Affluence Shares & Stock Pvt. Ltd vs National Stock Exchange Of India Ltd

M. T. Joshi, J

Aggrieved by the decision of the respondent National Stock Exchange of India Ltd. (hereinafter referred to as ‘NSE’) dated February 28,

2020 imposing a penalty of Rs. 1,01,61,582/- for violation of Regulation 4.6.2.1(b) of the Future and Options Segment (F&O segment) Regulation of

NSE, the present appeal is preferred.

The appellant is a broker-member registered with NSE in F&O segment and other segments. Affluence Gems Pvt. Ltd. (hereinafter referred to as

‘Affluence Gems’) is it’s client. The directors of the client as well as of the appellant are common. The respondent, therefore, claimed that

the client is the constituent of the appellant. The respondent NSE found that in the month of February 2019, the said client had indulged into

synchronized and matched trades in F&O segment with other entity. It was alleged that to transfer profit/loss the trades were entered into. On these

allegations, show cause notice dated February 27, 2019 was issued to the appellant. The entire trade data of the concerned period was given.

The appellant submitted that it is group company. It was doing active intra-day trading in equity as well as derivative segment. Said client Affluence

Gems however is an independent entity and the noticee has no control over the decision making rights with regard to the said client. The matched

trades, if any, were matched on the exchange platform in extensively traded contracts. The counter party, therefore, could not be ascertained by the

appellant prior to trades. Further, profit and loss is an ultimate outcome of any derivative position and hence it could not be ascertained that they have

dealt with the motive to transfer profit or loss. Therefore, claiming that Affluence Gems has done genuine trading, the appellant wanted that the notice

be withdrawn.

The Member and Core Settlement Guarantee Fund Committee (the Committee) of the respondent NSE in the impugned order however concluded

that during the relevant period of one month, Affluence Gems had entered into synchronized match trades with one Amrapali Capital and Finance

Services Ltd. (hereinafter referred to as ‘Amrapali’) in Amrapali’s proprietary account. All those trades were matched trades which

resulted in loss of Rs. 6.78 crore to Affluence Gems and a profit of Rs. 6.78 crore to Amrapali. Affluence Gems had a concentration of 99.98% in 9

stocks wherein significant matching was observed by the committee with said Amrapali and, thus, with intent to transfer profit / loss to Amrapali, the

matching trades were entered into. Affluence Gems being in the group company and the constituent of the appellant, the Committee came to the

conclusion that the appellant has indulged into fraudulent and unfair trade practices as defined in Regulation 4.6.2 of the F&O Regulations and,

therefore, the impugned order was passed.

We have heard Mr. Deepak Dhane, the learned counsel for the appellant and Mr. Venkatesh Dhond, the learned senior counsel with Mr. Rashid

Boatwalla, Mr. Aditya Vyas, the learned counsel for the respondent through video conference.

The learned counsel for the appellant submitted that in the show cause notice, the name of Amrapali was not mentioned but the order deals with

trades singularly with Amrapali by Affluence Gems. The appellant as a broker has allowed Affluence Gems to trade through its platform and nothing

more. The allegations in the order regarding transactions with Amrapali are beyond the show cause notice. The reply of the appellant was not

considered and, therefore, he wanted that the appeal be allowed.

On the other hand, the learned counsel for the respondent submitted that in the show cause notice, it was charged that the directors of Affluence

Gems and the appellant are common. The same was not denied. He, therefore, submitted that in fact Affluence Gems is the alter ego of the appellant.

He further points that the entire trade data annexed to the show cause notice would show the details of the matched trades carried by Affluence

Gems with Amrapali and, therefore, the submission that in the show cause notice the trades with Amrapali are not given is wrong.

He further pointed out that the counter party to the transaction i.e. Amrapali - the stockbroker was also penalized by the respondent NSE for the same

transactions vide order dated February 28, 2020 for an amount of Rs. 1,01,67,582/-. The said order was challenged by Amrapali before this Tribunal

and by an order dated November 19, 2020 in Appeal No. 164 of 2020, this Tribunal has dismissed the appeal. Not only this, Civil Appeal No. 4138 of

2020 was filed by Amrapali before the Hon’ble Supreme Court of India and the same was also dismissed by the Hon’ble Supreme Court of

India on January 12, 2021. He, therefore, submits that it has been now finally decided that said Amrapali and Affluence Gems had indulged into

fraudulent trades as detailed above and, therefore, the appeal is liable to be dismissed.

Upon hearing both the sides, in our view, the appeal is liable to be dismissed. There is no denial that Affluence Gems, the client of the appellant is

having same directors as that of the appellant. The continuous matched trading in a single month in large volume between Affluence Gems and

Amrapali through the platform of the appellant, therefore, could not have been escaped it’s attention more particularly for the fact that the client

and the broker are same having the common directors with different names. It has already been found by this Tribunal and by the Hon’ble

Supreme Court of India that the impugned trades were fraudulent trades. Considering all these facts on record, the following order :

ORDER

The appeal is hereby dismissed without any order as to costs.

The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor a

certified copy of this order could be issued by the Registry. In these circumstances, this order will be digitally signed by the Private Secretary on

behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally

signed copy sent by fax and/or email.