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Rupani Case: SAT Asks SEBI to Hear All Parties Before Decision

In its order, SEBI had charged had charged 22 entities, including Vijay Rupani’s Hindu Undivided Family (HUF), for “manipulative trades” in Sarang Chemicals.

Gujarat chief minister Vijay Rupani. Credit: PTI

Gujarat chief minister Vijay Rupani. Credit: PTI

Mumbai: The Securities Appellate Tribunal (SAT) has set aside the Securities and Exchange Board of India’s (Sebi’s) order penalising 22 entities, including Gujarat Chief Minister Vijay Rupani’s Hindu Undivided Family (HUF), for alleged manipulative trades in Sarang Chemicals.

In an order dated November 8, the SAT, which hears appeals from parties aggrieved by Sebi orders, directed the market regulator to issue a fresh order in the matter after hearing all the parties.

Akash Harishbhai Desai, one of the 22 entities charged by SEBI, filed a plea before the SAT, seeking relief against the order dated October 27. His plea was taken up by the consent of the counsels representing him and Sebi.

The SAT asked the entities involved to file their reply within three weeks. “We set aside the impugned order and permit the appellant and other parties against whom the impugned order is passed to submit their reply within three weeks from today (November 8). Thereafter, Sebi shall pass fresh order after giving an opportunity of hearing to all the parties,” the three-member SAT Bench said.

“As it is the case of the appellant that the impugned order is passed without giving an opportunity to the appellant and other parties to file their reply and the said order is passed without giving an opportunity of personal hearing,” said the tribunal’s presiding officer, J P Devadhar.

Adding: “Counsel for Sebi on instruction states that Sebi is ready and willing to pass appropriate order after giving an opportunity of hearing to the parties, provided the parties to the impugned order file their respective reply within the time stipulated by this tribunal.”

SEBI in the order had said it had to pass an ex parte order as the entities involved didn’t respond to its show cause notice within the stipulated time.

Rupani’s office stated on Thursday that the HUF had purchased the shares for about ~63,000 in 2009 and sold them for ~35,000 in 2011. He said he had nothing to do with speculation in shares and had in fact incurred a loss of ~28,000 in the transaction. Rupani had purchased the shares on the stock exchange, paying transaction tax, and sold them in a single transaction in 2011. There was no violation of any SEBI guideline or illegal financial transaction in this deal, he added.

“In 2011, the share broker of Vijay Rupani HUF had carried out only one transaction which is a minuscule part of the total transactions done by several unconnected entities,” he said on Twitter.

In its order, Sebi had charged 22 entities, including Rupani’s Hindu Undivided Family (HUF), for “manipulative trades” in Sarang Chemicals. The regulator imposed separate penalties amounting to Rs 6.9 crore on the 22 entities, which Sebi investigation found were “connected or related”. Rupani’s HUF has been asked to pay Rs 15 lakh, while three other individuals would have to shell out Rs 70 lakh or more each. Sebi says the penalties are “commensurate with the violations”. Among the 22 entities, there are two brokers (noticee number 21 and 22) through whom the trades were executed. They have been asked to pay a penalty of Rs 8 lakh each.

The alleged manipulative transactions were done between January 2011 and June 2011—investigation period.

In May 2016, SEBI had issued a common show cause notices to the 22 entities alleging violations under Sebi Prohibition of Fraudulent and Unfair Trade Practices relating to securities market (PFUTP).

The Rupani HUF was noticee number 18 in the matter.

“Since, the violations against the noticees (the 22 entities) has been established and the same are serious in nature, therefore, I am of the view that monetary penalty under section 15 HA of the Sebi Act (PFUTP) against the noticee no. 1-20 and monetary penalty under section 15 HB of the SEBI Act (Stock Brokers Regulations) against the noticee no. 21 & 22 is warranted in the case,” said Rachna Anand, general manager and adjudicating officer in a 31-page order dated October 27.

SEBI bifurcated the noticees into two considerations – one for price manipulation and the other for creating misleading appearance in the securities market and creating artificial volume in the shares of Sarang Chemicals by trading among themselves.

Vijay Rupani HUF (noticee 18) is mentioned in the second consideration.

During the investigation period, 20 entities bought shares that accounted for 33 per cent of the market volume and later sold shares that accounted for 86 per cent of the market volume. Sebi said Rupani HUF had gross sales of 87,311 shares accounting for 0.1 per cent of the gross sales to total selling volumes.

“It is observed that Noticee No. 1-9, 18 & 20 by trading voluminously amongst themselves had first generated interest among the other investors to trade in the scrip and when the other investors started trading in the scrip due to such false impression of market, some of the group entities (Noticee No. 1-5 and 10-17) had offloaded shares in the market at increased price… Such pattern of trading clearly reveals the ulterior/malafide intent and certainly such activities of noticee no. 1-18 & 20 is in violation of regulation 3 (a) to (d), 4 (1) & 4 (2) (a), (b) & (e) of the PFUTP Regulations,” the SEBI order says.

SEBI also said that Rupani didn’t reply to the show cause notice (SCN) issued by it. “The Noticee (Rupani HUF) contended that the CD (compact disk) attached to SCN is damaged and it is unable to open the same. Considering the request of noticee, another CD was sent to him vide communique dated May 25, 2016 and informed the noticee no. 18 that in case it is still unable to open the CD then, its duly authorised person may collect the same from office of undersigned with prior intimation. It was also stated in said communique to provide its e-mail ID. Vide letter dated June 13, 2016, the noticee requested for keeping in abeyance the proceedings till Mr Vijay Rupani recovers. As per medical certificates attached with said letter suggested for rest of eight weeks to Vijay Rupani from May 18, 2016, however, no reply towards the SCN has been received from it/him till date,” SEBI said in the order.

SEBI said it passed an ex-parte order as the noticees, including Rupani HUF, failed to submit their reply to the SCN within the sufficient time provided.

The SEBI adjudicating officer disapproved of the modus operandi and said, “I am of the view that the modus operandi used by the said noticee(s) in first creating an artificial interest of trading in the scrip/manipulatively luring investors to trade and then, offloading shares at increased price and thereby making unlawful gain, is serious in nature and detrimental to the market.”

By arrangement with the Business Standard

Note: This article was edited at 10 30 PM on November 9, 2017 to add the Securities Appellate Tribunal order.

  • Anjan Basu

    Rupani, Nathwani, Amit Shah, Jay Amit Shah: birds of a feather ……..