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In the matter of Mr. Urvish R. Vora and Mrs. Pallavi U. Vora

Feb 16, 2006
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Orders : Orders of SAT

IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

Appeal No.32/2006

 

Date of Decision

16.02.2006

 

 

In the matter of:

 

Mr. Urvish R. Vora

Mrs. Pallavi U. Vora    

Appellants – Represented by Mr. J. J. Bhatt, Advocate.

 

Versus

 

 

Whole Time Member, Securities & Exchange Board of India

Respondent – Represented by Mr. Mihir Mody,  Advocate for Respondent

 

 

Coram:

 

            Justice N. K. Sodhi, Presiding Officer

            C. Bhattacharya, Member

            R. N. Bhardwaj, Member

 

Per:      Justice N. K. Sodhi, Presiding Officer(Oral)

 

            Challenge in this appeal is to the order dated 24/01/2006 passed by the Securities and Exchange Board of India (for short “the Board”) issuing directions to the appellants under Section 11 of the Securities and Exchange Board of India Act, 1992 (hereinafter called “the Act”) read with Regulations 11 and 13 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations, 2003 (in short “the Regulations”), restraining them from accessing the securities market and prohibiting them from buying, selling and  otherwise dealing in the securities for a period of 3 months from the date of the order.

2.         The appellants before us are husband and wife.  The appellant no.2 – the wife was holding 15,000 shares of Mobile Telecommunications Ltd., (MTL) which she had purchased from the market along with blank transfer forms.  It is common  case of the parties that she held the shares for almost a year which were in the name of one Vipul M. Gandhi who is said to be a friend of her husband (the appellant  no.1).  She transferred the shares in the name of her husband i.e. appellant  no.1 on September 13, 2000.  The Board investigated  the trading of the scrip of MTL and it was during the course of this investigation that it found that the appellant no.2 had transferred the shares in favour of her husband.  The Board  was prima facie of the view that the transfer of 15000 shares on September 13, 2000 was done with a view to create artificial volumes of the scrip in the market and also with a view to artificially raise its price and was, therefore, detrimental  to the interests of the investors in the securities market.  The enquiry officer was appointed who issued notices to the appellants calling upon them to show cause as to why appropriate directions be not issued to them under Regulation 11 of the Regulations read with Sections 11 and 11B of the Act including a direction not to deal in the securities in any manner for a particular period.  In response to this notice, the appellants filed their reply and on a consideration of the entire material on record, the enquiry officer submitted his report to the Board recommending the issuance of directions as stated in the show cause notice.   On receipt of the enquiry report, the Board issued notice to the appellants to show cause why appropriate directions be not issued restraining them from accessing the securities market.  On receipt of replies from the appellants and after affording them a personal hearing the Board by the impugned order restrained the appellants  from accessing the securities market and prohibited them from buying, selling and  otherwise dealing in the securities for a period of 3 months.  The Board found that the transaction of September 13, 2000 by which the wife transferred the shares to her husband was a transaction intended to create artificial volumes and to inflate the price of the scrip of MTL.  Hence this appeal.

3.         We have heard the learned counsel for the parties and it is their common case that that the wife (appellant no.2) transferred 15000 shares of MTL in favour of her husband who is appellant no.1.  It is not in dispute that the wife was holding these shares for the last one year along with blank transfer forms and that the shares were in the name of Vipul M. Gandhi.  It is a coincidence that one Vipin C. Gandhi is the Chairman of MTL and the Board thought that the shares held by the wife belonged to the Chairman of the company and that the husband and wife were trading in the shares  of the company which belonged to the Chairman.  It is now admitted before us that this is factually incorrect.  The shares held by the wife were in the name of Vipul M. Gandhi who has no concern with Vipin C. Gandhi.  In view of these admitted facts, the question that arises for our consideration is whether  the isolated transaction of transfer of 15000 shares on 13/9/2000 by the wife in favour of the husband through the market mechanism amounted to creating artificial volumes and was  intended to inflate the price of the scrip.  What is contended by the learned counsel representing the Board is that the transaction between the husband and wife was a matched transaction which is not permissible under law as that would create a false impression in the minds of the investors that the share is being traded in large quantities and that may induce innocent investors to come to the market and invest in the same.  The learned counsel for the respondent could be right if the appellants had indulged in such matched trades in large quantities over a period of time which could possibly lead to the inference that they were trying to create an artificial market.  An isolated transaction, in our view, could not lead to such an inference.  Moreover, the wife had with her blank transfer forms and she could have straight away sold the shares in the market without involving her husband and therefore, we do not think that the intention of the appellants was to create artificial volumes.  The learned counsel for the parties are agreed that on September 13, 2000, as many as 80,600 shares of the company had been traded in the Bombay Stock Exchange out of which 15000 shares were transferred by the wife to the husband.  The proportion is not that much which could lead to the inference that artificial volumes were sought to be created.  Again, it is common ground between the parties that the shares were sold by the wife to the husband at the rate of Rs.152.50.  The price of the scrip prevailing on September 13, 2000  was ranging between Rs.164/- and Rs.150.40.  It opened on September 13,  at Rs.156/- and the closing rate was Rs.150.40.  If the  shares were sold by the wife to her husband at the rate of Rs.152.50, it could not be said that the price had been inflated.  The price at which the shares were transferred was as per  the market trend prevailing on that day.  In this view of the matter we cannot uphold the findings of the Board that the isolated transaction of September 13 was either intended to  create artificial volumes or was intended to inflate the price of the scrip.

 

4.         In the result, the appeal is allowed, impugned order dated 24/01/2006 set aside leaving the parties to bear their own costs.

 

Justice N. K. Sodhi

Presiding Officer.

 

C. Bhattacharya

Member.

 

R. N. Bhardwaj

Member

 

16/02/2006.