Premeditated scheme to manipulate price of scrip is fraud under PFUTP Regulations: SEBI

Premeditated scheme to manipulate price of scrip is fraud under PFUTP Regulations: SEBI

In the matter of Voltaire Leasing and Finance Ltd, the Securities and Exchange Board of India (SEBI) has restrained the Noticee, Mr. Harivallabh Mundra from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner for a period of 2 years.

SEBI had conducted an investigation into the trading and dealings in the scrip of Voltaire Leasing & Finance Limited (VLFL or Company) pursuant to receipt of a reference from Department of Income Tax, Chandigarh, for possible violation of the provisions of Securities and Exchange Board of India Act, 1992 SEBI Act and rules and regulations made thereunder. Investigation was conducted in the scrip of VLFL for the period August 12, 2014, to July 31, 2015 (Investigation Period/ IP).

During the IP the price of the scrip opened at Rs. 2.42 and reached a high price ofRs.32.10 and closed at Rs.32.10.Pursuant to the investigation, a common Show Cause Notice (SCN) was issued to the concerned entities, including Mr. Harivallabh Mundra (Noticee).

The Noticee mainly submitted that the observation in the SCN that the Noticee was an Executive Director in the Company till September 29, 2014, was erroneous and false. Moreover, in its Annual Report for FY 2014-15, the Company falsely declared that the Noticee had attended Board Meetings and AGMs.

Noticee denied that he was an Executive Director of the Company during the investigation period or that he was aware of any transactions between the Company and Looklike or that he was involved in the said alleged manipulation of the scrip price.

The Adjudicating Officer (AO) opined that the Noticee continued to be an Executive Director in the Company till his cessation from the Board. The submissions of the Noticee that he had ceased to be involved in the affairs of VLFLor that he was removed from decision making positions in FY 2013-14couldnot be accepted. As long as he continued to be an Executive Director in VLFL, he remained in a decision making role and was responsible for all acts of VLFL, unless he provided specificcredible evidence to the contrary.

The SCN issued to the Noticee had spelt out the provisions under which the directions, if found necessary, would be issued. The SCN also clearly indicated the specific nature of violations that were alleged against the Noticee in terms of different provisions of the SEBI Act and the PFUTP Regulations, which if eventually found to be breached, would require issuance of suitable directions under specific provisions.

Furthermore, the SCN issued to the Noticee unequivocally stated provisions under which preventive measures, if any would be issued.

One suchprovision mentioned in the SCN was Section 11(4) (b) of SEBI Act, 1992 which states that upon completion of an inquiry, a person can be restrained from accessing the securities market and can also be prohibited from being associated with the securities market. Thus, it was incorrect to contend that SCN did not envisage the directions that might be issued against them.

It was held that the Noticee, by virtue of being an Executive Director of the Company, was in charge of its affairs at the time of the violations, and along with the other entities party to the SCN, was part of the scheme, which was set in motion right from the allotment of shares to look like in FY 2013-14,for manipulating the price of the scrip of VLFL during the period August 12, 2014, to July 31, 2015.

Lastly, it was concluded that the Noticee, had been party to the premeditated scheme to manipulate the price of the scrip of VLFL and this act on his part fell within the definition of fraud as per the PFUTP Regulations. This act of the Noticee was prohibited under the provisions of the PFUTP Regulations.