sebi:Order/SBM/AK/2022-23/16839

SEBI · SEBI · 2021-07-27 · Suresh B Menon, Adjudicating Officer

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

Violation established; penalty of Rs.5,00,000 imposed under Section 15HA of SEBI Act

Provisions invoked

• s. 15
• s. 19
• s. 15H
• s. 15J
• s. 28A

Regulations

• Reg. 3
• Reg. 4(1)
• Reg. 3(a)

Parties

• Anil Kumar Gadodia HUF

Holding

The Noticee violated regulations 3(a), 4(1) and 4(2)(a) of the PFUTP Regulations by executing 4 non-genuine reversal trades in 2 illiquid stock option contracts at BSE creating artificial volume, and is liable to a monetary penalty of Rs.5,00,000 under section 15HA of the SEBI Act.

Full text

___________________________________________________________________________ Adjudication order in respect of Anil Kumar Gadodia HUF in the matter of dealing in Illiquid Stock Options at BSE Page 2 of 14 the above referred investigation period. It was observed that Noticee had entered into reversal trades with its counterparties which involved squaring off transactions with significant difference in sell value and buy value of the transactions. It was therefore alleged that Noticee had executed the reversal trades, which were non-genuine in nature and have created false or misleading appearance of trading in terms of creation of artificial volume in the Stock Options segment at BSE and therefore, it is alleged that the Noticee has violated the provisions of regulations 3(a), (b), (c), (d) and regulation 4(1), 4(2) (a) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003 (hereinafter referred to as ‘PFUTP Regulations’). In view of the above reasons, adjudication proceedings have been initiated against the Noticee under the provisions of section 15 HA of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’). APPOINTMENT OF ADJUDICATING OFFICER

___________________________________________________________________________ Adjudication order in respect of Anil Kumar Gadodia HUF in the matter of dealing in Illiquid Stock Options at BSE Page 3 of 14 c. It is observed from the table above that the trades entered by the Noticee in the contract of “JISL15JUL60.00PEW2” on July 02, 2015 with its counterparty viz. J B Overseas were reversed between the Noticee and the same counterparty on the same day resulting in reversal of trades which are, prima facie, considered to be as non-genuine. Therefore, in the process artificial volume in the stock option contract at BSE has been generated by the Noticee through such non-genuine trades. From the table above, it is observed that the artificial volume created as no. of units reversed in non-genuine trades is 3,84,000 shares comprising both volume of initial trade and volume of reversal trade, while not considering the volume which is not reversed. In the process, it is observed that the Noticee had made a loss of Rs. 2,97,600. d. It is further observed from the trade data of the Noticee that it has allegedly entered into non-genuine trades in 2 contracts wherein it executed a total of 4 trades all of which were, prima facie, non-genuine trades. In view of this, it is alleged that such fraudulent trades of the Noticee had resulted into creation of artificial volume of total 6,48,000 units. e. In this regard, details of all the alleged non-genuine trades of the Noticee in the Stock Opt

___________________________________________________________________________ Adjudication order in respect of Anil Kumar Gadodia HUF in the matter of dealing in Illiquid Stock Options at BSE Page 4 of 14 a. The Noticee has only traded on the online trading platform of BSE, and only through SEBI registered Brokers. SEBI has not provided any evidence that trades were fraudulent. None of the ingredients of PFUTP regulations were attracted. b. SEBI itself has not discharged its obligation of quick investigation, seeking explanation at the time and declaring trades as illegal at the relevant time. Adjudication proceedings have been initiated after approx. 7 years. In this regard, reliance was placed inter alia on the following decisions: i. Ashok Shivlal Rupani Vs. SEBI Appeal No. 417 of 2018 decided on August 22, 2019 by Hon’ble SAT. ii. Shriram insight share brokers Ltd in Misc. Application No. 593 of 2020 and appeal no. 559 of 2020 decided by Hon’ble SAT. c. The Noticee has sought relevant extracts of the Investigation report, in view of the Judgement in the matter of T. Takano Vs SEBI decided on February 18, 2022 by Hon’ble Supreme court. d. For the transactions to be termed fraudulent there has to be inducement, SEBI has not alleged any inducement. Mere allegation of fraud without any specific particulars cannot be accepted as fraud. In this regard, reliance was placed inter alia on the following decision: i. Electrosteel Castings Limited Vs UV asset Reconstruction Company Ltd

Source: SecMarx — sebi:Order/SBM/AK/2022-23/16839. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.