Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips Page 1 of 63 April 24, 2015 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 Field Infrastructure 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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BEFORE THE ADJUDICATING OFFICER(Areva), Power Grid Corporation of India Ltd. (Power Grid) and Tata Teleservices (Maharashtra) Ltd. (Tata Tele) [collectively referred to as 'said four
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Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 1 of 63 April 24, 2015
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 Field Infrastructure 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
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 2 of 63 April 24, 2015
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 Trade
Practices) Regulations, 2003 ('PFUTP Regulations, 2003') by Shyam
(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:
Scrip Name Period of Investigation
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
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 3 of 63 April 24, 2015
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.
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 4 of 63 April 24, 2015
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
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 5 of 63 April 24, 2015
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
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 6 of 63 April 24, 2015
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 letter
dated 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
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 7 of 63 April 24, 2015
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 had
exercised 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
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 8 of 63 April 24, 2015
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 to
15:07:21. 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
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 9 of 63 April 24, 2015
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 stock exchange wherein it is not possible to know the counter party broker or client. It was not aware that Noticee No.3 and Noticee No.5 were counter parties to their trades and the same was not of concern to them. In so far as purchase of 1,50,000 shares in the post closing session on 29.07.2010 is concerned, the same was made in the ordinary course of business without being aware of the counter 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.
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 10 of 63 April 24, 2015
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 no
relation/ 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
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 11 of 63 April 24, 2015
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 /relation
whatsoever 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
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 12 of 63 April 24, 2015
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 a
recognised stock exchange;
(c) engage in any act, practice, course of business which operates or would
operate 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 shall directly or indirectly—
(a) buy, sell or otherwise deal in securities in a fraudulent manner;
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 13 of 63 April 24, 2015
(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
Regulation 4: Prohibition of manipulative, fraudulent and unfair trade
practices
(1) Without prejudice to the provisions of regulation 3, no person shall
indulge 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 appearance
of 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 for
wrongful 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
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 14 of 63 April 24, 2015
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 of 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 is
being 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 India (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
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 15 of 63 April 24, 2015
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 were
involved 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., Shyam
Gupta introduced Suresh Kumar Aggarwal
Suresh Kumar Aggarwal (Noticee
No.2)
As per KYC with Arch Finance P. Ltd., introducer
was Shyam Gupta
Santosh Kumari(Noticee No.9) Wife of Suresh Kumar Aggarwal
Adjudication order in the matter of Trading Activity of Shyam Sunder Gupta & related entities in four scrips
Page 16 of 63 April 24, 2015
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 Goel
respectively
Symphony Merchants P.
Ltd.(Noticee No. 10)
Trading pattern in the scrip of MTNL suggests that
Symphony 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