SEBI imposes penalty on the Noticee in the matter of Well Pack Papers & Containers

SEBI imposes penalty on the Noticee in the matter of Well Pack Papers & Containers 

A Penalty of Rs. 3 Lakhs has been imposed on the Noticee viz. Shri Pannalal Prajapathi by the Securities and Exchange Board of India (SEBI) under the provisions of Section 15HA of the SEBI Act. In this matter, SEBI had observed huge rise in the traded volumes and/or price of the shares of the Well Pack Papers & Containers Limited (Well Pack/Company) and an investigation was conducted in the scrip of Well Pack for the period from November 28, 2008 to June 30, 2010 ( Investigation Period/IP). The IP was divided into First and Second investigation period due to the split in the shares of the Well Pack.

The Adjudicating Officer (AO) of SEBI vide order dated February 16,2015 (AO order) concluded that certain entities including the Noticee had created artificial volume and manipulated the price in the scrip of WellPack during the Investigation Period and imposed penalties accordingly. The aforesaid AO order was challenged by the Noticee in the Hon'ble Securities Appellate Tribunal (SAT) and the SAT set aside the AO order with respect to the Noticee and restored the matter to the file of AO.

The Appellant had contested the Show Cause Notice (SCN) by stating that there were glaring discrepancies in the data provided with the SCN. He strongly refuted that he was part of any group and denied that he had traded through multiple brokers as he had executed trades in the scrip of Company only through one registered broker i.e. Mehta Equities Ltd.

He also stated that since, most of the details establishing connections amongst the purported Noticees was either not available or not reliable, any inference should not have been drawn on the basis of incomplete and unreliable information. It was also contended that no iota of evidence of collusion with the counterparties to his trades had been found.

The AO answered the issues in this case by stating that a group of 40 entities (WSG entities ) including the Noticee traded in collusion with each other, in the scrip of Well Pack during the second investigation period. The Noticee had made transactions in the scrip of Well pack only during the second investigation period and no transactions were made by him during the first investigation period. It was also noted from the SCN that the Noticee was alleged to be connected to the WSGentities, on the basis of off market share transfers with 3 other entities who were also a part of WSG entities.

The AO has also affirmed that the Noticee's buy quantity was 6,27,000shares which contributed to 0.25% of the total market volume in the scrip of WellPack. The Noticee's sell quantity was 6,51,500 shares, which contributed to 0.26% of the total market volume in the scrip during the second investigation period. The Noticee's buy and sell quantity within the WSGentities in the scrip was 0.79%and0.88%of the total buy and sell volume respectively. So, the AO held that by trading amongst the WSGentities, the Noticee had contributed to the volume in the scrip of Well Pack during the second investigation period.

It has also been emphasised by the AO that the Noticee being part of the WSG entities, executed synchronized trades, indulged in trading among the group entities, in the second investigation period, which involved no change in beneficial ownership. This trading of the Noticee had also contributed to the creation of artificial volume and such trading was fraudulent in nature.

Thus, the dealings of the Noticee have been held to be manipulative and therefore, the charges levelled against him in the SCN regarding the contravention of the provisions of Regulations 3(a), (b), (c), (d) and Regulations 4(1), 4(2)(a), (b) & (g) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relation to Securities market), 2003 (PFUTP Regulation) stood established.