A Securities and Exchange Board of India (SEBI) special court has rejected a plea filed by tainted stockbroker Ketan Parekh, the prime accused in the securities scam of 2000-2001, for the closure of a case initiated against him by the market regulator for not paying a penalty imposed. The court noted that Mr Parekh, the accused, prima facie violated the norms 'intentionally'.
In an order passed last week, RM Jadhav, special judge ruled that Mr Parekh's plea for compounding of the case against him is unwarranted and uncalled for.
After he failed to pay the penalty, SEBI initiated a criminal case against Mr Parekh. He, however, filed an application before the special court for closure of the case by compounding saying that the complaint had been filed in 2003 for the alleged violation in 1997.
Mr Parekh's lawyer submitted before the court that almost 25 years lapsed since the alleged violation and his client offered to pay whatever amount was sought by SEBI.
"The applicant desires to compound offence and is willing to pay the subject matter of the present complaint by satisfying the norms and factors stated by the SEBI," the counsel says.
He further contended that on previous occasions too cases against Mr Parekh were closed after payment of the fine and so far a fine of Rs3.37 crore had been paid.
However, the counsel for SEBI argued that Mr Parekh, through his associates and investment companies, placed orders in large quantities exceeding the prevailing market price and also cornered a large pool of shares through the off-market deals.
Further, the shares were sold in large volumes at a manipulated high price of scrips, causing the stock market to crash, SEBI says.
The market regulator stated that considering the gravity of the offence, Mr Parekh was debarred from entering the stock market; however, he dealt in the stock market for which the adjudication order imposing penalty was passed.
The special court noted, "prima facie the acts of the accused in violating the rule of regulation of SEBI are intentional."
Further, there is a violation of the SEBI rules and regulations by the accused even after the debarment for 14 years, the bench noted.
Judge Jadhav said, "The accused is alleged to have travelled abroad without seeking permission of the court. The presence of accused Ketan Parekh is secured on proclamation. So, the conduct of the accused in not following the orders is also required to be noted."
"On the contrary having due regard to the nature of allegations, and conduct of the accused, I found that the compounding of the offence is unwarranted and uncalled for," the court observed, while rejecting the plea.
Earlier in February 2023, while imposing a penalty of Rs15 lakh, SEBI asked Mr Parekh and his father Bhupendra Parekh to disgorge, with an interest of 12% per annum, Rs22.88 lakh - the unlawful gains earned by them from front-running trades via Quest Investment Advisors Pvt Ltd (Quest). The son was also barred from markets for two years, while the father was banned for three months.
"I find that the noticees have made unlawful gains or averted loss of Rs22,88,126 from front running the orders of Quest, which are being directed to be disgorged by this order. I find that the show cause notice (SCN) does not allege any specific loss caused to investors or a group of investors as a result of the default by the noticees. I note that noticee no1 (Ketan Parekh) had placed all the front running orders in the account of noticee no2 (Bhupendra Parekh). I note that noticee no2 had authorised noticee no1 to place orders in his trading account," Ananta Barua, whole-time member (WTM) of SEBI, says in the order.
In November 2017, the SEBI special court had rejected the bail plea by Mr Parekh. Mr Parekh was accused of indulging in circular trading and was convicted of stock manipulation in 2008. In 2009, SEBI banned 26 entities post its investigation that revealed how several companies and brokers indulged in circular trading on behalf of Mr Parekh.
