Trade matching without proof of connection between parties cannot sustain allegations of manipulative synchronised trading.

SEBI conducted an investigation into the trading of the scrip of Gayatri Sugars Ltd. between April 10, 2018, and April 23, 2018, following allegations that noticees disseminated SMS to induce investors to purchase shares

The Adjudicating Officer (AO) concluded that the appellants (Noticees 6–14) engaged in manipulative and synchronized trading with specific counter-parties (Noticees 5, 15, and 16), creating a misleading appearance of trading

Consequently, the AO imposed a penalty of ₹5 Lakhs on each appellant

The appellants challenged the order, contending that they had no connection with the counter-parties, did not receive any SMS, and executed trades in the normal course of business or to exit positions due to falling sugar prices reported in the media

Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations), which prohibits manipulative and deceptive devices in the securities market

The Tribunal further relied on the evidentiary standard of "preponderance of probability," asserting that while this standard applies to regulatory proceedings, findings must be grounded in logical inferences and foundational facts rather than the mere ipse dixit of the regulator

During the investigation period, 1.83 crore shares were traded, yet the appellants’ trades involved only 4.22 lakh shares (approximately 1.3%), which the Tribunal deemed miniscule and unlikely to impact the market price or create a misleading appearance

SEBI failed to establish any connection (such as telephone records or social relationships) between the sellers and purchasers to prove a "meeting of minds"

The Tribunal accepted the appellants' defense that their trades were prompted by negative news reports concerning the sugar industry, noting that a prudent investor would be guided by such information

The Tribunal observed that order matching on an exchange platform is a neutral mechanism; without evidence of prior concert, matching timings and prices cannot be assumed to be manipulative

Evidence showed the appellants had been trading in the scrip even before the investigation period, supporting their claim of trading in the normal course

The Tribunal allowed Appeal Nos. 662, 701, and 883 of 2023, and set aside the SEBI AO’s order dated May 31, 2023, as it pertained to the appellants (Noticee Nos. 6 to 14)