Capital Markets and Securities Law

[By Anumeha Agrawal] The author is a student at the Symbiosis Law School, Pune Introduction A Special Purpose Acquisition Company (hereinafter referred to as “SPAC”) as the nomenclature suggests is a company incorporated with the sole aim to acquire another private company thus converting it into a public company. The first step involved in the functioning of SPAC is the incorporation of the company with the promoters having expertise in the field of investment or the identified sector (if any). The second step is conducting an IPO where the public will invest in the company (without any business except for acquiring a private company), here the importance of reputed promoters arises as the investors are essentially banking on the technical know-how of the market and the identified sector for the acquisition. Following the IPO is the identification of the private company for the proposed acquisition and once identified the shareholders’ approval is required. The SPAC can only proceed with the proposed transaction if the proposed transaction secures a certain percentage of votes (differing in different jurisdictions, mostly lies between 50-90%). In case the requisite majority is achieved the dissenting shareholders have a right to get their investment returned (subsequent to a nominal deduction). The target company is acquired and the company becomes public by virtue of reverse merger and has the capital raised by the SPAC. In the event the requisite majority is not achieved then the SPAC can either identify another target company or liquidate depending on how much time has passed from its incorporation (differing in different jurisdictions, mostly lies between 18-36 months). Upon liquidation, the investors are paid back their investment with the interest accumulated in the escrow account (if any ) however the management is at the bottom of the sequence of payment, hence liquidation of SPAC is most detrimental to the interests of the promoters and the managerial personnel of SPACs. Commercial Viability: The SPAC is a commercially viable investment vehicle as its structure is sustainable and there is a tangible need for the same in the market. There is a clear imbalance between the credit availability to small and medium corporations and the stringent eligibility criteria corporations are required to adhere to owing to the interest of the prospective equity investors. According to NASDAQ the year 2020 was the year of SPACs as their IPOs raised gross proceeds of 79.89 billion US dollars which was an increase of 462%. The Mckinsey Report of the year 2020 Asia can annually dispense 800 billion US dollars for funding midsized to large corporations, thus reinstating the commercial potential of SPACs[i]. Experts like Goldman Sachs have expected 2021 to be the year of SPACs in Asia.[ii] International Legal Scenario SPACs are descendants of the blank check companies, which were companies in a development stage company that has no specific plan or purpose or has indicated their business plan is to engage in a merger/ acquisition with an unidentified company other person.[iii] These companies were common instruments of fraud in the 1980s and particularly issued penny stocks. Congress in 1990 enacted legislation requiring strict disclosures and management requirements on blank check companies, i.e., Securities Enforcement Remedies and Penny Stock Reform Act of 1990[iv]. In particular, Rule 419 accorded several protective measures to the investors when dealing with the blank check companies like a deposit of IPO funds raised and securities issued in an escrow account; an 18 month limit on the company’s right to retain investor funds without completing an acquisition; a prohibition on the trading of securities held in escrow; filing of a post-effective amendment upon the consummation of an acquisition; refund for investors disapproving a proposed acquisition; and a requirement that the acquisition must account for at least eighty percent of the funds held in escrow. These rules significantly decreased the fraudulent activities associated with respect to blank check companies. By the mid-1990s US economy emerged from a deep recession and the small companies started to grow and then further companies initiated incorporation for the sole purpose of merging with a private entity however the shares were not penny stocks, therefore, the same was not governed by Rule 419, thus SPAC were formed. Few differences between blank check companies and SPACs were the former had 18months to complete an acquisition as compared to the latter which had 24 months. The success of private equity in European countries led to the introduction of SPACs in several European countries around 2005, it is a more viable option due to less stringent requirements as compared to the NASDAQ and NYSE norms. For example, incorporating SPAC with specifically targeted company in mind is allowed and there is no requirement of the minimum fair accounting value of the target company to be 80% of the trust. The SPACs are also provided greater flexibility in the selection of target companies and multiple investment cycles for a SPAC. In Europe, multiple smaller acquisitions are executed in contrast to the single large transactions that are typical to US SPAC. Despite the developed scenario of private equity in the Asian markets, there are only three jurisdictions that have noteworthy SPAC transactions, China, Malaysia and South Korea. Malaysia and South Korea officially recognize SPAC as an investment vehicle and are largely based on the US and UK laws, whereas China has several SPAC transactions owing to the need of Chinese companies to raise foreign investment and get listed on international stock exchanges like NYSE and NASDAQ however the jurisdiction lacks governing legislation. Governing Indian Laws There are no special legislations governing SPACs in India and the general corporate laws govern them including Companies Act, 2013[v], Securities Exchange Board of India  Act, 1992[vi], Rules and Regulations and listing of corporate entities are SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018[vii] and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015[viii]. One of the requirements of commencement of business by a company within 180 days of incorporation[ix] will have to be amended for SPAC as the SPAC do

[By Mathangi K ] The author is a student at the Gujarat National Law University. Introduction The idea of a Stewardship Code has gained prominence across the world, with the UK adopting the world’s first Code for its domestic financial market in 2010.[i] The principal objective behind the UK’s adoption of the Stewardship Code was to incentivize its ‘rationally passive’ shareholders to monitor the company’s management, thus helping them become responsible and actively engaged shareholders. Soon after the UK adopted the Code, such Codes proliferated throughout Asia; India followed suit with the Insurance Regulatory and Development Authority of India (IRDAI), the nodal agency for regulating the insurance sector, enacting a set of stewardship guidelines for the insurers in 2017.[ii] This was followed by the Pension Fund Regulatory and Development Authority’s (PFRDA)guidelines for pension funds in India in 2018,[iii] followed by the Securities and Exchange Board of India’s (SEBI)guidelines for mutual funds and alternative investment funds in 2019.[iv]The most recent development is the enactment of procedural guidelines for proxy advisories in India by the SEBI in August 2020.[v] This article aims to explain why the Code will have a minimal impact and may not bring a considerable difference in the Indian corporate governance regime. It traces through the poor implementation and redressal mechanism of the various codes and suggests suitable measures with a view to improving the same. The Problem of Enforcement However, even after the enactment of these Codes, they have been at the center of the debate over their effectiveness and implementation. Globally, the most critical verdict on the Code’s implementation was featured in the FRC’s Kingman Review 2018, which commented that ‘the Code remains simply a driver of boilerplate reporting, serious consideration should be given to its abolition’.[vi] In terms of its enforcement mechanism, the Stewardship Code in India differs largely from the UK’s idea of ‘soft law instrument’. Firstly, there is a lack of a single code in the form of soft law, but instead, several mandatory guidelines have been issued by the regulatory agencies for their respective stakeholders. This extreme fragmentation of codes in India leads to contradictions, both in theory and the enforcement of these codes. For instance, the code issued by the IRDAI is based on the ‘comply-or-explain’ basis. On the other hand,  the code by the PFRDA lays down that the pension funds ‘shall follow’ and the code by SEBI for mutual funds and alternative investment funds lays down that the funds ‘shall mandatorily follow’ the code.  Lastly, the procedural guidelines for proxy advisories lay down that these advisories ‘shall comply’ with these guidelines. Secondly, while these codes lay down the principles, none of these adequately provide for a redressal mechanism or lay down the consequences of violation or non-compliance to the principles indicated in the guidelines. The Feasibility of the Comply-or-Explain Approach The IRDAI’s guidelines for the insurers work on the basis of the ‘comply-or-explain’ approach; wherein, the insurers are required to indicate reasons and justifications for the deviation or non-compliance to the principles enshrined in the guidelines. On the face of it, the comply-or-explain approach has the inherent advantage of tailoring the principles to the unique characteristics of individual companies, thus appearing to be better than the “one size fits all” approach. At the same time, the effectiveness of this approach presupposes the presence of various institutional conditions such as the ownership and control structure, transparency of financial operations of the company, the ability of the shareholders to assess the behavior of companies. All of these factors are an extremely costly as well as challenging task in an emerging economy like India. This approach has proven to be ineffective even in a developed economy such as the United Kingdom; for instance, a study of compliance behavior of firms belonging to the FTSE350 companies in the UK between 1998 to 2004 reports that more than 50% of the companies that did not comply with the corporate governance codes and failed to deliver specific explanations, while more than 15% failed to provide any kind of explanations at all.[vii]This lack of compliance of the entities with the codes and subsequent failure to provide explanations, exposes the little initiative taken by companies for fine-tuning their governance policies since there was hardly any movement towards providing adequate explanations. Further, in this approach, there are two judges to the alternative proposal structures or explanations provided by the insurers- the market and the regulator. Firstly, the market, which encompasses the shareholders, is a costly way of enforcement. The ultimate sufferer due to the fall in the shares’ price is the shareholders themselves, thus becoming counter-intuitive to the purpose for which it was created. Secondly, for the regulator to be the judge can be a challenging task, in an emerging economy like India. The market regulators in India are still in the process of framing governance standards and therefore do not have well established and tested benchmarks against which the sufficiency of the explanations provided by the insurers can be judged. The Lack of an Enforcement Mechanism While the PFRDA’s and SEBI’s guidelines for mutual and alternative investment funds introduce a far more stringent approach to ensure compliance, these fail to lay down a concrete enforcement mechanism. Until today, the consequences faced by an institutional investor upon failure to comply with the code remains a grey area. Consequently, these guidelines will fail to translate into action unless accompanied by a well-established enforcement mechanism. Contrary to these guidelines, the SEBI’s latest guideline for the proxy advisories lays down a concrete enforcement mechanism by adopting specific provisions for establishing a grievance redressal forum. Failure to Regulate International Proxy Advisories The problem with the guidelines for proxy advisories is not its enforceability but rather its exclusion. By way of the code, the regulatory agency seeks to bring only the homegrown proxy advisories under its purview, thus excluding the foreign proxy advisories that continue to play a significant role in the Indian market. For instance, two international proxy advisories – Institutional Shareholder

[By Akshat Dangayach] The author is a student at the National Law School of India University, Bangalore. In September of this year, the Government of India notified the Companies (Amendment) Act, 2020 in the official gazette. The move, which has been welcomed by corporations across the spectrum, comes in consonance with the recent series of reforms in response to the growing economic inconsistency in the country, especially in light of the COVID-19 pandemic’s devastating impact on commerce and industry. The amendment has introduced several key changes in the company law regime of the country with the aim of improving the ease of doing business and relaxing regulatory restrictions to a significant extent. This paper focuses on the amendment made to Section 23 of the Companies Act, 2013. The amended Section 23, by way of the addition of Sections 23(3) and 23(4), permits a certain class of public companies incorporated in India to issue a particular class of securities for the purposes of listing on permitted stock exchanges in permissible foreign jurisdictions. The move is sure to provide impetus to Indian start-ups and established corporates alike to raise capital through foreign investors. In the larger scheme of things, the initiative will also provide the necessary infrastructure for the integration of the Indian corporate landscape with the global capital market. In the context of this development, this piece seeks to argue that despite the various benefits of the development allowing the direct listing of Indian corporations in foreign jurisdictions, there are still a series of challenges in the Indian corporate regulatory framework which need to be adequately tackled before Indian companies are effectively able to reap the intended benefits of the policy advancements. Benefits of access to global capital markets for companies Before delving into a detailed analysis of the newly added provisions, it is pertinent to briefly contextualize the discussion by developing an understanding of the multiple routes available to corporations for raising capital through cross-border listing. There are primarily two ways in which companies can generate capital from overseas listing, besides opting for an Initial Public Offering in a foreign market: direct listing and indirect listing. A direct listing is when a corporation converts its existing ownership into stock and subsequently offers equity directly to the general public via a stock exchange. On the other hand, an indirect listing is executed through depository receipts (DR). Under this mechanism, the corporation is required to issue its securities to depository intermediaries (traditionally banks) and underwriters incorporated in a foreign jurisdiction which, in turn, issue DRs to investors in their jurisdiction. Prior to the latest amendment, the Indian regulatory framework only allowed for such indirect listing predominantly in the form of listing of American Depository Receipts (ADRs) or Global Depository Receipts (GDRs). In addition to this, corporations were also permitted to issue debt securities in the form of foreign currency convertible bonds and foreign currency exchangeable bonds on stock exchanges. While certain companies (such as Wipro and Infosys) do employ these mechanisms, there exist several hurdles that companies have to go through in order to take this route. In fact, due to allegations of malpractice and market manipulation, SEBI banned around 20 companies from using DRs to raise capital in the year 2017. Further, such actions are often under strict scrutiny from the regulators, given the lack of transparency involved in the indirect listing process.. Such regulatory restrictions, coupled with the overhead costs in the form of charges levied by underwriters and financial institutions, dramatically disincentivised Indian corporations from taking this route. On the other hand, direct listing provides regulators and corporations with a more transparent mechanism for transactions and an easier method of tracking said transactions, thereby streamlining the process of inviting foreign investment. In light of these concerns, SEBI constituted a high-level expert committee in 2018 to formulate a report and suggest policy changes to pave the way for cross-border direct listing of equity shares of companies incorporated in India. The 2020 amendment to Section 23 of the Companies Act comes in response to the report submitted by this committee which firmly advocated direct listing. The Road Ahead: Institutional Challenges and Hurdles However, despite the obvious benefits of the introduction of the new regime for Indian corporations, there are still a number of institutional inconsistencies and hurdles that must be resolved in order for companies looking to get directly listed abroad to realise the actual potential of these benefits. Primarily, the Indian regulatory and legal framework needs to be considerably overhauled to assist the cross-border functioning of corporations. For starters, under the present state of affairs, companies will have to comply with the laws and regulations of two distinct jurisdictions. For instance, companies seeking to list abroad will have to comply with the regulatory requirements of beneficial ownership and disclosure of the foreign stock exchange. Similarly, the Foreign Exchange Management (Non-Debt Instruments) Rules 2019 impose strict requirements on how Indian companies may hold foreign currency. This will inevitably translate into drastically increased compliance costs, especially given that SEBI might also impose certain additional requirements as it has an extra-territorial jurisdiction as per the ruling in SEBI v. PAN Asia Advisors Ltd. and Anr. While this particular issue is ostensibly quite intuitive in nature, it merits some attention and might even require SEBI to substantially modify its own regulations to bring them in line with that of major foreign jurisdictions or even to relax some of its requirements for companies seeking to list abroad. Additionally, the Reserve Bank of India’s (“RBI”) Liberalised Remittance Scheme places restrictions on investments made by Indian residents on assets abroad. If these restrictions are not reconsidered, it would severely limit Indian investors from investing in Indian companies and put them at a considerable disadvantage relative to foreign investors. Further, the RBI must also address concerns regarding how equity shares that are rupee-denominated will be marketable in stock exchanges that are premised on other currencies. So far, the RBI has not released any guidelines in this regard.

[By Devansh Parekh and Yuuvraj Vaidya] The authors are students at the Government Law College, Mumbai. Introduction In October 2020, the Securities and Exchange Board of India (“SEBI”) issued a circular[1] with respect to the issuance, listing, and trading of perpetual non-cumulative preference shares and perpetual debt instruments (“SEBI Circular”). The special focus herein is on certain instruments by the name of perpetual non-cumulative preference shares (“Perpetual Non-Cumulative Preference Shares”) and perpetual debt instruments (“Perpetual Debt Instruments”) which are issued as part of the additional tier of capital. This article centers on the provisions of the guidelines for implementation of Basel III which deals with instruments that form the layer of additional tier capital in a bank.   These instruments form a part of the special layer of capital that banks are permitted to issue which is commonly referred to as the regulatory capital. The SEBI Circular on the recommendation of the Corporate Bonds and Securitization Advisory Committee (CoBoSAC) proposed additional guidelines noting that the discretion under AT1 Instruments is reserved by the issuer and that retail individual investors may not be fully able to understand the true form of these instruments. This has become relevant after the recent Yes Bank controversy and the ensuing case of Piyush Bokaria vs Reserve Bank of India [1] which have been analyzed in this article. Implementation of Basel III Capital Regulations In India Due to globalization, there has been a great integration of international banks and interdependence of financial markets that prompted the birth of the Basel Accord, which brought in standardized measurements. It is imperative to understand the Basel Accord and how it functions. The Basel Accord was set up by the Basel Committee on Bank Supervision that provided recommendations on banking regulations. It has three series of recommendations – Basel I, II & III. The Basel III capital regulations were implemented in India from April 1, 2013, in a phased manner. The Reserve Bank of India published its Master Circular dated July 1, 2015, consolidating guidelines pertaining to the Basel III norms along with guidelines for implementation of Basel III. (“Basel III Framework”) The accords were drafted to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses.[2] Tier 1 capital deals with the primary funding of banks that are disclosed on financial statements, such as common shares, free reserves, statutory reserves, etc. Tier 2 capital includes general provisions and loss reserves, debt instruments, share premium, etc. Not until a long time ago, there existed a third layer i.e., Tier Capital 3 that had a great variety of debt but was of inferior quality than the above tiers and has been abrogated. These instruments are distinguishable from ordinary securities because of certain peculiar rights the issuer has upon them which could be considered onerous for the holder, viz., loss absorption capacity which has been discussed in further detail below. Loss Absorption of Non-Equity Regulatory Capital Instruments  As per the Basel III Framework, non-equity instruments, which form the additional tier of capital for banks, shall have the inherent characteristic of absorbing losses of the bank even as the entity remains a going concern. As per the Basel III Framework, the terms of issuance of Perpetual Debt Instruments and Perpetual Non-Cumulative Preference Shares in Additional Tier 1 (collectively referred to as “AT1 Instruments”) shall include provisions for either (1) conversion to common shares at the occurrence of a pre-specified trigger point or (2) a write-down mechanism allocating the losses at the occurrence of a pre-specified trigger point. The Based III Framework stipulates that upon the capital conservation buffer [3] falling below a certain threshold it will trigger a write-down/conversion of the AT1 Instruments, described hereinbefore, to ensure the bank is operating above a certain CET 1 ratio.[4] The conversion/ write-down is intended to replenish the equity which is depleted due to losses. The risk under these AT1 instruments is evidently amplified by the fact that if the bank goes into liquidation after the AT1 instruments have been written down permanently, there shall be no claim remaining upon the liquidator for recovery of the principal under these instruments. The write-down will essentially mean that the AT1 instruments have been erased from the balance sheet and existence and all rights and obligations have ceased. The repercussions of write off or conversions arise in a situation of non-viability of the bank which means “A bank which, owing to its financial and other difficulties, may no longer remain a going concern on its own in the opinion of the Reserve Bank unless appropriate measures are taken to revive its operations and thus, enable it to continue as a going concern.”[5] Therefore upon the occurrence of ‘Point of Non-Viability Trigger Event’ which could be (1) the RBI directing the write off/conversion of the AT1 instruments or (2) decision to infuse public sector capital without which the bank would not be able to sustain its going concern status, as determined by the relevant authority, the appropriate action of write-down or conversion shall be initiated. SEBI Circular  The pertinent changes proposed by the SEBI Circular include: (1) All issuance is to be done on the electronic book platform. (2) Only Qualified Institutional Buyers (“QIB”) shall be allowed to participate in the issue. (3)The minimum allotment size for an investor shall be INR 1 Crore. (4) An important disclosure that would be required as per the SEBI Circular is the disclosure of risks, particularly the discretion in terms of writing down the principal/interest, to skip interest payments, to make an early recall, etc. without commensurate right for investors to legal recourse, even if such actions of the issuer might result in a potential loss to investors.[6] QIB such as scheduled commercial banks, mutual funds, FPIs, AIFs, etc are perceived to bring in sophisticated capital and have the financial wherewithal and understanding to commit investments in complex and/or sizeable transaction, as they undertake comprehensive legal and financial due diligence on their investee targets. YES Bank Case

[By Ananya Sahu and Ketan Priyadarshee] The authors are students at Maharashtra National Law University, Aurangabad. High-Frequency Trading (HFT) is a wide term with no precise definition in any statute. It is usually explained as a subset of algorithmic trading that uses “latency-sensitive strategies”, “co-location”, “high-speed networks”, and deploys technology to place orders and execute it as trades in a fraction of a second. This technology in the realm of securities has drawn notable consideration of investors and regulating bodies with respect to its responsiveness to the directives and accurate decision making which manually could have never been thought of and concerns regarding defeating fairness in the market respectively. Ever since COVID-19 has hit the Indian capital market, banking on technology to help sustain and fuel the growth would be a good call. However, it has its downsides and risks associated. Securities and Exchange Board of India (SEBI) as a regulating body has proposed measures, some of which might turn out to be far-reaching, while others might undermine the potential of HFT. This article attempts to highlight the opportunities and obstacles algorithmic trading is chained with. While discussing it the article tries to emphasize how the most controversial form of algorithmic trading can be appreciated and adopted by the market players to triumph over the menace of COVID. Benefits and Obstacles of HFT The advent of technology in the stock market has had many benefits over the years. HFT has played a huge role in improving the traditional market quality measures like depth and liquidity; it has the potential to reduce market volatility and trading costs. HFT has had an important role in reducing the bid-ask spread and tends to skim less off each trade when compared to old school market makers. It is a competitor to itself and therefore the claims that it will make markets one-sided is false. Markets are always fixed in favor of those with the best information and it is with the enhanced use of computers that the informational advantage has somewhat been neutralized. Academics are divided about whether HFT is beneficial or harmful. There is a potential to lose control of computers. There have been instances of software malfunctions that have wiped off millions from the market within hours. The high speed of HFT also raises the potential for more vigorous market manipulation and acts like spoofing. Many contend that HFT provides pseudo-liquidity to the market. Others believe that HFT only operates for short term profit and has no meaningful contribution to the markets. There are various ways to keep HFT in check and reduce the risks associated with it and a lot of these have already been put in place or are being used in markets and exchanges globally. Technological innovation is crucial for market development but there must be a simultaneous adoption of safeguards at the same pace as technology develops. SEBI’s Functions as a Check Post  SEBI was established essentially to regulate the capital market of India. One of its primary functions under section 11 (e) of SEBI Act, 1992 is, prohibiting fraudulent and unfair trade practices associated with the market. In pursuant to that SEBI has released numerous guidelines addressing the potential threats and widespread concerns of HFT since 2012, the latest of which came in June 2020; to regulate the functioning of HFT in the Indian capital market. It strives to set up a level playing field for the market players. At the very outset, the discussion paper has identified the following proposals: To hold back the algo traders from placing huge orders and canceling them within a very short span of time, it has introduced a “minimum resting time” with respect to orders taking place through HFT. Resting time appertains to the period between the actual execution of the orders and the receipt of the orders by the respective exchanges. This step shall lower down the instances of frequent cancellation of orders by the traders that intends to create phantom liquidity in the. Co-location is one of the major advantages of HFT where traders are present in close proximity and the information and signals travel fast to the other trader. This has caused more harm than good since only a handful of the traders can afford this facility. To stricture such activity, SEBI has proposed to match orders in a system where the exchanges would first accumulate all the orders for a specific duration of time later matching orders of that batch. The substantial difference which this technology has given rise to is with respect to time. Transactions are completed within a blink of an eye, which seems to be unattainable if the trading is restricted to human intelligence. To make sure that speed, as a discrete strategy does not help, SEBI has suggested incorporating a delay of few milliseconds while the processing of orders is in transit. This would hardly affect the non-algo traders. However, authors believe that time plays a significant role in algorithmic trading, and measures that defeat the purpose of bringing technology into use might discourage the traders involved in HFT. A large number of orders take place and are canceled the next moment. SEBI proposes to limit the Order to Trade Ratio (OTR). It refers to the ratio between orders taking place, modifications, and cancellations to the actual execution of orders that generates confirmed trades at any exchange. For securing a minimum of one trade for a set of orders, capping on OTR is suggested. Traders exceeding the ratio shall be penalized while placing the next set of orders. SEBI has taken drastic steps to curtail the shortcoming of HFT. However certain proposals in the discussion paper have overshadowed the incentive of time enjoyed by the users of HFT and should also take the prospect of issues like insider trading associated with algo trading into consideration. Any set of regulations shall strive to provide a comprehensive solution, which while addressing the potential threats simultaneously, preserve the quintessence of HFT. The Road Ahead

[By Anurag Shah] The author is a student at the School of Law, Christ (Deemed to be University), Bangalore. Introduction The online trading system of the Indian Stock Exchange works on the ‘blind trading system’. Such a system does not permit a buyer and a seller to have any form of interaction on the platform while undertaking a trade. The system works in such a way that after the buy order is placed on the trading platform, the system matches the same with a sell order and then a trade is executed on a price-time priority basis by the system. However, even in such a spill-proof system, time and again buyers and sellers have indulged in manipulative trades which lead to market rigging. The players have identified multiple ways to execute this rigging, which include illegal synchronized trades or trades that manipulate the Last Traded Price. However, the securities regulator in India has tried to prosecute players undertaking such trades through the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations). This regulation prohibits manipulative, fraudulent, and unfair trade practices. Whether a manipulation has been done or not is largely gathered from the intentions of the parties, however, most of the time there is no direct or conclusive evidence to such intentions. Therefore, in the absence of the same, the Courts have time and again looked into different aspects to ascertain manipulation. One such aspect is the connection between the parties to a trade. Whether it is an inter se connection between the brokers and the parties or a connection between seller and buyer, the Courts have used the same to conclusively conclude manipulation. However, recently the Securities Appellate Tribunal (SAT) has been stressing excessively on the presence of this connection. This can be analyzed through two recent orders by the SAT passed in August 2020. SAT order in the matter of Bharti Goyal v. SEBI The SAT in the matter of Bharti Goyal v. SEBI, modified a penalty of Rs. 5 lakhs issued by SEBI into a warning for the alleged violation of the PFUTP Regulations. SEBI had passed an order against sixteen entities for manipulating the price of the scrip of Mapro Industries Limited. The order held that even though no connection could be established between the suspected entities, by the very nature of their trades they manipulated the prices and disturbed the market equilibrium. The aggrieved appellants approached the SAT. The first appellant defended his trades by submitting that he was a salaried employee who occasionally engaged in the stock market trading and therefore undertook the trade only based on the rumors and had no intention to manipulate the prices. The second appellant as well maintained that the trades were done in the normal course of business without any intent to manipulate. Moreover, both the appellants stressed the fact they had no connection or relationship with any connected or suspected entity. SEBI maintained its position that making such trades was completely irrational and no rational person would do such trades until they wanted to manipulate scrip. SEBI contended that the appellants had manipulated both the price and volume of the scrip and therefore violated Regulations 3 and 4 of the PFUTP Regulations. SEBI reiterated that even though no connection/relationship of the two appellants with other authorities in question could be established, the nature and pattern of their trade itself could be found to be foul of the provisions. For this they relied upon the decision of the Supreme Court of India in the case of Securities and Exchange Board of India vs. Kishore R. Ajmera wherein the Hon’ble Court was of the view that in absence of hard evidence, the conclusion has to be gathered from various circumstances like that volume of the trade and such other relevant factors. The tribunal was not satisfied with the contention of the appellants that they made the trades because they were keen to invest in Mapro Industries owing to its extremely promising nature. This was because the scrip was not liquid or lucrative for investment. On the other hand, the tribunal also took note of the fact that the SEBI order could not join the dots concerning the connection or relationship between the suspected entities and the appellants. Therefore due to the nature and pattern of the trades, the appellants violated the regulations, but since no conclusive relationship/connection or interaction between the appellants and the other suspected entities is established, the SAT modified the penalty into a warning. SAT order in the matter of Rajesh Jivan Patel v. SEBI The SAT in the matter of Rajesh Jivan Patel v. SEBI quashed an order by a Whole Time Member (WTM) of SEBI through which SEBI had restrained the appellants and other noticees from accessing the securities market for six months and further froze the mutual funds and other securities of the appellants. The order was passed by SEBI after an investigation was conducted on the alleged violations of Regulations 3 and 4 of the PFUTP Regulations. SEBI had alleged that the appellants along with a few parties, without any intention to sell, had sold meager amounts of the shares of a company over a period of time to establish a price above the Last Trading Price (LTP). The same, if done in collusion would amount to price manipulation under the PFUTP Regulations. The WTM while adjudicating on the order held that even though there was no connection between the buyer and the seller, they had unilaterally manipulated the price. SEBI also stated that a connection between a buyer and a seller was immaterial in the question of price manipulation under the PFUTP Regulations 2013 unless it a synchronized trade. The aggrieved appellants had appealed to the said order in the SAT. While quashing the order SAT held that the WTM had traveled beyond the specific charges listed by the SEBI in the Show Cause Notice (SCN), which included inter alia a collision to manipulate