Allegations of structured trading fail absent proof of direct connection and prosecution of counterparties.

The Appellants, promoters of North Eastern Carrying Corporation Ltd. (NECC), were penalized ₹10 Lakh each by an Adjudicating Officer (AO) of SEBI via order dated February 21, 2023.

SEBI’s investigation (Dec 2016 – Apr 2017) alleged that the Appellants created artificial trading volumes by offloading shares to "connected entities" through structured trades—orders placed within one minute of each other with matching prices and volumes.

Utkarsh Jain sold approximately 28.46 lakh shares and Vanya Jain sold approximately 16.26 lakh shares across BSE and NSE.

The AO alleged this provided a fraudulent exit to the promoters.

The Appellants challenged the order, asserting trades were genuine screen-based transactions at market price with no direct connection to the counterparties.

1. Whether the Appellants created artificial/fictitious volumes by selling their holdings in the scrip of NECC through structured transactions with connected counter-party buyers in violation of securities laws.

The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations (PFUTP), specifically regarding the creation of artificial volumes and "meeting of minds".

Section 15T of the SEBI Act, 1992 for appellate jurisdiction.

The evidentiary standards for "connection" requiring a high degree of probability established in SEBI v. Kishore R. Ajmera.

Compliance with disclosure requirements under Regulation 29 of the SEBI (SAST) Regulations, 2011 and Regulation 7 of the SEBI (PIT) Regulations, 2015.

The Tribunal found that SEBI failed to establish a credible "meeting of minds" or a direct connection between the Appellants and the 18 alleged counter-parties.

The connection was based tenuously on a former director, Pramod Jain, who had quit the related company prior to the trades and held no shares in the counter-party entities.

The Tribunal observed that SEBI dropped charges against 9 out of 11 alleged "connected" counterparties without reason, which rendered the allegation of a pre-arranged conspiracy with the Appellants unsustainable.

The investigation itself found no evidence of price manipulation (the trades occurred at market price) and no connection to the entities sending promotional SMS messages.

Since the trades were executed on an anonymous, algorithm-driven exchange platform where identity is masked, and no "mens rea" or unfair gain was proven, the charge of artificial volume creation was deemed based on mere presumption rather than evidence.

The Tribunal allowed Appeal Nos. 397 and 398 of 2023 and set aside the SEBI AO’s order dated February 21, 2023, against the Appellants.