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BEFORE THE ADJUDICATING OFFICER
SECURITIES AND
EXCHANGE BOARD OF [ADJUDICATION ORDER
NO. AP/AO-01/2006-07] UNDER RULE 5 OF SEBI (PROCEDURE UNDER RULE 5 FOR
HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995,
READ WITH SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF In the matter of
Investigations in KWALITY DAIRY (
|
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|
Name of the Client
& Broker Buy Transaction |
Name of the Client
& Broker Sell Transaction |
No. of Trades |
|
Laxman Patel ( Ramaben Samani
Finance Pvt.Ltd. ) |
Chirag Pujara ( Bonanza Stock Brokers Limited ) |
140 |
|
Laxman Patel ( Ramaben Samani
Finance Pvt.Ltd. ) |
Sayyed Mustafa ( Bharti Thakkar India Securities
Limited ) |
119 |
|
Chirag Pujara ( Bonanza Stock Brokers Limited ) |
Laxman Patel (Ramaben Samani Finance Pvt. Ltd.) |
111 |
|
Chirag Pujara ( Bonanza Stock Brokers Limited ) |
Sayyed Mustafa (Bharti Thakkar India Securities
Limited ) |
532 |
|
Sayyed Mustafa ( Bharti Thakkar India Securities
Limited ) |
Laxman Patel (Ramaben Samani Finance Pvt. Ltd.) |
163 |
|
Sayyed Mustafa ( Bharti Thakkar India Securities
Limited ) |
Chirag Pujara ( Bonanza Stock Brokers Limited ) |
588 |
|
|
T O T A L ………….. |
1653 |
5.2
Investigations
revealed that the said trades were carried out for a number of days and the
timings for the orders so placed also matched exactly at most instances,
ranging between 0-60 sec.
5.3
In view of the above
inter se dealings among clients Chirag Pujara, Laxmanbhai Patel and Sayyed Mustafa, it is alleged that brokers of the clients
aided and abetted them to create artificial volumes and thereby violated the
provisions of Regulation 4 of PFUTP Regulations and Code of Conduct prescribed
under Brokers Regulations.
6.0
REPLY:
Bharti replied to the SCN vide letter dated
6.1
The broker submitted that they were not aware that he company was a loss making company and that it had turned
the corner and had made profit. Broker
further stated that they were not carrying out any proprietary trade in the
shares of the company and therefore they had no occasion to look into the
financial results of the said company at the relevant time. Broker contended
that they had undertaken the transactions purely for the purposes of brokerage
and in total the amount earned by them was less than ten thousand in the said
transactions.
6.2
Broker further
submitted that they were not aware that the total volume of the shares was Rs. 34,03,923 or that the volume
increased from April 2003 onwards.
Broker further contended that they had about 400 clients and it was
impossible to check on daily basis the volume and total market in each scrip in
which clients undertake business. Since, the transactions undertaken were
within the price band and were comparatively of a very small quantity. Broker stated that they had no occasion to
observe the price movement at the time.
6.3
Broker stated that
they were not aware any circular or reversal of trades. Their clients were undertaking transactions on
daily square off basis. They contended that from the report itself it
was noted that at the end of the day there was no exposure whatsoever of theirs
in the market.
6.4
The broker further
submitted that they are independent entity and that they were not a part of any
group or brokers. Broker stated that
they were dealing with an individual client only and that they had not dealt on
behalf of any group of clients in the said shares. Broker contended that they had undertaken the
transactions purely as brokerage transactions as instructed by their client Sayyed Mustafa.
Broker argued that they were not aware of any artificial volume
generated through the alleged circular deals/reversal of trades. Broker contended that they were not aware of
the total volume of the shares. Broker
submitted that at the time when the transactions were punched the counter party
broker of the client is not disclosed on BOLT terminal and therefore they were
not aware of the information which was set out in the chart incorporated in the
show cause notice. Broker further
contended that except for Mr. Sayyed Mustafa neither
Mr. Chirag Pujara nor Mr. Laxman Patel were their clients. Broker submitted that they were not aware of
any matching of order, quantity, price and timings of placing orders on buy and
sale sides as set out in the notice.
They also submitted that the transactions would take place on the BOLT
only when the quantity and price match.
6.5
The broker further submitted that they were not part of any group or
have acted in concert with any other brokers and they have not entered
into any circular/reversal of trades as alleged. Broker stated that they have not created any
artificial volumes. Broker contended that the average price of their
transaction was within the price band but not at the highest or lowest price of
the day and therefore, transactions undertaken through them were of very
miniscule percentage of about 1% of their daily volume. The broker contended that they did not have
any effect on the price change of the said shares. Broker submitted that they were not aware
about any other entities buying and selling the said shares and that the said
transactions were conducted through BOLT and were purely market transactions
undertaken in normal course of business by their dealers at the instruction of
their clients. Broker stated that since
the transactions were squared off transactions there was no question of said
transactions being fictitious or it being circular transactions to their
knowledge.
6.6
Broker stated that
their dealer had punched in the transactions as per the instructions of their
client only. The said transactions were
within the normal range of transactions undertaken through them generally by their
other clients. The said transactions
hardly consisted of any volume compared with their overall volume. Broker contended that since the transactions
were undertaken on regular basis it cannot be said that the said transactions
were in illiquid scrip as alleged.
Broker contended that expect for receiving a small amount of brokerage
of less than Rs. 10,000/-, they had no other reason
to undertake the said transactions and that they had not benefited in any other
way in the said transactions. Broker
stated that their client might have the information about other people
transacting elsewhere but the same was never conveyed to them by their client
except for instructing them to execute the transactions. Broker further submitted that there was no
notice issued by the Bombay Stock Exchange or SEBI for any irregularities in
the transactions of shares of Kwality Dairy (
6.7
The broker submitted
that since they were not undertaking any proprietary trades in the said shares,
there was no occasion for them to consider upward movement of the price of the
said shares with the fundamentals of the said company. In merely undertaking brokerage business, it
is almost impossible for them to co-relate the price movement with the
fundamentals of the company.
6.8
Broker denied that
they have misused their systems as alleged and contended that they had
exercised due care and skill and obtained the broker- client agreement,
individual client registration form and completed the formalities as they were
required. There was no default on part
of the said client in meeting with his commitments. There were more than 5000 listed companies
and daily they deal in more than 100 companies shares and therefore it is not
possible to keep tract of trading pattern of each individual client in each individual scrip with the trend in price and volume
in the market.
6.9
The broker contended
that they maintained highest standard of integrity and fairness in conduct of
their business. They have not indulged
in any manipulative fraudulent or speculative transactions or schemes or spread
rumors with a view to distorting market equilibrium
or take any personal gains. They have
not created any false market by themselves or in concert with others or have
indulged in any act detrimental to investors nor the
transactions have led to interference with fair and smooth functioning
of the market. They have not undertaken
any excess speculative business in the market beyond their reasonable levels or
not commensurate with their financial soundness. They have not violated Clause 5 of Code of Conduct
as per Schedule II under Regulation 7 of SEBI (Stock Brokers and Sub Brokers)
Regulations, 1992 as same is not applicable to them and have therefore not
violated the same. They further
submitted that they have not violated Regulation 4 (a), (b), (c) and (d) of
SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to
Securities Market) Regulation 1995 or Regulation 4 (1) and (2) (a), (b), (e),
(g) and (n) of revised SEBI (Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Market) Regulation 2003 as alleged.
7.0
It has also come to the
notice of undersigned that vide order dated February 1, 2006 passed by WTM,
SEBI, registration of Bharti has been suspended for
15 days for the charges which were identical to the present adjudication proceedings. It has further come to my notice that the
said order of SEBI has been set aside by SAT vide order dated 21.2.2006 in
Appeal no. 40/2006.
8.0
I have perused the
order dated
“5. We have heard the learned
counsel for the parties and perused the orders passed by the Board in the case
of all the three brokers including the appellant. It is common case of the parties that the
charges leveled against all the three brokers were that they had joined hands
together and indulged in circular trading in the scrips
of the company thereby creating artificial volumes. It is really surprising to
note that in the case of Samani and Bonanza the
enquiry officer and the Board both find that there were no circular trades but
in the case of the appellant the finding is otherwise. All the three brokers
were parties to the trades and if they were not circular while examining the
cases of Samani and Bonanza, how could they become
circular when the case of the appellant was considered. The findings are self contradictory and
cannot be sustained. The least we can
observe is that the impugned order had been passed without application of mind.
6. In the result,
the appeal is allowed, impugned order dated
9.0 I note and record my finding as under:
9.1 Now, in
view of the order of SAT as detailed above where in the similar situation the
order of SEBI has been set aside, I am left with very little to proceed in the
matter. In view of the same, I do not
see, in the facts and circumstances of the case, any reasons to differ with the
order of Hon’ble SAT, as no new facts are brought before
me. Also the SAT being an appellate
authority, the undersigned is bound by the verdict given in the said
appeal. Now in view of the said order
being passed in authoritative jurisdiction, and I being under the sub-ordinate
jurisdiction, cannot travel beyond the scope and decision of the said
order. I am convinced that, based on the
facts and circumstances of the case and relying upon the verdict of SAT, this
is not a fit case for imposing adjudication penalty under the SEBI Act.
9.2 Therefore,
in exercise of the powers conferred upon me in terms of Section 15-I (2) of the
SEBI Act, 1992 read with Rule 5 of Adjudication Rules, I hereby order that adjudication
proceedings against Bharti Thakkar
India Securities Private Limited, be dropped.
10.0 This order of
adjudication is made and passed on 28th day of April 2006 at Mumbai.
AMIT PRADHAN