of the scrip. One can infer manipulation but such trading cannot happen unilaterally. There must be evidence to show collusion between the buyer and the seller. The principle of preponderance of probability cannot be exercised in the absence of any connection between the seller and the buyer. This is what the Supreme Court has held in Ajmeras case. 14. In view of the aforesaid, the impugned order cannot be sustained and is quashed in so far as the appellants are concerned. All the appeals are allowed with no order as to costs. Misc. Application no. 414 of 2020 is accordingly disposed of. 15. I have had the honour to peruse the draft of the order prepared by the Honble Presiding Officer. However with due respect, I am unable to agree with the reasons recorded therein. I therefore propose to deliver my separate judgment in the appeals. 16. The draft and more particularly Paragraph no 8 to 12 of it would show that relying on the reasons recorded in the case of Nishit Shah HUF, appeal no. 97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... probabilities", to borrow the inimitable Lord Dennings terminology from Miller ...Vrs... Minister of Pensions (1947) 2, ALL ER 372 it would be simply as "more probable than not". 18. Given the above principle, in my view the present appeal cannot be decided one way or the other merely on the sole axis of presence or absence of connection/nexus between the buyer and seller or promoters/the Company, or non-prosecution of the buyer, though no doubt, these facts would be of considerable importance in weighing the probabilities. While in the case of Nishit Shah (cited in the judgment above) and many more, the factum of non-connection was held fatal to the SEBIs case, in cases like of Ms. Sunita Gupta ...Vrs.....SEBI, Appeal no. 269 of 2018, decided by this Tribunal on 19th September 2019 and Mrs. Bharati Goyal .....Vrs.......SEBI, Appeal no. 159 of 2020, decided by this Tribunal on 25th August 2020, this Tribunal upon weighing all the facts and probabilities on record ruled that the absence of the connection/nexus would not be fatal to the charges of manipulative/fraudulent trades levelled by SEBI and the appeals were dismissed. In those cases also either no connection between the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, else the appeals will have to be allowed. To reiterate the present case poses before us the task of appreciation of evidence simplicter and no more, which I propose to undertake hereinafter. 20. Admitted facts of the case are that the trading in the scrip of Dhanleela Investment and Trading Company Limited (hereinafter referred to as "Dhanleela) was suspended for a period between 11th September, 2006 to 15th April, 2012. The same was revoked on 16th April, 2012. Thereafter except one trade on 24th April, 2012 at a price of Rs. 26 there was no trade on the scrip till 26th February, 2013. On that date the price of the scrip opened at Rs. 17.50. Within a period of 8 months i.e. till 9th October 2013 it rose to Rs. 427.85. This period is termed by respondent SEBI as Patch I of investigation. The second patch of investigation is from 10th October 2013 to th of December 2013, upon split declaration of shares in the ratio of 5:1. On 10th October the price had nosedived to Rs. 87.25 but in this period again soared to Rs. 213.95. In the last patch it closed on Rs. 90.35 on 2nd March 2015. So far as performance of Dhanleela is concerned it had earned net profits of Rs. 32 lakhs in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned order as under: 27. The pattern thus would reveal that while some buyers had placed a buy order for a higher price on larger scale, the relevant appellant/notices who purchased the shares in off market for lower price, used to put sell orders on miniscule quantities between 1 to 10 which get matched with the buy orders. Some buy orders remained pending on the system for many hours but those got matched with the miniscule sell orders after more than 3-4 hours when either of these notices/appellants placed their sell orders. To repeat the share was highly illiquid as prior to the investigation period for ten months not a single trade for a single share occurred till Appellant Narayan Das Rathi transferred the shares in off market transactions for a lower price to the other notices/appellants. 28. All the above facts would show that except notices/appellant Narayan Das Rathi nobody was holding the shares prior to 26th February, 2013 and thereafter the shares were transferred in off market transactions to the 27 entities either directly from him or through Appellant Devindar Kumar, for a price less than the price offered through pending buy orders on the exchange platfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cule sale of shares. Thereafter in patch 2 investigation period i.e. from 10th October, 2013 to 5th December, 2013 the price showed the same trend with the same modus operandi. The fundamentals of the company however did not match with this price swing. These appellants had no shares with them before these transactions. They had received shares in off market transaction either directly or indirectly from the Appellant Narayan Das Rathi for lower price than the price available on exchange platform. No logical explanation is forthcoming from the appellants for these abnormal affairs. Therefore only conclusion that can be drawn in my view is that all these transactions were non genuine and were entered into only to manipulate the price of the shares of Dhanleela. 32. It is true that a connection between buyer and seller or between promoter/company and the buyer or seller would be a strong indicator to conclude that there were manipulative trades. In the absence of the same however, this Tribunal is not handicapped in arriving at the above conclusion as preponderance of probabilities definitely lies in favour of the charge as detailed above. In the circumstances in my view the appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X
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