SEBI Vindicated Allegations Levelled Against PMC Fincorp

SEBI Vindicated Allegations Levelled Against PMC Fincorp 

KK Securities' contention that it did not indulge in any malafide trading upheld by the regulator

The Securities and Exchange Board of India (SEBI) initiated adjudication proceedings against K K Securities Ltd (Noticee) in the matter of PMC Fincorp Limited for the alleged violations of Section 12A(a),(b),(c) of SEBI Act, 1992 read with Regulation 3(a),(b),(c),(d) and Regulations 4(1), 4(2) (a), (e) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP) pursuant to investigation in the scrip of PMC Fincorp Limited ('Company').

The board primarily dealt with three issues. Issue No. I - Whether Noticee is in violation of Section 12 A(a), (b), (c) of SEBI Act, 1992 r/w Regulation 3(a), (b), (c), (d) and Regulation 4(1), 4(2) (a), (e) of PFUTP Regulations as alleged in the SCN? Issue No. II - If yes, whether the failure, on the part of the Noticee would attract monetary penalty under Section 15HA of the SEBI Act? Issue No. III - If yes, what would be the monetary penalty that can be imposed upon the Noticee taking into consideration the factors stipulated in Section 15J of the SEBI Act read with Rule 5(2) of the Adjudication Rules?

The Noticee contended and strongly denied the alleged violation of provisions of SEBI while transacting in the scrip of the 'Company' during the investigation period and denied the alleged connection with other co-noticees, as alleged, more specifically either with the promoter entity group of the company, PMC, or any other group (Raghav Behl group).

Further, it was intensely and humbly stated that noticee had not transferred/ received funds from the other co-noticees, except for the payment made to 4 co-noticees against the bonafide purchase of scrip in off-market mode on behalf of clients. It was further clarified that there has been no instance of any personal loan or reversal of funds or any accommodation entry etc. by the Noticee with even a single co-noticee.

Noticee vehemently submitted that even SCN categorically, apart from Noticee's bonafide transactions in the said scrip, does not alleges Noticee or mentions its name on many allegations such as but not limited to; promoter group insider trading, price rigging, funds transferred from the company, ITD's reply reference, client concentration volumes etc.

Further, in order to establish charges of fraudulent trading or violation of PFUTP Regulations, it is set principle of law that the parties to these trades should have colluded amongst themselves. It placed reliance on the case Jagruti Securities vs. SEBI and stated, 'that in order to establish the charge of synchronisation or creating an artificial impression of trade happening, collusion between the buyer and seller is necessary.'

Noticee asserted that the following essential elements for alleging the charge of collusion, resulting in the manipulation, entering in unfair trade practice, needs to be established; First, specific role of the noticee in playing manipulation. Second, direct and material connection between the noticee and other alleged entities of the scrip. Third, establishment of malafide intention for a wrongful gain. Fourth, establishment of actual wrongful loss made to others or in markets, which is a sine qua non.

They finally pleaded that it is a bonafide entity and engaged only in bonafide trading practices, on behalf of its clients, with the intention of performing its duties as a broker and earning a brokerage income. The practice undertaken by Noticee was similar to that of any other rational entity.

SEBI after an in-depth examination observed, "based on the trading pattern of the Noticee of selling a total of 10,000 shares on just 2 days in Patch 1, of which only 2 trades matching with allegedly connected counterparties for a total 90 shares caused a positive Last Traded Price of Re.1.00, I am inclined to accept the submissions of the Noticee that the trading pattern does not point towards collusion with these 2 counterparties. It is also pertinent that of the total 50 trades with these 2 counterparties, only 2 trades resulted in Last Traded Price contribution of Re. 0.50 each."

The board went ahead and added that considering the pattern of trading by the Noticee, "which was primarily sale of shares leading to Zero Last Traded Price contribution during the price rise period, the board was inclined to accept the contention of the Noticee that the 2 sell trades on September 26, 2012, and September 27, 2012, for contributing Re. 1 cannot manipulate the market or reflect any pattern or any collusion or manipulation."

Subsequently the pattern of trading by the Noticee, which was primarily the sale of shares leading to negative Last Trading Price contribution of Rs. 6.70, the contention of the Noticee that the 1 sell trade on 3 January 2014 for contributing Re. 0.05 cannot manipulate the market or reflect any pattern or any collusion or manipulation stands true. Therefore, the issues II and III do not hold merit for consideration and quashed the proceedings against KK Securities on 5 January 2021.