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IN THE SECURITIES APPELLATE TRIBUNAL MUMBAI
Appeal
No: 160 of 2004
Appeal
No: 161 of 2004
Appeal
No: 162 of 2004
CORAM ��������� Justice
Kumar Rajaratnam, Presiding Officer ��������� N.L.
Lakhanpal, Member Per:��� N.L. Lakhanpal, Member 1.
The
appeals were taken up for final disposal through this common order with the
consent of parties. 2.
The
impugned order dated 8th September, 2004 directs the appellants not
to deal in securities for a period of 6 months on the charge of violation of
Regulation 4(b) and (c) of the SEBI (Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Market) Regulation, 1994. Regulation 4 of the
SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to
Securities Market) Regulation, 1994 reads as follows: �4.������ No
person shall �a)������ ��.. �b)������ Indulge in any act which is calculated to
create a false or misleading appearance of trading on the securities market. �c)������ Indulge in any act which results in
reflection of prices of securities based on transactions that are not genuine
trade transactions.� 3.
A
company called M/s. Intellivision Software Limited (ISL) had forfeited
31,00,000 shares vide its Board resolution dated 4.
Viram
Investment Private Limited (VIPL) is jointly owned by equal shareholders, Mr.
Amal Parikh and Mr. Uday Shah, the appellants in appeal Nos.161 and 162 of 2004
respectively. S/Shri Parikh and Shah are also the promoters of a broking firm
OHM Stock Brokers Private Limited (OSBPL). This broking firm is not in appeal
before us because no order has been passed against it. 5.
The
1,50,000 shares out of the forfeited shares of ISL allotted to VIPL were
credited to the D-Mat account of VIPL on 6.
Treating
these sales amongst the appellants and the broking firm owned by them as
synchronized or matched deals, SEBI has passed the impugned order directing the
appellants to disassociate themselves from the market for a period of 6
months.� Being aggrieved, the appellants�
have filed the present appeals. It is the appellants� contention that there is
no bar against trading between related entities as long as such trading is not
aimed at creating a false or misleading appearance of trading in securities
market or such trading results in reflection of prices of securities based on
transactions that are not genuine trade transactions. It is the case of the
appellants that these couple of transactions were undertaken by the appellants,
who are undoubtedly related to each other, for tax planning and other purposes
and not for creating any false or misleading appearance of trading on the
securities market.� SEBI�s case is that
any synchronized or matched trades or any non-genuine trades meant to serve any
purpose other than ordinary trading are per se prohibited trades attracting the
provisions of Regulation 4(b) and (c) of the SEBI (Prohibition of Fraudulent
and Unfair Trade Practices Relating to Securities Market) Regulation, 1995. For
examining the rival contention it would be useful to reproduce the following
graph extracted from paragraph 10 of the impugned order.
7.
It
is clear from the above graph that the respondent SEBI has taken objection
basically to the trades entered into on �From the above analysis, it appears
that the price fall in the scrip is mainly due to a selling pressure in the
scrip.� This might be due to the fact
that most of the shareholders had acquired the shares at par.� There was a change in the management of the
company and then it changed its business and acquired a newly formed
partnership firm and did not have any profits to justify a price of Rs.
104.00.� 8.
The investigation report itself concludes that there
was no concrete evidence to establish deliberate hammering of the price of the
scrip except certain instances wherein certain parties had placed sale orders
at lower circuit rates on consecutive dates.�
It is not even the case of the respondent that there was deliberate
hammering of the price of scrips.� Indeed,
the price of scrip as noted by the investigating officer, could not have been
more than Rs. 10/-.� The stand of the
Intel Vision Software itself was that the price of scrip could not be more than
its par value.� In spite of that, it was
traded at the rate of Rs. 90 to 100 during the year 2000.� In fact it was quoted in the Hyderabad Stock
Exchange at price lower than what it was quoted at the Bombay Stock
Exchange.� �It cannot be said in these circumstances that
there was any hammering of the scrip by the appellants.� 9.
We have also perused the circular dated
14.9.1999.� All that the circular says is
that negotiated deals shall be executed on the screen of the exchange.� In this case, admittedly all deals were on
the screen of the exchange.� 10.
In the order passed in ICICI Brokerage Services Ltd., cited
by the appellants the respondent has acknowledged that negotiated deals have to
be done through the price and order matching mechanism of the stock
exchange.� SEBI itself has recognised in
that order that the synchronised trades are not per se illegal unless
they have the effect of manipulating the market.�� Specifically, in the said order, the
respondent found that all the ingredients of synchronised trading were present
in the trades done by ICICI Brokerage Services Ltd. But the price of the shares
remained constant at Rs. 83/- per share. In other words the respondent
recognized in that order that synchronized trades conducted on the screen need
not be per se illegal if they do not have a bearing on the market. 11.
�The volatility in the price of this
scrip as shown in the graph has thus been d�hors of these two transactions. We
also notice that the trading volumes in this scrip have been totally
insignificant for the entire investigation period except for these two
transactions and that these two transactions therefore had no positive or
negative effect on the market price of the scrip.� What we are therefore left with is only the
rival contentions regarding the nature of these two transactions. According to
SEBI such transactions are per se manipulative transactions and therefore
violative of SEBI (Prohibition of Fraudulent and Unfair Trade Practices
Relating to Securities Market) Regulation, 1995.� The appellants on the other hand have
contended that there is no bar on inter corporate transactions or on
transactions between related entities as long as such transactions do not
affect the market. In support of their contention, the appellants have again cited
SEBI�s orders in the proceedings against ICICI Brokerage Service Limited
wherein Chairman, SEBI, has observed at page 17 of that order as follows: �In sharp contrast, synchronized
transactions are used by unscrupulous market participants to deny investors
other than those within a closed group, a chance to participate in the trading
system of the stock exchange and these are used as tools for manipulation of
the price and volume of shares. For the above reason, although it cannot be
said that synchronized deals are per se illegal, for the same reason, it cannot
be said that all synchronized transactions are legal and permitted.� All synchronized transactions which have
the effect of manipulating the market are against fair market practices and
hence undesirable and prohibited.� (emphasis supplied) 12.
We
are fully in agreement with the above observations made by Chairman, SEBI in
the proceedings against ICICI Brokerage Services Limited. A reading of the
Regulation 4(a) and 4(c) also shows that the objectionable acts inviting action
under these regulations have to be both �calculated to create a false or
misleading appearance of trading on the securities market� and/or� should �result in reflection of prices
of securities based on transactions that are not genuine trade
transactions�.� In the present case SEBI
seems to have merely gone by the fact that the transactions in question being
amongst related entities, cannot be considered to have been ordinary trades in
the market and therefore per se non genuine and violative of regulations.� Even if we consider transactions undertaken
for tax planning as being non genuine trades, such trades in order to beheld
objectionable, must result in influencing the market one way or the other. We
do not find any evidence of that either in the investigation conducted by the
Bombay Stock Exchange, copy of which has been annexed to the memorandum of
appeal or in the impugned order that there was any manipulation.�� It is also seen that the impugned
transactions have taken place at the prevailing market price. Trading in
securities can take place for any number of reasons and the authorities enquire
into such transactions which artificially influence the market and induce the
investors to buy or sell on the basis of such artificial transactions.� This is not even the case of the respondent, therefore
it is not possible for us to sustain the impugned order. 13.
Accordingly
the appeals are allowed and the impugned order is set aside.� No order as to costs.
Place: Mumbai Date:
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