What is the degree of proof required to hold brokers/sub-brokers liable for fraudulent/manipulative practices under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulation

It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form direct of substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled. While direct evidence is a more certain basis to come to a conclusion, yet, in the absence thereof the Courts cannot be helpless. It is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonable/prudent man would adopt to arrive at a conclusion. The degree of proof required to hold brokers/sub-brokers liable for fraudulent/manipulative practices under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations inter alia includes: volume of the trade effected; the period of persistence in trading in the particular scrip; the particulars of the buy and sell orders, i.e., the volume; the proximity of time between the two and such other relevant factors. In SEBI Vs. Kishore R. Ajmera case, the proved facts are as follows: Both clients are known to each other and were related entities; This fact was also known to the sub-broker the respondent-broker; The clients through the sub-broker had engaged in mutual buy and sell trade the scrip in question, volume of which trade was significant, keeping in mind that the scrip was an illiquid scrip. Apart from the above, there is no other material to hold either lack of vigilance or bona fides on the part of sub-broker so as to make respondent-broker liable. An irresistible or irreversible inference of negligence/ lack of due care etc., in our considered view, is not established even on proof of the primary facts alleged so as to make respondent-broker liable under the Conduct Regulations, 1992 as has been held in the order of the Whole Time Member, SEBI which, according to us, was rightly reversed in appeal by the Securities Appellate Tribunal. Note: Any of the below cases or any other relevant case may be briefly mentioned: SEBI vs. M/s Ess Ess Intermediaries Pvt. Ltd.; SEBI vs. M/s Rajesh N. Jhaveri and M/s Rajendra Jayantilal Shah and; SEBI vs. M/s Monarch Networth Capital Limited (earlier known as Networth Stock Broking Limited) .