According to the SAT, the three had not acted as intermediaries but individual traders in the securities market and hence have not violated any norms of SEBI
Mumbai: The Securities Appellate Tribunal (SAT) had set aside an order by Securities and Exchange Board of India (SEBI) that slapped a penalty of Rs11 crore on three individuals for allegedly engaging in fraudulent trading practices in the stock market, reports PTI.
The tribunal has set aside the penalty of Rs5 crore each on Dipak Patel and Kanaiyalal Baldevbhai Patel as well as Rs1 crore fine on Anandkumar Baldevbhai Patel. They were allegedly involved in "front running" related to foreign institutional investor, Passport India Investment (Mauritius).
Generally, front running refers to a broker executing orders with prior knowledge of the demand from the buyer side.
"We are of the considered view that in the facts and circumstances of the present case, the board has erred in holding the appellants guilty of violating regulation 3 of the FUTP (Fraudulent and Unfair Trade Practices) regulations. We, therefore, set aside the impugned orders and allow the appeals with no order as to costs," SAT said in its order.
It was alleged that Dipak Patel, a portfolio manager for Passport India, had shared information about forthcoming trading with a Kanaiyalal Baldevbhai Patel. Anandkumar Baldevbhai Patel also allegedly abetted such activities.
According to the SAT, the three had not acted as intermediaries but individual traders in the securities market and hence have not violated any norms.
As per the SEBI's regulations, front running is prohibited only by intermediaries, and not by traders in the market.
"In the absence of any specific provision in the (FUTP) Act, rules or regulations prohibiting front running by a person other than an intermediary, we are of the view that the appellants cannot be held guilty of the charges levelled against them," SAT said.
The tribunal said Passport India was the major counter party for trading in the market and had placed huge orders.
Hence, the possibility of traders' orders for smaller quantities matching with the orders of Passport India cannot be ruled out, it added.
"Therefore, it cannot be said that they have manipulated the market... In the absence of any specific provision in law, it cannot be said that a fraud has been played on the market or market has been manipulated by the appellants when all transactions were screen-based at the prevalent market price," SAT said.