Per: P. K. Malhotra, Member
1. This appeal is directed against the order dated December 31, 2010 passed by the adjudicating officer of the Securities and Exchange Board of India (for short the Board) holding the appellant guilty of violating regulations 4(1) and 4(2) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (for short the Regulations). He has found that the appellant, in collusion with certain brokers and clients, had executed synchronized trades on the Bombay Stock Exchange in the scrip of Jindal Drilling and Industries Ltd. (for short the company) and indulged in non-genuine/fraudulent transactions in violation of the Regulations which resulted in creation of artificial volume, manipulation of the price of the scrip and distorting the market equilibrium. The appellant was served with a show cause notice dated July 25, 2008 requiring it to show cause as to why an enquiry should not be held against it and penalty imposed for the said violations. Admittedly, the appellant did not avail of this opportunity and the adjudicating officer, by an ex-parte order, found the appellant guilty of the charge and imposed a monetary penalty of Rs.25 lacs on it. Hence this appeal.
2. We have heard learned counsel for the parties. The allegations against the appellant are that the appellant, along with some other connected entities, had executed synchronized/circular trades and indulged in non-genuine transactions in the scrip of the company on the Bombay Stock Exchange during the investigation period from May 10, 2005 to September 2, 2005. The details of total purchase, sale and gross trading are mentioned in the show cause notice in the form of a table as under:
| Name of the client | Broker | Total buy | Total Sell | Gross Trading | % to market gross |
| Samradha Finstock | Indiabulls Securities Ltd. | 261700 | 268200 | 529900 | 4.61 |
| Emerging Capital | Indiabulls Securities Ltd. | 41644 | 171167 | 212811 | 1.85 |
| Sparkline Mercantile | Religare Securities Ltd. | 308757 | 326832 | 635589 | 5.54 |
| VandU Caplease | ASE Capital Market Ltd. | 374263 | 365437 | 739700 | 6.44 |
| Hem Kanak Mercantile | UTI Securities Ltd. | 293474 | 243474 | 536948 | 4.68 |
| Chirag Tanna | M R Share Broker Ltd. | 526756 | 447311 | 974067 | 8.49 |
| Total | 1806594 | 1822421 | 3629015 | 31.63 |
| Buy/Sell | Samradha Finstock | Emerging Capital | Sparkline Mercantile | VandU Caplease | Hem Kanak Mercantile | Chirag Tanna | Total |
| Samradha Finstock | 0 | 5000 | 31500 | 2051 | 50484 | 64105 | 153140 |
| Emerging Capital | 0 | 0 | 0 | 23354 | 0 | 3100 | 26454 |
| Sparkline Mecantile | 21390 | 200 | 25331 | 44384 | 73208 | 164513 | |
| VandU Caplease | 5298 | 1402 | 5444 | 500 | 1227 | 17093 | 30964 |
| Hem Kanak Mercantile | 62634 | 0 | 37040 | 17152 | 0 | 42783 | 159609 |
| Chirag Tanna | 35325 | 0 | 67584 | 19962 | 49355 | 2525 | 174751 |
| Total | 124647 | 6402 | 141768 | 88350 | 145450 | 202814 | 709431 |
3. We are unable to agree with the learned counsel for the appellant that the adjudicating officer has failed to bring home the charge against the appellant. The trades executed by the group entities have been mentioned in the tables in the show cause notice as extracted above. References have also been made to the relevant portions of the investigation report indicating that during the investigation period these related entities have traded amongst themselves. The interconnection between these related entities have also been referred to by the adjudicating officer in para 21 of his order which is reproduced below for ease of reference:
“The Investigation Report has also established the relationship between the concerned entities. Shri Chirag Tanna was introduced to the stock broker M R Share Broking Pvt. Ltd. by Shri Dilip Nabera, who is one of the contact persons/directors of both Emerging Capital Advisors Ltd. and Adhunik Finance Pvt. Ltd. As per the information provided by NSE Mayrose Capfin Pvt. Ltd. and Samradha Finstock Pvt. Ltd. have the same address. Emerging Capital Advisors Ltd. and the noticee are located at the same address and also have same phone number. Common address was mentioned in the letterheads of both the noticee and Mayrose Captin Pvt. Ltd. One of the directors of Hem Kanak Mercantile Pvt. Ltd., Mrs. Sadhana Nabera is the wife of Shri Dilip Nabera. The BSE Investigation Report had also mentioned that Adhunik Finance Pvt. Ltd. and Samradha Finstock Pvt. Ltd. have a common phone number. It was observed from the Form No.3CD – Statement of particulars required to be furnished under section 44AB of the Income Tax Act, 1961 in the Assessment year 2004-05 that VandU Caplease Pvt. Ltd. had received Rs.50 lacs from Adhunik Finance Private Ltd. Adhunik Finance in its reply dated March 10, 2008 admitted that it had given Rs.50 lacs to VandU Caplease Pvt. Ltd. as loan against shares to be purchased in due course in the financial year 2003-04. However, the deal could not be materialized and the amount was returned back latter on.”
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. Looking at the details provided in the investigation report, the show cause notice and the findings recorded by the adjudicating officer, we are convinced that the adjudicating officer has brought enough material on record in support of the conclusion that the entities mentioned in the tables above are connected entities and traded among themselves with prior arrangement resulting in creation of artificial volume and distorting the market equilibrium. 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. Therefore, we have no hesitation in upholding the findings recorded by the adjudicating officer in the impugned order.
4. It was then argued by the learned counsel for the appellant that under similar facts and circumstances relating to the same transaction in relation to two other group entities namely, Hem Kanak Mercantile Private Limited (Appeal no. 171 of 2009 decided on 11.3.2010) and Samradha Finstock Pvt. Ltd. (Appeal no. 204 of 2010 decided on 28.2.2011) this Tribunal had reduced the penalty to Rs. 7 lacs. We have seen the earlier orders. The transactions are the same and the entities involved are also group entities. The case of the appellant is identical to the two cases referred to above. The appellant, therefore, cannot be given a different treatment. We, therefore, reduce the penalty to Rs. 7 lacs in this case.
In the result, while upholding the findings of the adjudicating officer, we reduce the penalty to Rs.7 lacs. The impugned order stands modified accordingly. There will be no order as to costs.