Stock Market Manipulation As Criminal Offence
📜 Understanding Stock Market Manipulation
Stock Market Manipulation refers to deliberate actions designed to interfere with the free and fair operation of the stock market to deceive investors or distort prices.
Common forms include price rigging, insider trading, creating artificial volume, circular trading, pump and dump schemes, spreading false information, etc.
It undermines market integrity, investor confidence, and the overall economy.
⚖️ Legal Framework in India
Securities and Exchange Board of India (SEBI) Act, 1992 and related regulations (SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003)
Indian Penal Code (IPC), Sections 405 (Criminal breach of trust), 415 (Cheating), 420 (Cheating and dishonestly inducing delivery of property)
Securities Contracts (Regulation) Act, 1956
Offence under SEBI law is both civil and criminal in nature.
Section 24 and 24A of SEBI Act provide criminal penalties for violations, including market manipulation.
🔎 Key Elements of Stock Market Manipulation
Deceptive conduct aimed at creating artificial price/volume.
Intent to defraud or cheat investors.
Manipulation of market information or insider information.
Use of multiple entities/accounts for circular trades.
Spreading false or misleading statements to influence prices.
⚖️ Important Case Laws
1. Sahara India Real Estate Corp. Ltd. & Ors. v. SEBI (2012) 10 SCC 603
Facts: Sahara group raised funds through optionally fully convertible debentures (OFCDs) without SEBI approval.
Judgment: Supreme Court held Sahara liable for unregulated securities issuance and non-compliance.
Significance: Emphasized regulatory framework to prevent market manipulation and protect investors. Highlighted SEBI’s powers to regulate and penalize.
2. Sahara India Financial Corporation Ltd. v. SEBI (2014) 6 SCC 353
Facts: Related to failure to disclose and manipulation by raising funds from investors.
Judgment: Supreme Court reiterated that SEBI has powers to act against fraudulent fundraising.
Significance: Reinforced strict action against entities indulging in manipulative practices affecting public interest.
3. SEBI v. Shri Ram Mutual Fund (2006) 68 SCL 192
Facts: Mutual fund alleged to have indulged in price rigging.
Judgment: SAT (Securities Appellate Tribunal) held such acts as manipulation violating SEBI regulations.
Significance: Defined parameters of price rigging and held entities accountable under SEBI (PFUTP) Regulations.
4. SEBI v. Adani Enterprises Ltd. (SAT Order, 2017)
Facts: Allegations of price manipulation through circular trades.
Judgment: SAT held that deliberate creation of artificial volumes to inflate prices amounted to manipulation.
Significance: Underlined that even indirect manipulative acts attract criminal consequences.
5. SEBI v. Kishore R. Ajmera (2003) 64 SCL 198
Facts: Insider trading and manipulation allegations.
Judgment: SEBI successfully proved manipulation, imposed penalties.
Significance: Clarified insider trading as part of manipulative practices under SEBI Act.
6. State of Maharashtra v. R. M. Malkani AIR 1973 SC 139
Facts: General principles on cheating and dishonesty applied to market frauds.
Judgment: Supreme Court clarified the scope of criminal intent and deception in economic offences.
Significance: Though not directly about stock market, principles apply in market manipulation cases under IPC sections 415 and 420.
7. SEBI v. Shriram Mutual Fund (2007) 74 SCL 43
Facts: Allegations of fraudulent practices affecting NAVs.
Judgment: SEBI imposed penalties for unfair trade practices.
Significance: Extended the scope of manipulation to valuation distortions impacting investors.
🔍 Judicial Approach
Courts have upheld SEBI’s regulatory and punitive powers to curb manipulation.
Emphasized need to protect investor interest and maintain market integrity.
Recognize manipulation as both a civil wrong (penalties, disgorgement) and criminal offence (imprisonment, fines).
Burden lies on SEBI to prove intent and deceptive conduct.
Courts also emphasize fair trial and due process even in stringent regulations.
⚖️ Conclusion
Stock market manipulation is a serious criminal offence in India regulated primarily by SEBI and backed by criminal laws. Judicial decisions strongly support regulatory oversight and stringent penalties to deter such frauds. The evolving case law reflects increasing judicial sensitivity towards investor protection and market fairness.
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