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ORDER UNDER THE SEBI (PROCEDURE FOR HOLDING INQUIRY AND
IMPOSING PENALTIES BY THE ADJUDICATING OFFICER) RULES, 1995. AGAINST M/s. GRISHMA SECURITIES PRIVATE LIMITED
3.
In view of the
same, adjudicating proceedings were ordered by SEBI on NOTICE / REPLY /
PERSONAL HEARING 4.
A notice dated September 2, 2005 under Rule 4 of the SEBI (Procedure for
Holding Inquiry and Imposing Penalties by the Adjudicating Officer) Rules, 1995
(Rules) was issued to GSPL along with relevant documents annexed thereto with
an advice to show cause within 14 days of the receipt of the notice, as to why
proceedings should not be initiated against them in terms of the said Rules and
why the penalty as prescribed therein should not be levied upon them. Annexed
to the said notice was a letter dated 5.
In their reply
dated
6. Thereafter,
GSPL was granted another opportunity of being heard on 7.
Upon being advised
to substantiate their contentions, the following documents under cover of
letter dated
APPRECIATION OF EVIDENCE 8. I have carefully examined the investigation report especially
the findings therein that are relevant to GSPL, the documents available on
record and the submissions made by them and the other facts and circumstances
relevant to this case. While taking into account the issues highlighted in the
investigation report as against GSPL and the submissions made by them in this
regard to counter the said charges, I consider it necessary to recapitulate
certain details of the case giving rise to the present proceedings. 9. RMIL is a television content provider in 10.
The promoters of
RMIL were holding 81,33,808 shares which is 75.08% of
the total share capital of RMIL and the public holding was only 13.29%
amounting to 14,40,200 shares. The paid up equity share capital was 1064.77 lakhs and face value of the share was Rs10/. The trading in
the partly paid up equity shares (Series E1/X1) of RMIL was suspended w.e.f. 11. The
role of the following entities and the following clients were scrutinized during the course of
investigation. (A) Trading Members of NSE: 1.
Sanchay Finvest Limited
(SFL) 2.
ISE Securities
& Services Limited(M/s Anil Mistry) 3.
Haven Financial
Services Pvt. Ltd. (Haven) 4.
Grishma Securities Pvt. Ltd. 5.
Bonanza Portfolio
Limited(BPL) (B)
CLIENTS 1.
M/s Rajesh Jhaveri 2.
Nrupesh Shah 3.
Shravan Kumar Goyal 4.
Kishan Agarwal 5.
AK Agarwal 6.
Chirag Pujara 7.
Ashok Sharma 12. Upon analysis of the
trading details of the above mentioned members and clients, the following major
issues were noted:-
13. Apart from these facts, I would also like to
highlight the statements made by some
of the entities in question: (A) Statement
of Shri Paresh Vinchhi, Compliance Officer, GSPL
dated a)
They had traded in
the scrip of RMIL on behalf of their client M/s Rajesh N Jhaveri b)
He was their client
since January 2001 i.e. last four years c)
Anil Mistry was an ex-director of GSPL and resigned on April
2001. d)
They were not aware
of the latest profession of Anil Mistry (B)
Statement of Shri Saumil Bhavanagari, authorized representative of M/s Rajesh N Jhaveri dated a)
M/s Rajesh N Jhaveri was a proprietary firm whose sole proprietor was Gautum Nanubhai Jhaveri, b)
M/s Rajesh N Jhaveri was also the member of ASE, with SEBI Regn No. INB020123415 and sub broker of ASE Capital Markets
Ltd. INS010949811 c)
They have traded in
the scrip of RMIL during the period of investigation. d)
Nrupesh Shah was not related to their firm. He would be an
individual friend of their Proprietor. e)
They had a broker
client relationship with GSPL. (C) Statement
of Shri Nrupesh Shah dated a)
He traded as an
individual in the scrip of RMIL from b)
He knew Anil Mistry through a friend; Kirit Pandya. He worked as a cient of
Anil Mistry c)
He knew M/s Rajesh
N Jhaveri as the broker of ASE.
(D ) Statement of Shri Anil Mistry dated a)
M/s Anil Mistry was a proprietary concern and member of ISE
Securities & Services Ltd. with SEBI Regn No.
INS239639911/23-10777. b)
They had applied
for cancellation of SEBI Registration since September 2003 and had surrendered
the trading rights in ISE but continued to be the member. c)
They had traded in
the scrip of RMIL during the period under investigation for their client; Shri Nrupesh Shah d)
He knew Nrupesh Shah since 1994-95. The client was trading through
them since 2001. e)
He was a director
of GSPL and for the last three years did not have any business relationship
with them f)
After his
resignation, he did not know what GSPL were doing g)
He was a Chairman
of the disciplinary committee in ISE h)
He suffered losses
due to client debts and hence had stopped his business. Introduction of the clients 14. Upon a conjoint reading and analysis of the
statements reproduced above, it is clear that the main client and in fact the
only client of GSPL who traded extensively in the shares of RMIL was Rajesh. I have perused the client
registration form and the member client agreements of Rajesh forwarded to me by
GSPL vide their letter dated 15. In turn, although Rajesh is a well known entity in
trading circles, his association, specifically with the counter parties who
traded in the scrip of RMIL is also very interesting. All these entities
belonged to Ahmedabad. Anish
Kharidia, Company Secretary, appearing on behalf of
Rajesh N Jhaveri during the course of the proceedings
before me, confirmed that Rajesh knew Nrupesh Shah
personally. During the course of his hearing proceedings, Nrupesh
Shah too agreed to knowing Rajesh Jhaveri
well. Furthermore
AM also admitted knowing Rajesh N Jhaveri and Nrupesh Shah very closely. It is
a matter of record that Nrupesh Shah who was the
client of AM was incidentally known to him since 1994-95 although he
traded through him only since 2001. It is also a matter of record that Anil Mistry
was the director of GSPL till the time he resigned on April 2001. Although both GSPL and Anil Mistry have stated that they no longer had a professional
relationship with each other after 2001, the point that arises for due
consideration is how could such an extent of synchronization in the trades of
RMIL (327 such trades) happen strictly only between the two of them. 16. While summing
up the facts above stated and the inter relationship existing between all the
counterparties, it is clear that these brokers and clients knew each other well
(whether it was AM and GSPL or GSPL / AM and their respective clients) both
professionally and to a certain extent even personally, which has been duly
accepted by them. They all traded extensively in the same scrip, during the
same period and that too amongst themselves. This inter relationship between
them enabled them to act in concert with each other and execute the deals in
the scrip of RMIL in a manner (which I will be discussing in the later part of
this order) such that the time, price and quantity matched with each other
almost every point of time. Synchronised trades
17. Substantial synchronised
trades/ structured deals were found to have been entered into between GSPL and AM.
While GSPL traded for their client; Rajesh, AM traded for their client, Nrupesh
Shah. In all GSPL appear to have entered into 327 structured deals with AM. 18. The details of the trades
between GSPL and AM (constituting more than 75 pages) have been annexed as
Annexure 2 to the notice dated The summary of such
structured deals is as revealed in the table below: Table B
19. The summary reveals that
GSPL had traded in all the settlements from 2003100 to 2003129 with the average
price ranging between Rs 75.57/- to Rs 123.10/-. The total quantity so traded was 13,93,576 shares of RMIL. 20. For a better appreciation of the contents of the tables brought
out above, it would also be relevant to highlight the details of the trading
pattern of the counterparties in all these trades executed in the scrip of RMIL, in the context of the
inter-relationship existing between them as has been brought out earlier.
Rajesh executed all the trades in the scrip of RMIL through GSPL and the
counter party in these trades was Nrupesh Shah
trading through AM who in turn executed these trades through ISE Securities
& Services Ltd. 21. From the details of the trades as brought out in Table A, it is
seen that while the orders were placed in a synchronized manner, there was a
great deal of reversal of positions also happening i.e. the buy entity became
the sell entity and the sell entity became the buy entity and vice versa. This
trend continued between the same set of clients and the same set of brokers:
i.e. 2 brokers and 2 clients. Reversal of trades reflects the transactions
being entered into in a circular fashion, without the actual change of
beneficial ownership taking place. 22.
GSPL have however
denied any manipulation on their part on the ground that they had no nexus with
any of the counter parties and that all the impugned trades were
placed, co-incidentally and unintentionally in an anonymous screen based trading
system, where the identity of the counter party is never known and was based on
the instructions received from the client. 23. The
interrelationship between the said entities has been brought out earlier in
unambiguous terms. Another significant factor to be noted is that
when a peculiar pattern of trading between a set of brokers is deciphered, it
is not necessary to build up or establish a set relationship between the
concerned entities. In such a case, what is more
important to consider is the method and the manner in which such trades were
executed. The motive thereafter automatically falls into line, i.e., the
evidence that such trades throws, adds
to the findings of investigation, about such a nexus, whether direct or
indirect. 24. As far as the issue of the deals being
executed in the anonymous screen based system is concerned, a trade can be
executed on the screen and still be manipulative in nature since although the
essence of screen based computerized trading is that it enables investors to
transact in a fair and transparent manner and ensures the matching of the
orders through the impersonal screen, on the basis of “best offer price”
wherein the sellers would realize the true price of their securities within the
circuit filters prescribed by SEBI, synchronized transactions can be executed
on the screen of the exchange, at the price and order matching mechanism of the
exchange, as in the present case, through inputting of trades on the screen of
the exchange which were nothing but structured transactions, with a prior
understanding entered into by all the above discussed clients duly facilitated
by the brokers. The argument that the identity of the other trading client in
such cases is not known to each other has also to be disregarded when one
considers the frequency of the trades and the perfect matching of the time,
order and price which cannot be a mere coincidence, that too, when the trades
are executed in only one scrip. This is too much of a coincidence. Trades like
cross deals, reverse transactions, circular trades, and synchronized trades are
all executed on the screen and with proper delivery versus payment system. 25. Clearly
in
almost all the deals, the orders were placed so as to ensure a matching of the
buy and the sell quantity and the buy and the sell price with the known counter
party with whom a prior tacit understanding existed. The buy and the sell orders were placed at
almost the same time between the counter brokers, with just a difference of a
few seconds. This proximity in the inputting of orders at the same price and
for the same quantity, resulted in getting them matched, such that there was
almost perfect matching in all the trades, with all the three parameters i.e.
quantity, price and most importantly, the time, required to conclude the
trades, which to a large extent indicates synchronization in the logging in of
the orders, albeit executed on the screen of the exchange. Although GSPL has
attributed it to coincidence, this trend was not noted in a solitary incident
or two. The same happened regularly. It would in fact be an amazing
co-incidence if such a huge number of synchronized trades get matched, between
the same set of brokers and same set of clients in the same scrip. The phenomenal regularity with which these
brokers and their clients were counter-parties, leads one to conclude, that
these transactions were not a matter of coincidence but effectively meant to
be synchronized as evidenced by the
proximity of timing of putting-in the buy and sell orders, exact matching of
price and quantity of shares, resulting in the matching of trades almost on
every occasion between themselves, even when there are more than a few thousand
investors through their brokers, spread over more than 300 cities in the
country. It is my considered belief that frequency of such trades ensured
consistent matching of the orders (where one entity got themselves as the
seller and vice versa) purely for the purpose of projection of the volumes of
the shares of RMIL in a way that was not the market determined volumes,
possibly to induce other persons to invest in the said scrip. 26. While examining the issue of synchronized trades, the Hon’ble Securities Appellate Tribunal in Appeal Nos 54 to 57 of 2002 in the case of Nirmal
Bang Securities (P) Ltd. vs SEBI observed as under: BEB has been
charged for synchronized deals with First Global. I have examined the data
provided by the parties on this issue. I find many transactions between BEB and
FGSB. There are many instances of such transactions. I find the scrip, quantity and price for these orders had been
synchronized by the counter party brokers. Such transactions undoubtedly create
an artificial market to mislead the genuine investors. Synchronized trading is violative of all prudential and transparent norms of
trading in securities. Synchronized trading on a large scale,
can create false volumes. The argument that the parties had no means of knowing
whether any entity controlled by the client is simultaneously entering any
contra order elsewhere for the reason that in the online trading system,
confidentiality of counter parties is ensured, is untenable. It was submitted
by the Appellants that it was not possible for the broker to know who the
counter party broker is and that trades were not synchronized but it was only a
coincidence in some cases. Theoretically this is OK. But when parties decide to
synchronize the transaction the story is different. There are many transactions
giving an impression that these were all synchronized, otherwise there was no
possibility of such perfect matching of quantity price etc. As the Respondent
rightly stated it is too much of a coincidence over too long a period in too
many transactions when both parties to the transaction had entered buy and sell
orders for the same quantity of shares almost simultaneously. The data
furnished in the show cause notice certainly goes to prove the synchronized
nature of the transaction which is in violation of regulation 4 of the FUTP
Regulations. The facts on record categorically establishes
that BEB had indulged in synchronized trading in violation of regulation 47 of
the FUTP Regulations. In a synchronized trading intention is implicit. Keeping in mind the dicta of the SAT as
reproduced above; I see no reason to take a different view. 27.
In the instant case, the matching of mind
between the set of brokers/clients was such that the “disclosed quantity” as
defined by NSE was undoubtedly different. However the total traded quantity
between the said brokers/clients involving the traded time and the price were
matched at every point in time. 28.
In this context, a better elaboration is
required. An order with a Disclosed Quantity (DQ) condition allows the trading
member to disclose only a part of the order quantity to the market. For
example, an order of 1000, with a disclosed quantity condition of 200 would
mean that 200 is displayed to the market at a time.
After this is traded, another 200 is automatically released and so on till the
full order is executed. Most often, the Exchanges set a minimum disclosed
quantity criteria, from time to time. 29. This
situation can be exemplified by referring to the trades executed between GSPL
and AM and for this I consider it sufficient to refer to one of the trades in
the series of further transactions that were executed between them. As pointed
out to the trades in Table A, the first synchronized trade between two entities
was of the total traded quantity of 5000. However the disclosed quantity of
GSPL was 500 i.e. “the original buy volume” was 5000 shares of RMIL. Although
the disclosed quantity of AM was 500, the “original buy volume” was also 5000
shares of RMIL. It is true that the quantity of the orders so disclosed on the
screen could be matched with the one disclosed by the other broker and it is
also true that the disclosed quantities may not be the same for both of them.
Ultimately, however, it is the original buy volume of one broker that should be
compared with that of the original buy volume of the other broker for the purpose
of perceiving the element of synchronization between them. In the present case,
500 shares of GSPL would first get matched with 500 shares of AM. The other 500 shares of GSPL would then
automatically be sucked out of the remaining i.e., (5000-500 i.e. 4500) and
this process would continue, till all the deals are executed. However, what is
more important is the total traded quantity and the behind the scene, “buy
original volume” so put forth by them. In the present case, both the brokers
continued to put the same ‘buy original volumes’ but the disclosed quantities
projected were different for almost all the trades as pointed out earlier in
Table A. Thus, while the total traded quantity remained the same (as the
original buy volumes with the completion of trades were done at the same time
and same price) the said original buy volume which was the same for both the
brokers was not displayed on the screen. This enabled the two parties to
present a façade of ignorance of the identity of the counter party, which was
in reality not the case. 30. The fact that at every point of time, the
original buy volume was the same, while putting different disclosed quantities
in the system, reveals the prior tacit understanding between the two members. Infact GSPL have not chosen to
point out anything on this aspect inspite of being
provided with all the documents pertaining to the said trades. Instead they
have made elaborate submissions to contend that their trades were genuine and
that there was no manipulative intent on their part or reflection of the same
on the price of the scrip since the aforesaid deals were executed on the
system. 31. It would be important to note that
manipulation does not only involve manipulation in the prices of the scrip but
also includes building up volumes. The
very fact that the total number of structured deals entered into between GSPL
and AM were 327 and
involved around 14 lakh shares which
represented around 10.65% of the gross traded quantity on the exchange in the
same scrip during the entire period, speaks volumes about the level of
concerted activity of the entities. 32.
Although GSPL have contended that their trades
accounted for less than half a percent of the total value of the turnover in
the scrip of RMIL, it would be wrong on my part to compare the percentages of
trades in RMIL with the overall turnover of GSPL. The right way to judge the
situation would be to compare the said trades with the gross market volume of
trades with other brokers on one exchange, in one scrip,
at the relevant point of time. Hence, the figure in percentages so pointed
above is more
relevant and gives the true picture. The fact that the said figure was drawn
only from the impugned structured deals conveys the underlying intent. 33. GSPL have
sought exoneration of any liability and corresponding culpability in regard to
the act of manipulation by further contending that while the impugned period
was between March 3, 2003 to July 7, 2003, they had started trading in the
scrip of RMIL only from May 27, 2003 onwards
and that even during the period between May 27, 2003 and July 7, 2003, they had
not traded on one day i.e. May 30, 2003 (settlement no. 2003103). GSPL have
also been contended that as the trades were not affected in their own account
but had made placed in a bonafide manner on behalf of
an entity, who had been their client since a long time, much before the trades
of RMIL took place, (i.e. as the client wanted to carry out jobbing
transactions, they had permitted him to do the same) they could not be held
responsible for the acts of these clients, unless it was proved that they too
were directly involved in such activities. 34. In this context, the observations of the Hon’ble
Securities Appellate Tribunal in the order dated “Before executing a series of
transactions for his client, any prudent broker would have gone a bit far to
ascertain the goings around ……..
……..Exercise of due diligence in ongoing transactions is a continuous
process and it is not a one time measure to be adhered to while taking up the first transaction. The appellant’s submission that it was B’s
dishonesty that created the problem did not absolve him of his failure to
discharge his duties as a prudent broker…….. ……..On
the basis of the material available on record, it was difficult to conclude
that the appellant had exercised due skill and care in dealing with ‘B’. It was not that the appellant had carried on
only few trade transactions for ‘B’ for a short period. He had transacted in huge volumes for ‘B’ and
the association dated back to August 2000.
If the appellant could not see any design or pattern in the transactions
which ‘B’ was executing through the appellant during the period, then the
appellant certainly deserved to be blamed for being indifferent and unconcerned
and for that reason he was at fault for the failure to exercise due skill and
diligence………. ………It
is true that a broker cannot act of his own against the instructions of the
client. But no one can compel him to be
a party to manipulate the market. No
doubt a broker is supposed to protect the interest of his client, but he is
also expected to protect the interest of the securities market in which he
operates. It is his duty to ensure not
to be a party to any market manipulation and that the market in which he
operates is run on a health and non-manipulative basis.” 35. Adverting
to the facts of the present case, the relevant investigation period is the
alleged period of price manipulation during which time; various entities had
executed trades in the scrip of RMIL. It is not necessary that all the parties
had traded for the entire period of manipulation. What is important is the
method and manner of trades executed by each of the said entities and the
extent of contribution of these trades to the act of manipulation. GSPL acting
for Rajesh and Anil for Nrupesh were one such set of
clients and brokers found to have traded substantially in the scrip of RMIL,
who admittedly traded only on 29 trading days, during which period, about 327
structured deals, involving almost 14 lakh shares of
RMIL were executed. 36. Taking into consideration the structured
nature of the trades, it is evident that
these trades were entered into with some inbuilt component of ‘intent’ involved
and with the tacit understanding of GSPL and AM with the same set of clients,
which ensured a semblance of trading activity in the manner discussed earlier.
Clients’ trades of such magnitude are left undone, and generally cannot take
place without the broker being party to it. Moreover had the situation
contemplated some other set of individuals and had some other clients/brokers
entered into the trading system of RMIL, this would have eroded or nullified
the extent of the allegations. But the fact that all the trades were done
between the same group of entities, gives rise not merely to an assumption of
their acting in concert but a definite finding that there was an element of
intent while executing the said deals, precipitated due to a mutual
understanding which aspect can be pointed out by any layman / an ordinary
investor, leave alone the regulatory authorities. The acts of the entities
speak of their intentions. 37. Keeping these
facts in mind as also the fact that the act of manipulation was initiated from
their official premises and in fact, would not have happened had they exercised
the necessary diligence, the liability of GSPL cannot simply be obliterated by
reason of the plea that the trades had been executed on behalf of their client.
In all these cases even if it were to be said that the broker had not authorised the act, the fact is that, he had executed that
class of acts and he must be answerable for the manner in which the act had
happened i.e. he would be answerable for every such wrong of his client as is
committed in the course of his business. 38. It would be relevant to state here that the
scrip of RMIL was listed on the NSE only on 39. A perusal of the price volume data at NSE
during the period of investigation i.e.
Relevant to the EQ series (fully paid up equity shares)
Relevant
to the E1 series (partly paid up shares)
40. From the historical scrip-wise price-
volume data of the scrip of RMIL from 41. The trading in the EQ series commenced on 42. During May, the largest traded quantity was
recorded on 43. The volumes which were in mere thousands at
that time then shot to lakhs
from April 28, 2003 and after May 22, 2003 the volumes were consistently found
to be in lakhs, during which time, all the entities as discussed above
were found to have entered into the arena where trades were taking place in
sync with a set of common entities. Thereafter the trades which were in lakhs declined and ran into
thousands after 44. To sum up the facts, it is clear that the modus
operandi of GSPL to
manipulate the scrip of RMIL in a concerted manner was effected in the
following manner: a) Trading on behalf of a client extensively in the
same scrip i.e. RMIL through the same set of broker/client i.e. AM and Nrupesh Shah, all of whom were very well known to each
other. b) Execution of a number of synchronized trades c) Execution of trades which led to a reversal of
positions at the end of the settlement, resulting in no actual transfer of
beneficial ownership d)
Counter party
broker was a former director of their firm. 45.
In view of these
facts and circumstances, GSPL have been
charged under the penal provisions of Sections 15HA and 15HB of the Act which
inter alia provides as follows: Section 15HA Penalty for fraudulent and unfair trade practices If any person
indulges in fraudulent and unfair trade practices relating to securities, he
shall be liable to a penalty of twenty-five crore
rupees or three times the amount of profits made out of such practices,
whichever is higher. Section 15HB Penalty for contraventions where no separate
penalty has been provided Whoever
fails to comply with any provision of this Act, the rules or the regulations
made or directions issued by the Board thereunder for
which no separate penalty has been provided, shall be liable to a penalty which
may extend to one crore rupees. 46. GSPL have also
been charged under the following provisions of Regulation 4 of
the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations, 2003 which read as under: Regulation 4 of
Prohibition of manipulative, fraudulent and unfair trade practices (1) Without
prejudice to the provisions of regulation 3, no person shall indulge in a
fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a
fraudulent or an unfair trade practice if it involves fraud and may include all
or any of the following, namely:- (a) indulging in an act which creates false or misleading
appearance of trading in the securities market; (b) dealing in a security not intended to effect
transfer of beneficial ownership but intended to operate only as a device to
inflate, depress or cause fluctuations in the price of such security for
wrongful gain or avoidance of loss; (e) any act or omission
amounting to manipulation of the price of a
security; (n) circular transactions in respect of a security
entered into between intermediaries in order to increase commission to provide
a false appearance of trading in such security or to inflate, depress or cause
fluctuations in the price of such security; 47. In order to
establish the fraudulent nature of trades indulged in by GSPL, reference may
also be made to the definition of fraud laid down in Regulation 2 (c) of the
FUTP Regulations, 2003 which provides as follows: "2 (c) "fraud" includes any act, expression, omission or
concealment committed whether in a deceitful manner or not by a person or by
any other person with his connivance or by his agent to deal in securities,
whether or not there is any wrongful gain or avoidance of any loss, ………" 48.
Section 15HB is a
generalized penal provision and takes into account those acts of an
intermediary which have not been separately dealt with. 49.
In my viewpoint,
the facts of the present case, clearly bring out the
element of fraud and unfair trade practices indulged in by GSPL and the counter
parties, since by way of generating artificial volumes, they have created a false
impression amongst the general investors as regards the trading activity in the
scrip of RMIL. 50.
As a clear cut violation of the
provisions of the above cited FUTP Regulations has been established, the
provisions of Section
15HA of the SEBI Act, 1992 would be attracted. Therefore, for the purpose of
considering the imposition of an appropriate penalty, the provisions of Section
15H of the Act alone ought to be considered. 51.
I have also noted
that in the process of perpetuating these artificial trades, GSPL have also
failed to exercise proper skill, care and diligence, required of that of a
broker. As
a registered intermediary and a member of NSE and BSE, GSPL were fully aware of
the Rules and Regulations of SEBI and yet failed to carry out their business
operations in accordance with the provisions of law or maintain the standards
of integrity, promptitude and fairness required of that of a broker. 52.
Persons who indulge in manipulative,
fraudulent and deceptive transactions, or abet the carrying out of such
transactions which are fraudulent and deceptive, should be suitably penalized
for the said acts of omissions and commissions. 53.
However certain
factors as enumerated under Section 15J of the Act are required to be taken
into account while adjudging the quantum of penalty and these include the
amount of disproportionate gain or unfair advantage, wherever
quantifiable, made as a result of the said
default, the amount of loss caused to the investors and the repetitive nature
of default. 54.
GSPL have submitted
that there
had been no disproportionate gain or unfair advantage to them. I consider it relevant to note here that it is very
difficult in cases of such nature to quantify the disproportionate gains or
unfair advantage enjoyed by an entity. Further manipulation is a serious issue
and it is difficult to arrive at any specific figure to compute the amount of
loss caused to the investing public especially in a large country like 55. It may also be observed from the provisions of
Section 15J of the Act that while adjudging the quantum of penalty, the
Adjudicating Officer is required to ‘have due regard to’ the factors
stated therein. The expression ‘have due regard to’ has been used in other
statutes and has been interpreted by the Courts to mean that the other relevant
factors can also be considered while having due regard to the factors
enumerated in the statute. 56. Accordingly in this regard, I have studied at length, the
relevant provisions of the SEBI Act and the Rules and Regulations framed there
under and the common custom adhered to while initiating disciplinary proceedings
against various entities. In this regard I have noted that enquiry proceedings
are customarily initiated against intermediaries for their varying acts of
omission or commission, which then result in the issuance of a recommendation
of a minor or major penalty in the nature of warning/suspension/cancellation of
the certificate of registration, in cases where the entity is found to have
violated the provisions of the relevant regulations. The repercussions that arise thereafter makes
it aptly clear that such proceedings, resulting in an order of suspension or
cancellation of the certificate of registration granted to the broker/sub
broker to carry on broking business is not a matter to be treated lightly,
considering the degree of loss suffered by the entities in such a case. 57. As
opposed to that, adjudication proceedings culminate in the imposition of a
monetary penalty, if at all, the quantum of which varies from the facts and
circumstances of each case. It is therefore apparent that a lenient approach
has already been adopted against GSPL by the initiation of adjudicating
proceedings against them rather than action in terms of the Enquiry
proceedings.
PENALTY 58. On analyzing the material available on record, including the
extent of trades executed by M/s. Grishma Securities
Private Limited, the volume of their business as also their previous track
record, on a judicious exercise of the powers conferred upon me in terms of
Rule 5 of SEBI (Procedure for holding inquiry and Imposing penalties by the
Adjudicating Officer ) Rules, 1995, I am of the considered view that for the
aforementioned violations as discussed earlier, it would be appropriate to
impose a penalty of Rs. 5,00,000/- (Rupees Five Lakhs only) on M/s. Grishma Securities Private Limited, member of the National
Stock Exchange with SEBI registration no. INB 231127136. 59. The
penalty amount shall be paid within a period of 45 days from the date of
receipt of this order through a cross demand draft drawn in favour of “SEBI- Penalties remittable to the
Government of India” and payable at Mumbai which may be sent to Shri P.K. Nagpal, Chief General
Manager, Securities and Exchange Board of India, Mittal
Court, B Wing, 224 Nariman Point, Mumbai – 400021. PLACE: MUMBAI G.BABITA
RAYUDU DATE: |
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