Jitendra Kumar Bhatia vs Securities And Exchange Board Of India

M. T. Joshi, J

Aggrieved by the direction of the learned Adjudicating officer (hereinafter referred to as 'AO') of Securities and Exchange Board of India (hereinafter referred to as 'SEBI') dated November 30, 2018 to pay a penalty of Rs. 10 lac under Section 15HA of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act') for the violation of the provisions of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as 'PFUTP Regulations'), the present appeal is preferred.

The respondent SEBI conducted investigation into the share price of the BGIL Films & Technologies Ltd. (hereinafter referred to as 'BFTL or company') for a period between June 19, 2008 to March 20, 2009. Respondent SEBI found that during this period though there was no major announcement affecting the price of the shares of the company, the price of the said shares moved from Rs. 10.23 on June 19, 2008 to Rs. 108.80 on March 20, 2009. Therefore, the investigation in the same was conducted. It was found that a group of 22 persons including six of the promoter's group were involved in the manipulation of the price of the shares, therefore, show cause notice came to be issued to the group. After hearing the parties, so far as the present appellant is concerned, vide the separate order the penalty as detailed (supra) was imposed. Hence the present appeal.

We have heard Mr. Tomu Francis, the learned counsel with Ms. Zarnaab Aswad, the learned counsel for the appellant and Mr. Kumar Desai, the learned counsel alongwith Mr. Mihir Mody, Mr. Arnav Misra, Mr. Mayur Jaisingh, the learned counsel for the respondent through video conference.

The admitted facts of the case are that the appellant Jitendra Kumar Bhatia was the promoter of the company during the relevant period. His brother Mr. Rakesh Bhatia was chairman and managing director of the company during the relevant period. One Rajiv Kumar Agarwal was the key managerial personnel of the company. Said Rajiv Kumar Agarwal was also authorized signatory of another entity, named as Kartik Share Traders Pvt. Ltd. (hereinafter referred to as 'Kartik').

The investigation revealed that said Kartik had obtained loan of Rs. 15 lac in the month of June 2008 from one Chetan Dogra, another noticee. It had given 3,50,000 shares of the company as a security against the said loan. Said Kartik had also transferred 1,00,000 shares of the company to Chetan Dogra on the same day as security of the loan. Said Chetan Dogra however immediately transferred 1,80,000 shares to various entities including one Tarunkumar Brahmbhatt, Prarthana T. Brahmbhatt, etc. These people with the help of other entities as detailed in the table at paragraph no. 3 of the order, manipulated the price of the shares by vigorously trading at a higher price thereby raising the last traded price of the shares as detailed (supra). Common connection between them on the basis of mobile numbers, common address was established. Their substantive contribution to the gross buy volume, gross sell volume as well as contribution to the price is also detailed in the said table.

It is alleged by the respondent SEBI, that the present appellant, his wife Tanuja Bhatia (since deceased - whose appeal was abated due to her death) and four other promoter directors off-loaded the shares in the market taking advantage of the increase in the price.

So far as the present appellant is concerned, he has off-loaded 14,000 shares of the company, after the price rise, during investigation period, at an average price of Rs. 80.40 per share. Respondent SEBI, thus, alleged that the appellant has earned an undue profit of Rs. 9,92,600/-. Therefore, the penalty of Rs. 10 lac came to be imposed.

Learned counsel for the appellant Mr. Tomu Francis strenuously argued that except the fact that appellant's brother was the chairman and managing director of the company or that Rajiv Kumar Agarwal who was said to have been connected to Kartik who was key managerial personnel of the company, no other connection is alleged against the present appellant. There are no allegations that at any time, the present appellant had played any role in the alleged manipulation of the shares. He further submitted that the appellant was in need of finances for the wedding of his daughter and, therefore, he was required to sell the shares and, therefore, the appellant cannot be held guilty for conducting legal activity. He relied on the ratio of HB Stockholdings Ltd. vs. SEBI (Appeal No. 114 of 2012 decided on August 27, 2013) as well as DLF Ltd. vs. SEBI (Appeal No. 331 of 2014 decided on March 13, 2015).

On the other hand, Mr. Kumar Desai, the learned counsel for the respondent submitted that for the first time in the appeal only, the appellant has taken a stand that he was required to sell shares for the wedding of his daughter. Neither in reply to the show cause notice nor in the personal hearing before the AO, no such explanation was forwarded. He further submitted that the transaction between Kartik and Chetan Dogra of obtaining loan against the security of the shares itself is a doubtful affair. He submitted that no sooner the purported security in the nature of shares were given to Chetan Dogra, he immediately started off-loading those shares in off-market transaction, etc. to Tarunkumar Brahmbhatt and others. Further, the said Kartik allowed transfer of 2,50,000 shares given as security to Rs.75 lac instead of clearing the loan by liquidating the fraction of 2,50,000 shares. However, Kartik did not obtain return of the shares by making the payment of the loan amounts which was lesser than the shares price during the relevant period. He, therefore, submitted that transfer of shares by Kartik to the entity connected with the promoter group itself was nothing but a vehicle used for manipulation of the price. The appellant is a beneficiary of the manipulation. The appellant belatedly defended during arguments only, that he sold shares as he was in need of funds for his daughter's marriage. It is an afterthought. He further pointed out that other entities involved in the affair had either suffered the orders passed against them by not challenging the same or others who filed appeal in the Tribunal suffered dismissal of their appeals at the hands this Tribunal. He gave details of the same. Therefore, he submitted that in the facts and circumstances of the case, no interference in the impugned order is warranted.

Upon hearing both the sides, in our view, the appeal is liable to be dismissed for the following reasons.

The connection of the appellant with Rajiv Agarwal, the authorised signatory of Kartik is writ large on the record of the case. Said Rajiv Kumar Agarwal was a key managerial personnel of this company of which the appellant admittedly was the promoter. Not only he himself, but other members of the promoter group including his real brother Rakesh Kumar Bhatia had offloaded 1,22,705 shares during the period the price had increased and made a profit of around Rs. 71 lac. The appellant thus is a beneficiary of the fraudulent manipulation of the share price.

In the case of HB Stockholdings Ltd. cited (supra), it was found that one or two factum of connection was not sufficient to bring home the charge against the appellant therein. In the case of DLF Ltd. cited (supra), it was observed that a cogent convincing evidence and proof of charge is required against the company.

In our view to find out the fact as to whether the entity has indulged into fraudulent activity, each case has to be decided on it's own merit. Whether a particular charge is proved on the preponderance of probability or not, depends on the nature of facts as available on record of the particular case..

In the present case, it is nobody's case that the rise in the price of the shares was justified by any fundamentals of the company. On the other hand, the show cause notice records that certain announcements were made by the company but those were not fulfilled and announcement of the non-fulfillment was even not made by the company later on. The appellant - the promoter of the Company- in his reply to this show cause notice did not deny this fact.

The facts on record are thus : - The appellant is connected to Rajiv Kumar Agarwal who had entered into dubious transaction with Chetan Dogra. Said Chetan was a conduit used for manipulation in the price of the shares. Fundamentals of the company are not claimed by the appellant to have undergone any favourable change to justify spurt in the price of the shares. The explanation of the appellant as to why he needed to sell the shares is belated one. He is the beneficiary of the manipulation. Taking into consideration all these facts, on preponderance of probabilities it can very well be concluded that the appellant was part of the big picture in the manipulation of the price of the shares of the company.

In the result, 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.