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SECURITIES AND EXCHANGE BOARD OF Coram: Dr. T. C. NAIR, WHOLE TIME MEMBER Name of the Noticee : M/s. First National Securities ( Date of Hearing : 29.05.2006 Appearance of the Parties Noticee : None
SEBI : Shri P. K. Bindlish, General Manager Shri Ashok Nimbekar, Manager
ORDER UNDER SECTION 11(4) READ WITH SECTION 11B OF
SEBI ACT, 1992 AGAINST M/s. FIRST NATIONAL SECURITIES (INDIA)
1. M/s.
Media Video Ltd. (
2. For
the purpose of expansion,
3. MSE had in its report submitted that no trades were carried out in the scrip of MVL during the period 01.09.99 to 10.01.00. DSE had found nothing incriminating in relation to the transactions in the scrip of MVL during the said period. BSE had also made a similar observation as DSE in its report and had requested for revocation of earlier suspension order. However, NSE had in its report observed that entities close to MVL had actively traded in the scrip during the reference period. Also, it was observed that the trading pattern in the scrip seemed to suggest a net buy by the aforesaid entities and creation of artificial volumes during the No Delivery period. Also, the fact that they were net buyers in the scrip after the No Delivery period seemed to suggest that the movement in the price of the scrip without any commensurate corporate development was due to the trading of the aforesaid entities.
4. At
NSE the price of the scrip during the period of investigation had gone up from Rs. 8.20 on
5. On
receipt of the aforesaid reports, SEBI conducted investigation into the trading
in the scrip of
6. FNS in its submissions before SEBI admitted that Shri Bagai was introduced to them by Shri B. C. Sharma who was an employee of FNS. It was also submitted that the whereabouts of Shri. Bagai or Shri Sharma were no more available with FNS.
7. The bank details of Shri Bagai (obtained from bank) were analyzed to ascertain the flow of funds and to trace their antecedents. It was noted that an account was opened with Punjab National Bank (Account Number 27963) on 23.10.99 with a cash deposit of Rs.1,000/-. Thereafter, two Bankers Cheques were deposited in the account on 27.12.99 for Rs.17,61,927/- and Rs.8,40,376/-. These amounts were used to pay TTF and FMS for the purchase of shares of MVL on 27.12.99. These Bankers Cheques were issued by Bank of India, Connaught Circus Branch and the Kangra Co-operative Bank Ltd., Jagatpuri Branch from the accounts M/s. S. K. Financial Services Ltd. (Account No. 711014) and M/s. Friends Portfolio Pvt. Ltd. (Account No. 1273) respectively. Summons sent to M/s. S. K. Financial Services Ltd. came back undelivered. M/s. Friends Portfolio Pvt. Ltd. submitted that they had not traded in the scrip of MVL and the payment made to Shri. Bagai was not traceable at their end. No further details could be obtained from M/s. Friends Portfolio Pvt. Ltd. It was also noted in the course of investigation that a part of the amounts received by Shri Bagai from these accounts were returned at a later date from the proceeds of share transactions carried out by Shri Bagai. Shri Bagai did not comply with the summons issued repeatedly and has not submitted any information.
8. It was observed that following entities had traded through FNS at the NSE:
9. The settlement wise trading detail of FNS during the period of investigation is as given below:
10. On the basis of the nature of transactions carried out by FNS for its clients and the fact that resulted in huge volume in the scrip and alleged manipulation in the price by Shri Bagai (who was dealing through three brokers) led the SEBI investigation to conclude that FNS had violated the provisions of Clause A (1) and (2) prescribed under Schedule II of Regulation 7 of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992. Based on the submissions made on behalf of FNS before the investigating authority, it was learnt that FNS had stopped trading in April 2001, and was no more a member of NSE and therefore not registered with SEBI.
Show Cause Notice, Reply and Hearing
11. Based on the above findings, a notice dated 03.01.05 was issued to FNS charging it with violating the provisions of Clause A (1) and (2) prescribed under Schedule II of Regulation 7 of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, under Section 11(4) read with Section 11B of SEBI Act, 1992, asking it to show cause as to why suitable directions including directions debarring it from accessing the capital market or dealing in securities for a suitable period be not issued to them. The show cause notice was issued under the provisions of SEBI Act since FNS had ceased to be a member of NSE, resulting in an inability to invoke the provisions of SEBI (Procedure for Holding Inquiry by an Enquiry Officer and Imposing Penalty) Regulations, 2002.
12. No reply was received from FNS to the show cause notice issued by SEBI. Thereafter, personal hearing was scheduled on 29.05.06 before me for FNS to appear and make its submissions, if any. FNS failed to appear before me during the said date of hearing.
Consideration of Issues
13. I have considered the findings brought out in the investigation conducted by SEBI, the charges made out in the show cause notice issued by SEBI. I have noted that FNS has not submitted its reply to the show cause notice and has also chosen not to appear before me when a hearing was scheduled for them. I find FNS has already been provided with sufficient opportunities to present its case before me both in the form of a reply and upon personal appearance at a hearing. I am of the view that these opportunities constitute sufficient compliance of principles of natural justice. Therefore, I now proceed to consider the charges against FNS based on the material on record.
14. I have seen that the trading
pattern in the scrip of
15. Also, the submissions of FNS before the investigating authority have been evasive without providing appropriate and clear answers to queries posed to it. This view of mine is further corroborated by the attitude of FNS to SEBI proceedings by its non response to the show cause notice and the hearing notice issued by SEBI. A combined view of the activities in the scrip prove that FNS is guilty of violating the provisions of Code of Conduct as prescribed in Clause A (1) and (2) of Schedule II prescribed under Regulation 7 of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, by non exercise of due care and diligence in the performance of its activities as an registered intermediary with SEBI.
16. Also, I have considered the fact that FNS has ceased to be a registered intermediary of SEBI from April 2001. Therefore, proceedings under the provisions of SEBI (Procedure for Holding Inquiry by an Enquiry Officer and Imposing Penalty) Regulations, 2002 have not been initiated but FNS has been proceeded against under Section 11(4) read with Section 11B of SEBI Act, 1992, by virtue of which SEBI is empowered to pass orders against any errant market participant.
Order
17. Therefore, in exercise of powers conferred upon me in terms of Section 19 of SEBI Act, 1992 read with Section 11 (4) and 11B of SEBI Act, 1992, I hereby direct that M/s First National Securities (India) Ltd., New Delhi be debarred from accessing the capital markets and dealing in securities directly or indirectly for a period of one month.
18. The order shall come into force with immediate effect.
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