Securities Exchange Board of India (SEBI): Madhabi Puri Bach, Whole Time Member, considering the alleged violations committed, issued directions restraining Global Infratech and Finance Ltd (GIFL), its two directors and 12 other individuals from the securities market for their roles in a fraudulent scheme of trading in the firm’s shares and for price manipulation.
In the instant case, upon analysis, it was observed that the Noticees were part of an alleged manipulative scheme to make preferential allotment and manipulate the benefit connected to the preferential allottees, promoters of the company and promoter related entities. In the show-cause notice, it was further alleged that there was an established nexus and meeting of minds between the noticees to inflate the price of the scrip of GIFL and thus violated the provisions of Regulation 3(a),(b),(c),(d) and Regulation 4(1),4(2) (a), (e) of PFUTP Regulations. Furthermore, the other 33 Noticees were alleged to be connected with GIFL and were a part of the scheme to make preferential allotment, manipulate the price of the scrip and get benefit by selling the shares at an artificially inflated price. And had thus, violated the provisions of Regulation 3(a), (b), (c), (d) and Regulation 4(1) of PFUTP Regulations, 2003. GIFL and directors of GIFL at the time of preferential allotment were alleged to have violated the provisions of Regulation 3 (a), (b), (c) and (d) and Regulation 4(1) of PFUTP Regulations, since a company cannot act by itself, but only through its directors who are expected to exercise their powers on behalf of the company with utmost care, skill and diligence.
Some of the Noticees had contended that it is a well-settled law that the taint of fraud cannot be attached or charged on preponderance of probability, and compelling evidence should be brought on record for a person/entity to be held liable for fraud
The Tribunal while assessing the preliminary objection of the Noticees, that SEBI did not provide crucial details, documents and records for the proceedings, and that the were not inspection of documents
Further, upon perusal of the SCN, I find that there is no allegation against Noticee No. 13 to 41 that the trades of Noticee No. 13 to 41 had resulted into LTP contribution, price manipulation, volume manipulation, circular trades, reversal trades, synchronized trades, etc. The only allegation in the SCN against Noticee No. 13 to 41 is that they are connected to GFIL and LTP contributors and sold shares at artificially inflated prices and thereby involved in the fraudulent schemes.
After considering a catena of SAT orders, it was of the opinion that, “there is no ‘single’ or ‘only’ test to determine the charge of price manipulation in cases wherein the primary charge is emanating from miniscule trading by the sellers over a period of time at the highest possible price on each day”. While substantiating the definition of fraud under regulation 2(1)(c), it pointed out various acts and omissions which do not presume the connection of the person committing the same with another, but are still clear violations. It stated, “… Further, regulations 3 and 4 of the PFUTP Regulations also use phrases such as no person shall use or employ, no person shall indulge, etc. and do not, at all places, stipulate the requirement of a connection between two parties to a transaction in order to establish a violation. Further, the prohibition of fraudulent dealing in securities includes an act of fraudulent buying or selling. It may be noted that the unilateral act of fraudulent buying or selling is also included in the definition of fraud under FUTP Regulations. There can be instances where artificial demand and price rise can be created choosing to buy unilaterally. Therefore, the Regulations make it clear that unilaterally by virtue of fraudulent selling alone, a person can manipulate the price of a security”. And highlighted the fact that steep price rise with meager volume followed by a sudden increase in volume at high price is not a normal market trend.
Therefore, it was held that the connected preferential allottees had sold the shares at inflated price and received substantial benefit and the directors have acted in a fraudulent manner in furtherance of a larger scheme and their acts are attributed to the Company. Resultantly, the Company and the Directors were restrained for two years and other allottees for a period of six months from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner for the period mentioned below against their name from the date of this order. Also, further restrained them from associating themselves with any listed public company and any public company which intends to raise money from the public or any intermediary.[Global Infratech and Finance Limited, In re, 2021 SCC OnLine SEBI 168, decided on 16-07-2021]