4 noticees penalized INR 2 lakh each for violation of PFUTP Regulations, 2003
The SEBI conducted an investigation into the scrip of Focus Industrial Resources Limited (FIRL) and found that the four noticees had created artificial volume in the scrip through their dealing thereby violating the provisions of regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a) and 4(2)(g) of the PFUTP Regulations, 2003
The Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs. 2 lakh on each of the 4 entities (Savitri Devi Agarwal, B M Agarwal, Mukat Behari and Deepak Gupta) in the matter of Focus Industrial Resources Limited (FIRL / Company).
In this matter, the SEBI had conducted an investigation into the scrip of the Company to ascertain any possible violation of the provisions of the SEBI Act, 1992 and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (PFUTP Regulations, 2003) in the trading of certain entities during the period February 1, 2013 to July 30, 2013 (Investigation Period/ IP).
Pursuant to the investigation, it was observed that a group of entities viz. Savitri Devi Agarwal, B M Agarwal, Mukat Behari and Deepak Gupta, along with other connected entities, created artificial volume in the scrip of FIRL by repeatedly transacting in off market and on market. In view of the same, it was observed that the said entities had violated the provisions of regulations 3(a), (b), (c), (d), 4(1), 4(2)(a) and (g) of the PFUTP Regulations, 2003.
The Adjudicating Officer (AO) observed that the off-market transactions were established connections and thereby the noticees thus connected were treated as working in unison.
It was also opined that the noticees who were part of 69 entities had contributed in the creation of artificial volume by receiving shares of FIRL through off-market transfers from Natraj Capital & Credit Pvt. Ltd. and selling the shares on-market to Natraj Capital & Credit Pvt. Ltd. and its connected entities viz. Kesri Industrial Lab Pvt. Ltd. and Tushar India Private Limited, thereby resulting in no overall change of beneficial ownership.
It was also elucidated that Regulation 3 of the PFUTP Regulations, 2003 prevents any person from buying, selling or dealing in securities in a fraudulent manner; using or employing any manipulative or deceptive device in contravention to the provisions of the Act; employing any device, scheme or artifice to defraud in connection with dealing in securities or engage in any act, practice, course of business which operates as fraud or deceit upon any person in connection with any dealing in or issue of securities.
Regulation 4(1) provides that no person shall indulge in a fraudulent or unfair trade practice in securities. Regulation 4(2)(a) of the PFUTP Regulations, 2003, prohibits a person from indulging in an act which creates false or misleading appearance of trading in the securities market.
Regulation 4(2)(g) of the PFUTP Regulations, 2003, prohibits entering into a transaction in securities without the intention of performing it or without the intention of change of ownership of such security.
According to the AO, the noticees had sold the shares on-market on the exchange platform and they had submitted that they did not know the counterparties of the said trades. In this respect, it was noted that the fact that the transactions were done with Natraj Capital & Credit Pvt. Ltd. and its connected entities, from whom they had received shares in off-market transfer, indicated a prior meeting of mind with a view to execute the said trades at a pre-determined time and price .
The off-market transfer and on-market transfer of shares among the connected entities could not be considered as a mere coincidence. The trading pattern by the noticees did imply collusion, meeting of minds and fraudulent intent to create artificial volume in the scrip of FIRL.
The participants involved in such trades made use of their prior knowledge and entered orders knowing that those orders will be covered by reverse orders of similar size, time and price. This increased the trading volumes in the underlying security and generated interest from other investors.
The AO was also of the view that the only intention behind such buying or selling was for raising or depressing prices of the underlying securities by increasing trading volumes. Therefore, it was concluded that the noticees indulged in trades with one leg in off market and the reverse leg on the market, which had resulted in creation of artificial volume in the scrip of FIRL, leading to false and misleading appearance of trading in the scrip.
Hence, it was concluded that the four noticees had created artificial volume in the scrip of FIRL through their dealing and, therefore, violated the provisions of regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a) and 4(2)(g) of PFUTP Regulations, 2003.