The special court for the Securities and Exchange Board of India (SEBI) has held Gujarat-based trader Kanaiyalal Patel guilty for non-payment of Rs5 crore penalty for illegal trading and making profits from, and sentenced him to three years in jail with a fine of Rs10 lakh.
SEBI began its probe into Patel’s trading activity with regards to a firm namely Passport India Investment (Mauritius) Ltd, a foreign institutional investor, from January 1, 2007 to March 31, 2009.
As per SEBI’s order on September 30, 2011, “Patel had placed and executed orders before the orders of Passport and subsequently squared off his positions when the orders of Passport were placed in the market. It is alleged that Patel earned Rs1.56 crore from the alleged trading.”
It was further noted that Patel’s cousin, Deepak Patel, was portfolio manager of Passport India and served as the point of contact between the stock brokers and the firm, providing information regarding Passport’s forthcoming trading activity from which the trader benefited.
The trader was held guilty for fraudulent, manipulative and unfair trade practices and fined Rs5 crore on September 30, 2011, and asked to pay within 45 days.
Meanwhile, Patel challenged the order before the Securities Appellate Tribunal (SAT), which set aside the order and allowed the appeal on November 9, 2012. Thereafter, SEBI moved the Supreme Court, which directed the trader to pay the fine.
After the order of the apex court, SEBI issued a notice to Patel on June 18, 2018 to pay a sum of Rs9.03 crore, with interest on the penalty amount. Another notice was issued on March 19, 2021. Patel replied to the notice on April 16, 2021 but failed to pay.
Patel’s lawyer has contended that the real culprit in the case was someone else and he is being made a scapegoat. He also argued that Patel paid Rs25 crore penalty pertaining to a previous order but couldn’t pay the new fine as his properties were attached by SEBI for recovery of funds.
The court observed that the alleged offence is in the nature of “an economic offence” and “not fit case for lenient view”, which is why the fine and jail term. The court also said that SEBI has powers to seize property to recover the penalty.
