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BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. ASK/RGA/AO/6-19/2015-16]
________________________________________________
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF
INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR
HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING
OFFICER) RULES, 1995
In respect of
S No. ENTITY NAME Order No.
1 Shyam Sunder Gupta ASK/RGA/AO/6/2015-16
2 Suresh Kumar Aggarwal ASK/RGA/AO/7/2015-16
3 Aarti Goel ASK/RGA/AO/8/2015-16
4 Preeti Goel ASK/RGA/AO/9/2015-16
5 Manish Goel ASK/RGA/AO/10/2015-16
6 Manish Goel (HUF) ASK/RGA/AO/11/2015-16
7 Lokesh Kumar Goel ASK/RGA/AO/12/2015-16
8 Lokesh Kumar Goel(HUF)
ASK/RGA/AO/13/2015-16
9 Santosh Kumari ASK/RGA/AO/14/2015-16
10 Symphony Merchants P.Ltd
ASK/RGA/AO/15/2015-16
11 Felex Enterprises P. Ltd ASK/RGA/AO/16/2015-16
12 Green FieldInfrastructure P. Ltd.
ASK/RGA/AO/17/2015-16
13 Sandeep Paul ASK/RGA/AO/18/2015-16
14 Sandeep Paul (HUF) ASK/RGA/AO/19/2015-16
In the matter of
Trading Activity of Shyam Sunder Gupta &related/connected entities
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FACTS OF THE CASE IN BRIEF
1. Securities and Exchange Board of India (hereinafter referred to as
'SEBI') conducted an investigation in the matter of trading activity of
Shyam Sunder Gupta & related/connected entities in the scrips of
Mahanagar Telephone Nigam Ltd., (MTNL) Areva T&D India Ltd.
(Areva), Power Grid Corporation of India Ltd. (Power Grid) and Tata
Teleservices (Maharashtra) Ltd. (Tata Tele) [collectively referred to as
'said four scrips'] and into the possible violations of the provisions of
the Securities and Exchange Board of India Act, 1992 (hereinafter
referred to as ('SEBI Act, 1992') and regulations of Securities and
Exchange Board of India (Prohibition of Fraudulent and Unfair TradePractices) Regulations, 2003 ('PFUTP Regulations, 2003') by Shyam
Sunder Gupta (Noticee No.1), Suresh Kumar Aggarwal (Noticee No.2),
Aarti Goel (Noticee No.3), Preeti Goel (Noticee No.4) Manish Goel
(Noticee No.5), Manish Goel (HUF) (Noticee No.6), Lokesh Goel
(Noticee No.7), Lokesh Goel (HUF) (Noticee No.8), Santosh Kumari
(Noticee No.9), Symphony Merchants P. Ltd. (Noticee No. 10), Felex
Enterprises P. Ltd. (Noticee No.11), Green Field Infrastructure P. Ltd.
(Noticee No.12), Sandeep Paul (Noticee No. 13) and Sandeep Paul
(HUF) (Noticee No. 14) {hereinafter collectively referred to as
"Noticees"} with regard to dealings in the aforesaid scrips.
2. The period of investigation conducted by SEBI in the above four scrips
is as under:
S crip Name Peri od of I nvestigation
Areva T&D India Ltd. July 28 - 29, 2010
Tata Teleservices (Maharashtra) Ltd. August 23, 2010
Power Grid Corporation of India Ltd. April 28, 2010
Mahanagar Telephone Nigam Ltd. July 28 - 29, 2010
During the investigation, it was observed that in cash segment of
National Stock Exchange (NSE), price of the said four scrips had
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increased sharply during the last few minutes of trading affecting the
closing price of the scrip for the day. Subsequently, after closing of the
market, significant quantities of call options were exercised. It was
observed that Noticees were related to each other.
3. SEBI has, therefore, initiated adjudicating proceedings under the SEBI
Act, 1992 to inquire into and adjudge under section 15HA of the SEBI
Act, 1992 the aforesaid alleged violations committed by the Noticees.
APPOINTMENT OF ADJUDICATING OFFICER
4. Mr. Piyoosh Gupta was appointed as Adjudicating Officer vide order
dated April 26, 2013 under section 15 I of the SEBI Act, 1992 read with
rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalty by
Adjudicating Officer) Rules, 1995 (hereinafter referred to as the
‘Rules’) to inquire into and adjudge under section 15HA of the SEBI
Act, 1992 for the alleged violation of section 12A(a),(b),(c) of the SEBI
Act, 1992 read with regulations 3(a),(b),(c),(d) and 4(1),(2)(a),(b),(e)
and (g) of PFUTP Regulations, 2003 by Noticee Nos.3, 10 and 12;
violation of section 12A(a),(b),(c) of the SEBI Act, 1992 read with
regulations 3(a),(b),(c),(d) and 4(1),(2)(a),(b)and(e)of PFUTP
Regulations, 2003 by Noticee No.1; violation of section12A(a),(b),(c) of
the SEBI Act, 1992 read with regulations 3(a),(b),(c),(d) and 4(1),(2)(a)
and (g)of PFUTP Regulations, 2003 by Noticee Nos. 5,6,7 and 11;
violation of section 12A(a),(b),(c) of the SEBI Act, 1992 read with
regulations 3(a),(b),(c),(d) and 4(1) of PFUTP Regulations, 2003 by
Noticee Nos. 2,4,8, 9, 13 and 14. Consequent to the transfer of Shri
Piyoosh Gupta, I have been appointed as Adjudicating Officer vide
order dated November 08, 2013.
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SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING
5. Show Cause Notice (s) dated September 26, 2013 (hereinafter
referred to as “SCN's”) were issued to the Noticees under rule 4(1) of
the Rules to show cause as to why an inquiry should not be initiated
and penalty be not imposed under section 15HA of the SEBI Act, 1992
for the alleged violations specified in the SCN's.
6. SCN dated September 26, 2013 issued to Noticee No.1 was returned
undelivered. Thereafter, the said SCN was got affixed on December
10, 2013 at the last known address of the Noticee No.1 through SEBI
Northern Regional Office, New Delhi. However, no reply was received
by Noticee No.1. Subsequently, a copy of the said SCN was again
forwarded by Registered AD to the current/new address of Noticee
No.1, as obtained from NSDL. Also, an opportunity of personal hearing
was granted to him on November 21, 2014 vide notice dated
November 03, 2014 sent through RPAD. However, the Noticee No.1
neither filed reply to the SCN nor appeared for the hearing. Further,
another opportunity of hearing was granted to the Noticee No.1 on
December 23, 2014 vide notice dated December 03, 2014 sent
through NRO. However, the Noticee No.1 did not appear for the
hearing. Final opportunity of hearing was granted to the Noticee No.1
on January 27, 2015 vide notice dated January 02, 2015. However, the
Noticee No.1 did not appear for the hearing. Postal acknowledgment
cards duly signed by/on behalf of Noticee No.1 were received by us.
7. In the above background, I am of the view that sufficient opportunities
were provided to the Noticee No.1 to submit reply/written submissions
and to appear for the hearings which the Noticee No.1 failed to avail.
In this regard, it is pertinent to refer to Rule 7(4) of the Rules which
reads as under: “If any person fails neglects or refuses to appear as
required by sub-rule (3) before the adjudicating officer, the adjudicating
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officer may proceed with the inquiry in the absence of such person
after recording the reasons for doing so.”
8. Further, I would like to quote the observations of the Hon’ble SAT in
the matter of Classic Credit Limited v. SEBI ( Appeal No. 68 of 2003
order dated December 8, 2006), wherein it was observed that “the
appellant did not file any reply to the second show cause notice. This
being so, it has to be presumed that the charges alleged against them
in the show cause notice were admitted by them .” Hence, I am
proceeding against the Noticee No.1 ex-parte on the basis of available
records/evidence.
9. Noticee Nos. 2-9 vide separate letters dated October 09, 2013 sought
time for filing reply to the SCN. Vide Notice dated February 05, 2014
an opportunity of personal hearing was granted to Noticee Nos. 2-9 on
February 24, 2014. Vide letter dated February 20, 2014, Noticee Nos.
2-9 sought inspection of documents. Accordingly, inspection of
documents was provided to the aforesaid Noticees on April 23, and
April 24, 2014. Further, another opportunity of hearing was granted to
the aforesaid Noticees on May 27, 2014 vide Notice dated May 12,
2014. Vide letter dated May 22, 2014, Noticee Nos. 2-9 requested for
adjournment of hearing and sought further time for filing reply to the
SCN. Subsequently, another opportunity of hearing was granted to the
aforesaid Noticees on September 17, 2014 vide Notice dated
September 01, 2014. The aforesaid Noticees submitted their reply vide
letter dated September 16, 2014. The Authorized Representatives
appeared and reiterated their submissions. Also, they sought time till
September 23, 2014 to file additional written submissions. Accordingly,
vide letter dated September 23, 2014 the aforesaid Noticees filed
additional written submissions. Though the Noticee Nos. 2-9 filed
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separate submissions, they are more or less similar. The major
submissions of the aforesaid Noticees are as follows:
Vide letter dated February 20, 2014 inter-alia sought copies of
various documents relied upon for issuing the Notice, including
copy of investigation report, copy of statements of various
entities/their representatives recorded by SEBI, copy of all
trade details (including trade log and other log) obtained from
Stock Exchanges and Brokers and any statement relied upon
by SEBI. However, despite specific request, SEBI has made
available only the extracts of the investigation report and trade
logs and other logs obtained from NSE for cash and further
and option segment in certain scrips. They were not provided
with any other documents/ information as sought vide letterdated February 20, 2014. Non- providing of the aforesaid
documents is in gross violation of principles of natural justice
and vitiates the entire proceeding.
Noticee No. 2-9 are family members. They are financially
independent and traded independently without acting in
concert with any other person or entity. In so far as, Noticee
No.1 is concerned, they have no relation/connection or nexus
with him. Merely, because as per KYC of broker Noticee No.1
is introducer of Noticee No.2, it was alleged that they have
relationship with Noticee No.1, which is wholly erroneous.Noticee No.2 knows Noticee No.1 for last several years but
he does not have any other relationship financial or otherwise.
Merely because Noticee No.1 is the introducer in the KYC of
Noticee No.2, the burden of his actions cannot be shifted to
them. In so far as Noticee No. 10, 11, 12 and 13 are
concerned, nothing has been brought on record to
substantiate the alleged relationship.
All their trading in the various scrips was in the ordinary course
of business, dehors sinister intent or design. During the period
from January 01, 2010 & December 31, 2010 they had traded
in various other scrips. All the transactions carried out by them
in the securities market were the intention of investing and
earning profits.
Whatever profits or losses have been incurred by them while
trading are arising as a result of genuine trading. Merely
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because profits have been made as alleged in some of the
transactions, no adverse inferences qua their trading can be
drawn.
With regard to the trading of Noticee No.3 in Tata Tele
Noticee No.3 is not aware of the trading done by Noticee
No.10. Nothing has been brought on record to suggest any
kind of connection with Noticee No.10.
It is common knowledge that the buyer of the call option has
the right to exercise his calls, which can be exercised at any
time upto the expiration date. As a result of exercise of said
Call options, they have infact suffered losses in the entire
transaction, if their exercise price is compared with our
purchase price.
Noticee No.3 has denied any connection with Noticee No.1 as
alleged. Further, they are not aware of others, who hadexercised the call options on 11.06.2010 and the same is of no
concern. It may be noted that the quantity of the alleged trades
was very small, in comparison to the total exercised quantity
on June 11, 2010. Based on the perceived connection
between Noticee No.3 and others who had traded in the scrip
during the period, the burden of trading done by others is
being erroneously sought to be saddled on Noticee No.3
without any credible basis. It is submitted that she had bought
and sold call options in the scrip of Areva in several other days
and there are no allegations against such trades.
10. Noticee No. 10 vide letter dated October 18, 2013 sought inspection of
documents. Accordingly, inspection of documents was provided to
Noticee No. 10 on January 17, 2014. Vide notice dated February 05,
2014, an opportunity of personal hearing was granted to the Noticee
on February 24, 2014. Vide letter dated February 19, 2014, Noticee
No. 10 requested for adjournment of hearing and sought time for filing
reply to the SCN. Vide letter dated April 10, 2014 Noticee No. 10 filed
its reply to the SCN. Subsequently an opportunity of personal hearing
was granted to the Noticee No. 10 on May 27, 2014. However, Noticee
No. 10 did not appear for hearing. Subsequently, another opportunity
of hearing was granted to the Noticee No. 10 on September 17, 2014
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vide Notice dated September 01, 2014. However, the said Noticee
sought adjournment on the plea that it received the Notice subsequent
to scheduled date of hearing. Later, hearing was held on September
25, 2014. The Authorized Representatives appeared and reiterated the
submissions. Also, they sought time till October 02, 2014 for filing
additional written submissions. Additional written submissions were
filed by Noticee No. 10 on October 08, 2014. The salient points of
submission of Noticee No.10 are as follows:
It traded independently, without acting in concert with anybody. It
has been trading in both cash and F&O segment in the ordinary
course of business.
As per the Notice, not exercised any call options as alleged. Since
not exercised any call options the while theory of making profits etc
collapses.
No link/nexus/relationship/connection with any of the entities
against whom the Notice has been issued.
It has been trading in the scrip for quite a long time. Have traded
prior to , during and post the impugned period. It is not the case
that trades were confined to impugned period only i.e. 23.08.2010.
On 23.08.2010, its trading in the scrip was not confined to 15:04:32
to 15:06:21. It traded throughout the day i.e. from 11:27:59 to15:07:21. SEBI has cherry picked the time slot and have drawn
adverse inferences .
Highest price on 23.08.2010 was ` 25. Based on the normal price
fluctuation in the price of the scrip increased from ` 24.65 to Rs.
24.95.
It is not aware of Noticee No.3 and is not concerned with her trades
in the scrip. At the relevant time, was also not aware that she was
trading in the scrip. Traded through the on screen based
mechanism of the stock exchanges wherein it is not possible to
know the counter party broker or client. Was not aware of the
counter party to trades including Noticee No.3 as alleged. The
alleged matching of trades with Noticee No.3 is not by design but is
sheer coincidence.
It is denied that it executed self trades as alleged. Had placed a sell
order for 1575 shares for a price of ` 24.90 which did not get
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executed at the relevant time. Subsequently, at around 15:04:32
when buy order was placed, earlier sell order of 1575 shares got
matched with the same. There was a time gap of around more
than half an hour in the order time, it cannot be alleged that it had
executed self trades.
The alleged price rise in the scrip is consequent to bonafide trading
done was in the ordinary course and is not the outcome of any
manipulative trading as alleged.
All sales took place through screen based mechanism of the stockexchange wherein it is not possible to know the counter partybroker or client. It was not aware that Noticee No.3 and NoticeeNo.5 were counter parties to their trades and the same was not ofconcern to them. In so far as purchase of 1,50,000 shares in thepost closing session on 29.07.2010 is concerned, the same was
made in the ordinary course of business without being aware of thecounter party.
11. Noticee No.11 vide letter dated October 18, 2013 sought inspection of
documents. Accordingly, inspection of documents was provided to the
Noticee No.11 on January 17, 2014. An opportunity of personal
hearing was granted to Noticee No. 11 on February 24, 2014 vide
notice dated February 05, 2014. Vide letter dated February 20, 2014,
Noticee No.11 requested for adjournment of hearing and sought time
for filing reply to the SCN. Thereafter, Noticee No.11 filed reply to the
SCN vide letter dated April 10, 2014. Accordingly, another opportunity
of hearing was granted to Noticee No.11 on May 27, 2014. The
Authorized Representatives of Noticee No.11 reiterated the
submissions and sought time till June 09, 2014 for filing additional
submissions. Accordingly, additional submissions were filed by Noticee
No.11 vide letter dated June 07, 2014. The salient point of submissions
of Noticee No.11 are as follows:
It has no connection/relation/nexus with any of the entities which
are collectively referred as the “Noticees” in the Notice.
Transactions executed were independent and devoid of any
link/relationship/connection with any of the other notices.
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It was a day trader in the scrip of MTNL, and was attracted to the
scrip due to the volatility and the volume that was prevalent to the
relevant point of time. It decided to buy the scrip post closing
because the shares of MTNL were available at much lower price
compared to pre closing, (during pre closing the scrip had hit
highest high of the day i.e. ` 73.80/-) and wanted the prices to cool
down a bit before it could purchase.
Further, the trades executed post closing were done on the closing
price of the scrip it had no role in alleged fixation of the close price
during the day. Therefore, it neither gained anything by executing
trades post closing nor avoided any loss by choosing to trade
during post closing.
SCN clearly states that actions of one Noticee No.1 were
responsible for impacting the closing price of the scrip and it had no
role to pay in the alleged increase in price of the scrip. It has norelation/ nexus/connection with the other Noticees or with entities
mentioned in the SCN.
It was neither involved in alleged up-surging the closing price in the
scrip, by executing trades between 15:29:30 to 15:29:59 nor was
involved in exercising any call options to make profit or avoid loss
as alleged in the Notice. It was a day trader, and it was basically
executing intraday trades in the scrip of MTNL. It had traded in the
scrip of MTNL from July 28, 2010 to August 19, 2010, wherein we
had bought 5,01,896 shares at an average price of ` . 68.00/- and
sold 5,01,896 shares at an average price of ` 66.71/- and in the
process incurred a loss of ` 1.29/- per shares and a total of `
7,72,812/- (Seven lakh Seventy Two Thousand Eight Hundred and
Twelve.)
12. Vide letter dated January 27, 2015, Noticee Nos. 12, 13 and 14 filed a
common reply to the SCN. Vide notice dated February 05, 2014 an
opportunity of personal hearing was granted to the aforesaid Noticees
on February 24, 2014. Vide letter dated February 14, 2014 the
aforesaid Noticees reiterated the submissions. Vide e-mail dated
February 17, 2014, the aforesaid Noticees have again reiterated their
earlier submissions and have also stated that "Since we have already
replied to the SCN by email and also sent the reply by speedpost, we
hope that our personal presence , February 24, 2014, would no longer
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be necessary." Further, another opportunity of personal hearing was
granted to the aforesaid Noticees on May 27, 2014 vide notice dated
May 12, 2014. Vide e-mail dated May 26, 2014, the aforesaid Noticees
requested for rescheduling the hearing. One more opportunity of
hearing was granted to the aforesaid Noticees on September 17, 2014.
The aforesaid Noticees vide e-mail dated September 16, 2014
requested for rescheduling the hearing. Another opportunity of hearing
was granted to the Noticee on October 16, 2014. Vide e-mail dated
October 16, 2014, the aforesaid Noticees stated that "We have stated
the factual and true position in our various communications. Now it is
up to you to examine the broker concerned and pass suitable
adjudication order." It is noted that sufficient opportunity of hearing
have been given to the aforesaid Noticees, however, the Noticees
have not availed the same.
13. The salient point of submissions of Noticee Nos. 12, 13 and 14 are as
follows:
Noticee No.12 was out of country at the relevant time. The trades
have been done by the said broker by virtue of blank Power Of
Attorney taken from them in the garb of giving them an assured
return on investment of their funds. There is no connection /relationwhatsoever with Noticee No.1 and/or other related or connected
entities. The broker can also be cross examined as to the
authorization of the said trades. The official of M/s. Religare
Securities Limited, without taking the Noticee No. 13 into
confidence has done unauthorized trading for which separate
appropriate action is taken.
CONSIDERATION OF ISSUES AND FINDINGS
14. I have carefully perused the written submissions of the Noticees and
the documents available on record. The issues that arise for
consideration in the present case are :
a. Whether the Noticees had violated the provisions of section
12(A)(a), (b),(c) of the SEBI Act, 1992 read with regulations
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3(a),(b),(c),(d) and 4(1),(2) (a),(b),(e) and (g) of PFUTP
Regulations, 2003?
b. Does the violation, if any, attract monetary penalty under section
15HA of SEBI Act, 1992?
c. If so, what would be the monetary penalty that can be imposed
taking into consideration the factors mentioned in section 15J of
SEBI Act, 1992?
15. Before moving forward, it is pertinent to refer to the relevant provisions
of SEBI Act, 1992 and PFUTP Regulations, 2003 which reads as
under:-
SEBI Act, 1992
Section 12
Prohibition of manipulative and deceptive devices, insider trading and
substantial acquisition of securities or control.
12A. No person shall directly or indirectly —
(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange,
any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder;
(b) employ any device, scheme or artifice to defraud in connection with
issue or dealing in securities which are listed or proposed to be listed on arecognised stock exchange;
(c) engage in any act, practice, course of business which operates or wouldoperate as fraud or deceit upon any person, in connection with the issue,
dealing in securities which are listed or proposed to be listed on a
recognised stock exchange, in contravention of the provisions of this Act or
the rules or the regulations made thereunder;
SEBI (Prohibition of Fraudulent and Unfair Trade Practices)
Regulations, 2003
Regulation 3: No person shal l dir ectly or indirectly —
(a) buy, sell or otherwise deal in securities in a fraudulent manner;
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(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 ona recognized stock exchange
Regulation 4: Prohibiti on of manipulative, fraudulent and unf air trade
practices
(1) Without prejudice to the provisions of regulation 3, no person shallindulge in a fraudulent or an unfair trade practice in securities.
(2) Dealing in securities shall be deemed to be a fraudulent or an
unfair trade practice if it involves fraud and may include all or any
of the following, namely: —
(a) indulging in an act which creates false or misleading appearanceof trading in the securities market;
(b) dealing in a security not intended to effect transfer of beneficial
ownership but intended to operate only as a device to inflate,depress or cause fluctuations in the price of such security forwrongful gain or avoidance of loss;
(e) any act or omission amounting to manipulation of the price of a
security;
g) entering into a transaction in securities without intention of performing it
or without intention of change of ownership of such security;
Finding
The issues for examination in this case and the findings thereon are as
follows:
(a) Whether the Noticees had violated the provisions of section
12(A)(a), (b),(c) of the SEBI Act, 1992 read with regulations
3(a),(b),(c),(d) and 4(1),(2) (a),(b),(e) and (g) of PFUTP Regulations,
2003?
16. Before going to the facts of the matter, I would like to address the
contention of the Noticee Nos. 2-9 that that they were not provided with
any other documents/ information as sought vide letter dated February
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20, 2014. I find that the aforesaid Noticees vide letter dated February
20, 2014 inter-alia sought copies of various documents relied upon for
issuing the Notice, including copy of investigation report, copy of
statements of various entities/their representatives recorded by SEBI,
copy of all trade details (including trade log and other log) obtained
from Stock Exchanges and Brokers and any statement relied upon by
SEBI. I find that all the documents relied upon in the SCN including
the relevant extracts of investigation report, trade logs and other logs
obtained from the stock exchange were provided to the aforesaid
Noticees. Not only this, the Noticees were also provided an opportunity
to inspect the relied upon documents, which they did inspect on April
23, 2014 and April 24, 2014.
17. In this context, it becomes necessary to quote the judgment of the
Hon’ble Securities Appellate Tribunal, (SAT) in the case o f Mayrose
Capfin Private Limited V/s. Securities and Exchange Board of India
(Appeal No. 20 of 2012) dated 30.03.2012, wherein it was observed that
“The principles of natural justice require that the inquiry officer should make
available such document and material to the delinquent on which reliance isbeing placed in the inquiry. It is not necessary for the inquiry officer to make
available all the material that might have been collected during the course of
investigation, but, has not been relied upon for proving charge against the
delinquent. No prejudice can, therefore, be said to have been caused to the
appellant on this count ”.
18. I further find that in Chandrama Tiwari vs. Union of I ndia (AIR 1988 SC
117), the Hon'ble Supreme Court has also observed that " It is not
necessary that each and every document must be supplied to the delinquent
government servant facing charges; instead only material and relevant
documents are necessary to be supplied to him. If a document even though
mentioned in the Memo of charges is not relevant to the charges or if it is not
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referred to or relied upon by the enquiry officer or the punishing authority in
holding the charges proved against the government servant, no exception can
be taken to the validity of the proceedings or the order passed on the ground
of non-supply of the copy of the order. If a document is not used against the
party charged, the ground of violation of principles of natural justice cannot
be successfully raised. Violation of the principles of natural justice arises only
when a document, a copy of which may not have been supplied to the party
charged, is used in recording findings of guilt against him."
19. In view of the above, I find that in the instant case, the principles of
natural justice have been met with and no prejudice has been caused
to the aforesaid Noticees Nos. 2-9 in this regard.
20. Now I proceed to deal with the facts of the case. It was observed
during investigation that in cash segment of National Stock Exchange
(NSE), price of the said four scrips had increased sharply during the
last few minutes of trading affecting the closing price of the scrip for the
day. Subsequently, after closing of the market, significant quantities of
call options were exercised. It was observed that Noticees wereinvolved in increasing the price of the said four scrips in last few
minutes and these Noticees thereafter exercised call option in the
derivative segment thereby making profits.
21. It was also observed that all the above Noticees were inter- connected
by virtue of their being part of the same family or the trading pattern as
shown below:
Name of the Noticee Relationship
Shyam Gupta (Noticee No.1) As per KYC with Arch Finance P. Ltd., ShyamGupta introduced Suresh Kumar Aggarwal
Suresh Kumar Aggarwal (Noticee No.2)
As per KYC with Arch Finance P. Ltd., introducerwas Shyam Gupta
Santosh Kumari(Noticee No.9) Wife of Suresh Kumar Aggarwal
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Manish Goel, (Noticee No.5)
Manish Goel (HUF), (Noticee No.6)
Lokesh Goel (Noticee No7)
Lokesh Goel (HUF) (Noticee
No.8)
Sons of Suresh Kumar Aggarwal
Aarti Goe (Noticee No.3) and Preeti Goel (Noticee No.4)
Spouse of Lokesh Goel and Manish Goelrespectively
Symphony Merchants P. Ltd.(Noticee No. 10)
Trading pattern in the scrip of MTNL suggests thatSymphony and Felex are related to the aforesaid
group. Felex Enterprises P. Ltd.(Noticee
No. 11)
Green Field Infrastructure P. Ltd.
(Noticee No. 12)
Trading pattern in the scrip of Power Grid suggests
that Green Field is related to the aforesaid group
Sandeep Paul
(Noticee No. 13)
Director of Green Field
22. The details of the trading done by the Noticees in various scrips are
discussed below:
22.1 AREVA T&D INDIA LTD.
22.1.1 It was observed that on June 11, 2010 there was substantial
increase in the price in the scrip of Areva at 15:29:41 when the scrip
moved from ` 300.45 to ` 309 i.e., a rise by 2.84% in 1 second and
4,05,751 Areva shares got traded which was 25.94% of the day's
market volume of 15,64,453 shares as is evident from the price volume
data as on June 11, 2010 as given below:
Price Volum e Data on Ju ne 11, 2010:
Pri ce Movement for the day ( ) Pr ice movement
at 15:29:41 ( )
Volume till
15:29:40
Volume till
15:30:00
Volumes
traded at
15:29:41Open H igh Low Close From H igh295 309 295 304.25 300.45 309.00 11.40 lakh 15.55 lakh 4.05 lakh
22.1.2 It was also observed upon analysis of the trading activity in cash
segment at NSE that Noticee No.1 was the top client on gross and net
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buy basis on June 11, 2010 at 15:29:41 i.e., during the period of
substantial price rise. Noticee No.1 started trading in this scrip only
from June 10, 2010 when he bought 55,561 shares and sold 33,350
shares. Whereas on June 11, 2010 Noticee No.1 bought 4,09,648
shares with substantial quantity of 4,05,000 shares at 15:29:41 and
sold 1,89,648 shares, which represented 19.15% of the gross market
quantity. The purchase of 4,05,000 shares done by the Noticee No.1 at
15:29:41 accounted for 49.94% to market gross and 100% of market
net (buy). The closing price (weighted average price of the last half
hour) of the scrip due to the aforesaid price rise was ` 304.25.
Excluding the aforesaid buy trades of the Noticee No.1in the last half
an hour, the close price would have been ` 303.74. If the market had
closed at 15:29:40, the close price would have been ` 301. It was
observed that the buy trades of Noticee No.1 has impacted the price of
the scrip of Areva which increased from ` 301 to ` 309 (i.e., an
increase of ` 8).
22.1.3 It was also observed upon analysis of the trading in derivative
segment at NSE that on June 11, 2010, Noticee No.1 was holding a
long position of 2,30,000 Areva shares in the near month contract i.e.,
contract expiring on June 24, 2010. A large number of exercises were
observed on June 11, 2010 in near month call options as shown below:
I nstrument Type Str ike
Price
Option Type Exercise Quanti ty
OPTSTK 260 CA 750
OPTSTK 280 CA 1,02,000
OPTSTK 290 CA 14,82,000OPTSTK 300 CA 9,750
TOTAL 15,94,500
On analysis of the call options of strike price of ` 280 and ` 290 that
were exercised, it was observed that they were held by clients
which were related to Noticee No.1. Also, Noticee No.1 and
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Noticee Nos. 2-9 exercised call options for 11.16 lakh shares (70%
of total exercises) and benefitted from the price rise as under:
Client
Name
Strike
Price
Exercised
Qty
Amt earned
on exercise( ̀ 304.25 -
Str ike Pri ce
Exercise
amt ifShyam
Gupta's
trades are
excl.
( ` 303.74 -
Strike
Price)
Diff amt
attributed torise in price
( ̀ 304.25 -
` 303.74)
Aarti Goel 280 1,02,000 24,73,500 24,21,480 52,020
290 4,64,250 66,15,563 63,78,795 2,36,767
Preeti Goel 290 68,250 9,72,562 9,37,755 34,807
ShyamGupta
290 2,28,00032,49,000 31,32,720
1,16,280
Suresh
Kumar
Aggarwal
290 15,000
2,13,750 2,06,100
7,650
Santosh
Kumari
290 3,750
53,437 51,525
1,912
Lokesh
Kumar Goel
290 36,000
5,13,000 4,94,640
18,360
Lokesh
Kumar Goel HUF
290 84,750
12,07,688 11,64,465
43,222
Manish Kumar Goel
290 61,5008,76,375 8,45,010
31,365
Manish Kumar Goel
HUF
290 52,500
7,48,125 7,21,350
26,775
TOTAL 11,16,000 1,69,23,000 1,63,53,840 5,69,158
22.1.4 I find that the trading details as mentioned above have not been
disputed by the aforesaid Noticees. In response to the SCN, Noticee
Nos. 2-9 have mainly contended that that they are financially
independent and had traded independently. They also contended that
the buyer of the call option has the right to exercise his calls, which can
be exercised upto its expiration. While admitting that Noticee Nos. 2-9
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are family members, they contended that they have no
relation/connection/nexus with Noticee No.1.
22.1.5 I note that Noticee No.1 was the top client on gross and net buy
basis on June 11, 2010 at 15:29:41 i.e. during the period of substantial
price rise. The orders entered by Noticee No.1 for which trades were
executed at 15:29:41 are as under:
Upon analysis of the orders entered by Noticee No.1, I find that on
June 11, 2010, Noticee No.1 placed a buy order at 15:18:54 for5,00,000 shares at ` 280 when the last traded price (LTP) was
` 304.50. Subsequently, the order was modified and the buy order
volume was reduced to 4,05,000 shares. Then at 15:29:41 he once
again modified the order and increased the limit price to ` 337.50
which was 12.13% above LTP of ` 301. With this buy order all the
available sell orders at price of ` 309 or less during that instance (total
of 4,05,000 shares) were executed. I find that the price of the scrip
increased from ` 301 to ` 309 at 15:29:41 because of the purchases
made by Noticee No.1.
23.1.6 I note that the closing price of the scrip is nothing but weighted
average price of the last half hour. It has been clearly brought out
hereinabove that Noticee No.1 by his trading in the cash segment has
Date Orde
r No.
Add
Upd
Del
Order
Time
Order
Qty
Order
Price
LTP
at
order
entry
Orde
r
level
LTP
varia
tion
Trad
e
Tim
e
Tr
ade
Qty
Trade
Price
11- Jun-
10
20100611
0326
8260
A 15:18:54 500000 280.00304.50
U 15:27:45 405000 280.00301.35
U 15:29:41 405000 337.50 301.00
12.13%
15:29:41
4050
00
301.00-
309.00
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impacted the closing price and ultimately the closing price of the scrip
was ` 304.25. If the impact caused by Noticee No.1 is excluded, the
markets would have closed at ` 301 and the closing price (weighted
average price of the last half hour ) would have been ` 303.74
I also find that Noticee Nos.1-9 exercised a total of 11.16 lakh shares
(70% of total exercises) of strike price of ` 280 and ` 290.
22.1.7 From the material available on record, I find that it is Noticee
No.1 i.e Shyam Sunder Gupta who introduced Noticee No.2 i.e.
Suresh Kumar Aggarwal to the broker Arch P Finance Ltd. Moreover,
Noticee No. 2 himself has accepted that he knows Noticee No.1 for
last several years. Noticee Nos. 2-9 are all part of the same family.
This clearly establishes that all the aforementioned Noticees are inter-
connected. Further, I find that all the aforesaid Noticees were holding
long positions in the derivative segment and their call options were at
the verge of expiry. The Noticee No.1 placed large orders towards the
closing of trading hours on June 11, 2010 and increased the closing
price of the Areva scrip from ` 301 to ` 309. I also find that Noticee
Nos. 2-9 who dealt in the above scrip have all exercised their calloptions at the same time, taking advantage of increased closing price
of the scrip. The contention of the aforesaid Noticees that their trading
was in the ordinary course of business without any sinister intent or
design cannot be accepted. It cannot be a mere coincidence. The
conduct of the aforesaid Noticees clearly reflect their intention.
Certainly this is a concerted action on the part of the aforesaid
Noticees who by trading substantial quantity of shares towards the
closing hours caused an impact on the closing price followed by
trading in the derivative segment taking advantage of rise in the
closing price. Thus, I find that the aforesaid Noticees earned an
additional positive square off difference of ` 5.69 lakh because of the
rise in closing price of the scrip.
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22.2 TATA TELESERVICES (MAHARASHTRA) LTD.
22.2.1 It was observed that on August 23, 2010, there was sudden
spurt in the price in the scrip of Tata Tele between 15:04:32 and15:06:21 wherein the price of the scrip increased from ` 24.65 to
` 24.95 i.e., registering a rise by 1.21% in less than 2 minutes and
27,73,696 shares were traded which was 35.86% of the day's market
volume of 77,35,781 shares as given below:
Price Volum e Data on Au gust 23, 2010:
Pri ce Movement for the day ( ) Price movement
b/w 15:04:32
and 15:06:21( )
Volume
til l
15:04:32
Volume
til l
15:30:00
Volumes
traded b/w
15:04:32 and15:06:21
Open High Low Close From H igh
24.30 25.00 23.75 24.90 24.65 24.95 35.81 lakh 77.35 lakh 27.73 lakh
22.2.2 It was also observed upon analysis of trading activity in cash
segment at NSE, that Noticee No. 3 and Noticee No. 10 were the top
clients on gross, net buy and net sell basis between 15:04:32 and
15:06:21 i.e., during the period of substantial price rise.
Client
Name
Buy
Qty
Sell
Qty
Gross
Qty
% to
mkt
gross
Net
Buy
Qty
% to
mkt
net
Net
Sell
Qty
% to
mkt
net
Aarti Goel 13,00,000 11,00,000 24,00,000 43.26 2,00,0
00
31.3
4
- -
Symphony 13,50,000 9,73,449 23,23,449 41.88 3,76,551
59.01
- -
22.2.3 Noticee No.10 was the top client on net buy basis. Noticee
No.10 bought a net quantity of 3.76 lakh shares and accounted for
41.88% to market gross and 59.01% to market net quantity. Noticee
No.10 started trading in this scrip from August 9, 2010 and on August
23, 2010, its trades accounted for 93% of the day's buy quantity and
81.97% of the day's sell quantity between 15:04:32 and 15:06:21.
Noticee No.3 was also amongst the top clients on net buy basis, her
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net buy was 2 lakh shares and accounted for 43.26% to market gross
and 31.34% to market net. Noticee No.3 started trading in Tata Tele
only from July 30, 2010 and traded till August 23, 2010. The day wise
trading activity of Noticee No.10 in cash segment in Tata Tele
between January 1, 2010 and August 23, 2010 is as under:-
Date Buy Qty Sell Qty Avg Buy Pri ce Avg Sell Pri ce % to mkt gross
9-Aug-10 2,00,000 57,608 23.85 23.75 2.13
10-Aug-10 40,000 40,000 23.50 24.00 0.62
11-Aug-10 - 1,40,000 - 24.44 0.66
16-Aug-10 14,85,119 4,20,000 24.83 24.84 7.59
17-Aug-10 2,34,156 5,50,000 24.75 24.95 5.94
18-Aug-10 9,50,552 4,50,552 24.54 24.32 11.61
19-Aug-10 8,05,161 8,05,161 24.53 24.45 17.12
20-Aug-10 2,05,000 2,05,000 24.12 24.10 6.86
23-Aug-10 14,51,575 11,87,552 24.90 24.89 17.06
22.2.4 The day wise trading activity of Noticee No.3 in cash segment
in Tata Tele shares between January 1, 2010 and August 23, 2010 is
as under:-
Date Buy Qty Sell Qty Avg Buy Pri ce Avg Sell Pri ce % to mkt gross
30-Jul-10 87,860 13,400 22.87 22.55 0.66
3-Aug-10 - 24,460 - 22.90 0.43
6-Aug-10 - 50,000 - 23.50 0.1518-Aug-10 2,90,000 - 24.25 - 2.40
19-Aug-10 11,00,000 4,66,603 24.44 24.55 16.65
20-Aug-10 2,00,000 - 24.10 - 3.35
23-Aug-10 13,00,000 11,00,000 24.95 24.95 15.51
The trades done by Noticee Nos. 3 and 10 resulted in matched
trades and self trades. These trades resulted in the price of the
scrip of Tata Tele moving from ` 24.65 to ` 24.95.
22.2.5 It was also observed upon analysis of the trading in
derivative segment at NSE that large number of exercises were
observed on August 23, 2010 in near month call options as given
below: .
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Instrument Type Strike Price Option
Type
Exercise
Quantity
OPTSTK 20.00 CA 9,000
OPTSTK 22.50 CA 48,96,000
TOTAL 49,05,000
22.2.6 Client wise holding position in Tata Tele shares as on
August 23, 2010 of the group is as under:-
Instrument
Type
Expir y Date Str ike
Price
Option
Type
Net Long
Qty
Net Short
Qty
Exercised
Qty
SYMPHONY MERCHANTS P. LTD.
FUTSTK 26-Aug-10 - FF 16,20,000 - -
FUTSTK 30-Sep-10 - FF 4,50,000 - -
OPTSTK 30-Sep-10 23 CA 90,000 - -
AARTI GOEL
FUTSTK 26-Aug-10 - FF 4,32,000 - -
OPTSTK 26-Aug-10 22.50 CA 14,13,000 - 14,13,000
PREETI GOEL
OPTSTK 26-Aug-10 22.50 CA 10,08,000 - 10,08,000
LOKESH KUMAR GOEL
OPTSTK 26-Aug-10 22.50 CA 5,58,000 - 5,58,000
SANTOSH KUMARI
OPTSTK 26-Aug-10 22.50 CA 4,95,000 - 4,95,000
OPTSTK 26-Aug-10 25.00 CA 9,000 - -
SHYAM GUPTA
OPTSTK 26-Aug-10 22.50 CA 4,05,000 - 4,05,000
SURESH KUMAR AGGARWAL
OPTSTK 26-Aug-10 22.50 CA 3,60,000 - 3,60,000
MANISH KUMAR GOEL
OPTSTK 26-Aug-10 22.50 CA 2,25,000 - 2,25,000
MANISH KUMAR GOEL (HUF)
OPTSTK 26-Aug-10 22.50 CA 2,07,000 - 2,07,000
TOTAL 46,71,000
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22.2.7 It was observed that Noticee Nos. 1, 2, 3,4,5,6,7 and 9
exercised options for a total of 46.71 lakh Tata Tele shares
(95.22% of total exercises) and thus benefitted from the price rise
as under:
Cli ent Name Str ike
Price
Exercised
Qty
Amt
earned on
exercise ( ` .
24.90 -
Strike
Price)
Exercise
amt if
concerned
trades are
excl. ( ` .
24.80 -
Str ike Pri ce)
Diff amt
attributed
to rise in
price ( ` .
24.90 - `
24.80)
Aarti Goel 22.50 14,13,000 33,91,200 32,49,900 1,41,300
Preeti Goel 22.50 10,08,000 24,19,200 23,18,400 1,00,800
Lokesh
Kumar Goel
22.50 5,58,000 13,39,200 12,83,400 55,800
Santosh
Kumari
22.50 4,95,000 11,88,000 11,38,500 49,500
Shyam Gupta 22.50 4,05,000 9,72,000 9,31,500 40,500
Suresh
Kumar
Aggarwal
22.50 3,60,000 8,64,000 8,28,000 36,000
Manish
Kumar Goel
22.50 2,25,000 5,40,000 5,17,500 22,500
Manish
Kumar Goel
(HUF)
22.50 2,07,000 4,96,800 4,76,100 20,700
TOTAL 46,71,000 1,12,10,400 1,07,43,300 4,67,100
22.2.8 In response to the SCN, Noticee No. 3 has contended that she
was not aware of trading done by Noticee No.10. Nothing has been
brought on record to suggest any kind of connection with Noticee No.
10. Similarly, Noticee No. 10 has contended that it is not aware of
Noticee No.3. Its trading was not confined to 15:04:32 to 15:06:21 and
time slots were cherry picked. It has traded throughout the day on
August 23, 2010. I do not accept this contention of Noticee No. 10
because I find from the documents submitted by Noticee No. 10 that it
has selectively traded more in the time slot of 15:04:32 to 15:06:21.
Also, I find that Noticee No. 3 and Noticee No. 10 were the top clients
on gross, net buy and net sell basis between 15:04:32 and 15:06:21
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i.e., during the period of substantial price rise. I note from the material
available on record that the orders entered by Noticee No.3 and
Noticee No. 10 are as under:
Upon analysis of the orders placed by Noticee No.3 and 10 thefollowing is noted:
a) Noticee No.10 placed a stop loss buy order for 10 lakh shares at
14:56:28 at a limit price of ` 25 with a trigger price of ` 24.95
when the LTP at order entry was ` 24.50.
Client Name Order
No.
B/
S
Add
Upd
Del
Order
Time
Order
Qty
Disc
Qty
Order
Price
LTP at
order
entry
Trade
Time
Trade
Qty
Trade
Price
Symphony 2010082
3687983
01
S A 14:21:28 1575 1,575 24.90 24.70 15:04:32 1575 24.90
Symphony 2010082
3690178
47
B A 14:56:28 10,00
,000
10,00,0
00
25.00
(Trig.
24.95)
24.50
15:04:32 10,00
,000
10,00,0
00
25.00 24.95 15:04:32 1000
000
24.95
Aarti Goel 2010082
3690232
03
S A 14:57:13 1,00,
000
1,00,00
0
24.95 24.50 15:04:32 1000
00
24.95
Aarti Goel 2010082
3690406
85
S A 15:00:00 8,00,
000
8,00,00
0
24.95 24.60 15:04:32
-
15:04:36
8000
00
24.95
Aarti Goel 2010082
3690412
20
S A 15:00:05 2,00,
000
2,00,00
0
24.95 24.60 15:04:36 2000
00
24.95
Symphony 2010082
3690712
54
B A 15:04:32 3,50,
000
3,50,00
0
24.95 24.65 15:04:32 3500
00
24.65
-
24.95
Symphony 2010082
3690495
51
S A 15:01:18 1,00,
000
1,00,00
0
25.25 24.60
U 15:01:24 10,00
,000
10,00,0
00
25.25 24.60
U 15:04:34 10,00
,000
10,00,0
00
24.95 24.60 15:04:36
-
15:06:29
1000
000
24.95
Aarti Goel 2010082
3690718
92
B A 15:04:36 8,00,
000
8,00,00
0
24.95 24.65 15:04:36 8000
00
24.65
-
24.95
Aarti Goel 2010082
3690844
07
B A 15:06:21 5,00,
000
5,00,00
0
24.95 24.90 15:06:21 5000
00
24.95
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b) Subsequently, Noticee No.10 placed three sell orders for 1 lakh
shares (at 14:57:13), 8 lakh shares (at 15:00:00) and 2 lakh
shares (at 15:00:05) at a limit price of ` 24.95.
c) Thereafter, at 15:04:32 Noticee No.10 placed a buy order for
3.50 lakh shares at a limit price of ` 24.95 when the order level
LTP was ` 24.65. This buy order cleared the available sell orders
at price of ` 24.95 or less and a total of 3.50 lakh shares were
traded.
d) Since the LTP reached the threshold of ` 24.95, the buy order of
10 lakh shares placed by Noticee No.10 got triggered. This
swept all the available sell orders at price of ` 24.95 including the
sell order of Noticee No.3 for 1 lakh shares and 8 lakh shares.
e) Thereafter, Noticee No.10 at 15:04:34 modified an existing sell
order of 10 lakh shares at a limit price from ` 25.25 to ` 24.95.
f) At 15:04:36 Noticee No.3 placed a buy order for 8 lakh shares at
a limit price of ` 24.95 and this order swept the available sell
orders including the sell orders of Noticee No.3 for the remaining
8 lakh shares and 2 lakh shares. It also swept the order modified
by Noticee No.10 for 10 lakh shares at 15:04:34.
22.2.9 It is evident from the above, that the trading done by Noticee
Nos.3 and 10 resulted in the price of the scrip moving from ` 24.65 to
` 24.95. Consequently, the closing price of the scrip was ` 24.95. If
the impact caused by Noticee No.3 and 10 is excluded the scrip would
have closed at ` 24.65 and the closing price would have been
` 24.8.
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22.2.10 I find that that Noticee Nos. 1, 2, 3,4,5,6,7 and 9 exercised
options for a total of 46.71 lakh Tata Tele shares (95.22% of total
exercises).
22.2.11 I also find that the aforesaid orders resulted in matched
trades between Noticee Nos. 3 and 10, detailed as under:-
Buyer
Name
Buy
Member
Name
Sell
Member
Name
Seller
Name
Trade
Price
Trade Qty Trade
Time
Symphony Arch Fin. Kotak Sec. Aarti Goel 24.95 1,00,000 15:04:32
Symphony Arch Fin. Kotak Sec. Aarti Goel 24.95 7,03,543 15:04:32
Symphony Arch Fin. Arch Fin. Symphony 24.90 1,575 15:04:32
Aarti Goel Kotak Sec. Kotak Sec. Aarti Goel 24.95 96,457 15:04:36
Aarti Goel Kotak Sec. Kotak Sec. Aarti Goel 24.95 2,00,000 15:04:36
Aarti Goel Kotak Sec. Arch Fin. Symphony 24.95 4,87,693 15:04:36
Aarti Goel Kotak Sec. Arch Fin. Symphony 24.95 60,000 15:06:21
Aarti Goel Kotak Sec. Arch Fin. Symphony 24.95 60,000 15:06:21
Aarti Goel Kotak Sec. Arch Fin. Symphony 24.95 60,000 15:06:21
Aarti Goel Kotak Sec. Arch Fin. Symphony 24.95 60,000 15:06:21
Aarti Goel Kotak Sec. Arch Fin. Symphony 24.95 60,000 15:06:21
Aarti Goel Kotak Sec. Arch Fin. Symphony 24.95 60,000 15:06:21
Aarti Goel Kotak Sec. Arch Fin. Symphony 24.95 60,000 15:06:21
Aarti Goel Kotak Sec. Arch Fin. Symphony 24.95 60,000 15:06:21
Aarti Goel Kotak Sec. Arch Fin. Symphony 24.95 4,181 15:06:21TOTAL 20,73,449
Noticee Nos. 10 and 3 had bought 26.50 lakh shares and sold
20.73 lakh shares between 15:04:32 to 15:06:21. Thus, majority of
the buy quantity (i.e., 78%)/sell quantity (100%) of Noticee No.10
and Noticee No. 3 were matched between themselves. The
argument of the aforesaid Noticees that they were not aware of
each other and that there was no connection between them does
not really hold any merit. There are many instances of matched
trades. This cannot happen without prior meeting of minds.
Intention of the aforesaid Noticees is clearly implicit in their trading
pattern.
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22.2.12 Further, I also find that the aforesaid Noticees had
executed self trades. On an analysis of order no.
2010082368798301, Noticee No. 10 placed a sell order at 14:21:28
of 1575 shares at ` 24.90 and then later placed a buy order at
15:04:32 of 1575 shares at ` 24.90. Noticee No.10 has denied
that it has executed self trades as alleged. Noticee No. 10
submitted that he first placed a sell order which did not get
executed and then subsequently when it placed buy order after
about half an hour, it got matched with the earlier sell order. This
contention of the Noticee is not acceptable. There may be time
difference as contended by Noticee No. 10 but the point to be noted
is that both the buy and sell orders placed by Noticee No. 10
matched both in terms of quantity and price. More importantly, at
the relevant point of time when the Noticee No. 10 placed buy order
there was no other sell order placed in the system except his own
sell order placed earlier which was pending for execution. Thus, I
conclude that the Noticee No. 10 had placed the aforesaid buy and
sell orders with the intention to execute self trade which resulted in
creation of artificial volume in the scrip without any change inbeneficial ownership.
22.2.13 Further, Noticee No.3 also executed self trades. On an
analysis of order no. 2010082369041220 it is noted that sell order
of 2,00,000 shares was placed by Noticee No.3 at 15:00:05 at `
24.95 and then later placed a buy order of 2,00,000 shares at
15:04:36 at ` 24.95. I find that the buy and sell orders placed by
Noticee No.3 matched both in terms of quantity and price. I find
that the Noticee No. 3 had placed the aforesaid buy and sell orders
with the intention to execute self trade which resulted in creation of
artificial volume in the scrip without any change in beneficial
ownership.
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22.2.14 Self trades per se are illegal and hence fictitious. The
Hon'ble Securities Appellate Tribunal (SAT) has held in several
cases that self trades call for punitive action since they are illegal
by their very nature. Following are a few cases in respect of self
trades decided by SAT:
In M/s Marwadi Shares and Finance L imi ted Vs. SEBI (Appeal No. 85
of 2011 dated July 26, 2012, SAT held, "......Self Trades by their very
nature, are fictitious. ................Such transactions executed for and on
behalf of the clients will fall within the definition of suspicious
transactions having no economic rationale or bona fide purpose..."
In M/s. Jayanti lal Khandwala & Sons Pvt. Ltd. vs. Secur it ies and
Exchange Board of I ndia (Appeal no. 24 of 2011 dated June 8, 2011)
SAT observed: "One cannot buy and sell shares from himself. Such
transactions are obviously fictitious and meant only to create false
volumes on the trading screen of the exchange".
22.2.15 It has been clearly established that trading done by the
aforesaid Noticees towards the closing hours in the cash segment
has impacted the closing price. Trades done by these Noticees
include self trades and also matched trades amongst themselves.
These trades were done during a particular time slot. Subsequently,
Noticee Nos. 1,2,3,4,5,67 and 9 exercised call options in the
derivative segment to take advantage of the increased price in the
cash segment. These Noticees are all part of the same family.However, trading strategy/pattern followed by the aforesaid
Noticees was common and more interestingly this common strategy
was followed by all the aforesaid Noticees on a particular day,
during a particular time slot, in a particular scrip. This cannot be
said to be a mere coincidence. I am of the view that the
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circumstances are sufficient enough to hold that there was a
concerted and pre-meditated action on the part of the aforesaid
Noticees to deliberately increase the price in the cash segment and
trade thereafter in the derivative segment to take advantage of the
rise in price. Thus, the aforesaid Noticees earned an additional
positive square off difference of ` 4.67 lakh because of the rise in
closing price of the scrip.
22.3 POWER GRID CORPORATION OF INDIA LTD.
22.3.1 It was observed that on April 28, 2010 there was substantial
increase in price and volume in the scrip of Power Grid between15:28:59 and 15:29:09 during which price of the scrip moved from
` 108.10 to ` 120 after touching a high of ` 120.50 at 15:29:05 i.e.,
a rise by 11% in 10 seconds and 17, 15, 527 shares were traded
which was 33.91% of the day's market volume of 50, 59, 017
shares as is evident from the price volume data on April 28, 2010
as given below:
Price Volum e Data on Ap ri l 28, 2010:
Pri ce Movement for the day
( )
Price movement b/w
15:28:59 and 15:29:09 ( ` )
Volume
til l
15:28:59
Volume
til l
15:30:0
0
Volumes
traded b/w
15:28:59
and
15:29:09
Open High Low Close F rom H igh
112.50 120.50 108.10 114.90 108.10 120.50 29.10
lakh
50.16
Lakh
17.15 lakh
22.3.2 It was also observed upon analysis of the trading activity in
cash segment at NSE that Noticee No. 1 and Noticee No.12 were
amongst the top clients on gross, net buy and net sell basis
between 15:28:59 and 15:29:09 i.e., during the period of price rise.
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The total quantity bought and sold by Noticee No.1 and Noticee No.
12 are as follows:
Cli ent Name Buy
Qty
Sell
Qty
Gross
Qty
% to
mkt
gross
Net Buy
Qty
% to
mkt
net
Net Sell
Qty
% to
mkt
net
Green Field Infrastructure P. Ltd.
16,90,000 5,00,000 21,90,000 63.83 11,90,000 98.65 - -
Shyam Gupta - 1,34,400 1,34,400 3.92 - - 1,34,400 11.14
22.3.3 It was also observed upon analysis of the trading activity in
cash segment at NSE that Noticee No. 1 and Noticee No.12 were
amongst the top clients on gross, net buy and net sell basis
between 15:28:59 and 15:29:09 i.e., during the period of price rise.
It was observed that Noticee No. 12 net buy was 11.90 lakh shares
and accounted for 63.83% to market gross and 98.65% to market
net. Major counterparty sellers for the buy trades of Noticee No. 12
were Noticee No. 12 and Noticee No.1.
22.3.4. Following was the day wise trading activity of Noticee No.
12 in cash segment in Power Grid between January 1, 2010 and
April 28, 2010:-
Date Buy Qty Sell Qty Avg Buy Pri ce Avg Sell Pri ce % to mkt gross
8-Apr-10 1,900 - 110.55 - 0.04
9-Apr-10 1,500 - 111.00 - 0.06
12-Apr-10 5,500 - 108.71 - 0.57
13-Apr-10 1,000 - 108.10 - 0.07
15-Apr-10 1,641 4,891 108.01 108.16 0.32
22-Apr-10 26,700 9,000 108.25 109.71 0.97
23-Apr-10 22,725 20,000 109.34 109.25 3.10
27-Apr-10 6,72,451 500 113.02 113.50 5.10
28-Apr-10 16,90,000 5,00,000 117.28 119.95 21.64
It was observed that during calendar year 2010, Noticee No. 12 had
started trading in this scrip from April 8, 2010. Further, on April 28,
2010 the entire day's quantity of Noticee No. 12 was bought and
sold in 10 seconds time span. It was observed that for almost the
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entire 5 lakh shares sold by Noticee No. 12, Noticee No. 12 itself
was counter party.
22.3.5 It was thus observed that trading done by Noticee No. 12
resulted in the price of the Power Grid scrip moving from ` 108.50
to ` 120 thereby impacting the closing price of the scrip.
22.3.6 It was observed that large number of call options were
exercised on April 28, 2010 by Noticee No. 1, 12 13 and 14 in the
scrip of Power Grid which are as under:
Instrument
Type
Expir y Date Strike Pri ce Option
Type
Net Long
Qty
Net
Short
Qty
Exercised
Qty
GREEN FIELDOPTSTK 29-Apr-10 100 CA 19,250 - 19,250
OPTSTK 29-Apr-10 110 CA 23,73,525 - 23,73,525
OPTSTK 29-Apr-10 100 PA 1,925 - -
OPTSTK 29-Apr-10 110 PA 69,300 - -
OPTSTK 27-May-10 110 PA 9,625 - -
OPTSTK 27-May-10 120 PA 1,05,875 - -
FUTSTK 29-Apr-10 - FF 42,350 - -
FUTSTK 27-May-10 - FF - 23,100 -
SANDEEP PAUL
OPTSTK 29-Apr-10 100 CA 13,475 - 13,475OPTSTK 29-Apr-10 110 CA 1,77,100 - -
OPTSTK 29-Apr-10 110 PA 19,250 - -
SANDEEP PAUL (HUF)
OPTSTK 29-Apr-10 100 CA 25,025 - 25,025
OPTSTK 29-Apr-10 110 CA 11,39,600 - 11,39,600
OPTSTK 27-May-10 110 CA 15,400 - -
OPTSTK 29-Apr-10 110 PA 23,100
OPTSTK 27-May-10 120 PA 30,800
FUTSTK 29-Apr-10 - FF 36,575
FUTSTK 27-May-10 - FF 3,850
SHYAM SUNDER GUPTA
OPTSTK 29-Apr-10 110 CA 2,02,125 - 2,02,125
FUTSTK 27-May-10 - FF - 51,975 -
Total 37,73,000
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22.3.7 It was observed that Noticee No. 1, 12, 13 and 14 exercised
call options of 37.73 lakh shares (81.67% of total exercises) and
thus benefitted from the price rise as shown below:
Client Name Str ike
Price
Exercised
Qty
Amt earned on
exercise( ` 114.90 -
Str ike Pri ce)
Exercise amt if
Green Field'strades are excl .
( ` 111.14 -
Str ike Pri ce)
Diff amt
attributed tor ise in pri ce ( `
114.90 - `
111.14)
Green Field
Infrastructure
P. Ltd.
100 19,250 2,86,825.00 2,14,445.00 72,380.00
110 23,73,525 1,16,30,272.50 27,05,818.50 89,24,454.00
Sandeep Paul 100 13,475 2,00,777.50 1,50,111.50 50,666.00
Sandeep Paul
HUF
100 25,025 3,72,872.50 2,78,778.50 94,094.00
110 11,39,600 55,84,040.00 12,99,144.00 42,84,896.00
Shyam Sunder
Gupta
110 2,02,125 9,90,412.50 2,30,422.50 7,59,990.00
Total 37,73,000 1,90,65,200 48,78,720 1,41,86,480
22.3.8 In response to the SCN, a common reply was filed by
Noticee No. 12, 13 and 14. It was contended that Noticee No. 13
was out of country during the period of transaction and that trades
have been done by the said broker by virtue of blank Power Of
Attorney taken from them in the garb of giving them an assuredreturn on investment of their funds. They have also submitted that
the officials of Religare Securities Ltd had done unauthorized
trading due to which they suffered huge losses. They also
submitted that there is no connection /relation whatsoever with
Noticee No.1 and/or other related or connected entities.
22.3.9 I find that Noticee No.1 and Noticee No. 12 had both traded
in the scrip of Powergrid in the cash segment as well as the
derivative segment. Noticee No. 13 and 14 traded only in derivative
segment. Noticee No. 12, 13 (director of Noticee No. 12) and 14
(HUF of Noticee No. 13) are found to be related to each other. I
find that the aforesaid Noticees have merely contended that the
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broker had done unauthorized trading by virtue blank Power of
Attorney trades and that they have suffered huge losses in that
regard. I note that on one hand the aforesaid Noticees submitted
that they had given Power of Attorney to the broker, on the other
hand they alleged unauthorized trading in their account. Thus, the
submissions made by the said Noticees are contradictory.
Nevertheless, the said Noticees ought to have taken proper care
before giving Power of Attorney to the broker. Be that as it may, the
Noticees have not submitted any documentary evidence to show
that trades have been done by the broker in his account without his
authority. Moreover, it is also not known if the said Noticees have
raised any objection/grievance/dispute with the broker or with the
stock exchange. At this juncture, the said Noticees cannot disclaim
the trades so done simply because they have in the process
incurred losses.
22.3.10 The aforesaid Noticees have also submitted that the
broker can also be cross examined as to the authorization of the
said trades. I find that no statement of the broker was relied upon in
the SCN nor it was cited as witness. Moreover, as already
mentioned above, the Noticees have not submitted any
documentary evidence in support of their contention that the broker
has done unauthorized trading in their account. I therefore, find no
merit in the contention of the aforesaid Noticees.
22.3.11 Having thus rejected the contentions raised by the
aforesaid Noticees, I now proceed further based on the material
available on record. I find that Noticee No. 1 and Noticee No.12
were amongst the top clients on gross, net buy and net sell basis
between 15:28:59 and 15:29:09 i.e., during the period of price rise.
I note that the orders entered by Noticee No. 12 are as under:
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Upon analysis of the orders following is noted:
a) Noticee No. 12 placed a sell order for 5 lakh shares at 15:16:13 ata limit price of ` 118.95 which was subsequently modified at
15:21:45 when the limit price was increased to ` 119.95.
b) Noticee No. 12 at 15:16:25 placed a stop loss buy order for 7 lakh
shares at a limit price of ` 119.00 with a trigger price of ` 118.65
Date Orde
r No.
B/ S Add
Upd
Del
Order
Time
Order
Qty
Disc
Qty
Order
Price
LTP
at
orde
rentr
y
Order
level
LTP
variat ion
Trade
Time
Trade
Qty
Trad
e
Pric
e
28-
Apr-10
2010
04283594
4951
B A 15:16
:25
70000
0
7000
00
119.0
0(Trig.
118.6
5)
110.
00
U 15:21
:53
70000
0
7000
00
120.0
0
(Trig.
119.6 5)
109.
90
A 15:29
:03
70000
0
7000
00
120.0
0
110.
00
9.10% 15:29
:03 -
15:29:08
70000
0
108.
80-
120.00
28- Apr-
10
20100428
3594
2964
S A 15:16 :13
500000
500000
118.95
110.00
U 15:16
:18
50000
0
5000
0
118.9
5
109.
95
U 15:21
:45
50000
0
5000
0
119.9
5
109.
95
9.10% 15:29
:02 -15:29
:03
50000
0
119.
95
28-
Apr-10
2010
04283605
4645
B A 15:29
:01
99000
0
9900
00
120.0
0
108.
50
10.60
%
15:29
:01 -15:29
:02
99000
0
108.
50 -119.
95
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which was subsequently modified at 15:21:53 at a limit price of
` 120 and trigger price of ` 119.65. Thus, it was observed that
Noticee No. 12 increased the price of the sell order by ` 1 and
then within 8 seconds increased the limit price of the buy order as
well as the trigger price by ` 1.
c) Thereafter Noticee No. 12 placed a fresh buy order at 15:29:01
for 9.90 lakh shares (even though there was a pending buy order
for 7 lakh shares) at a price of ` 120 which was 10.60% above
LTP of ` 108.50. This buy order executed all the available sell
orders at price of ` 119.95 or less and a total of 9,90,000 shares
were traded between 15:29:01 to 15:29:02. It was noted that
Noticee No. 12 had a sell order for 5 lakh shares at a limit price of
` 119.95 and thus 1,26,425 shares got matched.
d) Further, as the trigger price (i.e., ` 119.65) of the earlier order
(i.e., of 7 lakh shares) which was pending in the system with a
limit price of ` 120 at 15:29:03 got triggered, this buy order swept
all the available sell orders at price of ` 120 or less during thatinstance and a total of 7, 00, 000 shares were traded between
15:29:03 to 15:29:08. In this case also Noticee No. 12 had sell
order for remaining shares of 3,73,505 shares at a limit price of
` 119.95 and thus these orders were matched.
22.3.12 It is evident from the above, that the trading done by
Noticee No.12 resulted in the price of the scrip moving from
` 108.50 to ` 120. The closing price of the scrip due to the
aforesaid price rise was ` 114.90. Excluding the aforesaid buy
and sell trades of the client in the last half an hour, the close price
would have been ` 111.14 and if the markets had closed at
15:29:00 (15:29:01 is the time when first trade of Noticee No. 12
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was executed during the last half hour) the closing price would
have been ` 109.25.
22.3.13 Also, the trading pattern of the Noticee No. 12 also
reveal that they have indulged in self trades. On analysis of order
no. 2010042835942964 , I find that Noticee No.12 placed a sell
order of 5,00,000 shares at 15:16:13 at ` 118.95 and then placed
a buy order of 5,00,000 shares at 15:29:03 at ` 119.95. Thus,
Noticee No. 12 executed self trade. It is needless to mention that
self trades per se are illegal.
22.3.14 I find from the discussion at para no. 22.3.5 that the
Noticee No.12 by their trades in the cash segment had
contributed to the price rise from ` 108.50 to ` 120 in 10 seconds
towards the close of trading hours and subsequently they traded
in the derivative segment taking advantage of the increased price.
Subsequently, Noticee No. 12, 13 and 14 exercised call options
of 37.73 lakh shares (81.67% of total exercises). Had these
trades been excluded, the closing price would have been `
111.14 and the clients would have made losses on contracts withstrike price of ` 110. Thus, these entities earned an additional
positive square off difference of ` 1.34 crores because of the rise
in closing price of the scrip. Further, I find that Noticee No. 12
was both the buyer and seller for 5,00,000 shares and has thus
executed self trades. Their trading pattern in the scrip at the
relevant time period clearly reflect their intention. They cannot
escape from the consequences simply by stating that they have
incurred losses in other scrips/ other time periods.
22.3.15 As regards, the trading of Noticee No.1, I note that
Noticee No.1 did trade at the relevant time in the cash segment
in the scrip of Powergrid. Thereafter, taking advantage of the
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price rise, he exercised options in the derivative segment and
benefitted from the price rise. There may not be any direct
evidence to show connection of Noticee No.1 and the remaining
Noticees who traded in the scrip of Powergrid. However, the
trading strategy/pattern followed by the aforesaid Noticees
including Noticee No.1 was common and more interestingly this
common strategy was followed by all the aforesaid Noticees on a
particular day , during a particular time slot, in a particular scrip.
This itself, in my view is sufficient enough to hold that there was a
concerted and pre-meditated action on the part of the aforesaid
Noticees to deliberately increase the price in the cash segment
and trade thereafter in the derivative segment to take advantage
of the rise in price. Thus, the aforesaid Noticees benefitted from
the price rise to the tune of ` 1.41 crore.
22.4 MTNL
22.4.1 It was observed that on July 28, 2010 the price of the scrip
of MTNL moved from ` 66.75 to ` 73.80 i.e., registered a rise of
10.56% in less than 30 seconds between 15:29:31 and 15:30:00.There was also spurt in volume of MTNL shares just before the
markets closed for the day and further, substantial volumes were
traded in the post closing session as shown below:
Price volume data on July 28, 2010
Pri ce Movement for the day ( ` .) Price
movement b/w
15:29:31 and
15:30:00 (Rs.)
Volume
s till
15:29:3
0
Volum
es till
15:30:
00
Volumes
traded
b/w
15:29:31
and
15:30:00
Volume
s traded
in post
closing
sessionOpen High Low Close From H igh
67.40 73.80 66.35 69.45 66.75 73.80 9.30lakh
19.69lakh
10.40lakh
10.83lakh
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8/9/2019 Adjudication order in the matter of Trading activity of Shyam Sunder Gupta and related/connected entities
39/63