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TMI Blog2023 (10) TMI 1502X X X X Extracts X X X X X X X X Extracts X X X X ..... ation relating to trading in stock options segment of BSE which was completed in the year 2018. The investigation findings revealed that of all trades executed in the stock options segment of BSE during the Investigation Period, 81.38% of the trades, that is 2,91,643 trades, were trades which involved a reversal of buy and sell positions by the clients and counterparties in a contract. The investigation revealed that 14,720 entities were involved in executing non-genuine trades in BSE's stock options segment during the investigation period. The proceedings initiated against the first set of 59 entities, vide the aforementioned Interim Order were disposed of vide final Order dated April 05, 2018, without any further directions, observing that the Adjudicating Officer shall continue the proceedings in accordance with the SEBI Act, 1992 (hereinafter referred to as the "SEBI Act") and SEBI (Procedure for Holding and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the "Adjudication Rules") and pass appropriate order on merits. It was also recorded therein that SEBI has decided to take appropriate action against all 14,720 entities in phases. 3. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of settlement should be attractive so that it could attract the noticees/entities to come forward and settle the matter which will ameliorate the harassment of penalty proceedings to the noticees and at the same time would help to clear the backlog of these pending matters before various AOs". 7. Accordingly, SEBI introduced a Settlement Scheme i.e. SEBI Settlement Scheme, 2022 (hereinafter referred to as "Scheme 2022") in terms of Regulation 26 of the SEBI (Settlement Proceedings) Regulations, 2018 (hereinafter referred to as "Settlement Regulations"). The Scheme provided a onetime opportunity to the entities against whom proceedings had been initiated and appeals against the said proceedings are pending before any forum or authority. 8. I note that SEBI framed the Scheme in accordance with the provisions of the Settlement Regulations and issued a Public Notice dated August 19, 2022 about the Scheme and the modalities for availing the benefit of the Scheme. The Notice was also made available on the website of the BSE. The Scheme was initially kept open for a period of three months commencing from August 22, 2022 to November 21, 2022 (both days inclusive). Considering the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t via SPAD/email to the Noticee inter-alia enclosing details of the reversal trades of the Noticee and summary of reversal trades of the Noticee. The Noticee was advised to file an application for settlement within the validity period of the scheme and payment of settlement amount had to be paid online. Further, the Noticee was intimated that if the facility under the SEBI Settlement Scheme, 2022 was not availed, the adjudication proceedings initiated vide the SCN would stand automatically revived and the proceedings would continue from the stage at which the said proceedings were kept in abeyance. The Noticee was also advised to file a reply within 30 days of receipt of the intimation. The aforesaid letter was duly served on the Noticee as per the duly signed SPAD card. 14. I note that the Noticee did not submit its reply to the SCN, despite grant of sufficient time. However, in the interest of natural justice, vide Hearing Notice (HN) sent vide digitally signed email dated March 15, 2023 the Noticee was granted an opportunity of personal hearing on March 29, 2023. The said email failed to be delivered to the Noticee. Subsequently, HN was sent by SPAD dated April 05, 2023, the No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and if yes, how much should be the penalty? 22. Before proceeding further, I would like to refer to the relevant provisions of the PFUTP Regulations as below: PFUTP Regulations 3. Prohibition of certain dealings in securities No person shall directly or indirectly- (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b)use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d)engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under. 4. Prohibition of manipu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote from the table above, that the Noticee while trading in the contract of CENT15MAR580.00PE on March 16, 2015, executed one buy trade of 55500 units at the rate of INR 4 per unit at 12:50:47.564687 hrs from the counterparty, viz. KAUSTAV CONSTRUCTION PRIVATE LIMITED. Thereafter, at 12:50:53.257010 hrs, the Noticee sold 55500 units at the rate of INR 13 per unit to the same counterparty. The Noticee sold the units at a higher value and bought the units for a lower value, reversing the trade within a time difference of 06 seconds. I note that the Noticee's transactions i.e. one buy trade and one sell trade took place on the same day and the order time for the two trades were placed by the Noticee and the counterparty in a difference of split seconds. The other transactions were executed by the Noticee in a similar manner. 25. I see that, the exactness of the quantity that got reversed between the counterparties on a single day, the proximity in the time of the reversal of trades and above all the absence of rationale to justify the variation in the sell and buy price, certainly shows that these are non- genuine trades. 26. I note that the quantity of the units bought and sold, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by His Lordship Mr. Justice Kurian Joseph). Their Lordships have considered similar transactions in the same segment, "The repeated reversals and predetermined arrangement to book profits and losses respectively, made it clear that the parties were not trading in the normal sense and ordinary course. Resultantly, there has clearly been a restriction on the free and fair operation of market forces in the instant case." (Paragraph No. 38 authored by His Lordship Mr. Justice Kurian Joseph) " ....The stock market is not a platform for any fraudulent or unfair trade practice. The field is open to all the investors. By synchronization and rapid reverse trade, as has been carried out by the traders in the instant case, the price discovery system itself is affected. Except the parties who have pre-fixed the price, nobody is in the position to participate in the trade. It also has an adverse impact on the fairness, integrity and transparency of the stock market." (Paragraph No. 41 of the part of the judgement authored by His Lordship Mr. Justice Kurian Joseph). "The smooth operation of the securities market and its healthy growth and development depends upon large extent on the qualit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not at all reflect the value of the underlying asset. It is also a transaction in securities entered into without any intention of performing it and without any intention of effecting a change of ownership of such securities, ownership being understood in the limited sense of the rights of the contract." ( per His Lordship Mr.Justice Kurian Joseph's findings in paragraph Nos. 39&40). 32. The Hon'ble Appellate Tribunal has summarized the circumstances identified by the Apex court in Rakhi Trading Judgment in the case of Global Earth Properties and Developers Pvt. Ltd. Vs Securities and Exchange Board of India (Appeal No.212 of 2020 decided on September 14, 2020). In para 14 of the said order, the Hon'ble SAT enlisted the following circumstances: "14 d. An intentional trading for loss per se, is not a genuine dealing in securities. Trading is always with the aim to make profits. But if one party consistently makes loss and that too in preplanned and rapid reverse trades, it is not genuine and the same is an unfair trade practice. e. In synchronised and reverse trades, there is no genuine change of rights in the contract." 33. Further in paragraph No. 20 of the said orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FUTP Regulations, took place after the aforesaid date, therefore, the penalty shall not be less than five lakh rupees. E. ORDER 38. Therefore, in exercise of powers conferred upon me under Section 15-I(2) of the SEBI Act read with Rule 5 of the Adjudication Rules, I hereby impose a penalty of Rs 5,00,000/- (Rupees Five Lakhs only) upon the Noticee i.e., Manoj Jain HUF (PAN No: AAJHM5595D) under Section 15HA of the SEBI Act for violation of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of the PFUTP Regulations. 39. The Noticee shall remit / pay the said amount of penalty within 45 days of receipt of this order through online payment facility available on the website of SEBI, i.e. www.sebi.gov.in on the following path, by clicking on the payment link: ENFORCEMENT → ORDERS → ORDERS OF AO → PAY NOW 40. In the event of failure to pay the said amount of penalty within 45 days of the receipt of this Order, SEBI may initiate consequential actions including but not limited to recovery proceedings under Section 28A of the SEBI Act for realization of the said amount of penalty along with interest thereon, inter alia, by attachment and sale of movable and immovable pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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