A two judgment of the Supreme Court, in Securities and Exchange Board of India v. Rakhi Trading Private Ltd, held that persons are not allowed to indulge in any fraudulent or an unfair trade practice in the stock market.
The bench comprising Justice Kurian Joseph and Justice R Banumathi further pointed out that the guidelines issued by SEBI to protect the interest of the investors must be strictly followed.
In the present case, M/s Rakhi Trading engaged in the business of stock exchange. the Board found that the trade logs that on various occasions, the time of transactions was not matched by the respective parties and these transactions resulted in a closeout difference of Rs 115.79 lakhs without any significant change in the value of the underlying. Consequently, a penalty of Rs.1,08,00,000 was imposed under Section 15HA of the SEBI Act, 1992.
On appeal, SAT held that the synchronization and reversal of trades effected by the parties with a significant price difference, some in a few seconds and majority, in any case, on the same day had no impact on the market and it has not affected the NIFTY index in any manner or induced investors. It also observed that such trades are illegal only when they manipulate the market in any manner and induce investors.
Justice Kurian Joseph observed that “the stock exchange is a platform created to facilitate efficient and fair trading. However, the transactions between the parties were non-genuine and orchestrated which is prohibited under the PFUTP Regulations. The non-genuineness of these transactions is evident from the fact that there was no commercial basis to suddenly, within a matter of minutes, reverse a transaction when the value of the underlying had not undergone any significant change.”
The Court further observed that “Trading is always with the aim to make profits. But if one party consistently makes the loss and that too in preplanned and rapid reverse trades, it is not genuine; it is an unfair trade practice. Securities market, as the 1956 Act provides in the preamble, does not permit “undesirable transactions in securities”. The SEBI Act, 1992 was enacted to protect the interest of the investors in securities. Protection of interest of investors should necessarily include prevention of misuse of the market”.
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