Allegations against noticee for  unfair trade practices disposed of due to absence of trade log – THE SECURITY AND EXCHANGE BOARD OF INDIA
Allegations against noticee for  unfair trade practices disposed of due to absence of trade log – THE SECURITY AND EXCHANGE BOARD OF INDIA The SEBI conducted an investigation into the trading of K. Sera Sera Production Ltd. And observed violation of SEBI regulations, 2003 by certain employees and one such employee was Mr. Sunil Kumar Purohit (Noticee) and adjudication proceedings were initiated against the noticee for alleged violations of  Regulations 4(1), 4(2)(a), 4(2)(b) and 4(2)(g) of PFUTP Regulations and an adjudication officer was appointed SOMA MAJUMDER in [ADJUDICATION ORDER NO. Order/SM/DD/2021-22/15035] A show-cause notice was sent to noticee under  Rule 4 of the SEBI Rules, 1995 to show cause as to why an inquiry should not be held and the penalty is not imposed under Section 15HA of the SEBI Act for the alleged violations. The notice was served and the noticee authoritative representative responded to the alleged violations the adjudication proceedings were initiated and it was found out that Noticee purchased 13,04,870 shares and sold 13,04,605 shares constituting around 7.25% and 6.90% of total volume traded during the period under investigation respectively and the pattern of circular trading indicates that it was usually among a group of brokers and same numbers of shares were rotated circularly among brokers in the group daily so that the same number of shares go back to the original seller The Investigation reports alleges that this manipulative trading operation was planned very carefully to avoid any easy detection. The SCN alleged that few members and their clients including Noticee, accounted for a large percentage of the total traded volumes in the scrip and majority of the trades were synchronized in nature and the noticee traded very carefully and instead of regular trading the noticee chose a particular time and it helped noticee in creating an artificial environment in the market. The noticee in one of the replies contended that the noticee has not been provided with the original trade log and order log which contained all the details of alleged trades done by noticee in the scrip of  K. Sera Sera. The officer also considers that the trade log is not available on record and some efforts were made to obtain the trade log but it was informed that the data was not available in the system the officer also noted that the details cannot be obtained and since the details cannot be obtained the officer notes that Noticee has been alleged to have created artificial volume through circular and synchronized trades, from the material available on record and no connection can be established with the material available on record. Noticee in his further submissions stated that t in absence of the trade log and order log. The noticee was not able to file legal submission on the merits of the case and the officer also believes that in the absence of the documents it is impossible to comment on the accuracy of the data which forms the basis of the charge of synchronized and circular trades amounting to violations of PFTUP Regulations by Noticee. Therefore in the absence of relevant trade log and order log and considering the error in the data provided in the SCN and also placing reliance on aforesaid judgment. The officer decides that the allegation against Noticee that he has violated Regulations 4(1), 4(2) (a), (b), and (g) of PFUTP Regulations cannot be established and the adjudication proceedings against the noticee are disposed of. Click here to read the Order
BEFORE THE ADJUDICATING OFFICER SECURITIES AND EXCHANGE BOARD OF INDIA ADJUDICATION ORDER NO. Order SM DD 2021 22 15035] UNDER SECTION 15 I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT 1992 READ WITH RULE 5 OF SEBI RULES In respect of: Mr. Sunil Kumar Purohit PAN AHSPP9704F] In the matter of K. Sera Sera Production Limited FACTS OF THE CASE IN BRIEF 1. Securities and Exchange Board of Indiahad conducted investigation into the trading in the scrip of K. Sera Sera Production Ltd.(hereinafter referred to as “K. Sera Sera Scrip Company”) during the period from June 01 2004 to October 31 2004 Regulations 2003by certain entities including Mr. Sunil Kumar Purohitwas issued to Noticee under Rule 4 of the SEBIRules 1995 to show cause as to why an inquiry should not be held and penalty be not imposed under Section 15HA of the SEBI Act for the alleged violations of Regulations 4(1) 4(2)(a) 4(2)(b) and 4(2)(g) of PFUTP Regulations by 3. I note that subsequent to transfer of Mr. Biju S. to another department of SEBI Mr. D. Ravi Kumar was appointed as Adjudicating Officer to inquire into and adjudge under Section 15HA of SEBI Act 1992 the alleged violations of provisions of PFUTP Regulations by the aforesaid entities including Noticee. 4. The erstwhile AO vide Adjudication Order dated June 30 2010 concluded that Noticee had violated the provisions of PFUTP Regulations and imposed a penalty of Rs. 15 00 000 under Section 15HA of the SEBI Act on Noticee. 5. Thereafter an appeal Appeal No. 145 of 2015 was filed before Hon’ble Securities Appellate Tribunalby Noticee. Vide order dated March 07 2016 Hon’ble SAT set aside the aforesaid Adjudication Order dated June 30 2010 passed by the erstwhile AO and restored the matter to the file of Adjudicating Officer for passing fresh order on merits and in accordance with law. In its order Hon’ble SAT held that: “In the light of judgment of the Apex Court in the case of SEBI vs. Roofit Industries Ltd. reported in194 Comp. Cas. 186Counsel for the parties state that the orders impugned in the respective appeals be quashed and set aside and the matters be restored to the file of the adjudicating officer for passing fresh order on merits and in accordance with the Law. Accordingly orders impugned in the said respective appeals are quashed and set aside by restoring the matters to the file of the adjudicating officer so as to Adjudication Order in respect of Sunil Kumar Purohit in the matter of K.Sera Sera Production pass fresh order on merits and in accordance with the law. All contentions of both parties are kept open” 6. In accordance with the aforesaid order of Hon’ble SAT SEBI vide order dated March 04 2021 appointed undersigned as the Adjudicating Officer under Section 19 of SEBI Act read with Section 15I and Rule 3 of Adjudication Rules to inquire into and adjudge under the provisions of Section 15HA of SEBI Act the alleged violation of provisions of Regulations 4 4 2)(b) andof PFUTP Regulations by Noticee. SHOW CAUSE NOTICE REPLY AND HEARING 7. The relevant extracts of the SCN containing the observations and allegations are reproduced hereunder: “It is noted from the findings of the Investigation Report that a group of clients and a few members including you traded significantly in the scrip of KSERA during the period under investigation. On analysing the trading pattern among the major members on the gross purchases and sales namely S P J Stock Brokers Pvt. Ltd.( dealing in own account). M s. Vijay Bhagwandas & Company M s. Harikishan Hiralal Financial Services Ltd.( dealing in own account) Adolf Pinto( dealing on behalf of Mr. Kenneth Pinto and Ms. Gillian Pinto) and Galaxy Broking( dealing for Shri Kapil Bhuptani) it was observed that the said brokers and clients accounted for a large percentage of the total traded volumes in the scrip during the investigation period and majority of the trades were among the said group through synchronized orders. ii. The Investigation Report suggests that the abovementioned group of members and clients aggregately purchases 9329344 shares and sold 9259474 shares which constituted almost 51.73% of the gross volume on the exchange during the period under investigation. Majority of the Adjudication Order in respect of Sunil Kumar Purohit in the matter of K.Sera Sera Production brokers appearing in the list of top ten brokers on gross purchases basis also appear as top brokers in gross sales basis. The details of the concentration among various entities are stated below: Broker Name Client Total Buy Buy Total Sell Sell of of Adlof Pinto company Fincom Ltd Broking Ltd M Upadhyay SPJ Stock Adjudication Order in respect of Sunil Kumar Purohit in the matter of K.Sera Sera Production Brokers Pvt. Services Ltd Broker Name Client Total Buy Buy Total Sell Sell of of Grand Total iii. According to the Investigation Report Noticee dealing through stock broker Vijay Bhagwandas & Co had purchased 6 13 358 shares and sold 6 13 093 which accounted for 3.41% of the total market volume. Noticee dealing through another stock broker Sanchay Fincom Ltd. had purchased 6 91 512 shares and sold 6 91 512 shares constituting almost 3.84% of shares traded during the period under investigation. As a whole through both the stock brokers Noticee purchased 13 04 870 shares and sold 13 04 605 shares constituting around 7.25% and 6.90% of total volume traded during the period under investigation respectively. Within the group Noticee purchased 9 15 808 shares and sold 8 21 002 constituting 5.09% and 4.56% respectively of total volume traded during the period under investigation. It is noted from the Investigation Report that the pattern of circular trading indicates that it was usually among a group of brokers and same numbers of shares were rotated in a circular manner among brokers in the group on daily basis so that the same number of shares go back to the original seller at the end of the day and net position of each brokers remains nil. The Investigation reports alleges that this manipulative trading operation was planned very carefully to avoid any easy detection. Instead of engaging in circular trading on daily basis Noticee traded on a particular time and quantity basis which helped to create artificial volume in the market. Adjudication Order in respect of Sunil Kumar Purohit in the matter of K.Sera Sera Production v. . It is alleged that the above actions were for the purpose of manipulating the price of the scrip and distorting the market equilibrium and amounts to violation of Regulation 4(1) & 4(2(a) and of PFUTP Regulations ” 8. In accordance with the aforesaid order of Hon’ble SAT dated March 7 2016 and the consequent appointment of the undersigned as AO a copy of SCN dated May 14 2008 along with the annexures was forwarded to Noticee vide letter dated July 09 2021 and it was duly served on Noticee. 9. Noticee vide his letter dated July 20 2021 inter alia sought original trade log and order log in the scrip of K. Sera Sera for the investigation period and appointed Mr. Vikas Bengani Advocate as his authorized representative herein after referred to as “AR”) to represent in the matter and sought inspection of documents relied upon in the said matter. The request of Noticee for inspection of documents was acceded to and Noticee carried out the inspection of documents on September 06 2021. During the course of inspection of documents Noticee requested for trade log and order log data relating to the trades of Noticee in the scrip of K. Sera Sera and also provided a copy of order of Hon’ble SAT dated March 23 2010 in the matter of Mr. Adolf Pinto v s. Adjudicating Officer of SEBI v s. SEBI dated June 15 2010 Dhirajbhai V. Sanghvi HUF and Ors. v s. SEBI(SAT Appeal No. 414 of 2018) dated February 19 2020 Adolf Pinto vs. SEBI(SAT Appeal No. 110 of 2009) dated March 23 2010 f. The communication dated July 09 2021 has been issued after an inordinate delay of more than 5 years from the date of passing of the Order dated March 07 2016 by the Hon’ble Tribunal. In the said Order the Hon’ble Tribunal had not given any liberty to SEBI that Adjudication Order in respect of Sunil Kumar Purohit in the matter of K.Sera Sera Production SEBI may issue the Notice of hearing communication after a delay of 5 years. This highly prejudices the case of the Noticee as justice delayed is justice denied. Recently the Hon’ble Supreme Court of India and the Hon’ble Tribunal took a tough stand against inordinate delay and latches in quasi judicial proceedings. To support its contention Noticee has submitted the judgements of Hon’ble Supreme Court in the matter of Adjudicating Officer SEBI v s. Bhavesh Pabari( Civil Appeal no. 11311 of 2013) Hon’ble SAT order in the matter of Mr. Ashok Rupani Ors. V s. SEBI dated August 22 2019 Devendra Suresh Gupta v s. SEBIdated August 14 2020 Rajeev Bhanot & Ors. Vs. SEBI dated July 09 2021 Ashlesj Gunvanbhai Shah V s. SEBI dated January 31 2020 etc. g. Noticee has denied that he had never opened trading accounts with Vijay Bhagwandas & Company and Sanchay Fincom Ltd. In the year 2015 he came to know about passing of several orders against him accordingly he had lodged a Police complaint before Senior Inspector MRA Marg Police Station against the Brokers h. Noticee has quoted the Adjudication Order passed by SEBI in the Adjudication Order IVD ID6 KSera I VB AO DRK ASG EAD 3 318 16 2012 in the matter of M s. Vijay Bhagwandas & Co. dated May 17 2012 and Adjudicating Order dated June 30 2021 passed against him etc. i. Noticee requested to dispose of the SCN without passing any adverse Adjudication Order in respect of Sunil Kumar Purohit in the matter of K.Sera Sera Production CONSIDERATION OF ISSUES AND FINDINGS: 12. I have carefully perused the charges levelled against Noticee filed by Noticee and other documents evidence available on record. The issues that arise for consideration in the present case are: 1) Whether Noticee has violated Regulations 4(1) 4(2) (b) and of 2) Does the violation if any attract monetary penalty under Section 15HA of 3) If the answer to issue no. 2 is in affirmative then what should be the PFUTP Regulations the SEBI Act quantum of monetary penalty which are reproduced as under: PFUTP Regulations 13. Before moving forward it is pertinent to refer to the relevant provision of the PIT Regulations which was in force at the time of impugned transactions 4. Prohibition of manipulative fraudulent and unfair trade practicesWithout 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 practice if it involves: 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 Adjudication Order in respect of Sunil Kumar Purohit in the matter of K.Sera Sera Production g. Entering into a transaction in securities without intention of performing it or without intention of change of ownership of such of PFUTP Regulations ISSUE NO.1 Whether Noticee has violated Regulation 4(1) 4(2)(b) and14. It has been alleged in SCN that few members and their clients including Noticee accounted for a large percentage of the total traded volumes in the scrip and majority of the trades were synchronized in nature. Further it was alleged in SCN that the pattern of circular trading was observed wherein a group of brokers and same number of shares were rotated in a circular manner among brokers in the group on daily basis so that the same number of shares go back to original seller at the end of the day and net position of each brokers remains nil. The manipulative trading operation was planned very carefully to avoid any easy detection. Instead of engaging in circular trading on daily basis Noticee traded on a particular time and quantity basis which helped to create artificial volume in the market. 15. Noticee in his reply has contended that he has not been provided the original trade log and order log which contain the details of the alleged trades by Noticee in the scrip of K. Sera Sera. 16. From the documents available on record I note that in his replies dated July 20 2021 and September 06 2021 Noticee had inter alia sought copies of trade log and order log. I note that the impugned SCN contained annexures viz. Investigation Report Board of directors of K. Sera Sera shareholding pattern as on June 30 2004 & September 30 2004 corporate announcements Price Volume data chart Annexures G H & I which depict circular trading on various dates. However there is no mention of trade log or order log w.r.t Noticee’s trades in the list of Annexures. Adjudication Order in respect of Sunil Kumar Purohit in the matter of K.Sera Sera Production 17. In this context Noticee has referred to the judgement of Hon’ble SAT dated March 23 2010 stating that Hon’ble SAT had already discarded the charts i.e. G H and I enclosed with the SCN in the appeal filed by Mr. Adolf Pinto and others entities. On perusal of the aforesaid order dated March 23 2010 of Hon’ble SAT I note that Hon’ble SAT had dismissed seven appeals i.e. Appeals no.110 to 112 148 217 226 of 2009 and 11 of 2010 in the matter. The aforesaid appeals filed by the entities are as under: Appeal No. 1109 1109 1109 1409 2109 2209 11of 2010 Name of entity Mr. Adolf Pinto Ms. Gillian Pinto Kenneth Pinto M s. Galaxy Broking Ltd. Mr. Kapil Bhuptani M s.Sanchay Fincom Ltd. M s. Vijay Bhagwandas &Co. 18. In this regard I note that original trade log and order log pertaining to Noticee’s transactions in the scrip of K. Sera Sera are not available on record. Therefore efforts were made to obtain the relevant trade log and order log from BSE. BSE vide its email dated October 26 2021 informed that the data prior to year 2006 was not available in their system. I note that while the impugned synchronized trades and circular trades took place in 2004 a copy of the trade and order logs for the relevant period could not be obtained from BSE. 19. While I note that few members and their clients including Noticee have been alleged to have created artificial volume through circular and synchronized trades from the material available on record I find that no details of any connection amongst the entities have been established on record. 20. In his submissions Noticee has further stated that in absence of the trade log and order log he is unable to file legal and cogent submission on merit of the Adjudication Order in respect of Sunil Kumar Purohit in the matter of K.Sera Sera Production case. I find that in absence of trade log and order log it is not possible to comment on the accuracy of the data which forms the basis of the charge of synchronized and circular trades amounting to violations of PFTUP Regulations by Noticee as alleged in the SCN. I also find that in absence of trade log and order log with respect to Noticee’s trades the accuracy of the data as specified in Annexures G H and I of the SCN which depict the circular trading pattern of Noticee cannot be established and therefore the aforesaid Annexures G H and I would not be reliable proof of the charge that the trades executed by Noticee were circular synchronised in nature. 21. In this context it is pertinent to note that Hon’ble SAT while disposing off the aforesaid appeals vide its order dated March 23 2010 held that “It appears to us that the basic data now placed before us is not the trade and order logs and the details given therein have been collected from different sources and collated in the form of charts. The error pointed out by the appellants could have crept in at the time of putting details in the form of charts. Another grievances of the appellants is that they had never been furnished with copies of the trade and order logs from which it could be established whether the trades executed by them were circular in nature.” 22. I note that the aforementioned appeals disposed of by the Hon’ble SAT vide its order dated March 23 2010 pertain to the same investigation carried out by SEBI in the scrip of K. Sera Sera as that in the instant proceeding. I note that the Hon’ble SAT in its aforesaid order dated March 23 2010 while remanding back the matter to the adjudicating officer held that there was an error in the Annexures G H and I of the SCN and the relevant trade log and order log in the matter should be provided to the appellants. 23. Considering the fact that impugned trade log and order log are not available on record I find it difficult to ascertain basic trading details of Noticee like no. of shares traded traded price date of trades order time counterparty order time counter party details etc.as well as the trading pattern of Noticee so as Adjudication Order in respect of Sunil Kumar Purohit in the matter of K.Sera Sera Production to come to a conclusion regarding the creation of artificial volume through circular synchronized trades in the scrip of K. Sera Sera by Noticee as alleged in the SCN. Further I note that in the order of Learned Adjudicating Officer bearing reference number MC ST 2021 22 12406 dated June 30 2021 wherein learned AO has disposed of the matter on the grounds that allegation could not be established due to absence of trade log trade data. 24. Therefore in absence of relevant trade log and order log and considering the error in the data provided in the SCN and also placing reliance on aforesaid judgement dated March 23 2010 of Hon’ble SAT as well the aforesaid Adjudication Order dated June 30 2021 I find that the allegation against Noticee that he has violated Regulations 4(1) 4(2)(b) andof PFUTP Regulations cannot be established. 25. As the alleged violations by the Noticee are not established Issues II and III do not merit consideration. 26. In view of the findings noted in the preceding paragraphs the adjudication initiated against Noticee vide SCN bearing Ref. No. A&E BS ASG 125626 2008 dated May 14 2008 are disposed of. 27. Copy of this Adjudication Order is being sent to Noticee and also to SEBI in terms of Rule 6 of the Adjudication Rules. Place: Mumbai SOMA MAJUMDER Date: February 18 2022 ADJUDICATING OFFICER Adjudication Order in respect of Sunil Kumar Purohit in the matter of K.Sera Sera Production 