Appeal No. 218 of 2012. Case: Usha Mehta Vs Securities and Exchange Board of India. Securities and Exchange Board of India

Case NumberAppeal No. 218 of 2012
CounselFor Appellant: Mr. Rajesh Khandelwal, Advocate with Ms. Mamta Patil, Advocate and For Respondents: Mr. Shiraz Rustomjee, Senior Advocate with 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 - Sections 15-I, 15HA, 15I, 15J
Judgement DateOctober 31, 2013
CourtSecurities and Exchange Board of India


A.S. Lamba, Member

  1. The present appeal has been preferred by Smt. Usha Mehta (hereinafter referred to as "Appellant") against ex-parte adjudication order dated 27.09.2012 passed by Securities and Exchange Board of India (hereinafter referred to as "SEBI") for contravention of Regulation 3(a), (b), (c) and (d) and Regulations 4(1), 4(2)(a), (b), (e) and (g) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (hereinafter referred to as PFUTP Regulations, 2003) and imposing penalty of Rs. 10 lakh on appellant. SEBI conducted investigation in trading of scrip of Asian Star Company Limited (hereinafter referred to as "ASCL") for period October 10, 2008 to November 20, 2008 (hereinafter referred to as "Investigation Period"), whose shares are listed at Bombay Stock Exchange (hereinafter referred to as "BSE"). It was observed during investigation period that price of scrip of ASCL increased from Rs. 1,240/- on October 10, 2008 to Rs. 1306.15/- on November 20, 2008, i.e. increase of 18.57 percent in 28 trading days, during which period SENSEX had fallen by 19.73 percent; and subsequent to investigation period price of scrip of ASCL started to fall and closed at Rs. 905 on January 30, 2009.

  2. Role of brokers and their clients, who traded in scrip of ASCL was scrutinized during investigation period and it was observed that certain entities, found connected, had allegedly indulged in circular/reversal synchronized trading, in such manner that led to creation or artificial volume and increase in price of scrip of ASCL.

  3. It was also noticed that the appellant one of the entity, had traded through broker India Infoline Securities Ltd. and had indulged in circular/reversal synchronized trades with other brokers and their clients, thereby violating Regulation 3(a), (b), (c) and (d) and Regulations 4(1), 4(2)(a), (b), (e) and (g) of PFUTP Regulations, 2003 and hence appellant is liable for monetary penalty under section 15HA of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as "SEBI Act").

  4. Smt. Barnali Mukherjee was appointed Adjudicating Officer under section 15I of SEBI Act read with Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as Rules) to inquire into and adjudge alleged violations of PFUTP Regulations, 2003 committed by Appellant.

  5. Show cause notice (SCN) dated November 23, 2010 was issued under Rule 4 of Rules to Appellant to show cause as to why inquiry should not be held and penalty not imposed under section 15HA of SEBI Act, in case alleged violations specified in SCN are substantiated.

  6. Appellant denied allegations against her in SCN and made following submissions vide her letter dated February 17, 2011.

    1. That I have not been provided with relevant material based on which the SCN has been issued.

    2. That SCN is vague, bad in law and very ambiguous and allegations are not specific, but general in nature. Further, SCN is imprecise and incoherent and does not clearly state mode of commission of such violation if any, with credible evidence signifying infringement thereof.

    3. I deny my involvement in synchronized trading or trade reversals with entities mentioned in SCN in scrip of ASCL during investigation period.

    4. That SCN has failed to specify, in details, as how trades carried out by me have contributed to price fluctuations; as price of the scrip is affected by innumerable factors like general market trend, fundamentals of the company, market sentiment, existing market position of market players, etc.

    5. That I had purchased and sold 143041 shares through broker India Infoline and broker is neither concerned with nor was aware of trades or otherwise of brokers and/or their clients, mentioned in SCN.

    6. I deny of being aware of any such pattern of synchronized, structured, reversal or circular trades entered into mostly by few brokers trading through their clients on almost every trading day during the period.

    7. That SCN has failed to specify in detail as to which of trades carried out by me and depicted in Annexure 4 and Annexure 5 of the SCN have contributed to alleged synchronized, structured, reversal or circular trades or how said trades have resulted into synchronized, structured, reversal or circular trades and these said annexure are vague and very ambiguous and not specific, but general in nature.

    8. That stock exchange has put in place an automated price and order matching mechanism of a system to ensure perfect transparency in trading system. I had placed orders in accordance with my prudence w.r.t. my understanding of securities markets and it is impossible, impracticable and unfeasible for me to detect and perceive intentions and objectives of other entities or even know identity and trade of counter party brokers and their clients.

    9. I state that I am neither aware, involved, connected, related nor concerned nor have means to verify acts of omission and commission and alleged relations between Sandeep, Jitendra, Suresh Hanswal, Pradesh, and of broker Swastika and therefore I am not in position to comment upon same.

    10. That Jitendra is friend of my son Sunil Mehta. My family members and me i.e. my son Sunil Mehta and my daughter in law Anjana Mehta have been borrowing and lending money on account of our relationship whenever in need. I am neither aware nor concerned why email id of Sunil Mehta is given in KYC of Jintendra. Further I am not aware/concerned with him entering into bank account transactions with Gopal Mathur and broker Triveni and therefore cannot comment on same. As far as sharing same address and telephone number is concerned I state that I am neither aware nor concerned with same.

    11. I sate that it is but natural that me being mother of Sunil Mehta I share common phone number and joint account with him.

    12. It is true that my trading account was being operated by Sunil Mehta with my consent.

    13. That Suresh and Pradesh are franchisee of Arcadia and therefore it's nothing unusual that they introduced me, my son Sunil Mehta and Jitendra to Arcadia and no adverse inference may be drawn therefrom. In any event, though I have account with Arcadia I have not traded through them.

    14. I strongly deny that I was aware, involved, connected or concerned with the execution of alleged synchronized/reversal/structured trades by the entities referred to as "Mehta Group".

    15. I deny that I fall in category of those entities who not only operate their own account (or may not operate their own account) but also funded transactions of others, used the accounts of others to orchestrate alleged manipulations in shares of the ASCL.

    16. I deny that my account was used by my son Sunil Mehta as conduit for placing orders and manipulating securities market. I further deny that my account was a type of third party operated account which imposed thereat to safety and integrity of securities market. That I had given my son Sunil Mehta right to operate my account in view of our relationship and trust. As far as I am concerned my son was not a third party who was operating my account against safety and integrity of the market. He operated my account in good faith and in fiduciary capacity and no adverse inference may be drawn therefrom.

  7. Appellant appeared before Adjudicating Officer of Respondent (SEBI) on May 9, 2011, through Authorized Representative (AR), namely her son Shri Sunil...

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