Supreme Court Upholds Penalty Against BP Equities For Fraudulent Trading In Ruchi Soya
BP Equities violated provisions of the Prohibition of Fraudulent and Unfair Trade Practices.
The Supreme Court upheld on Monday a penalty of Rs 20 lakh imposed by SEBI on BP Equities Pvt. for violation of market norms pertaining to fraudulent and unfair trade practices.
While dismissing BP Equities' plea, the top court said it was not inclined to interfere with the Securities and Exchange Board of India's order.
In 2021, the markets regulator had imposed a penalty of Rs 20 lakh on BP Equities for violating the provisions of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations.
After observing dubious trading activity in the scrip of Ruchi Soya Industries Ltd., SEBI found that BP Equities engaged in non-genuine trading activities.
Ruchi Soya had undergone the insolvency resolution process in 2019, following which the share capital of the company was reduced by 99%. The new promoters got shares in the ratio of 100:1 — for every 100 shares in the company prior to the resolution plan, these shareholders got 1 share each.
In the five-month investigation carried out by SEBI from January 2020 to May 2020, the regulator observed that BP Equities placed orders far beyond the free-float stock. At times, orders were placed without there being sufficient margin.
SEBI had found that 42% of the orders placed by BP Equities in the scrip of Ruchi Soya were cancelled by the stock exchange’s system due to insufficient margin and that 56% of the orders placed were cancelled by BP Equities immediately after placing them. The markets regulator said this clearly showed that it didn't have any intention of trading in the company's securities.
SEBI found that by the time these orders were rejected by the stock exchange system, it had resulted in artificial volume generation in the pre-open session by misleading the order book. This was done by placing large buy orders, far greater than the available market float.
Although all these orders were deleted, they remained on the platform of the stock exchange for a few seconds.
SEBI said although it was difficult to ascertain the unfair advantages enjoyed by an entity in such cases, this fraudulent activity gave a misleading impression of artificial volume to lay investors, leading it to impose a penalty on BP Equities.
