BEFORE THE ADJUDICATING OFFICER SECURITIES AND EXCHANGE BOARD OF INDIA [ADJUDICATION ORDER NO. ASK/AO-90/2014-15] 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 Mr. Anil Dave (PAN: AJWPD1843K) In the matter of Investigation into the trading of Mr. Anil Dave BACKGROUND IN BRIEF 1. Securities and Exchange Board of India (SEBI) vide an ad interim order dated December 28, 2011 had, inter alia, prohibited the broker, Grishma Securities P Ltd (GSPL) in the matter of Tijaria Polypipes Ltd (TPL) from buying, selling or dealing in securities in any manner whatsoever till further directions. Mr Anil Dave (Noticee), one of the clients of GSPL, had filed a memorandum of appeal before Securities Appellate Tribunal (SAT) on February 9, 2012 mentioning that pursuant to SEBI order dated December 28, 2011 against GSPL, his shares which was lying in the margin account of GSPL were frozen. Hon'ble SAT vide order dated February 28, 2012 had mentioned that this may be treated as a representation from the noticee to SEBI and SEBI may pass appropriate orders within a period of 4 weeks. In view of the same, the request from noticee was examined and it was observed that the funds transferred to the account of GSPL from noticee's account was partially used Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 1 of 47 October 13, 2014 for settling his obligations and the remaining funds received in his account were transferred to the account of Mr Vimal Patel and Mr Pramod Goenka (other clients of GSPL). Noticee filed another memorandum of appeal before Hon'ble SAT. During the course of hearing, Hon‘ble SAT mentioned that SEBI should initiate investigation against the noticee in view of the above mentioned findings. In view of the same, the matter was taken up for investigation by SEBI. 2. SEBI conducted investigation in the trading of the noticee as a client of GSPL during the period November 12, 2011 to December 28, 2011(hereinafter referred to as ‗Investigation Period‘) to ascertain, inter alia, whether there was any violation of the provisions of Securities and Exchange Board of India (SEBI) Act, 1992 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations 2003 (hereinafter referred to as "PFUTP Regulations"). However, for the purpose of investigation, wherever deemed necessary, reference has been made to outside this investigation period. Investigation revealed that the noticee had indulged in synchronized trades with Mr. Vimal Patel another client of GSPL and also permitted GSPL to use his account as a conduit for diverting funds to other front entities of GSPL. It was, therefore, observed that the noticee has violated section 12A (a), (b) and (c) of SEBI Act, 1992 and provisions of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of PFUTP Regulations, 2003. APPOINTMENT OF ADJUDICATING OFFICER 3. The undersigned was appointed as the Adjudicating Officer vide order dated May 12, 2014 to inquire and adjudge under Section 15HA of the SEBI Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 2 of 47 October 13, 2014 Act 1992, the aforesaid alleged violations of provisions of SEBI Act, 1992 and PFUTP Regulations, 2003 by the noticee. SHOW CAUSE NOTICE, REPLY AND HEARING 4. Show Cause Notice No. EAD-5/ADJ/ASK/AA/OW/13987/2014 dated May 16, 2014 (herein after referred to as ―SCN‖) was issued to the Noticee under rule 4 of SEBI (Procedure for Holding Inquiry and imposing penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‗Rules‘) to show cause as to why an inquiry should not be held against it in terms of rule 4 of the Rules read with section 15I of SEBI Act, 1992 and penalty be not imposed under section 15HA of SEBI Act, 1992 for the violations specified in the SCN. The copies of the documents relied upon in the SCN were provided to the Noticee along with the SCN. It was alleged in the SCN that the noticee had indulged in synchronized trades with Mr. Vimal Patel another client of GSPL and also permitted GSPL to use his account as a conduit for diverting funds to other front entities of GSPL. 5. The Noticee vide letter dated June 03, 2014 sought inspection of all the documents/data relied upon in the present matter but not limited to investigation report and the statements recorded by SEBI in the matter. Vide letter dated June 13, 2014, noticee was informed that the documents relied upon by SEBI and the findings of investigation had already been furnished to the noticee along with the SCN and he was advised to avail the inspection on June 20, 2014. Noticee was also advised to provide a list of the documents which he wanted to inspect. Noticee vide letter dated June 17, 2014 requested for time after July 05, 2014 for inspection of documents as his counsel was not available during the said period. Vide letter dated June 25, 2014, another opportunity of inspection of Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 3 of 47 October 13, 2014 documents was provided to the noticee on July 11, 2014. 6. Mr. Anant Upadhyay, authorized representative of the noticee, inspected the documents on the scheduled date of inspection. After inspection of documents, he requested for the copy of the following documents: i. Complete Investigation Report with annexure ii. Statement of parties referred to in Investigation Report and Show Cause Notice iii. Correspondence of SEBI with connected parties in the matter iv. Any other relevant document 7. Vide letter dated July 14, 2014 noticee was provided with copy of relevant parts of the investigation report along with all the annexures. As regards other documents sought by the noticee, it was informed vide the said letter that that all the documents/correspondence relied upon the SCN had already been provided to the noticee along with the SCN. It was also informed that the request of the noticee for 'any other relevant document', as mentioned at (iv) above, was ambiguous and vague, and hence the same could not be provided. Vide letter dated August 12, 2014, Noticee replied to the SCN stating, inter alia, the following and desired a personal hearing in the matter: i. The noticee is a trader in the securities market and was a client of GSPL since November 12, 2011. Pursuant to investigation initiated by SEBI with respect to the IPO of TPL, SEBI passed an ex-parte ad-interim order dated December 28, 2011 against TPL and various entities. It was alleged that certain retail individual investors and Qualified Institutional Buyer participating in the IPO were provided an exit from their investment, at a premium, by some entities who in turn have incurred huge losses due to their trading in the scrip of TPL on the first day of listing, i.e. October 14, 2011. Noticee was never named in the said Ex parte order nor the confirmatory order dated November 05, 2012 passed by SEBI. Noticee's trading account with GSPL was opened after almost a month from the Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 4 of 47 October 13, 2014 date of the alleged violations seen in the scrip of TPL and that he has never traded in the scrip of TPL. ii. Subsequent to confirmatory order, vide another order dated July 31, 2013 SEBI prohibited GSPL from buying, selling or otherwise dealing in securities, whether directly or indirectly, in its proprietary account for a period of five years. The said order imposed restraints on the stock broking business of GSPL as well, pending conclusion of proceedings under the SEBI (Intermediaries) Regulation, 2008. As a result of the above-mentioned restraints on GSPL, the shares of the noticee held with GSPL were also frozen. The shares were lying with GSPL in its margin account as the shares were transferred to them ahead of the trading which I was intending. iii. As the shares were lying frozen for no doing on my part, I made application dated January 31, 2012 to SEBI, requesting to permit me to sell my shares which are improperly frozen by SEBI. As no response from SEBI was forthcoming, the noticee filed an appeal before the Hon'ble SAT seeking release of his shares held with GSPL. iv. The Hon'ble Tribunal vide its order dated February 28, 2012 directed SEBI to treat the memorandum of appeal filed by the Noticee as a representation made by him. The Hon'ble Tribunal also directed SEBI to consider the representation made by the Noticee and arrive at a decision with respect to the prayer made in the appeal relating to grant of permission to transfer/sell his shares held with GSPL. v. Thereafter, SEBI issued a letter dated March 19, 2012 to the Noticee denying permission to transfer/ sell his shares lying with GSPL as SEBI was of the prima facie view that the Noticee was acting as a front for GSPL. A copy of the SEBI's letter dated March 19, 2012 was also enclosed. vi. On December 28, 2012, January 2, 2013 and January 8, 2013, the Noticee made three applications to SEBI urging SEBI to grant permission to transfer/ sell his shares held with GSPL. On January 11, 2013, SEBI responded to the Noticee's application dated December 28, 2012 whereby SEBI again refused to grant the Noticee permission to transfer/sell his shares held with GSPL. It was against this denial of the Noticee's request that the Noticee was constrained to file another appeal (Appeal No. 24 of Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 5 of 47 October 13, 2014 2013) before the Hon'ble Tribunal. vii. The Hon'ble Tribunal, in its order dated April 12, 2013, while permitting the Noticee to sell the shares held in his account with GSPL and allowing the Noticee to deposit the proceeds with SEBI in an interest bearing account, had also directed that the Noticee may prefer a fresh representation to SEBI for this purpose, which SEBI "shall consider" and "expeditiously convey the modalities to the appellant in this regard." The said order also directed the depositaries to defreeze the shares held by the Noticee and the Noticee and SEBI to complete the modalities of the sale of shares and implement the order of the Hon'ble Tribunal within a date of one month from the date of the order. viii. In furtherance of the above-mentioned order of the Hon'ble Tribunal, the Noticee wrote to SEBI on April 15, 2013, requesting SEBI's permission to allow him to sell his shares through a stock broker of his choice, namely, Emkay Global Financial Services Limited ("Emkay"), with whom he had an existing and active trading and demat account. Further, the Noticee also proposed that immediately upon receipt of the payouts from the sale of his shares, the proceeds so realized would be deposited in an interest bearing account by way of a fixed deposit in a nationalized bank and that the original of such fixed deposit receipt would be deposited by the Noticee with SEBI. Further, to address and allay the concerns of SEBI, to ensure that the entire proceeds of the sale of shares, that were the subject matter of Appeal No. 24 of 2013 before the Hon'ble Tribunal, were kept aside as directed, the Noticee undertook not to enter into any other transaction through the identified broker, Emkay till all such shares were sold. ix. Again on receiving no response from SEBI, the Noticee followed up vide its email dated April 18, 2013, and further by way of several telephone calls. Copies of the Noticee's letters dated April 15, 2013 was also annexed. x. On account of SEBI's unresponsiveness to the multiple applications and requests made by the Noticee and the repeated efforts made by the Noticee to engage with SEBI on the modality and method for sale of shares, the Noticee was again constrained to seek the intervention of the Hon'ble Tribunal. The Noticee filed a Miscellaneous Application (M.A. 41 of 2013) on April 29, 2013. A copy of the letter dated April 29, 2013 Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 6 of 47 October 13, 2014 by the Noticee was annexed. xi. The Hon'ble Tribunal passed on order dated May 7, 2013 and re-iterated that the Noticee is permitted to sell his shares held with GSPL and directed SEBI to defreeze the demat account of the Noticee at the earliest. The parties were directed to complete the modalities to implement the directions within a month from the date of the above-mentioned order. The Noticee craves leave to refer to and rely on the relevant documents annexed to and referred to in Appeal No. 24 of 2013, Appeal No. 31 of 2014 and Miscellaneous Application No. 41 of 2013 as and when necessary and appropriate. However, as seen from the records, SEBI, instead of engaging with the Noticee to complete the modalities of the sale, unilaterally decided the manner in which the sale ought to be made and jeopardized the commercial interest and decision of the Noticee. The matter could not reach any finality and the sale of shares was held up on account of arbitrary conduct of SEBI even as on December 24, 2013. I crave leave to refer to all the necessary records and correspondence in the matter. xii. In the meantime, only with a view to establish that the investigation was ongoing, SEBI issued Summons dated May 31, 2013 to the Noticee in relation to its purported investigations into the IPO of TPL, which investigation was admittedly completed by SEBI around 4 months prior to the issuance of the Notice. SEBI issued summons requesting that the Noticee appear before it on June 14, 2013. Subsequently, by its letter of June 13, 2013, SEBI sought that the Noticee appear before the Investigating Authority on July 15, 2013, which the Noticee complied with an extended his full co-operation towards the investigation by providing SEBI with all the necessary responses and clarifications required. A copy of the correspondence exchanged in this regard being letters of SEBI dated May 31, 2013 and June 13, 2013 and responses by the Noticee dated June 7, 2013 and July 9, 2013 are annexed hereto. xiii. Being aggrieved by the inaction of SEBI to pass appropriate orders, the Noticee yet again approached the Hon'ble Tribunal for the third time in February, 2014. While disposing of the Appeal based on the statements made by the SEBI representative, the Hon'ble Tribunal recorded as under: "It is not in dispute that pending disposal of this appeal respondent has permitted appellant to sell above shares through the broker suggested by appellant and not only through the broker suggested by Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 7 of 47 October 13, 2014 SEBI. Thus, basic grievance of appellant set out in the appeal does not survive. Legal Officer of SEBI who appears in person states that investigation relating to the case of the appellant would be completed within a period of two months from today and show cause notice if deemed fit would be issued within a period of two weeks thereafter and final order thereon would be passed within a period of two months from the date of receiving reply to the show cause notice. Statement made by Legal Officer of respondent is accepted. If is made clear that show cause notice if any is not issued and final order is not passed within the time specified hereinabove respondent shall release the sale proceeds of the shares already sold and also balance shares lying in the demat account of the appellant with his broker, Grishma Securities Private Limited." xiv. Post the aforesaid Order, the Noticee, through his attorney, addressed a detailed representation letter to SEBI dealing with all the issues in controversy and clarifying the matter to SEBI, which was again not responded to by SEBI, let alone entertaining the request of the Noticee to be heard in the matter. Copy of the letter was annexed. Thereafter, the Noticee again vide letter dated May 30, 2014 requested SEBI to inform the Noticee of the status of his request for release his shares held with GSPL. Finally, on May 17, 2014, which was the last date to issue the show cause notice as per the SAT Order, the Notice was received by the Noticee. Allegations contained in the Notice: xv. The central theme of allegation in the Notice which is issued to the Noticee is two-fold, namely, (i) the Noticee has indulged in synchronized trades with Mr. Vimal Patel and other clients of GSPL; and; (ii) the Noticee permitted GSPL to use his account as a conduit for diverting funds to other front entities of GSPL. xvi. In order to substantiate the allegations contained in the Notice, the following observations are recorded against me in the Notice, which are based on the partial and selective information and records available with SEBI: a) Synchronised trades of the Notice with Vimal Patel; and Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 8 of 47 October 13, 2014 b) Trail of funds received in the account of the Noticee 's Axis Bank account and subsequent trades of the Noticee xvii. xviii. The limited nature of the allegations against the Noticee is based on mere conjecture and surmise for the reasons more specifically set out below and none of the records substantiating the allegations were ever provided to the Noticee. Further, the allegations leveled against the Noticee, in relation to transfer of funds, in the present Adjudication Notice stem from the following observations made by SEBI: Sr No. Date Fund Flow Amount (in RS.) 1. November 26, 2011 Global Enterprise — 75,00,000 Noticee GSPL Vimal Patel 2 November 28, 2011 Global Enterprise-Noticee75,00,000 GSPL GSPL (Current Account) 1,00,00,000 GSPL (NSE F&O Account Client Account) —Vimal Patel 3. December 3, 2011 Shalimar Trading and 42,90,000 Shreeji Corporation Noticee 4. December 5, 2011 United Enterprises— 7,10,000 Noticee Noticee - GSPL (NSE 50,00,000 Client Account) — Vimal patel 5. 6. December 7, 2011 December 8, 2011 Global Enterprise — Noticee United Enterprises — Noticee Noticee — GSPL (NSE Client Account) GSPL (NSE Client Account) — Vimal Patel GSPL (NSE Client Account) — GSPL (Current Account) Global Enterprise — 30,00,000 50,00,000 80,00,000 70,00,000 10,00,000 70,00,000 Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 9 of 47 October 13, 2014 7. 8. 9. December 9, 2011 December 10, 2011 December 12, 2011 Noticee - GSPL (NSE Client Account) — GSPL (Current Account) - GSPL (BSE Client Account) — Vimal Patel Global Enterprise — Noticee - GSPL (NSE Client Account) — GSPL (Current Account) GSPL (Current Account) — GSPL (NSE F&O Account) --Vimal Patel GSPL (Current Account) — GSPL (F&O SettlementAccount)-IL&FS Shalimar Trading Co — Noticee — GSPL (BSE Client Account) GSPL (BSE Client Account) — Vimal Patel GSPL (BSE Client Account) - GSPL (Current Account) GSPL (BSE Client Account) — GSPL (NSE Client Account) GSPL (BSE Client Account) — GSPL Intermediaries P Limited Grishma Intermediaries P Limited - Grishma Intermediaries P Limited (Client Account) — Vimal Patel Global Enterprise — Noticee - GSPL (BSE Client Account) - GSPL (BSE Current Account) GSPL (BSE Current Account) - GSPL (NSE F&O Settlement Account)- 70,00,000 39,00,000 34,40,000 39,00,000 10,00,000 38,00,000 6,00,000 24,00,000 23,00,000 30,00,000 38,50,000 Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 10 of 47 October 13, 2014 10. December 17, 2011 11. December 21, 2011 12. December 22, 2011 13. December 27, 2011 14. December 30, 2011 15. January 2, 2012 IL&FS Shalimar Trading Co — Noticee —GSPL (BSE Client Account) GSPL (BSE Client Account) — Grishma Intermediaries P Limited (Current Account) Grishma Intermediaries P Limited (Current Account) GSPL (F&O Settlement Account) — IL&FS Global Enterprise — Noticee Eleven Impex — Noticee Noticee - GSPL (NSE Client Account) - GSPL (Current Account) GSPL (Current Account) — GSPL (NSE F&O Settlement Account) — IL&FS GSPL (NSE F&O Client Account) — Noticee — Vimal Patel — Arti Dave GSPL (NSE Client Account) - Noticee GSPL (BSE Client Account) - Noticee Noticee — Muskan Trading Co Noticee — Shalimar Trading Co GSPL (NSE Client Account) - Noticee GSPL (NSE Client Account) - Noticee Noticee — Arti Dave— Mihir Ghelani 25,00,000 25,50,000 90,00,000 5,00,000 and 14,89,247 5,10,753 5,00,000, 14,89,247 and 5,10,753 35,00,000 18,50,000 1,12,75,000 87,25,000 1,00,00,000 1,00,00,000 19,20,000 1,65,84,733 18,50,000 Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 11 of 47 October 13, 2014 xix. Before dealing with the allegations contained in the Notice, it is apt to record that the substratum of the entire Notice proceeds on the basis of certain fund flow and financial dealings between the Noticee and some third parties. While the Noticee does not dispute the averments contained in the Notice in so far as it relates and limits to the exact transactions, the Noticee most respectfully submits that any adverse inference or any remarks contrary to the facts on record deserves to be dismissed. The Noticee states that the role of the regulator cannot be limited to referring to some financial dealings and thereafter record incorrect findings without looking into or analyzing the matter or such transactions in detail. It is admitted fact that neither the Noticee was asked about such fund flow nor was the Noticee ever made aware that it was such fund flow which weighed with SEBI to draw such an incorrect conclusion of fraudulent and unfair trade practice by the Noticee. As explained in detail in this response, all the fund transfers mentioned in the Notice was on account of regular business and commercial transactions and accounted for appropriately by the Noticee and such third parties. xx. Further, the learned Adjudicating Officer ought to consider that the Noticee had borrowed huge funds by way of loans from three entities with a view to trade in securities. The money lenders who had lent funds have decided to initiate civil and criminal proceedings against the Noticee on account of non-payment of dues by the Noticees. Copies of one of the default notices was annexed. xxi. I sincerely request the learned authority to consider all the submissions in perspective and thereafter consider whether at all any regulatory intervention is required in the matter. The learned AO is therefore requested to note all the background facts and not just refer to the selective and irrelevant observations recorded by SEBI in the matter. Submissions Failure to establish ingredients of synchronised trades xxii. It is most respectfully submitted that, with respect to the allegation of synchronized trading it is a well-established position of law that the ingredients for synchronized trade need to be present and proven. One such ingredient is the presence of a relationship between the parties. In the present case, no relationship was established between the Noticee and Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 12 of 47 October 13, 2014 Vimal Patel in the Adjudication Notice. The same has been held by the Hon'ble Tribunal in the matter of SMC Global Securities Limited v. the Adjudicating Officer, SEBI. Further, nothing amiss in the conduct of the Noticee and Vimal Patel has been recorded in the Adjudication Notice that led SEBI to believe that they were indulging in manipulation by way of synchronized trading other than the timing and quantity of the trades which can also be attributable to mere con-incidence. xxiii. Further, it is humbly submitted that the Adjudication Notice fails to establish any ingredients of fraud or any collusion between the Noticee and Vimal Patel, which is a sine qua non before recording any finding of manipulation or fraudulent activity. This is a settled position and has always been the position of SEBI as is evident from the reading of the following extract from the order passed in FMS Securities Limited passed by the Whole Time Member, SEBI. ‗ in my view, the charge of manipulative synchronized trading by the noticee would pre-suppose prior understanding between it and other trading parties, which is not established on the basis of even preponderance of probability in the facts and circumstances of this case. ' xxiv. Admittedly, in the present case, no such prior understanding between the parties has been set forth in the Adjudication Notice. Therefore it is humbly submitted that, the allegations in the Adjudication notice are based on mere surmise and conjecture without any application of mind. xxv. Further, it is an admitted position that synchronized trades per se are not illegal. It is only when synchronized trades are executed with a view to manipulate the price of the scrip that the provisions of the FUTP Regulations are attracted. In light of the above, it is respectfully submitted that no intention to manipulate the market or even create any artificial volume has been established in the Adjudication Notice. It is further submitted that the Noticee had placed the orders in the subject scrips in good faith and acting on his own business judgment and was unaware of any corresponding trades, if any placed by Vimal Patel and Swift Tie Up Pvt. Limited. Funds Transferred in the normal course of business xxvi. It is submitted that SEBI's observation as to the funds received from entities such as Global Enteiprises, United Enterprises, Shalimar Traders, Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 13 of 47 October 13, 2014 Eleven Impex etc. cannot lead to a conclusion of wrong doing as these funds were availed of by the Noticee by way of a friendly loan for making investments in the securities market through GSPL. xxvii. Additionally, the Noticee submits that while he has made payments to GSPL against his pay-in obligations and towards an advance or margin for future trades, the Noticee is unaware of any onward or subsequent transfer of such funds by GSPL to any other entity or individual. The Noticee, it is submitted, cannot be held responsible for the subsequent actions of GSPL as the Noticee neither has control nor any knowledge of the same. xxviii. It is submitted that no adverse inference can be drawn from the fact that he was merely a client of GSPL. It is an admitted fact, that the Noticee was registered as a client of GSPL in November 2011, which is almost a month later to the alleged violations that took place in the matter of IPO of TPL. Thus the allegations as to the Noticee acting as a front for GSPL in the allegedly fraudulent trades in the IPO of TPL are untenable. xxix. Further, the insinuation that Noticee opened a bank account with Axis Bank, Lamington Road Branch on November 5, 2011, shortly before registering as a client of GSPL as GSPL also had their account with the same bank so as to ensure that there is a smooth and timely flow of funds is untenable and baseless. It is absurd to suggest that merely because a client has a bank account in the same bank branch as that of his broker, the client ipso facto becomes a "front" of the broker. xxx. It is important to note that any client normally prefers to operate and use such banks which are usually operated by the broker to ensure that there would not be any delay while clearance of the cheque nor delay in transfer of funds. Restraints unsustainable as no action taken against the Noticee xxxi. It is respectfully submitted that, SEBI has effectively penalized the Noticee by imposing restrictions on the shares of the Noticee which are lying in the margin account of GSPL without there being any wrong doing on the part of the Noticee. It is also submitted that SEBI's allegation against the Noticee made in its letter of March 19, 2012 is the sole basis of sustaining the restraints on the sale of shares held by the Noticee in its Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 14 of 47 October 13, 2014 account with GSPL. The present adjudication proceedings is yet another effort by SEBI to cover up the arbitrary decision already passed in the matter way back in 2012 when the Noticee had initially applied to SEBI for release of his shares which were frozen by SEBI. Monies transferred to Ms. Arti Dave as Short Term Loan xxxii. SEBI has alleged that the pay out of Rs. 1.65 crore and Rs. 19.2 lakh which was received by the Noticee on January 2, 2012 was transferred immediately to the account of Ms. Arti Dave, and subsequently to Mr. Mihir Ghelani on the very same day. It is submitted that the fund transfer to Ms. Arti Dave was by way of a short term loan advanced by the Noticee. xxxiii. The Noticee had borrowed huge funds from third parties with a view to invest in shares and stocks. Between the date of the receipt of funds from the third parties and the exact utilization of such funds for purchase of securities, the funds lying idle in the account of the Noticee were transferred to Ms. Ara Dave as short term loan. This was transferred only on account of having acquaintance with Ms. Arti Dave and there cannot be any other observations in this regard. xxxiv. In light of all our submission made above, we respectfully submit that we are fully and formally compliant with the letter and spirit behind the provisions of Section l2A (a), (b) and (c) of the SEBI Act read with Regulations 3(a), (b), (c), (d) and 4(1) and 4(2)(a) of the PFUTP Regulations. We categorically and emphatically submit that there has been no lapse by us warranting the issue of the Adjudication Notice against us or any regulatory intervention of any nature whatsoever against us. xxxv. We respectfully submit that the Noticee is not in contravention of the provisions of the SEBI Act or the rules or the regulations made thereunder. As it is abundantly clear from our submissions made above that the Noticee has acted as required under the relevant rules regulations. The Noticee has not adopted any scheme or implemented any device or engaged in any sort of practice to defraud investors. xxxvi. The allegation of routing of funds and acting a front of GSPL in trading in the scrip of TPL on the first day of listing to provide an exit to certain Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 15 of 47 October 13, 2014 QIBs/retail individual investors at a premium to the Issue price is without merit as the payments received by the Noticee were by way of a loan. The Noticee employed these funds towards pay-in obligations and margin requirements for trading through GSPL. The Noticee is unaware and uninvolved in any onward fund flow. Therefore, it is abundantly clear from our submissions above that there were no mala fide intentions in our actions. Conclusion xxxvii. 8. I request the Adjudicating Officer to appreciate the submissions made herein and grant me an early opportunity of personal hearing in the matter to explain the matter in perspective and to provide necessary clarifications if required. Needless to say, I would be more than willing to provide all necessary assistance in this regard. In the interest of natural justice and in order to conduct an inquiry in terms of rule 4(3) of the Rules, the Noticee was granted an opportunity of personal hearing on August 26, 2014 at SEBI, Head Office, Mumbai, vide notice dated August 14, 2014. On the date of hearing, Shri Anant Upadhyay, Advocate, appeared as Authorised representative (AR) on behalf of the noticee. AR submitted that the noticee has filed a consent application in the matter and requested AO to defer the hearing Proceedings till the outcome of the consent application. AO referring to the order dated March 03, 2014 of Hon'ble SAT in M.A no 28/2004 and Appeal no. 30 of 2014 brought to the attention of the AR that the instant proceedings has to be disposed of within the time limits indicated therein. Thereafter, AR requested AO to grant a short adjournment since the counsel who is to appear for the Noticee is unavailable. Accordingly, the matter was adjourned to September 05, 2014. 9. On the scheduled date of hearing, Mr. Anant Upadhyay and Mr. Ajay Fernandes, Advocate, appeared as Authorised Representatives (ARs) on behalf Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 16 of 47 October 13, 2014 of the noticee. ARs submitted that the investigation against the noticee has been initiated pursuant to another investigation by SEBI in the matter of IPO of TPL wherein nothing has been found as against the noticee and requested for a copy of the Investigation Report in the matter of TPL to enable them to file additional written submissions. AO informed that all the documents relied upon has already been made available to the noticee, however, the request for copy of Investigation report in the matter of TPL would be considered on merit. In this regard, the contents of para 11 and 12 of Investigation Report in the matter of Anil Dave (a copy of which had already been made available to the noticee) was brought to the notice of ARs that GSPL had used funds/securities of other clients including Vimal Patel to meet the margin obligations arising out of the huge loss incurred by Jivraj Zala due to trading in the scrip of TPL. To which, ARs replied that the noticee opened trading account with Grishma Securities almost after a month from the date of the alleged violations seen in the scrip of TPL and that they would file additional written submission in the matter within a week's time from the date of AO's response to their request for a copy of the Investigation Report in the matter of TPL. The ARs also requested that an opportunity of personal hearing be granted post filing of the additional written submissions and assured to avail the hearing opportunity at short notice so that the matter can be disposed by AO within the timeline specified by Hon'ble SAT. 10. Vide letter cum notice dated September 10, 2014, noticee was informed that the instant proceedings against him had been initiated through a separate investigation and vide letter dated July 14, 2014 copy of relevant parts of the investigation report along with all the annexures as sought by the noticee during the inspection of documents on July 11, 2014 has already been provided to him Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 17 of 47 October 13, 2014 and therefore, his request for copy Investigation Report in the matter of IPO of TPL cannot be acceded to. Vide the said notice, as requested by the noticee, another opportunity of hearing was given to him on September 18, 2014. On the date of hearing, Shri Anant Upadhyay, Advocate, appeared as Authorised representative (AR) on behalf of the noticee and reiterated the submissions made vide letter dater dated August 12, 2014 and again requested for a copy of the Investigation Report in the matter of TPL.The undersigned brought to the notice of AR the contents of letter dated September 10, 2014, whereby such request of noticee was not acceded to. AR requested for one week's time for additional written submission in the matter and noticee was granted one week's time to do the needful. However, no additional written submissions from the noticee were received by the undersigned till date. As the instant proceedings has to be disposed of within the time limits indicated in the orders dated March 03, 2014 of Hon'ble SAT in M.A no 28/2004 and Appeal no. 30 of 2014 as well as in Appeal no. 210 of 2014 dated August 27, 2014 (copy of which was received on September 17, 2014), I am proceeding with the inquiry taking into account the material available on record. I also note that though noticee has submitted that it has filed a consent application in the matter, it has been informed to me by the concerned department of SEBI that the said application has been withdrawn by the noticee vide his letter dated September 25, 2014 and the application has been returned to the noticee on October 7, 2014. CONSIDERATION OF ISSUES AND FINDINGS 11. The issues that arise for consideration in the present case are : a) Whether noticee had indulged in synchronized trades with Mr. Vimal Patel another client of GSPL? Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 18 of 47 October 13, 2014 b) Whether noticee permitted GSPL to use his account as a conduit for diverting funds to other front entities of GSPL? c) Whether the Noticee had violated the provisions of section 12A (a), (b) and (c) of SEBI Act, 1992 and provisions of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of PFUTP Regulations? d) Does the violation, if any, on the part of the Noticee attract monetary penalty under Section 15 HA of SEBI Act? e) If so, what would be the monetary penalty that can be imposed taking into consideration the factors mentioned in Section 15J of SEBI Act? 12. Before moving forward, it is pertinent to refer to the provisions of section 12A (a), (b) and (c) of SEBI Act, 1992 and regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of PFUTP Regulations. The said provisions state as under: SEBI Act, 1992 "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 recognised 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;" PFUTP Regulations Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 19 of 47 October 13, 2014 "3. Prohibition of certain dealings in securities No person shall directly or indirectly— (a) buy, sell or otherwise deal in securities in a fraudulent manner; (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; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under. 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;" 13. I have taken into consideration the facts and circumstances of the case, the material made available on record and also the background facts of the case as requested by the noticee. Before proceeding on merits in the case, I would like to refer to the submission made by the noticee in its reply dated August 12, 2014 that he has not been provided with full set of documents and records relied upon by SEBI in issuing Notice. On perusal of the material on record, I find that that due inspection of documents relied upon in SCN was provided to the noticee and also copies of all the relied upon documents were provided to the noticee. Issue I. Synchronized trades with Mr. Vimal Patel Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 20 of 47 October 13, 2014 14. It was observed during the Investigation that some of the buy trades of the Noticee were synchronized (i.e. where the buy and sell order quantity and rate were identical and orders for these transactions were placed within time gap of one minute ) with the sell trades of Mr Vimal Patel. GSPL was the broker both on the buy and sell side. Summary of such trades is provided as below: Buy Order Last Modif ied Qty Buy Order Last Modifi ed Time Sell Order Last Modif ied Price Sell Order Last Modifi ed Qty Sell Order Last Modifie d Time Trade Value Time Differe nce Day's Market Volum e % Of Traded Qty To Day's Market Volume Trade Date Exch ange Scrip Name Buy Order Last Modifie d Price 16/11/2011 BSE Sujana Metal 6.67 2000 14:54:33 6.67 2000 14:54:34 13340 0:00:01 286060 0.7 755 500 14:53:05 755 500 14:53:05 377500 0:00:00 1980 25.25 64.7 2000 14:55:14 64.7 2000 14:55:15 129400 0:00:01 179561 1.11 28.7 2000 14:53:50 28.7 2000 14:53:50 57400 0:00:00 203684 0.98 104.9 500 14:52:01 104.9 500 14:52:01 52450 0:00:00 98215 0.51 397.25 5000 14:56:01 397.25 5000 14:56:01 1986250 0:00:00 29045 17.21 397.25 915 14:56:44 397.25 915 14:56:45 363483.8 0:00:01 29045 3.15 113.75 10000 14:52:32 113.75 10000 14:52:31 1137500 0:00:01 129262 7.74 38.5 15994 14:51:00 38.5 15994 14:50:55 615769 0:00:05 16889 94.7 1.94 988 13:33:52 1.94 988 13:34:00 1916.72 0:00:08 162759 0.61 31.2 14984 14:06:37 31.2 14984 14:06:16 467500.8 0:00:21 15000 99.89 39 4997 02:46:39 39 4997 02:46:34 194883 0:00:05 8487 58.87 20.75 2000 02:59:16 20.75 2000 02:59:20 41500 0:00:04 95133 2.1 16/11/2011 BSE 16/11/2011 BSE 16/11/2011 BSE 16/11/2011 BSE 16/11/2011 BSE 16/11/2011 BSE 16/11/2011 BSE 16/11/2011 BSE 8/12/2011 BSE 12/12/2011 BSE 16/11/2011 NSE 16/11/2011 NSE 15. Monsanto India Ltd TVS Motor Company Ltd Subex Ltd GOL Offshore Ltd Advanta Limited Advanta Limited Hathway Cable Datacom Ltd Future Market Networks Ltd(Formerly known as Agre Developers Ltd) Nextgen Animation Mediaa Ltd Newinfra Future Market Networks Ltd(Formerly known as Agre Developers Ltd) Madras Fertilizers Ltd Investigation further revealed that there were synchronized trades for a total value of over ` 54 lakh between the Noticee and Mr. Vimal Patel. In BSE, Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 21 of 47 October 13, 2014 the synchronized trades in the scrip of Agre Developers (now known as Future Media Networks Ltd.) Advanta Ltd, Monsanto India Ltd and Hathway accounted for around 94.7%, 20.36%, 25.25%, 20% and 7.74% of the day's market volume respectively. In NSE, the synchronized trades in the scrip of Agre Developers (now known as Future Media Networks Ltd) accounted for around 55.87% of the day's market volume. Therefore, it was observed that the synchronized trades between the Noticee and Mr. Vimal Patel executed through GSPL created artificial volumes. Investigation further revealed that the bank account of the Noticee shows that there is transfer of funds to the account of Mr Vimal Patel. 16. I note that the noticee has not disputed the trades referred to in the above table, however, he has contended that with respect to the allegation of synchronized trading it is a well-established position of law that the ingredients for synchronized trade need to be present and proven and one such ingredient is the presence of a relationship between the parties. It was contended that: i. no relationship was established between the Noticee and Vimal Patel in the Adjudication Notice ii. nothing amiss in the conduct of the Noticee and Vimal Patel has been recorded in the Adjudication Notice that led SEBI to believe that they were indulging in manipulation by way of synchronized trading other than the timing and quantity of the trades which can also be attributable to mere co-incidence iii. the Notice fails to establish any ingredients of fraud or any collusion between the Noticee and Vimal Patel which is a sine qua non before recording any finding of manipulation or fraudulent activity iv. it is an admitted position that synchronized trades per se are not illegal Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 22 of 47 October 13, 2014 and it is only when synchronized trades are executed with a view to manipulate the price of the scrip that the provisions of the FUTP Regulations are attracted. 17. At this juncture, I would like to quote the order dated 16.01.2012 of the Hon‘ble Securities Appellate Tribunal (SAT) in Sparkline Mercantile Co. Pvt. Ltd. Vs SEBI wherein it was held as follows:―..It is an admitted position that it is difficult to get direct evidence with regard to synchronization of trades for the purpose of upsetting the market equilibrium or to manipulate the market. It is only on the basis of circumstantial evidence that such a connection can be proved… ..A large number of trades were executed among the group entities within a minute of placing the order. This cannot happen without prior meeting of minds among the connected entities. From the details of the trades executed and having regard to the trading system, we do not think that such large number of trades could match between the same parties unless the trading system was being abused..‖ 18. Keeping in mind the dicta of the SAT as reproduced above, in the instant case I note that in all the instances of synchronized trades GSPL is the broker both on buy and sell side. It has also been brought out in the SCN that the bank account of the noticee showed the transfer of funds of ` 18,50,000/from noticee to Vimal Patel on December 27, 2011. It has further been brought out in the SCN that in most of the times, the amounts transferred by the noticee were routed to Mr Vimal Patel (approximately `4.34 crore). In view of the same, noticee cannot claim that there is no relationship between him and Mr. Vimal Patel. Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 23 of 47 October 13, 2014 19. I find that on November 16, 2011, there were 11 instances of synchronized trades in 9 scrips for an approximate value of ` 50 lakh between noticee and Vimal Patel. The price of the security punched into the system both by the noticee and Mr. Vimal Patel was the same, the quantity of the shares to be sold was also the same and the time at which the two orders were punched in is almost the same. In a screen based trading system that is followed in the stock exchanges, it is not possible that such large number of trades could match without the two clients executing a pre- decided plan. Further, I am of the view that a number of synchronization of trades that too in as many as 9 scrips and on a single day cannot be treated as mere coincidence or without knowledge and are only possible if the trades are put in the system with prior understanding. 20. While examining the issue of synchronized trades, the Hon‘ble SAT vide order dated October 31, 2003 in Appeal nos. 54 to 57 of 2002 in the case of Nirmal Bang Securities (P) Ltd. v. SEBI observed that ―Synchronized trading is violative of all prudential and transparent norms of trading in securities. Synchronized trading on a large scale can create false volumes… There are many transactions giving an impression that these were all synchronized, otherwise there was no possibility of such perfect matching of quantity price etc.…. In a synchronized trading intention is implicit.‖ In the instant case, the intention of the parties to execute such synchronized transactions could be inferred from the above attending circumstances especially execution of several synchronized transactions that too in various scrips in a single day. Further the Hon‘ble SAT vide order dated June 12, 2008 in Appeal No. 175/2007 in the matter of Chirag Pujara v. Whole Time Member, SEBI observed that ".......executing matching trades with a prior understanding Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 24 of 47 October 13, 2014 is by itself a serious violation of the Regulations which jeopardizes the integrity of the market..." 21. Here, I would like to also quote the order dated 04.05.2007 of the Hon‘ble SAT in Triumph International Finance India Limited v. SEBI in Appeal No. 35/2002 wherein it observed that ".........A unique feature of the stock exchange is the anonymity of the buyer and the seller. Unlike other moveable properties, shares are normally bought and sold buy the unknowns who never get to meet. They execute the trades through their brokers and the shares are traded at a price determined by the exchange mechanism based on the demand and supply. It must not be forgotten that every trade establishes the price of the scrip and when the two brokers punch in the buy and sell orders simultaneously at a predetermined price which they fix and match the trades on the screen of the system they are obviously interfering with the fair price discovery process of the exchange and this would amount to manipulation and benchmarking the price. Such trades are prohibited by the unfair trade practices regulations framed by the Board......." 22. I further find that the synchronized trade of the noticee at BSE in the scrip of Future Media Networks Ltd., Advanta Ltd, Monsanto India Ltd and Hathway accounted for around 94.7%, 20.36%, 25.25%, 20% and 7.74% of the day's market volume respectively and at NSE in the scrip of Future Media Networks Ltd accounted for around 55.87% of the day's market volume and thus resulted into creation of artificial volumes in the respective scrips. 23. Noticee in its reply has referred to the order passed in FMS Securities Limited passed by the Whole Time Member, SEBI wherein it was, inter alia, Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 25 of 47 October 13, 2014 observed that ..."the charge of manipulative synchronized trading by the noticee would pre-suppose prior understanding between it and other trading parties..." In the instant case, it is clearly established that the noticee indulged in synchronized trades with Vimal Patel in various scrips with a prior understanding as has been explained in the preceding paragraphs. Issue II - Noticee permitted GSPL to use his account as a conduit for diverting funds to other front entities of GSPL 24. I note that it was observed during the investigation that the trading account of the Noticee with GSPL was opened on November 12, 2011 and he was a walk in client of GSPL and the value of the total buy of the shares bought by the noticee on BSE and NSE was ` 1,74,84,981.36 and total value of the sale on BSE and NSE was ` 69,11,988.6. The total value of trades (buy side and sell side) of the noticee through GSPL is shown in the table below: Date Buy Value NSE (in `) 236500 1548000 Sell Value NSE (in `) Buy Value BSE (in `) Sell Value BSE (in `) 0 November 16, 2011 0 4767092.75 0 0 December 2, 2011 0 0 December 5, 2011 9374955.94 0 0 0 December 7, 2011 1547062 0 December 8, 2011 0 1916.72 1093926.6 0 0 December 12, 2011 468000 0 0 0 December 13, 2011 2750000 0 0 December 14, 2011 66079 29049 0 0 December 15, 2011 168424 59835.15 0 0 December 16, 2011 177953 8655 0 December 19, 2011 68190 15316 1021000 0 December 20, 2011 35768 23970 0 0 December 21, 2011 29358 51030.8 500000 0 0 December 22, 2011 95284 23580 0 0 December 23, 2011 35640 576 0 0 December 26, 2011 34109 11375 0 0 December 27, 2011 57998 34161 0 0 December 28, 2011 14150 48015 Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 26 of 47 October 13, 2014 TOTAL 2567453 25. 1547062 14917528.36 5364926.6 Investigation further revealed that the gross total Income of the noticee as per the ITR are as follows: Assessment Year 2012-13 2013-14 Gross Total Income(`) 4680 779 As the noticee's income tax returns did not indicate his risk taking capacity, the bank accounts of the noticee were trailed to ascertain the source/end use of the funds. The bank account of the noticee with Axis Bank, Lamington Road Branch was opened on November 15, 2011 and ` 5200 was deposited by cash. Trail of funds received in the account of the noticee's Axis bank account and trades of noticee: The trail of funds of the noticee‘s Axis Bank, Lamington Road Account for the period from November 1, 2011 to January, 2012 is shown below separately for each transfer. i) On November 18, 2011, there was a deposit of ` 1 crore in the noticee's account from the account of United Enterprises. The balance in the account of the noticee on the said date was ` 1,00,05,200 On November 21, 2011, the said amount was transferred to various accounts of GSPL in 4 tranches of ` 25 lakh as mentioned below: - ` 50 lakh was transferred to the account of GSPL (NSE F&O Client Account). - ` 25 lakh was transferred to the account of GSPL (BSE Client Account). From this account it was further transferred to the account of Grishma Securities P Ltd(Current Account). Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 27 of 47 October 13, 2014 - ` 25 lakh was transferred to the account of GSPL(NSE Client Account). Investigation further revealed that the amounts transferred to GSPL NSE F&O Account (` 50 lakh) and GSPL -BSE Client Account(`25 lakh) were further transferred to the account of GSPL (Current Account). Further from GSPL (Current Account), ` 25 lakh was transferred to GSPL - NSE Client Account. On the same day, ` 49,06,999.24 (` 25 lakh received from current Account and ` 25 lakh transferred by the noticee) was transferred to Pramod Goenka (another client of GSPL). The balance in the account of the Noticee on November 21, 2011 was ` 5200. UNITED ENTERPRISES 18/11/2011(Rs 1 crore) ANIL DAVE(Rs 1 crore) GSPL NSE F&O A/c Rs 50 Lakh 21/11/11 GSPL BSE Client A/c 21/11/11 Rs 25 lakh GSPL Current A/c 004010200394277 Rs 75 lakh GSPL NSE Client A/c Rs 25 Lakh + Rs 25 lakh from GSPL current A/c -- 21/11/11 Pramod Krishna Goenka Rs 4906999.24 Investigation further revealed that on November 16, 2011, Noticee had purchased shares worth ` 47,67,092.75 in BSE and ` 2,36,500 in NSE. Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 28 of 47 October 13, 2014 He had not traded in the F & O segment though it was observed that there was a transfer of ` 50 lakh from his account to GSPL NSE F&O Account. ii) On November 26, 2011, there was a transfer of `75,00,000/- in the account of the Noticee from Global Enterprise. Investigation revealed that on the same day, it was transferred to the account of GSPL (BSE Client Account) and further routed to the account of Mr Vimal Patel (another client of GSPL). The final balance in the account of the noticee as on November 26, 2011 remained ` 5200. It was observed that though there was financial transactions between noticee and GSPL, the noticee had not traded in BSE and NSE during the period from November 17, 2011 to December 4, 2011. Global Enterprises 75 lakh 26/11/2011 Anil Dave 75 lakh 26/11/11 GSPL BSE Client A/C 75 lakh 26/11/2011 Vimal Patel 75 lakh 26/11/2011 iii)On November 28, 2011, again there was a transfer of `75,00,000/- in the account of the Noticee from Global Enterprise and on the same day, the entire amount was transferred to the account of GSPL(BSE Client Account). Investigation revealed that the entire amount was further transferred to GSPL(Current Account). Further, ` 1 crore (the amount of ` 75 lakh along with other funds of GSPL) was transferred from GSPL (Current Account) to GSPL NSE F&O Account Client Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 29 of 47 October 13, 2014 A/c on the same day. From GSPL NSE F&O Account Client A/c, ` 1 crore was transferred to the account of Mr Vimal Patel. The final balance in the account of the noticee as on November 28, 2011 remained ` 5200. It was observed that though there was financial transactions between noticee and GSPL, the noticee had not traded in BSE and NSE during the period from November 17, 2011 to December 4, 2011. Global Enterprises Rs 75 lakh 28/11/2011 Anil Dave Rs 75 lakh 28/11/2011 GSPL BSE Client Account A/C 75 lakh 28/11/2011 GSPL Current A/C 75 lakh 28/11/2011 GSPL NSE F& O Account Client A/c Received Rs 1 crore Vimal Patel Rs 1 crore 28/11/2011 iv) On December 3, 2011, ` 42,90,000 was transferred to the account of the noticee from the bank account of Shalimar Trading and Shreeji Corporation. On December 5, 2011, there was a transfer of ` 7,10,000 in the account of the noticee from the bank account of United Enterprises. On December 5, 2011, ` 50,00,000 was transferred from the account of the noticee to the account of GSPL(NSE Client Account). Investigation revealed that on the same day, the entire amount of ` 50 lakh was transferred to the account of Vimal Patel. The final balance in the account of the noticee as on December 5, 2011 was Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 30 of 47 October 13, 2014 ` 5200. It was observed that though there was financial transactions between noticee and GSPL, the noticee had not traded in BSE and NSE during the period from November 17, 2011 to December 4, 2011. Shalimar Trading Co 34,20,000 3/12/11 United Enterprises 7,10,000 5/12/11 Shreeji Corporation 8,70,000 3/12/2011 Anil Dave 50 lakh 5/12/11 GSPL NSE Client A/C No 50 lakh 5/12/11 Vimal Patel 50 lakh v) On December 7, 2011, there was a transfer of `30,00,000 and `50,00,000 in the account of the Noticee from Global Enterprise and United Enterprises respectively. On the same day, the entire amount was transferred to GSPL(BSE Client Account). Investigation revealed that on the same day, ` 70,00,000 was transferred to the account of Vimal Patel and on December 8, 2011 `10,00,000 was transferred to GSPL(Current Account). The final balance in the account of the noticee as on December 7, 2011 was ` 5200. It was observed that on December 5, 2011, the noticee had purchased shares worth ` 93,74,955.94 in BSE and on December 7, 2011, he had sold shares worth ` 15,47,062 in NSE. Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 31 of 47 October 13, 2014 Global Enterprises 30 lakh 07/12/12 United Enterprises 50 lakh 07/12/12 Anil Dave 80 lakh GSPL BSE Client A/C 80 lakh GSPL Current Account Rs 10 lakh 70 lakh Vimal Patel 7/12/12 vi) On December 8, 2011, Global Enterprises transferred ` 70,00,000 to the account of the Noticee and on the same day, the entire amount was transferred to GSPL(NSE Client Account). Investigation revealed that on the same day, the entire amount was further transferred to the account of GSPL(Current Account). Again, on the same day, the entire amount was further transferred to the account of GSPL(BSE Client Account). This entire amount was transferred to the account of Mr Vimal Patel. The final balance in the account of the noticee as on December 9, 2011 remained ` 5200. It was observed that on December 8, 2011, that noticee had purchased shares for `1916.72 and sold shares for ` 10,93,926.6 in BSE. Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 32 of 47 October 13, 2014 Global Enterprises 70 lakh 8/12/11 GSPL NSE Client A/C 70 lakh 08/12/11 GSPL BSE Client A/C 70 lakh 08/12/11 vii) Anil Dave 70 lakh 8/12/11 GSPL Current A/C 70 lakh 08/12/11 Vimal Patel 70 lakh 08/12/11 On December 9, 2011, Global Enterprise transferred ` 70,00,000 to the account of the noticee and on the same day, the entire amount was transferred to GSPL (NSE Client Account). Investigation revealed that on the same day, the entire amount was further transferred to the account of GSPL (Current Account). Again, on the same day, `39,00,000 was transferred to the account of GSPL (NSE F & O Account) which was further transferred to the account of Mr Vimal Patel and `34,40,000 was transferred to GSPL NSE (F&O Settlement Account Account) which was further transferred to IL & FS for settlement. The final balance in the account of the noticee as on December 9, 2011 remained ` 5200. It was observed that the noticee had not purchased shares in BSE and NSE from December 9, 2011 to December 12, 2011 nor did he trade in the F & O Segment during this period. Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 33 of 47 October 13, 2014 Global Enterprises 70 lakh 9/12/12 Anil Dave 70 lakh 9/12/12 GSPL NSE Client A/C No 70 lakh 09/12/11 GSPL Current A/C 70 lakh 09/12/11 GSPL NSE F&O A/C 004010200394253 Rec‘d 39 lakh GSPL NSE F& O Settlement A/ C Rec‘d Rs 34,40,000 Vimal Patel Received Rs 39,24,455 IL & FS(for settlement) Rs 34,67,496 viii) On December 10, 2011, Shalimar Trading Co transferred `39,00,000 to the account the noticee and on the same day, the entire amount was transferred to the account of GSPL(BSE Client Account). Investigation revealed that on the same day from the GSPL(BSE Client Account), `1,00,000 was transferred to the account of Vimal Patel and `38,00,000 was transferred to the account of GSPL(Current Account). Of the `38,00,000 transferred to the account of GSPL(Current Account), `6,00,000 was transferred to the account of GSPL (NSE Client Account) and `24,00,000 was transferred to the account of Grishma Intermediaries P Ltd. Of the `24,00,000 transferred to the account of Grishma Intermediaries P Ltd, `23,00,000 was transferred Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 34 of 47 October 13, 2014 to the account of Grishma Intermediaries P Ltd(Client Account). This amount (`23 lakh) was transferred to Vimal Patel, on December 10, 2011. The final balance in the account of the noticee as on December 10, 2011 remained `5200. It was observed that the noticee had not purchased shares in BSE and NSE from December 9, 2011 to December 12, 2011. Shalimar Trading Rs 39 lakh 10/12/11 Anil Dave Rs 39 Lakh 10/12/11 Vimal Patel Received Rs 1 lakh GSPL Current A/C Rs 38 lakh GSPL NSE Client A/C No Received Rs 6 lakh Vimal Patel Rs 6 lakh GSPL BSE Client A/C No 004010200394284 Rs 39 lakh Grishma Intermediaries P Ltd (GIPL) Received Rs 24 lakh GIPL Client A/C Rs 23 lakh Vimal Patel Rs 23 lakh ix) On December 12, 2011, Global Enterprises transferred `30,00,000 to the account of the noticee and on the same day, the entire amount was transferred to the account of GSPL (BSE Client Account). Investigation revealed that this amount was transferred to BSE Current Account and from there `3850000 was transferred to GSPL(NSE F&O Settlement Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 35 of 47 October 13, 2014 Account) and from there it was transferred to IL & FS. The final balance in the account of the noticee as on December 12, 2011 remained `5200. It was observed that on December 12, 2011, Noticee had purchased `4,68,000 shares in BSE. However, he had not traded in the F&O segment. Global Enterprises 30 lakh 12/12/2011 GSPL BSE Client A/C Recd 30 lakh GSPL NSE F&O Settlement A/c Rec‘d Rs 3850000 Anil Dave Rs 30 lakh GSPL Current A/c Rs 30 lakh IL & FS for settlement x) On December 17, 2011, Shalimar Trading Co had transferred `25,00,00 to the account the noticee and on the same day, the entire amount was transferred to the account of GSPL (BSE Client Account). Investigation revealed that GSPL (BSE Client Account) transferred `25,50,000 to Grishma Securities P Ltd (Current Account). From this account `90,00,000 (including other payments) was transferred to GSPL (F&O Settlement Account) and this was transferred to IL & FS. The final balance in the account of the noticee as on December 17, 2011 remained `5200. It was observed that from December 14, 2011 to December 17, 2011, the Noticee had purchased shares worth ` 4,12,456 on NSE and, from December 13, 2011 to December 17, 2011 on BSE he had purchased shares worth ` 28,47,539.15 and sold shares worth ` 27, 50,000. Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 36 of 47 October 13, 2014 Shalimar Trading Co Rs 25 lakh 17/12/2011 Anil Dave Rs 25 lakh GSPL BSE Client A/C Rs 25 lakh GPSL Current A/c Rec‘d Rs 25,50,000 GSPL NSE F & O Settlement A/c Rec‘d Rs 90 lakh (including other payments) IL & FS Settlement xi) On December 21, 2011, Global Enterprise transferred `5,00,000 and `14,89,247 and Eleven Impex transferred `5,10,753 to the account of the Noticee. On December 22, 2011, noticee transferred the same to the account of GSPL(NSE Client Account). This amount was further transferred to GSPL(Current Account). From GSPL (Current Account), `35,00,000 was transferred to NSE (F&O Settlement Account) and this entire amount was transferred to IL & FS. The final balance in the account of the noticee as on December 22, 2011 remained `5200. It was further observed that from December 19, 2011 to December 26, 2011, noticee had purchased shares worth ` 2,98,349 on NSE. Further, from December 19, 2011 to December 26, 2011, noticee had purchased shares worth ` 1,25,847.8 and sold shares worth ` 15,21,000 in BSE. Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 37 of 47 October 13, 2014 Global Enterprise Rs 5 lakh + Rs 14,89,247 Eleven Impex Rs 5,10,753 Anil Dave Recived Rs 25 lakh GSPL Current A/c Recived Rs 25 Lakh GSPL NSE Client A/c Received Rs 25 Lakh GSPL NSE F & O Settlement A/c Received Rs 35 Lakh IL & FS Rs 35 lakh xii) On December 27, 2011, noticee had received ` 18,50,000 from GSPL (NSE F&O Client Account) and on the same day, the entire amount was transferred to Mr Vimal Patel who had further transferred it to Ms Arti Chetan Dave (a dealer of GSPL). The balance in the account of the noticee on December 27, 2011 was `5172. It was observed that the pay-out of ` 18,50,000 was received by the noticee from the NSE F&O Account of GSPL. 00401010200394253 GSPL NSE F& O Client A/c Anil Dave Vimal Patel Rs 18,50,000 Chetan Dave Rs 1850000 27/12/2011 Arti Chetan Dave Rs 18,50,000 Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 38 of 47 October 13, 2014 xiii) On December 30, 2011, Noticee had received `1,12,75,000 from GSPL (NSE Client Account) and `87,25,000 from GSPL (BSE Client Account). Noticee had transferred `1,00,00,000 to Muskan Trading Co and `1,00,00,000 to Shalimar Trading Co. The balance in the account of the noticee on December 30, 2011 was `5172. GSPL- BSE Client A/c Rs 87,25,000 GSPL- NSE Client A/c Rs 1,12,75,000 Anil Dave Received Rs 2,00,00,000 Muskan Trading Co `1,00,00,000 xiv) Shalimar Trading Co.`1,00,00,000 On January 2, 2012, noticee received credit of `19,20,000 and ` 1,65,84,733 from the account of GSPL (NSE Client Account). On the same day, `1,85,00,000 was transferred to the account of Arti Chetan Dave in 2 tranches. On the same day, the entire amount was transferred to Mr Mihir Ghelani, the CEO and Compliance Officer of GSPL. The balance in the account of the noticee on January 02, 2012 was `14,434. GSPL- Current A/c Rs 16584733 GSPL- Current A/c Rs 1920000 Anil Dave Received Rs 18504733 Arti Chetan Dave Rs 9000000 + Rs 9500000 Mihir Ghelani Rs 9000000 + Rs 9500000 Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 39 of 47 October 13, 2014 26. From the trail of bank account and trades of the noticee, the following observations were made: Noticee received `1,57,10,000 from United Enterprises, `3,69,89,247 from Global Enterprise, `98,20,000 from Shalimar Trading Co, `5,10,753 from Eleven Impex and `8,70,000 from Shreeji Corporation. It was observed that noticee had paid Shalimar Trading Co `1,00,00,000 on December 30, 2012. From the bank accounts there is no evidence of payments to United Enterprises, Global Enterprise, Eleven Impex and Shreeji Corporation. The bank statement does not show any evidence of receipt of funds from Muskan Trading Co. But it is observed that the noticee had paid Muskan Trading Company `1,00,00,000 on December 30, 2012. The amounts received from the above mentioned entities, namely, Global Enterprise, Shalimar Trading Co, Eleven Impex, Shreeji Corporation and United Enterprises were (`6,39,00,000) was entirely transferred to various accounts of Grishma Securities P Ltd. Noticee had transferred `50,00,000 to the account NSE F&O Account of GSPL. An amount of `18,50,000 was observed to have been transferred from the NSE F&O account to the noticee. However, noticee had not traded in the F& O Segment during the entire period of investigation. It was observed that the account of the noticee received funds from various entities and the entire amount was transferred to the account of GSPL. Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 40 of 47 October 13, 2014 The trades of the noticee were not commensurate with the amounts transferred. In most of the times, the amounts transferred by the noticee were routed to Mr Vimal Patel (approximately `4.34 crore) or to IL & FS Account (approximately `1.97 crore). It may be noted that IL & FS is the clearing member of GSPL. However, Noticee had not traded in the F& O Segment of the Exchanges. 27. I note that the noticee has not disputed the above-mentioned trail of funds, however, he has contended that all the fund transfers mentioned in the SCN was on account of regular business and commercial transactions and accounted for appropriately by the Noticee. He submitted these funds were availed of by the Noticee by way of a friendly loan for making investments in the securities market through GSPL and the money lenders who had lent funds have decided to initiate civil and criminal proceedings against the Noticee on account of non-payment of dues by the Noticees and in that context he submitted a letter dated May 29, 2014 from United Enterprises. He further submitted that while he has made payments to GSPL against his pay-in obligations and towards an advance or margin for future trades, the Noticee is unaware of any onward or subsequent transfer of such funds by GSPL to any other entity or individual and accordingly he cannot be held responsible for the subsequent actions of GSPL as the Noticee neither has control nor any knowledge of the same. 28. I note that the noticee has claimed that the funds that were received in his account was by way of friendly loan. However, in the facts and circumstances of the case, it seems highly improbable that the noticee, who is Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 41 of 47 October 13, 2014 having a meagre income of ` 4,680/- and ` 779/- only for the assessment year 2012-13 and 2013-14, has managed to obtain loan, even as friendly loan, to the tune of ` 7 crore. Moreover, these entities from whom the noticee claimed to have obtained loans could not be located during the investigation. I further note that the letter submitted by the noticee purportedly from one of the lender, United Enterprises, demanding `1,57,10,000/- from the noticee is dated May 29, 2014 i.e after the issuance of SCN. It appears to be an afterthought which is fraught with suspicion and I am of the view that in the context of totality of the case, it is difficult to accept the claim of the noticee that it has received huge amounts of money by way of loans and the noticee is only trying to give a color to the transaction by calling it friendly loan. 29. I find that while the total value of the shares bought by the noticee on BSE and NSE was approximately ` 1.75 crore, he has transferred `6.39 crore to various accounts of GSPL. I further note that many a time amounts were transferred during the period when the noticee was not trading in the shares. Further, while noticee had not traded in the F&O Segment during the entire period of investigation, he had transferred `50,00,000 to the account NSE F&O Account of GSPL. I also note that while the total value of the noticee's sale on BSE and NSE was approximately ` 69.12 lakh, he received in his account sum of approximately ` 4.03 crore from various accounts of GSPL, out of which 1 crore each was transferred to Shalimar Trading Co. and Muskan Trading Co., and ` 18.50 lakh was transferred to Mr. Vimal Patel for no apparent reasons nor the noticee has offered any explanation for those transactions. I further note a sum of `1.85 crore was transferred to Arti Chetan Dave purportedly as short term loan and this is yet another case of huge transfer of funds in the garb of loan. Therefore, I am of the view that, in the facts and circumstances of the Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 42 of 47 October 13, 2014 case, the submissions of the noticee regarding the purpose of such huge transfer of funds appears to be a concoction and the same deserves to be rejected. 30. The Hon‘ble SAT, in Ketan Parekh Vs. Securities & Exchange Board of India (Appeal No. 2 of 2004) decided on 14.07.2006, observed that, ―............Any transaction executed with the intention to defeat the market mechanism whether negotiated or not would be illegal. Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available. The nature of the transaction executed, the frequency with which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether there is real change of beneficial ownership, the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn.‖ 31. The proof of manipulation in the circumstances always depends on inferences drawn from a mass of factual details, the nature of transactions, conduct of the parties etc. From the material on record, I note that the bank account of the noticee was opened with `5,200/- on November 15, 2011 and as on January 02, 2012, the balance therein was `14,434/-. In between this period, the noticee had received huge sums of money amounting to `6.39 crore in his account and transferred the same to GSPL, which, in turn, transferred majority of the amount to Mr. Vimal Patel i.e. approximately ` 4.34 crore and to IL & Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 43 of 47 October 13, 2014 FS i.e approximately ` 1.97 crore. Similarly he received in his account funds to the tune of approximately ` 4.03 crore from GSPL, which the noticee in turn transferred other entities without any justifiable reason. This is nothing but a manipulative device whereby moneys are transferred through layered transactions to conceal the identity of the persons involved. Since this was done through the medium of stock broker , it is infact a clear case of abuse of market mechanism and the very fact that the huge sums of money are transferred in such a manner clearly establish the manipulative intent on the part of the noticee. 32. I find that this is a case where the noticee had allowed his bank account to be used as conduit for diversion of funds and in that connection he has received and transferred huge sums of money running into several crore of rupees to the broker and the broker in turn had transferred the moneys to the accounts of other clients. I find that there was no payment obligation for the noticee to such make such huge payments to the brokers. The noticee in its reply had stated that they moneys were transferred to the broker, as advance margin for future transactions and that he had browed money from others to make such payments. It is quite unexpected of and unusual for the noticee to make such huge payments, more so because a) the noticee had no or little means/income of his own b) the noticee had borrowed funds c) the huge payments running to several crore of rupees was made by the noticee without there being any payment obligation arising out of securities market transactions with the broker d) no prudent person would borrow funds just to park the moneys with a broker or any other person without any purpose. Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 44 of 47 October 13, 2014 33. Therefore, the theory about the purpose of making such large payments towards advance margin, as adduced by the noticee is nothing but false and deserves to be rejected outright since it is without any reason or merit. Thus the reply of the noticee is rejected accordingly. 34. I further note that in the instant case, the transactions between the noticee and the broker/other clients took place in Nov-Dec 2011 and a few days before this i.e in October 2011, the broker GSPL and the entities like Mr. Vimal Patel, Mihir Ghelani- to whom the moneys received in and transferred from the account of the noticee finally landed- were involved in a fraudulent activity in the matter of investigation in the IPO of TPL where a similar modus operandi of layered fund transactions was used . The order dated July 31, 2013 passed by SEBI against GSPL & Ors were also upheld the Hon'ble SAT vide order dated October 28, 2013. The complicity of the noticee in the present matter involving similar persons and similar modus operandi only goes to reinforce the finding given hereinabove in the present matter about the manipulative intent on the part of the noticee in abusing the market mechanism. 35. In view of the above, I hold that the noticee indulged in synchronized trades with Mr. Vimal Patel and also permitted GSPL to use his account as a conduit for diverting funds to other front entities of GSPL and thereby, the noticee violated provisions of section 12A (a), (b) and (c) of SEBI Act, 1992 and provisions of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of PFUTP Regulations. 36. The aforesaid violations by the noticee make him liable for monetary penalty under section 15HA of SEBI Act, 1992 which reads as under: Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 45 of 47 October 13, 2014 "15HA. Penalty for fraudulent and unfair trade practices.- If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher." 37. While imposing monetary penalty it is important to consider the factors stipulated in Section 15J of SEBI Act which reads as under: ―15J - Factors to be taken into account by the adjudicating officer: While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have due regard to the following factors, namely:(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; (c) the repetitive nature of the default.‖ 38. The Investigation Report has not quantified any gain or unfair advantage accrued to the noticee as a result of the manipulative activities of the noticee. Further, there is no material made available on record to quantify exactly the disproportionate gains or unfair advantage enjoyed by the noticee and the consequent losses suffered by the investors as a result of noticee's violation. However, I cannot lose sight of the fact that there was a clear abuse of securities market mechanism by the noticee by indulging in synchronized trades and being a conduit for transfer of huge sum of money through layered transactions to conceal the identity of the persons involved. Therefore, it is necessary that a justifiable penalty is imposed on the Noticee to meet the ends of justice. Order 39. In light of all the above stated facts and circumstances of the case, I hereby impose a penalty of ` 25,00,000 /- (Rupees Twenty Five Lakh only) Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 46 of 47 October 13, 2014 under section 15HA of the SEBI Act, 1992 on the Noticee viz. Mr. Anil Dave for violation of provisions of section 12A (a), (b) and (c) of SEBI Act, 1992 and provisions of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of PFUTP Regulations. I am of the view that the said penalty is commensurate with the violations committed by the Noticee. 40. The Noticee shall pay the said amount of penalty by way of demand draft in favour of ―SEBI - Penalties Remittable to Government of India‖, payable at Mumbai, within 45 days of receipt of this order. The said demand draft should be forwarded to The Division Chief (Enforcement Department DRA-II), Securities and Exchange Board of India, SEBI Bhavan, Plot No. C – 4 A, ―G‖ Block, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051. 41. In terms of rule 6 of the Rules, copies of this order are sent to the Noticee and also to SEBI. Date: October 13, 2014 Place: Mumbai A. Sunil Kumar Adjudicating Officer Adjudication order in the matter of investigation into the trading of Mr. Anil Dave Page 47 of 47 October 13, 2014
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