A) ABSTRACT / HEADNOTE

The case of Jaykishor Chaturvedi v. Securities and Exchange Board of India scrutinizes the regulatory mechanisms under SEBI’s jurisdiction with respect to unauthorized trading activities and misrepresentations in securities transactions. The appellant, Jaykishor Chaturvedi, was held accountable under various provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. The core issue revolved around the artificial creation of volumes and misleading appearance of market interest in certain scrips by synchronized and circular trading. The Securities Appellate Tribunal (SAT) confirmed the penalty imposed by the SEBI Adjudicating Officer after observing a pattern of trades that lacked genuine economic rationale. The judgment emphasized the crucial obligation of intermediaries and market participants to maintain integrity and transparency, asserting that misleading appearances and price manipulation can be deemed fraudulent regardless of resultant gain or harm. The case reiterates the judicial commitment towards clean and fair securities markets and offers interpretative clarity on Regulation 3 and 4 of the PFUTP Regulations.

Keywords: SEBI, PFUTP Regulations, Circular Trading, Securities Market, Price Manipulation

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

This case revolves around fraudulent and manipulative transactions in the shares of a particular listed company where the appellant was found to have engaged in synchronized trading to create misleading volumes. The backdrop to the judgment lies in SEBI’s growing scrutiny over wash trades and circular trading which threaten market stability and investor confidence. SEBI issued a show cause notice under the SEBI Act, following which a penalty was imposed. The appellant approached SAT challenging the penalty, asserting that his trades were genuine and devoid of manipulative intent. The tribunal, however, delved into the trade data and established a pattern of pre-arranged transactions executed in a manner that suggested a scheme to artificially inflate trading volume. Notably, the judgment explores the intention inferred from the frequency and structure of trades, rather than relying solely on direct evidence of communication or coordination. The decision holds relevance for its strict interpretation of PFUTP regulations and reinforcement of SEBI’s enforcement capabilities against sophisticated market abuse techniques. It also draws from established precedents including Nirmal Bang Securities (P) Ltd. v. SEBI, which highlighted that price manipulation and volume creation can be proven circumstantially.

D) FACTS OF THE CASE

Jaykishor Chaturvedi, a market participant, was alleged to have participated in trades that created artificial volumes and misled investors in the scrip of a company listed on the Bombay Stock Exchange. The SEBI Adjudicating Officer, based on data obtained from the stock exchanges, noted a series of synchronized trades between the appellant and select counterparty brokers. These trades were executed within seconds of each other, at matching prices and quantities, and constituted a significant proportion of the daily volume. On examining the trading pattern over several trading sessions, it was found that these transactions were not the outcome of regular demand and supply but rather of an orchestrated effort to mislead the market. The trades involved placing buy and sell orders in a near-simultaneous manner designed to match, often referred to as “cross deals.” SEBI held this to be in violation of Regulation 3(a), (b), (c), (d) and Regulation 4(1) of the PFUTP Regulations. The appellant was served a show cause notice followed by adjudication proceedings where he denied any manipulative intent. However, the Adjudicating Officer imposed a monetary penalty under Section 15HA of the SEBI Act. The appellant then filed an appeal with the SAT contesting the penalty and the finding of manipulation.

E) LEGAL ISSUES RAISED

i. Whether the appellant’s trades constituted synchronized trading and created artificial market volumes in violation of PFUTP Regulations?

ii. Whether intent is essential to establish a violation under Regulations 3 and 4 of the PFUTP Regulations?

iii. Whether the penalty imposed under Section 15HA of the SEBI Act was proportionate to the violation?

F) PETITIONER/ APPELLANT’S ARGUMENTS

i. The counsels for Petitioner / Appellant submitted that the trades were executed in the ordinary course of business and matched with counterparties by coincidence due to low float and illiquidity in the stock. They contended that there was no direct evidence to prove pre-arrangement or malafide intent. The appellant argued that in the absence of proven gains or demonstrable loss to investors, the imposition of penalty was unjustified. Reliance was placed on the judgment of Ketan Parekh v. SEBI, (2006) 134 CompCas 1 (SAT), where the tribunal had ruled that mere matching of trades does not ipso facto establish manipulation unless intent is shown. It was further submitted that the trades did not affect the price discovery mechanism and that the appellant did not possess control over the counterparties’ actions. The appellant also asserted that the penalty lacked proportionality and due consideration of mitigating factors such as lack of prior violations.

G) RESPONDENT’S ARGUMENTS

i. The counsels for Respondent submitted that the pattern of trades clearly indicated pre-meditated synchronized trading intended to give misleading appearance of liquidity and investor interest in the scrip. SEBI relied on data analytics showing how buy and sell orders were placed within seconds, matched precisely in quantity and price, and reversed subsequently with identical characteristics. It was contended that such trading behavior falls within the definition of fraud under Regulations 2(1)(c), 3 and 4 of the PFUTP Regulations. The respondent further relied on the Supreme Court’s decision in SEBI v. Rakhi Trading Pvt. Ltd., (2018) 13 SCC 753, wherein the Court ruled that intent to defraud can be inferred from the surrounding circumstances and the design of trading. SEBI also maintained that absence of profit or investor loss does not absolve the appellant, as market integrity and investor confidence are the bedrock of securities regulation. The penalty under Section 15HA was justified considering the gravity and repeated nature of the manipulation.

H) RELATED LEGAL PROVISIONS

i. Regulation 3(a) to (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003

ii. Regulation 4(1) and 4(2)(a), (b), (g) of SEBI (PFUTP) Regulations, 2003

iii. Section 15HA of SEBI Act, 1992

iv. Section 11 and 11B of SEBI Act, 1992

I) JUDGEMENT

The Securities Appellate Tribunal upheld the penalty imposed by SEBI and dismissed the appeal of Jaykishor Chaturvedi. The tribunal observed that the appellant’s pattern of trading clearly showed an intent to manipulate market perception by creating artificial volumes. The trades were not isolated or coincidental; rather, they followed a persistent and distinct pattern where orders were placed and matched within fractions of seconds and reversed in similar fashion. The tribunal applied the settled principle that intent need not be expressly proven and may be inferred from the modus operandi, as reinforced in SEBI v. Rakhi Trading Pvt. Ltd. The tribunal further reiterated that the securities market is premised on transparency and fairness and that conduct which undermines such foundational principles cannot be condoned even in the absence of profit or demonstrable investor harm. The tribunal noted that the appellant failed to produce any credible explanation for the synchronized nature of the trades. The finding of manipulation was therefore held to be valid under Regulations 3 and 4 of the PFUTP Regulations, and the penalty under Section 15HA of the SEBI Act was sustained considering the seriousness of the misconduct and its potential to mislead the public. The tribunal also affirmed that proportionality had been maintained in the imposition of penalty.

a. RATIO DECIDENDI

The tribunal laid down that creation of artificial volumes by synchronized or circular trades constitutes a violation of Regulations 3 and 4 of the SEBI PFUTP Regulations, regardless of profit motive or actual market impact. The essence of the decision lies in the principle that market integrity and fair price discovery processes are paramount, and any conduct that compromises these goals falls within the ambit of market manipulation. The tribunal emphasized that such violations may be inferred from trading behavior and patterns, and not necessarily from direct evidence of pre-arrangement. It held that once a trading pattern is established showing precision in timing, pricing, and volume across counterparties, the burden shifts on the participant to justify the genuineness of such trades. In the absence of satisfactory justification, an inference of fraud is justified. The decision thus reinforces that a high standard of conduct is expected of all market participants, especially in an environment increasingly driven by algorithmic and high-frequency trading. The ratio is consistent with past decisions in Nirmal Bang Securities Pvt. Ltd., Ketan Parekh v. SEBI, and SEBI v. Rakhi Trading Pvt. Ltd., which interpret manipulative behavior based on circumstantial and systemic trade data.

b. OBITER DICTA

The tribunal made significant observations concerning the increasing sophistication of manipulation in the securities market and the need for regulators to adopt a preventive approach. It was noted that even in the absence of actual financial harm, such patterns can distort market integrity and reduce investor trust. The tribunal expressed concern about evolving forms of deceitful trading practices including algorithmic misuse and HFT abuses, which are harder to detect through conventional means. It also commented that mere absence of gains to the manipulator or losses to others should not be used as a defense in such cases, as the primary concern is the erosion of systemic integrity. Another relevant observation was that market conduct regulations must be interpreted purposively, keeping in mind the evolving nature of financial markets and technological tools used by traders. The tribunal advised SEBI to continue developing analytic capabilities to detect such schemes proactively.

c. GUIDELINES 

i. Trading patterns exhibiting synchronized orders with high match rate and negligible time gaps can be treated as circumstantial evidence of manipulation.

ii. Absence of profit motive or actual loss to investors is not a valid defense under Regulations 3 and 4 of PFUTP Regulations.

iii. A participant must justify the legitimacy of their trades once a preponderance of evidence shows a pattern inconsistent with normal market behavior.

iv. SEBI may impose penalties even when only intent is inferred from circumstantial trade data if it aligns with fraudulent conduct definitions under the PFUTP Regulations.

v. Disciplinary action is necessary to maintain investor trust and prevent sophisticated manipulative behavior from being normalized in securities markets.

J) CONCLUSION & COMMENTS

The judgment in Jaykishor Chaturvedi v. SEBI exemplifies the judiciary’s firm stance against manipulative trading practices that threaten the sanctity of Indian capital markets. The tribunal’s careful analysis of trade data and inference of intent from circumstantial evidence signals a progressive interpretation of securities laws suited for a technologically advanced market environment. The ruling solidifies the principle that market participants must adhere not just to the letter of the law but also to its spirit, especially where their actions have the potential to mislead or disrupt fair trading practices. It further provides much-needed clarity on how SEBI and the courts evaluate synchronized or circular trades, offering regulatory predictability and deterrence against market abuse. While the appellant attempted to downplay the significance of the trade patterns, the tribunal’s rejection of these arguments underscores the judiciary’s reliance on analytical frameworks and previous jurisprudence to identify manipulative intent. This judgment also nudges SEBI toward developing more advanced surveillance tools to tackle increasingly complex and algorithmically driven market abuse. For legal practitioners and market participants alike, this decision serves as a reminder of the high standards of fairness and transparency expected in the securities ecosystem.

K) REFERENCES

a. Important Cases Referred

i. SEBI v. Rakhi Trading Pvt. Ltd., (2018) 13 SCC 753

ii. Ketan Parekh v. SEBI, (2006) 134 CompCas 1 (SAT)

iii. Nirmal Bang Securities Pvt. Ltd. v. SEBI, SAT Appeal No. 54 of 2003

iv. Shri Ram Mutual Fund v. SEBI, (2006) 68 SCL 216 (SAT)

b. Important Statutes Referred

i. Securities and Exchange Board of India Act, 1992 – Section 11, 11B, 15HA

ii. SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 – Regulations 2, 3 and 4.