SEBI holds Kirti Kothari no guilty in manipulation charges

SEBI holds Kirti Kothari no guilty in manipulation charges

The proof of manipulative transaction always depends on an inference drawn from a mass of actual details In the matter of IPO of Tijaria Polypipes Ltd, SEBI in its 22 January 2021 judgment has said that the Noticee (Kirti Ramji Kothari) was not liable for a monetary penalty.

SEBI had conducted an investigation in respect of trading in the scrip of Tijaria Polypipes Limited (TPL), upon observing a steep fall in the share price on the first day of listing. The investigation revealed that on 14 October 2011, the share price of TPL in NSE fell from the highest price of Rs 67.75 per share to Rs 16.50 per share while in BSE, it fell from the highest price of Rs 67.80 per share to Rs 6.05 per share.

The Adjudicating Officer (AO) opined that it was not in dispute that the Noticee had executed trade both in NSE and BSE on the first day of listing and had bought 26,651 shares from seven retail allottees at BSE and 1,00,556 shares from retail 34 allottees at NSE.

It was also a fact that there were trades of retail allottees in the scrip of TPL on the day of listing. However, the relevant issue to decide herein was whether any unfair trade practice/manipulation is arising out of these trade of the Noticee as alleged in the SCN or any intention to enter into such transaction/trade was evident from the material available on record.

The Adjudicating Officer (AO) observed that the proof of fraudulent/manipulative transaction in the circumstances always depends on an inference drawn from a mass of actual details, the nature of the transaction, conduct of the parties etc. It is difficult to prove intent by direct evidence in these type of manipulation and therefore circumstantial evidence has to be taken into consideration.

Further, the circumstantial evidence should be sufficient to raise a presumption in its favour with regard to the existence of a fact sought to be proved since it is exceedingly difficult to prove facts which are especially within the knowledge of parties concerned. It was found that the Noticee had carried out buy and sell trades both in BSE as well as in NSE.

It was also observed that in the instant case the evidence and material available on record was insignificant to hold that the trades executed by the Noticee to give exit to the retail allottees and also exited by it in synchronized trade with Chetan Dave.

Further establishing intent or fraudulent motive in the commission of such trade was absolutely imperative to allege anyone with fraudulent and unfair trade practice.

In the present case, there was no such document/information/evidence provided which established such fraudulent intention. Besides, it was also observed that at BSE during 9.15 am to 10 am, sell orders for 19,44,900 shares were executed out of which Kirti Kothari bought 26,651 shares from seven retail allottees which were mere 1.37 per cent of traded quantity during the aforesaid period. Similarly, at NSE during 9.15 am to 10 am, sell orders for 37,95,054 shares were executed out of which Kirti Kothari bought 1,00,556 shares from seven retail allottees which were mere 2.64 per cent of traded quantity during the aforesaid period.

There was no evidence to prove that the Noticee was connected to the counter-parties to its trade nor was connected with directors/promoter of the company. There was hardly any evidence against the Noticee on involvement so as to proceed against it for the alleged violation merely because the Noticee trade matched with the sell order of the retail allottees and buy order of Chetan Dave without any connection or evidence on the same to prove that it was an unfair trade practice/manipulative in nature.

Also, there was nothing on record to substantiate the advantage/gain incurred by the Noticee by providing exit to the retail allottees and advantage/gain incurred by Chetan Dave by providing exit to the Noticee.

There was nothing on record to substantiate the allegation of manipulative intent behind aiding and abetting, about who was the person to whom Noticee was fronting or aiding or abetting, about who was the person who had an interest in ensuring that the retail allottees were able to exit at a premium to issue price.

Hence, the AO was of the view that the allegations made against the Noticee for violation of Section 12A of SEBI Act, 1992 and Regulations 3(a), (b), (c) & (d), 4(1) of SEBI PFUTP Regulations, 2003 had not been established.