In the matter of

Sanman Consultants                                               Appellant

Vs

Securities & Exchange Board of India                   Respondent
 

APPEARANCE:

Shri Dhirendra Gandhi
Shri Rakesh Gandhi
Shri Bhupendra Gandhi                                           for Appellant

Shri Ananta Barua
Division Chief, SEBI

Shri K.R.C.V.Seshachalam
Legal Officer, SEBI                                                   for Respondent
 

This appeal is directed against the order dated 31.7.2000 made by Chairman of the Respondent, rejecting the Appellant's claim for Rs. 86, 100/- being difference between standard price and close out price in respect of purchase of the shares of Magan lndustries Ltd., in the 22^nd settlement of 1995-96 of Bombay Stock Exchange.
 

Factual background of the case, as reflected from the material before me, is as follows:

The Appellant's representation was rejected by the Chairman, after hearing it. The Appellant paid a sum of Rs. 2, 81, 400/- as a result of the same. However, in settlement 22 of 1995-96 the Appellant had an outstanding purchase involving 51, 00 shares which as in the case of settlement 21 was also closed @ Rs. 1 18/-. But the Appellant was given credit of Rs. 34, 069/- at the standard rate of RS.97/- instead of at the then close out price of Rs. 1 18/-. If credit had been given at the said close out price of Rs.118/-, the Appellant would have got Rs. 86, 100/- more, which as a result of the Respondent's decision was not given to it. Aggrieved on this account, the Appellant represented to the Respondent again. The Appellant felt that it has been penalised on two counts - on sale and purchase. A committee consisting of 2 officers of the Respondent constituted by the Respondent heard the Appellant and submitted its report to the Respondent. After affording reasonable opportunity to the Appellant the Respondent concluded that the Appellant was not entitled to the close out price of Rs. 118/- and rejected its claim of Rs. 86, 100/- vide order dated 31.7.2000. The present appeal is directed against the said rejection order.
 

The Appellant's main contention is that it is a genuine investor. The Respondent, though mandated to protect the interests of the investors has acted in a contrary manner denying the legitimate claim of the Appellant in settlement 22. In settlement 21 the short position of 5800 shares was closed by the exchange @ Rs. 1 18/and made the Appellant to pay Rs. 2, 81, 400 as a result thereof. Whereas in settlement 22, the exchange had closed out the purchase price also @ Rs. 118/- but only the standard price was credited though it should have been @ 118 and the balance amount of Rs. 86, 000/- was due to the Appellant. The Appellant submitted in detail the sequence of events following the impounding of the funds leading to the representations before the committee and the Chairman. According to the Appellant, in the initial stage the respondent did not even bother to consider the appellants case in 22^nd settlement and only after making representation after representation, the matter was looked into by appointing another committee and that committee proved that it was only a formality to cover up the deficiency in the findings of the first committee. The Chairman, though after providing an opportunity to the Appellant, was swayed by the findings arrived at by the in-house committee and rejected the Appellant's legitimate claim without any justification. According to the Appellant, it has been penalised in both sell out position and purchase position, ignoring fairness and reasonableness. The Appellant urged the Tribunal to obtain the complete text of the order made by the Respondent covering the claim of all the persons numbering 34, who had represented to the Respondent.
 

The Respondent on the other hand in its written statement has raised certain preliminary objections to which we will come later. The Respondent's main contention is that the investigation carried out by it had concluded that there was price rigging and manipulation in the trading of the company's shares and as such the auction price cannot be considered as the true market price of the scrip. According to the Respondent the closing out of short position for failure to deliver shares did not entitle the Appellant to claim or adjust undue/illgotten benefit for his purchase in the next settlement. The Appellant did not get delivery of the shares purchased in settlement 22, due to cornering, market manipulation, etc. of the scrip. Therefore, the Appellant was not given credit to the standard price of Rs. 118/- as the same was based on artificial market conditions. The Appellant had already received Rs. 34, 069 being difference between purchase price and the standard price i.e. at the rate of Rs.97/-. According to the Respondent no purchaser who had not received delivery was given credit of Rs. 118/- as the same was based on artificial market conditions. It was submitted that the Appellant did not incur any real loss in the purchase transaction as it received standard price on his purchase position. It was also submitted by the Respondent's Representative that transactions in settlement 21 and 22 are entirely different transactions and two different transactions in two separate settlements cannot be clubbed. The respondent denied the allegation that the claim was not considered by the first committee.
 

The rival contention put forth by the parties have been carefully considered by me. I have also perused the material furnished by the Respondent on 1. 1.2001 in compliance to the directions given by me during the course of hearing and also the reply thereto filed by the Appellant on 8.1.2001.
 

It is felt that the preliminary objections raised by the Respondent in its reply need be considered and decided first, before proceeding with the merits of the appeal.
 

These are the preliminary objections raised by the Respondent.

(1) The appeal is barred by limitation as the same has been filed after expiry of limitation period from the date of the order.

(2) The Appellant has already received purchase consideration of Rs. 34, 069/- on 12^th February, 1996 in respect of purchase price of 4100 shares for which delivery was not received due to cornering, market manipulation etc, and therefore no claim survives.

(3) The claim of Rs. 86, 100/- for which the impugned appeal has been filed has already been considered by SEBI. There is no merit in the appeal in respect of the said claim of Rs. 86,100. The claim of the Appellant is not tenable under any law.

The Appellant's request that this Tribunal should call for the Respondent's order in all the 34 cases where the Respondent had received representations is not acceded to. It is not necessary or relevant to have the orders made in all the 34 cases to decide the limited issue involved in the present appeal. The Appellant's grievance is against the specific order affecting its interest and for that a copy of the said order is available with the appeal.
 

The reasoning for rejecting the claim of the Appellant as recorded in the impugned order is as follows: -

"I find that the price of the scrip of MIL during the settlement period 21st and 22nd in 1995-96 was rigged as per the investigation report of SEBI. The trading in the scrip was also suspended. The Investigation Report reveal that price rise of the scrip from Rs. 40/- to Rs. 118/- was unusual and abnormal and was based on artificial condition. Therefore, all the purchases were given credit for which delivery could not be given at the standard price of Rs. 97/-. No one was given credit at the close out price of Rs. 118/-. The giving of credit at the rate of Rs. 118/- will amount to giving credit at the price, which was not real but based on rigged price or artificial market conditions. I agree that no one should be given the credit at the rate of artificial price of Rs. 1 18/-.

During the course of the hearing I had asked the Respondent to produce a copy of its order giving opportunity to the persons affected by its decision to represent regarding release or impounding of monies received from auction or close out transactions. Learned representative furnished a copy of the order dated 4.7.1996 stating that it is the relevant order. It has been inter alia stated in the order that:

The term rigging denotes the practice of inflating the price of given stocks or enhancing their quoted value, by a system of pretended purchases, designed to give the air of an unusual demand for such stocks. In a market, where share price is rigged, even unsuspecting investors will also get involved. Normally they are the casualities. It may not be correct to generalise that all those who had transacted in the shares of the company during that particular period were manipulators. In the absence of genuine buyers and sellers in the market the rigging scheme won't successfully operate. Before penalising the person, it is absolutely necessary to find out as to whether the particular person was a manipulator or genuine investor. On the basis of a stray case of purchase or sale alone it cannot be concluded that it was a case of manipulation. According to Blacks Law Dictionary manipulation means "series of transactions involving the buying or selling of a security for the purpose creating a false or misleading appearance of active trading or to raise or depress the price to induce the purchase or sale by others". The person, who induces not the one induced to purchase or sell in an artificial set up, is the manipulator. This principle has been well recognised by the Courts. A Division Bench of the Gujarat High Court in DM Investments' case [SEBI Vs. Alka Synthetics Ltd. (1999) 19 SCL 4601 had viewed that the relief has to be given to persons who were not found involved in price rigging. There is no indication or even a suggestion in the impugned order that the Appellant was at all concerned with rigging/manipulation of the market price in any way. The Respondent's submission that in settlement 21, the Appellant had short sold and as such he is not a genuine investor by itself is not sufficient proof to establish that Appellant was manipulating the market at that point of time. In the absence of any evidence to show that the Appellant was in any way concerned with the manipulation of the market the impugned order rejecting his claim is not tenable. If the gain made by the Appellant is out of a legitimate transaction it cannot be termed as ill gotten gain and deprived of. Deprivation of property without adequate justification and without force of law cannot be allowed to go unobstructed. Sustainability of the impugned order depends on the finding of the role of the Appellant in the market backed up with adequate proof at the relevant point of time. If there is enough proof to show that the Appellant was involved in manipulating the prices, he need be penalised. But if he was not a manipulator but a genuine investor, by no standard he deserve to be punished. So it is for the Respondent to decide as to whether the Appellant was guilty of market manipulation so as to take advantage of the higher prices at the auction and only if it is found that the Appellant was a party to the market rigging or manipulation the order passed by the Respondent shall stand confirmed. I find no material in the order, as such, to believe that the Appellant was involved in manipulating the market. An observation without adequate supporting evidence that the Appellant was involved in market rigging is not sufficient to deny the legitimate claim. It is for the Respondent to establish that the Appellant was involved in rigging. This requirement appears to have been not seriously looked into. It is, therefore, felt that the matter need be further examined by the Respondent. Since the matter requires to be remanded for the reasons stated above the impugned order requires to be set aside. I do so.
 

For the reasons stated above, the appeal is allowed by way of remand.