Citation Codes

Equivalent Citations

citation codes

Disposition

Acts

SECTION 19 SECURITIES AND EXCHANGE BOARD OF INDIA ACT
provisions of Section 12A (a), (b), (c)6of the SEBI Act read with Regulations 3 (a), 3(b), 3(c), 3(d), 4(1), 4(2)(a), 4(2) (e)
Section 15HA for violation of the provisions of Sections 12A(a),(b) and (c) of the SEBI Act read with Regulations 3
Section 12-A read with Regulations 3 and 4 of the 2003 Regulations
Section 15-Z of the SEBI Act,
Section 15 HB of the SEBI Act

See more information ...

Smart Summary

Structured Summary of the Judgment — MBL and Company Limited v. Securities and Exchange Board of India

Factual and Procedural Background

The appellant is MBL and Company Limited; the respondent is the Securities and Exchange Board of India (SEBI).

On 28 February 2020, the Whole Time Member (WTM) of SEBI, exercising powers under Sections 11, 11(4) and 11B read with Section 19 of the SEBI Act, passed an order restraining the appellant from buying, selling or otherwise dealing in securities in its proprietary account, directly or indirectly, for a period of four years from the date of the order.

On 17 March 2020, the adjudicating officer imposed a penalty of Rs. 15,00,000 (Rs. 10,00,000 under Section 15HA for violations of Sections 12A(a),(b),(c) of the SEBI Act read with Regulations 3 and 4 of the PFUTP Regulations, and Rs. 5,00,000 under Section 15HB for violating the Code of Conduct for Stock Brokers).

During proceedings before the Securities Appellate Tribunal (SAT), the appellant was directed to deposit Rs. 2,00,00,000 with SEBI, conditional upon which the WTM's order dated 28 February 2020 was directed to remain stayed; that deposit was made.

The WTM found that the appellant engaged in manipulative trading in the scrip of Gujarat NRE Coke Limited (GNCL). The WTM recorded that out of 5,041 self-trades between 15 December 2011 and 24 February 2012, 4,327 self-trades for 11,828 shares were executed through the same terminal ID/user ID and that these self-trades had a positive LTP contribution amounting to Rs. 289.35 (12.64% of total market positive LTP). The WTM concluded these were intentional and manipulative self-trades designed to increase the price of GNCL.

The SAT affirmed the WTM's findings by its order dated 13 May 2022. The present appeals to the Supreme Court challenge the WTM and SAT orders.

Legal Issues Presented

Whether the appellant's pattern of single‑share self-trades and other trading conduct constituted manipulative trading in breach of Section 12A of the SEBI Act read with Regulations 3 and 4 of the PFUTP Regulations.
Whether the debarment of the appellant from trading in its proprietary account for four years was disproportionate or arbitrary such that this Court should interfere under Section 15Z of the SEBI Act.
Whether the assessment of sanction (in particular debarment) should be limited to the direct monetary gain to the appellant, or whether the wider impact on market integrity is a legitimate basis for imposing debarment.

Arguments of the Parties

Appellant's Arguments (as advanced by senior counsel Dr Abhishek Manu Singhvi)

The appellant executed trades on fifty days between 15 September 2011 and 9 January 2015.
The net gain involved was Rs. 3.45 per share.
Across the trading days, the total profit was Rs. 2.61 lakhs and the volume represented only 0.04% of the total market — a negligible market impact in terms of volume.
Given the small quantum of actual gain and volume, a four‑year ban from trading in the proprietary account is disproportionate and harsh.
The ban would have severe consequences for the appellant's employees (the appellant has 450 employees).
The stay granted earlier was conditioned on deposit of Rs. 2 crores, which was complied with.
While the adjudicating officer imposed a monetary penalty of Rs. 15 lakhs, the WTM independently imposed a four‑year trading bar, which the appellant contends is disproportionate relative to the penalty.

Respondent's Arguments (as advanced by counsel for SEBI)

The imposition of a debarment need not be calibrated to the quantum of direct monetary gain; the WTM's order is distinct from the adjudication awarding monetary penalty.
The trades were executed from the same terminal ID and were carried out manually rather than electronically, indicating intentional manipulation.
The WTM correctly found intentional manipulation of the scrip price; given the nature of the misconduct and its impact on market integrity, the ban was justified.
This Court should not interfere with penalties or sanctions unless they are disproportionate or arbitrary, consistent with precedents of this Court.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Adjudicating Officer, Securities and Exchange Board of India v. Bhavesh Pabari ((2019) 5 SCC 90)	Interference under Section 15‑Z of the SEBI Act is permissible only if the penalty or quantum is wholly arbitrary, harsh or distinctly disproportionate; courts will not ordinarily substitute their view unless the penalty is intolerable.	The Court relied on this principle to frame the standard of review and declined to interfere because the WTM's order was not shown to be wholly arbitrary or disproportionate in the circumstances.
N. Narayanan v. SEBI ((2013) 12 SCC 152)	Section 12A read with Regulations 3 and 4 of the PFUTP Regulations aims to prevent market abuse and preserve market integrity; market manipulation harms investor confidence and the healthy growth of the securities market.	The Court invoked this precedent to emphasize that sanctions address not only private gain but also the protection of market integrity; consequently, sanctions may be appropriate even where the direct monetary gain appears limited.
Mrs. Kalpana Dharmesh Chheda and others v. SEBI (SAT order dated 25 February 2020)	Observation that selling minuscule quantities (one share each) repeatedly while holding a large position can amount to a manipulation strategy to raise price and offload holdings.	The WTM and the Court treated this SAT observation as instructive in concluding that single‑share trades can be used to manipulate price; it supported the WTM's conclusion that single‑share self‑trades may be manipulative.

Court's Reasoning and Analysis

The Court's analysis proceeded in several linked steps, each grounded in findings recorded by the WTM and affirmed by the SAT:

Factual findings by WTM and SAT: The WTM documented the appellant's recurring pattern of placing large sell orders at prices higher than the last traded price, and immediately thereafter placing a single‑share buy order which matched with its own large sell order, thereby creating self‑trades and establishing a higher last traded price (LTP). A substantial portion of the self‑trades were executed through the same terminal ID/user ID and were carried out manually. The WTM quantified a positive LTP contribution of Rs. 289.35 arising from the self‑trades.
Characterisation of conduct: On the basis of the pattern, repetition and the technical details recorded in WTM's tabular analysis, the WTM concluded that these were intentional self‑trades designed to effect a price rise in the scrip of GNCL, and therefore manipulative within the meaning of Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations.
Scope of sanctioning: The Court accepted the legal position that assessment of sanctions under these provisions must take into account not only the direct private gain to the wrongdoer but also the broader injury to market integrity. The Court relied on N. Narayanan to underline that prevention of market abuse and preservation of market integrity are central aims of the statutory scheme.
Standard of interference: The Court reiterated the standard in Bhavesh Pabari — interfering with sanctions is appropriate only where the penalty or sanction is wholly arbitrary, harsh or disproportionate to the violation. Given that standard, the Court examined whether the WTM's debarment order crossed that threshold.
Application to the present case: The WTM had expressly considered the impact of the manipulation on market integrity and concluded that single‑share self‑trades, in the pattern and frequency identified, had an impact on price and were designed to create false price ascension. The WTM also left the appellant free to operate its broking account, limiting the prohibition to the proprietary account for a specified period.
Conclusion of the Court: The Court found no valid basis to characterize the WTM's debarment as wholly arbitrary or disproportionate in the circumstances. The SAT had affirmed the findings of manipulative trading and the WTM's sanction; the Supreme Court declined to interfere with those conclusions and with the sanction imposed.

Holding and Implications

APPEALS DISMISSED

Direct effect on the parties:

The appeals by MBL and Company Limited against the WTM and SAT orders are dismissed.
The WTM's order restraining the appellant from dealing in securities in its proprietary account for four years (from the date of the WTM order) stands in place as affirmed by the SAT and the Supreme Court; the adjudicating officer's monetary penalty remains part of the record of sanctions against the appellant.
The WTM's order permitted the appellant to continue operating its broking account, limiting the prohibition to its proprietary trading.

Broader implications:

The Court emphasized that sanctions under Section 12A and the PFUTP Regulations may be imposed for conduct that harms market integrity even when the direct monetary gain to the offending party is limited. Thus, assessment of sanctions is not confined to quantifiable private gain but includes protection of the securities market's integrity and investor confidence.
The Court did not indicate the setting of a new legal principle beyond reiterating established tests — interference under Section 15Z will lie only where a penalty or sanction is wholly arbitrary, harsh or disproportionate; no novel precedent was announced in this judgment.

Disposition in the Court's Order: The appeals are dismissed and any pending application is disposed of.

Source: Supreme Court judgment (bench of Dr Dhananjaya Y. Chandrachud and Bela M. Trivedi JJ.), New Delhi; May 26, 2022. Summary prepared strictly from the provided opinion text; no additional facts or inferences have been introduced.

Show full summary ...

Order of Hon`ble Supreme Court of India in - MBL and Company Limited v. SEBI -Civil Appeal No.4262-4263/2022

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

Civil Appeal Nos 4262-4263 of 2022 MBL and Company Limited .... Appellant Versus

Securities and Exchange Board of India ....Respondent

J U D G M E N T

Dr Dhananjaya Y Chandrachud, J Factual Background

1 The Whole Time Member¹of the Securities and Exchange Board of India² passed an order on 28 February 2020, in exercise of the jurisdiction under Sections 11, 11(4) and 11B read with Section 19 of the Securities and Exchange Board of India Act 1992³, restraining the appellant from buying, selling or otherwise dealing in securities in its proprietary account, directly or indirectly, for a period of four years from the date of

1 "WTM"

2 "SEBI"

3 "SEBI Act"

the order.

2 On 17 March 2020, the adjudicating officer exercised their powers under Section

15 I and imposed a mandatory penalty of rupees fifteen lakhs; Rupees ten lakhs under Section 15HA for violation of the provisions of Sections 12A(a),(b) and (c) of the SEBI Act read with Regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003⁴and Rupees five 5 lakhs under Section 15 HB of the SEBI Act for violating the Code of Conduct for Stock Brokers read with the SEBI (Stock Brokers and Sub Brokers) Regulations 1992.

3 During the pendency of the proceedings before the Securities Appellate Tribunal⁵, the appellant was directed to deposit an amount of rupees two crores with SEBI, conditional upon which the order dated 28 February 2020 passed by the WTM was directed to remain stayed.

4 The WTM arrived at a finding that the appellant had engaged in manipulative trades as a consequence of which the share price of a company by the name of Gujarat NRE Coke Limited came to be manipulated. Out of 5,041 self-trades between 15 December 2011 and 24 February 2012, it has been noted that 4,327 self-trades for 11,828 shares were executed through the same terminal ID. The specific finding in this regard is contained in paragraph 23.9 of the order of the WTM, which is extracted below:

"23.9. In this regard, I note that out of 5,041 self-trades, 4,327 self-trades for 11,828 shares were executed through

4 "PFUTP Regulations"

5 "SAT"

the same terminal ID/user ID i.e. buy and sell order was placed by same person/dealers manually. Further, from 5,042 self-trades, the positive LTP contribution was Rs.

289.35 i.e. 12.64% of total market positive LTP. I also note that MBL accepted that single share self-trade was placed by it though according to it, to check the current price of GNCL by impermissible means. Thus, I am of the view that MBL had intentionally, through manual trading, placed the single share self-trade from same terminal to increase the price of GNCL for its own benefit."

5 The WTM has also observed as follows:

"24. From the above, I note that during the period December 15, 2011 to February 24, 2012, MBL had continuously placed single share buy order immediately after placing sell order of large quantity at a price higher than the last traded price. These single share order got matched with its own sell order of large quantity resulted into self-trade of 1 share. This single share self-trades had increased the price of shares of GNCL, which benefit MBL. Thus, MBL had artificially manipulated the price of GNCL through single share self- trade. Hence, self-trades executed by MBL are intentional self-trades with an intention to manipulate price of the scrip of

GNCL.

25. Considering the order placing pattern and other circumstances mentioned at paragraph 23 and 24 above, I am of the view that self-trades had impact on the price of the shares of GNCL, however, self-trades were so designed to appear that the volume creation is negligible but were in fact motivated by the manipulative intention of creation of false price ascension. Thus, preponderance of probability is that these trades are intentional self-trades. Therefore, I conclude that the impugned self-trades by MBL are intentional and manipulative self-trades.

26. MBL contended that in order to check the price of the scrip, MBL placed a single share buy order and these insignificant quantum of trading could not impact either the price or volume of the scrip. In this regard, I note that single share buy order placed by MBL got matched with the already available large sell order of MBL at a price higher than the last traded price thereby establishing the higher LTP. Further, such order placement pattern of MBL were observed in large number of MBL self-trades and the same were repetitive in nature. I note that due to such trading pattern, MBL had positive LTP contribution of Rs. 289.35 through 5,041 self- trades. Further, I also note the observation of Hon'ble Securities Appellate Tribunal (SAT) in order dated February 25, 2020 in the matter of Mrs. Kalpana Dharmesh Chheda and others Vs. SEBI that "…. when the appellants were

holding a large number of shares, their selling miniscule quantity of one share each on more than four dozen occasions is nothing but a strategy of manipulation and unfairly benefiting by offloading the entire shareholding after raising the price to considerable levels…..". Though the said observation of the Hon'ble SAT was rendered in the context of manipulative trading pattern adopted by single share transaction, the same equally holds good in the present factual matrix of the case as well, in respect of manipulative self-trades through single share transaction. Thus, in view of the observation of Hon'ble SAT, I am of the view that manipulation in the scrip can be done by single share order placement method also, which has precisely happened in the present matter, in such a scenario, volume created by such trades/self-trades in the scrip is irrelevant/immaterial. Thus, considering at the pattern of trading done by MBL and the fact that MBL had derived benefit through that particular scheme or nature of trading, I am of the view that the trading pattern adopted by MBL is of a manipulative and unfair nature and would fall within the ambit of the PFUTP Regulations. Hence, I do not find any merit in the submission of MBL that single share order placement could not impact either the price or volume of the scrip."

6 The above findings have been affirmed in appeal by the SAT, by its impugned order dated 13 May 2022.

Submissions of Counsel

7 In the present case, it has been submitted on behalf of the appellant by Dr Abhishek Manu Singhvi, senior counsel, that:

(i) The appellant had executed trades on fifty days between 15 September 2011 and 9 January 2015;

(ii) The net gain which was involved is an amount of Rs 3.45 per share; and

(iii) Over the entire duration of fifty days when the trades were carried out, the total profit which has been generated would be in the amount of Rs 2.61 lakhs, while the volume of trade represents only 0.04 per cent of the total market value which

is spread over the abovementioned trading days;

(iv) In this backdrop, the imposition of the bar from trading for a period of four years is disproportionate and harsh;

(v) The impact of the ban would seriously affect the employees of the appellant. The appellant has 450 employees;

(vi) A stay was in operation from 28 February 2020 and the direction to deposit rupees two crores during the pendency of appeal before the SAT was duly complied with; and

(vii) Whereas the adjudicating officer imposed a penalty of rupees fifteen lakhs, the WTM has proceeded to bar the appellant from carrying on trading in its proprietary account for a period of four years, which is disproportionate.

8 Mr Pratap Venugopal, counsel appearing on behalf of SEBI, on the other hand, submitted that the imposition of the ban by the WTM is not relatable to the extent of the gain which has been made by the appellant. The order passed by the WTM, it has been urged, is distinct from the penalty which has been imposed by the adjudicating officer. In the present case, it has been submitted that the trades, as noted in the order of the WTM, were carried out from the same terminal ID and there is also a finding of fact that the trading was done manually and not electronically. Hence, it has been observed that there was an intentional manipulation in the price of the company in question. This court, it has been urged, ought not to interfere with a penalty so long as it is not disproportionate or arbitrary, as the precedents of this court indicate.

Analysis

9 In the present case, the order of the WTM as well as of the SAT notes that the modus operandi of the appellant was to place a huge sale order at a price higher than the last traded price of the company and thereafter to make a self-trade of only one share for that higher price, thus, establishing a new higher LTP. This has been depicted in the following table, which is contained in the order of the WTM and in the impugned order of the SAT:

"Sr Date Orde Order No. Order Time Orde Trade Trad Trad Diff.

. r r Qty Time e e In (LM) Qty. Price LTM No. Type

(In Rs.)

Sell 201202080003832 09:15:08.000000 5000

9 0

1 08/02/201 09:15:1 1 24.00 0.55

2 2

Buy 201202080004290 09:15:11.000000 1

2 0

Sell 201201240004055 09:15:32.000000 2000

7 0

2. 24/01/201 09:15:3 1 22.10 0.25

2 6

Buy 201201240005456 09:15:36.000000 1

9 0

Sell 201112160012234 09:19:36.000000 2000

9 0

3. 16/12/201 09:19:3 1 16.65 0.15

1 6

Buy 201112160012242 09:19:36.000000 1

1 0

Sell 201112230004678 09:15:34.000000 1000

1 0

4. 23/12/201 09:15:3 1 16.50 0.15

1 5

Buy 201112230004716 09:15:35.000000 1

4 0

Sell 201112230004987 09:15:41.000000 1000

8 0

23/12/201 09:15:4 0.15

5. 1 Buy 201112230005213 09:15:47.000000 1 7 1 16.45 "

9 0

10 The WTM found the appellant guilty of violating provisions of Section 12A (a), (b), (c)⁶of the SEBI Act read with Regulations 3 (a), 3(b), 3(c), 3(d), 4(1), 4(2)(a), 4(2) (e) and 4(2)(g)⁷of the PFUTP Regulations. It is in this backdrop that the WTM has come to the conclusion that the manipulation which was conducted by the appellant has to be analyzed not only from the narrow perspective of the gain which has been caused to

6 12-A. Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control.—No person shall directly or indirectly— (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognised stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder; …."

7 Regulation 3: - Prohibition of certain dealings in securities No person shall directly or indirectly- (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under. Regulation 4:- Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following namely: (a) indulging in an act which creates false or misleading appearance of trading in the securities market; …. (e) any act or omission amounting to manipulation of the price of a security; …. (g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security."

the appellant, but, on the breach of the integrity of the securities market.

11 In a judgment of a three-Judge Bench of this Court in Adjudicating Officer, Securities and Exchange Board of India v Bhavesh Pabari⁸, it has been observed that:

"34. This Court, in the exercise of its jurisdiction under Section 15-Z of the SEBI Act, cannot go into the proportionality and quantum of the penalty imposed, unless the same is distinctly disproportionate to the nature of the violation which makes it offensive, tyrannous or intolerable. Penalty by the very nature of the provision is penal. We can interfere only where the quantum is wholly arbitrary and harsh which no reasonable man would award. In the instant case, the factual findings are not denied and, thus, we are not inclined to intermeddle with the quantum of penalty. The penalty imposed is just, fair and reasonable and, thus, upheld."

The above observations make it clear that the imposition of a penalty is subject to interference under Section 15Z of the SEBI Act only where the quantum is found to be wholly arbitrary and harsh or distinctly disproportionate to the nature of the violation.

12 In the present case, the WTM, while imposing an order of debarment, has specifically applied her mind to the issue as regards the impact of such a manipulation. While dealing with this aspect, the WTM has observed that the manipulation of the price of scrips seriously impinges upon other counter parties in the securities market. In other words, the impact of a manipulation which is carried out by a participant in the securities market cannot be assessed only in terms of the gain which has been caused to the participants themselves, but in terms of the wider consequences of the action on the securities market.

8 (2019) 5 SCC 90

13 In N. Narayanan v. SEBI⁹, this Court observed that Section 12-A of the SEBI Act read with Regulations 3 and 4 of the PFUTP Regulations specifically aim to curb market manipulations which can have an adverse effect on investor confidence and the healthy growth of the securities market. This Court made the following observations:

"33. Prevention of market abuse and preservation of market integrity is the hallmark of securities law. Section 12-A read with Regulations 3 and 4 of the 2003 Regulations essentially intended to preserve "market integrity" and to prevent "market abuse". The object of the SEBI Act is to protect the interest of investors in securities and to promote the development and to regulate the securities market, so as to promote orderly, healthy growth of securities market and to promote investors' protection. Securities market is based on free and open access to information, the integrity of the market is predicated on the quality and the manner on which it is made available to market. "Market abuse" impairs economic growth and erodes investor's confidence. Market abuse refers to the use of manipulative and deceptive devices, giving out incorrect or misleading information, so as to encourage investors to jump into conclusions, on wrong premises, which is known to be wrong to the abusers. The statutory provisions mentioned earlier deal with the situations where a person, who deals in securities, takes advantage of the impact of an action, may be manipulative, on the anticipated impact on the market resulting in the "creation of artificiality". The same can be achieved by inflating the company's revenue, profits, security deposits and receivables, resulting in price rise of the scrip of the company. Investors are then lured to make their

"investment decisions" on those manipulated inflated results, using the above devices which will amount to market abuse."

14 The securities market deals with the wealth of investors. Any such manipulation is liable to cause serious detriment to investors' wealth. In this backdrop, the order which has been passed by the WTM cannot be regarded as disproportionate so as to result in the interference of this Court in the exercise of its jurisdiction under Section 15Z of the SEBI Act. Moreover, the WTM has prohibited the appellant from participating in its proprietary account for a specified period, leaving it open to the appellant to

9 (2013) 12 SCC 152

continue operation in their broking account.

15 For the above reasons, we are not inclined to accede to the submissions which have been urged on behalf of the appellant. The appeals shall stand dismissed.

16 Pending application, if any, stands disposed of.

…..…..…....…........……………….…........J. [Dr Dhananjaya Y Chandrachud] …..…..…....…........……………….…........J. [Bela M Trivedi]

New Delhi;

May 26, 2022

Order of Hon`ble Sup... v. SEBI -Civil Appeal N...