Allegation for Violating PFUTP Regulations Couldn’t Be Sustained As There’s No Evidence Linking the Appellant to Entities Manipulating Price

Case Details: Abhinandan Jain v. Securities and Exchange Board of India - [2023] 153 taxmann.com 35 (SAT-Mumbai)

Judiciary and Counsel Details

• • Justice Tarun Agarwala, Presiding Officer & Ms Meera Swarup, Technical Member
  • CA Kushal Shah for the Appellant.
  • Sumit Rai, Ravishekhar Pandey, Ms Shefali Shankar & Ms Rasika Ghate, Advs. for the Respondent.

Facts of the Case

In the instant cases, SEBI conducted an investigation in trading of certain entities in scrips of company ‘PFL’ wherein it was revealed that companies ‘ACI’ and ‘FIL’ were placing buy orders at a price substantially higher than the last traded price and, thus, deliberately and fraudulently increased price of scrip of ‘PFL’ to enable Chairman and Managing Director of company ‘PFL’ i.e. ‘P’ to offload shares at a higher price.

It was also alleged that the appellant was an Independent Director of the company and was alleged to be directly connected to entities that manipulated the price of the scrip of the very same company.

SEBI therefore, imposed a penalty of Rs. 10 lakhs on the appellant, ‘ACI’ and ‘FIL’ for alleged violation of regulations 3 and 4 of PFUTP Regulations and Rs. 1 lakh had been imposed for non-disclosure under SEBI, (Prohibition of Insider Trading) Regulations, 1992.

It was noted that admittedly, no trade was executed by the appellant and there was no finding that the appellant was manipulating the price of the scrip. Further, there was no finding that the appellant was conniving with ‘ACI’ and ‘FIL’ in manipulating price.

The SAT observed that in the absence of any such finding, the appellant could not be found guilty of price manipulation by ‘ACI’ and ‘FIL’ only on the ground that he was connected to them.

SAT Held

The SAT held that finding that the appellant had facilitated the offloading of shares by ‘P’ was patently erroneous and based on surmises and conjectures and merely because the appellant was known to ‘P’ could not lead to a conclusion that he facilitated the offloading of shares.

Thus, charges of alleged violation of PFUTP regulation against the appellant could not be sustained and the order of imposition of penalty upon the appellant was to be quashed.