SEBI says it has power to take action against entities connected to those involved in price manipulation

Read Order: SEBI Order in matters of GLOBAL INFRATECH AND FINANCE LTD

LE Staff

New Delhi, August 11, 2021: The Securities and Exchange Board of India (SEBI), in exercise of its powers conferred under section 19 read with sections 11(1), 11(4) & 11B of the SEBI Act. 1992, restrained Noticee Nos. 1 to 10 and 42 to 46 in a case concerning Global Infratech & Finance Ltd from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner for specified periods of time.

Furthermore, if SEBI observed that a company’s scrip was manipulated, it had the power to take action against the entities involved in price manipulation. Thus, if entities were connected to entities involved in price manipulation, SEBI had the power to take action against such entities, observed Madhabi Puri Buch (Whole Time Member). 

In the present case, SEBI had taken action against Noticee Nos. 42 to 46, since it was during investigation that they were preferential allottees connected to Global Infratech & Finance Ltd (GIFL) through fund transactions and connected to LTP contributor through GIFL and had sold shares at artificially inflated price. 

Hence, SEBI initiated enforcement action against them for alleged violation of Prohibition of Fraudulent & Unfair Trade Practices (PFUTP) Regulations on the basis of their connection with GIFL through fund transactions and thereby with entities involved in price manipulation; their selling of shares during price rise period at artificially inflated/manipulated price. 

SEBI stated that as per ICDR (Issue of Capital and Disclosure Requirements) Regulation 2(za), promoter included person/persons: in control of issuer; instrumental in formulation of a plan or programme pursuant to which specified securities were offered to public; named in offer document as promoters. 

In the present case, allegation against Noticee Nos. 13 to 36 was on the basis of the Company’s version that they were promoters as mentioned in shareholding pattern. As per documentary evidence, Noticees did not fall within purview of the above definition. Besides, Noticees submitted they were neither involved in affairs of GIFL nor knew its directors. No documentary evidence was available on record of involvement of these Noticees in managing affairs of GIFL or their awareness of knowing its directors, noted MP Buch. 

Hence, as it was difficult to reasonably conclude that Noticee Nos. 13 to 36 were promoters of GIFL, MP Buch in the order recorded that allegation that Noticees were connected to GIFL by virtue of them being its promoters did not stand established. 

Moreover, no allegation against Noticee Nos. 13 to 41 of LTP contribution, price manipulation, volume manipulation, circular trades, reversal trades, synchronised trades, etc. could be proved. Hence, Noticee Nos. 13 to 41 could not be said to be involved in alleged fraudulent scheme and violation of PFUTP Regulations 3(a), (b), (c), (d) and 4(1), opined MP Buch. 

However, considering connection of Noticee Nos. 1 to 7 between themselves as well as with GIFL, their trading behaviour as sellers was not found genuine. MP Buch found them to have acted under a premeditated scheme where under they placed orders in such a manner so as to raise LTP significantly. 

The trading pattern exhibited intent to increase price of scrip every day with significantly low volumes and also appeared to be devoid of any economic rationale. Thus, preponderance of probability led to conclusion that trades were executed by Noticee Nos. 1 to 7 in a manipulative manner for increasing price of scrip of GIFL, noted MP Buch. 

Hence, the SEBI in its order concluded that allegation of violation of provisions of PFUTP Regulations 3(a), (b), (c), (d), 4(1), 4(2)(a) and 4(2)(e) against Noticees stood established.