Appeal No. 20 of 2014. Case: Ms. Pooja Menghani Vs Securities and Exchange Board of India. Securities and Exchange Board of India

Case NumberAppeal No. 20 of 2014
CounselFor Appellant: Mr. M.P. Rao, Senior Advocate and Mr. Ramesh Mishra, Company Secretary in Practice and For Respondents: Mr. Shiraz Rustomjee, Senior Advocate, Mr. Mihir Mody and Mr. Pratham V. Masurekar, Advocates
JudgesJ.P. Devadhar, J. (Presiding Officer), Jog Singh, Member and A.S. Lamba, Member
IssueSecurities and Exchange Board of India Act, 1992 - Section 15HA
Judgement DateApril 23, 2014
CourtSecurities and Exchange Board of India


Jog Singh, Member

  1. The present appeal is preferred by the appellant against the impugned order dated April 30, 2012 by which she has been found to be guilty of indulging into fraudulent and unfair trades in respect of few companies. The appellant is alleged to have resorted to "front-running" to earn ill-gotten profits by the trades in question. She is stated to have earned approximately ` 49 lac in an unlawful manner. The learned Adjudicating Officer, hereinafter referred to as "A.O.", has found the appellant guilty of violating the provisions of Regulations 3(a), (b), (c), (d) and 4(1) of the S.E.B.I. (Prohibition of Fraudulent and Unfair Trades Practices Relating to Securities Market) Regulations, 2003 (for short F.U.T.P. Regulations). Consequently, a penalty of ` 1 crore has been imposed on the appellant under Section 15HA of the S.E.B.I. Act, 1992, which prescribes a penalty of ` 25 crore or three times the illegal profits earned by a person by violating the law, whichever is higher. Briefly stated, the facts of the case are that respondent S.E.B.I. conducted an investigation in the trading of appellant for the period from June 1, 2008 to January 12, 2009 and noticed irregularities in her dealings in the scrips of four companies, namely, Amtek Auto Ltd. (Amtek Auto), Amtek India Ltd. (Amtek India), Monnet Ispat Ltd. (Monnet Ispat), Ahmednagar Forgings Ltd. (Ahmednagar Forging). She dealt with in these scrips through brokers, namely, Religare Securities Ltd. (Religare), I.S.F. Securities Ltd. (I.S.F.), India Infoline Securities Ltd. (India Infoline), Narayan Securities Pvt. Ltd. (Narayan). Other entities who dealt with the same scrips are Live Star Marketing Pvt. Ltd. (Live Star), S.R.S. Portfolio Ltd. (S.R.S.) and M.S.R. Marketing Pvt. Ltd. (M.S.R.).

  2. On the investigation a general trend of trading was noticed on behalf of the appellant quo other parties which prima-facie revealed that the appellant had always been trading in the four scrips in question ahead of Live Star, S.R.S. and M.S.R. with prior knowledge of the buy orders of the aforesaid entities and, thus, indulged in front-running. This modus operandi adopted by the appellant has been found to be violative of the various provisions of the F.U.T.P. Regulations as mentioned hereinabove.

  3. A show cause notice dated June 20, 2011 was, accordingly, issued to the appellant and enquiry was conducted in terms of Rule 3 etc. of the S.E.B.I. (Procedure of Holding Enquiry and Imposing Penalties by the Adjudicating Officer) Rules, 1995 (for short Adjudication Rules). The appellant personally appeared before the adjudicating officer and availed of the opportunity of filing reply/written submissions too. She also appointed an Authorized Representative, namely, M.G. Associates, Advocates & Solicitors, to represent her interest before the learned A.O. Said Authorized Representative filed exhaustive reply/written submissions before the learned A.O. denying the charges. It was, inter alia, submitted on behalf of the appellant that she was a random and innocent investor and was relying on her own competence, instinct and insinuation before entering into the dealings. Her investments in the scrips were based on information received from the market as well as from her brokers. It was, therefore, contended that no charge of front-running was made out against her. It is further argued that matching of large number of sell orders of the appellant with the buy orders of the opposite parties were a mere coincidence.

  4. The learned A.O. after holding enquiry and considering the material brought before him including statement/cross-examination, reply/written submissions of the appellant came to the conclusion that the appellant colluded with Mr. Deepak Khurana of Religare to obtain sensitive information regarding forthcoming orders from M.S.R., S.R.S. and Live Star and thereby indulged in front-running on that basis. This is how she is found to have earned huge illegal profits to the tune of about ` 49 lacs by playing a fraud upon the market and at the cost of bonafide investors. This act of the appellant has seriously undermined the market integrity. The admitted income of the appellant ranged between ` 5 lac to ` 10 lac per annum but she took huge positions in the scrips of the four companies in question running up to ` 10 to ` 12 crore. The trades, therefore, undertaken by the appellant based on prior information where held to be in violation of F.U.T.P. Regulations as the same were found to be manipulative and deceptive tradings tantamounting to front-running.

  5. In this background, the impugned order dated April 30, 2012 has come to be passed against the appellant and the same is the subject matter of adjudication before this Tribunal.

  6. We have heard the learned counsel for the parties at length and have perused the pleadings minutely. Shri M.P. Rao, learned senior counsel who appeared on behalf of the appellant mainly argued that the appellant traded in the scrips of four companies in question based on her own technical analysis. She had studied these scrips for long time and the same being fundamentally strong companies, the appellant was motivated to invest in these scrips. Shri Rao further submitted that role of other buyers has not been investigated by the respondent S.E.B.I. and the appellant cannot be said to have indulged in front-running all alone. It was suggested by Shri Rao that atleast two parties are required to be there to complete an offence of front-running, if any. S.E.B.I. has not enquired into role of brokers or other buyers, therefore, the whole adjudication proceedings are vitiated. On the other hand, the learned senior counsel for the respondent Shri Rustomjee vehemently...

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