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ORDER UNDER THE SEBI (PROCEDURE FOR HOLDING INQUIRY AND
IMPOSING PENALTIES BY THE ADJUDICATING OFFICER) RULES, 1995 AGAINST SHRAVAN KUMAR GOYAL
4.
In view of the
same, I was appointed as the Adjudicating Officer, vide order of SEBI dated NOTICE / REPLY /
PERSONAL HEARING 5.
A notice dated August 10, 2005 along with relevant documents annexed
thereto was issued to Shravan under Rule 4 of the SEBI (Procedure for Holding
Inquiry and Imposing Penalties by the Adjudicating Officer) Rules, 1995 (Rules)
with an advice to show cause within 14 days of the receipt of the notice, as to
why proceedings should not be initiated against him in terms of the said Rules
and why the penalty as prescribed therein should not be levied upon him.
����� 7. Although the notice was acknowledged,
Shravan failed to reply to the said notice. Hence a notice of hearing dated ������� i. He had received the notice to the show
cause and also all the notices of hearing but did not reply to the same as he had
been out of town since the last three months and had no opportunity to reply to
the said notices. �������� ii. He had entered into the necessary
broker client agreement with Haven which was available with them. ������
iii. He did not know Ashok Sharma or Chirag Pujara and had met���� Kishan Agarwal through his cousin A K
Agarwal whom he had met while trading. He had last met AK Agarwal around six
months back. ����� iv.. He had actively traded at that point
of time not only in the scrip of RMIL but also other scrips like BSES, Reliance
Capital. ����� v. He was a
registered sub broking firm of Sanchay Fincom Limited, �member BSE and also an associate of M/s
Sanchay Finvest Limited, member of NSE. However he had surrendered the
certificate of registration to the main broker for necessary cancellation ���� vi. He had not
made any profit while trading in the scrip of RMIL. 8. ������Shravan
also undertook to provide his demat account details, the details evidencing the
surrender of the certificate of registration as a sub-broker and further
requested to be granted additional time to file written submissions.� Accordingly Shravan was granted time upto 9.���� Subsequently
vide his letter dated November 16, 2006, Shravan stated that he had only carried
out jobbing in the scrip of RMIL in the normal course of business and without
any intention of creating volume or price manipulation in the said scrip. He
admitted that he had carried out jobbing in the scrips of Merck Electronic
Limited, Zee Telefils Limited and Maharashtra Seamless Limited also and stated
that he had a demat account No 10073273 and DP ID No 300732 with Sodhani
Securities Limited. However no documents were forwarded with the said letter to
substantiate the contentions made therein.�
��������
APPRECIATION OF EVIDENCE 10. I have taken into consideration the facts and
circumstances of the case, the contents of the investigation report, especially
the findings therein that are relevant to Shravan and the other documents
available on record. While taking into account the issues highlighted in the
investigation report as against Shravan and his counter submissions to the
same, I consider it necessary to recapitulate certain facts in brief, relevant
to the present proceedings. 11.� RMIL is a television content provider in � 12. � 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. 4.
Grishma Securities
Pvt. Ltd.(Grishma) 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 13.���� Upon analysis of the trading
details of the above mentioned members and clients, the following major issues
were noted:-
14. ��� Apart
from these facts, I would also like to highlight the statements� ��������� made by some of the entities in
question: (A) Statement
of Shrawan Kumar Goyal dated a)
He was the
proprietor of Shree Shyam Investment, sub broker of Sanchay Fincom Ltd, broker,
BSE. In the NSE, he traded as an individual in his name through Haven. He had
traded in the account of Shree Shyam Invesment at Sanchay Fincom, member, NSE
though he had not applied as a sub broker. b)
He had traded in
the scrip of RMIL during the period from c)
There was no
relationship between his company and RMIL. d)
He did jobbing in
other scrips as well. e)
He did not have any
relationship with Haven. f)
He knew Mahesh
Pujara, uncle of Chirag Pujara since 2 years. g)
He knew A K
Agrawal and Kishan Agrawal as he used to meet them in local trains and had good
contact with them between January 2003 and April 2003. He introduced them to SFL
as they wanted to trade in the stock market. B) Statement of Nirav Bhabhera, authorised
representative of Haven made on June 18, 2004: a)
Haven had dealt in
the scrip of RMIL during the investigation period for their client and not for
their company.�� b)
Haven had dealt for
the following clients: Shrawan Kumar Goyal, Naresh N Shah and Pandoo P. Naig. c)
Bhavesh Pabari and
Mitesh Pabari introduced Shrawan to them in January 2003 for personal trading
as a jobber. d)
Bhavesh Pabari
worked part time for Haven and was also their client. e)
None of their
clients had acted as a sub broker. f)
None of the clients
were related to Haven. g)
The trades done for
the clients were in the nature of jobbing and as per their instructions. h)
Haven had stopped
dealing for Shrawan since July 2003, with the last trade being executed on i)
Haven was not
related to RMIL, SFL, Anil, Kishan, BPL, Shrawan,� Shree Shyam Investment (SSI), Chirag or
Ashok. j)
Haven were the
members of the NSE since their inception and the firm mainly did jobbing,
arbitrage and retail client work. They rarely received queries form NSE and
SEBI prior to the present case. (C)���� Statement of Satya Prakash
Goel, Director of BPL made on a)
BPL had traded in
the scrip of RMIL on behalf of their client and their associate company Bonanza
Stock Brokers Ltd.(BSBL), and the trading was only 1306 shares on the buy side
and 586 shares on the sell side. b)
�BPL had traded for 7 clients in the scrip of
RMIL i.e. Ashok, Chirag, BSBL, Sahu Salil, SKJ Securities, Reema Investments,
Nandlal Mittal. c)
Chirag was
registered as their client on d)
None of the above
clients were related to BPL. e)
The trades so
pointed out were done from their terminals on behalf of their clients and was a
part of their normal broking business. f)
BPL and their
associate companies had more than 100 branches with 400 trading terminals /
franchisee across the country with more than 18000 clients registered
aggregating daily turnover of approx Rs.400 crore. The percentage of the total
volume in RMIL was aggregating Rs.6 crores spread across 5 months from March
2003 to July 2003 averaging to approx Rs.10 lakh in comparison to the total
daily turnover. For them it would be difficult to monitor 1 or 2 such clients,
if they traded in such a manner. (D)���� Statement of Chirag Pujara dated a)
Om Gayatri
Securities was his proprietary concern that traded in shares in BSE but had
closed down since April 2003. b)
�He traded in his own name at BSE and NSE
later. c)
He had traded in
RMIL during the period from d)
He had no
relationship with RMIL e)
He did jobbing
transactions and was not aware of the counterparty. f) �����He did
not know Kishan Agrawwal or A K Agrawal. g)
He had no
relationship with SFL. h)
He was trading
through the franchisee of BPL at Vashi. He knew Bhupesh Gupta, the authorized
signatory at the Vashi branch. i) ������He was
introduced to the stock market by Ashok and later he introduced Ashok to Haven
as a client at Vashi. j) �����He knew
Shravan Kumar Goyal through the stock market since January 2003. They used to
be in contact with each other to get the information from the market.. One and
a half years prior to the statement recording, he had traded with Shravan once
or twice on the BSE. k)
He did not have any
relationship with Haven. l) ����He did
not know anything about A K Agrawal and Kishan Agrawal being introduced by
Sharvan Goyal . m)
He did not know
anything about the structured deals that had been executed by him alongwith
Shravan and Shree Shyam Investments n)
He was not aware of
any deals undertaken by Ashok � (E)�� Statement
of Shri Ashok Sharma dated a)
He had traded as an
individual in RMIL during the period from b)
He did not have any
relationship with RMIL. c)
He had traded under
the guidance of Chirag Pujara and used to trade as per his instructions or that
of his representative at the terminal. d)
Chirag Pujara
introduced Kishan Agrawal, a trader in the stock market. e)
He did not have any
relationship with A K Agrawal and SFL. f)
He was a broker in
the diamond market and the traders in the diamond market introduced him to
Chirag as a trader in the stock market and since the brokerage in the diamond
market was quite less, he started trading in the stock market under the
guidance of Chirag. a)
The trading in RMIL
was the last trading that he did. All the accounts of trading were kept with
Chirag and he had not settled these trades. Chirag was keeping the account of
his trading since the commencement of his trading in the stock market. b)
He did not have any
relationship with Haven and Shrawan Kumar Goyal. c)
He knew Kishan
Agrawal and did not know A K Agrawal. d)
He had stopped
trading in the stock market since July 2003. RMIL was the last scrip that he
traded in. (F)����� Statement of Sanjay Chakor from SFL dated a)
SFL is a public
limited company incorporated in 1991. Sanchay Fincom Ltd. member BSE.is their
group company, b)
SFL had traded on
behalf of their clients in RMIL. c)
Their clients were
A K Agrawal, Kishan Agrawal, Ashok Gupta, Basant Marketing, Shree Shyam
Investment etc. d)
He knew A K
Agrawal, Kishan Agrawal and Shree Shyam Investment since 5 years. Shravan Kumar
Goyal was introduced to SFL by Radheshyam Sharma, their accounts officer. e)
Shree Shyam
Investment, a proprietary concern of Shravan, is a sub broker of Sanchay Fincom
at BSE. On the NSE, Shree Shyam Investment was the client of SFL. f)
The trades in RMIL
were done on the instructions of the clients. g)
SFL did not have
any relationship with Haven, RMIL or Shravan Goyal. h)
SFL were in the
process of applying for the cancellation of the registration of Shree Shyam
Investment. ���
Introduction of the clients �15.��� Upon a cumulative analysis of the statements
reproduced above, it is clear that Shrawan was the main client of Haven and was
introduced to Haven on 16.��� Shravan was
introduced to SFL by Radheshyam Sharma, their accounts officer. In turn,
Shrawan introduced Anil Agrawal and Kishan, both being cousin brothers to SFL. Shree Shyam Investment (SSI)� a proprietary concern of Shravan, is a sub
broker of Sanchay Fincom at BSE, an associate of SFL which fact has been
corroborated by SFL during their statement recording before SEBI on June 25,
2004 and agreed by Shravan himself during the course of the proceedings held
before me. On the NSE, SSI was the client of SFL. Shrawan further stated that
he had surrendered the certificate of registration of SSI to the main broker
for cancellation. SFL in their letter dated September 15, 2003 also admitted
that SSI started trading with them since April 2, 2002 with client code S080
and that the contact person was Shrawan and that Anil started trading with them
on March 25, 2003 with client code A026, while Kishan started trading with them
on June 12, 2003 with client code K031. The date of Kishan entering into the
agreement with SFL was � 17.��
Be that as it may, it is common ground that all these clients knew each
other well and that most of the clients as discussed above, who had traded
extensively in the scrip of RMIL were introduced by a common person; Shrawan. � � �� 18. As
regards BPL and their clients; Chirag and Ashok; who got registered in their
Vashi branch,� I have noted that Chirag
had vide his statement dated June 25, 2004 confirmed that he knew Shrawan since
January 2003 and that they were in contact with each other to get the
information of the market. Even Shrawan vide his statement dated July 22, 2004 made
to SEBI confirmed that he knew Chirag through his uncle Mahesh Pujara whom he
knew for more than 2 years (i.e. before the period of statement recording). However
during the proceedings held before me, Shravan denied knowing either Ashok or
Chirag. Admittedly Chirag was introduced to BPL by Maitri Investment, their
then sub broker, and the fact is corroborated from the client registration form
where the introducing party is shown as Maitri. Incidentally, Maitre was a
partnership firm (since dissolved) of which, Chirag was a partner. This apart,
the authorized signatory of BPL at their Vashi Branch; Shri Bhupesh Gupta was
very close to Chirag and used to place the orders on behalf of both Chirag and
Ashok. In turn Chirag introduced Ashok only on �� 19.�
While summing up the statements/ admissions/denials �made by all the individuals above discussed
and the inter relationship existing between them and notwithstanding the
contradictions in their statements, it is clear that the said brokers and
clients knew each other, 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 20 The facts discussed above have also to be read in context with the
synchronised trades/ structured deals entered into by Shravan through Haven,
with an identified set of clients; A K Agarwal and Kishan Agrawal, trading
through their broker � SFL and Chirag and Ashok Sharma trading through BPL. In
all, Shravan through Haven appear to have entered into 243 structured deals
with the above mentioned clients of BPL and 321 structured deals with the avove
mentioned clients of SFL. �������� Trades between Shrawan/Haven� and Chirag-Ashok /BPL. 21.�� The
details of the trades between Shrawan and Chirag/Ashok through Haven and BPL
respectively (constituting more than 75 pages) have been annexed as Annexure 4
to the notice dated August 10, 2005 issued to Shravan in the present
proceedings and are hereinafter referred to as Table A.� As per the said
data, the series of synchronised trades began from 22. The summary of such
structured deals is as revealed in the table below: TABLE B
The summary reveals that Shravan
through Haven had traded in all the settlements from 2003091 to 2003122, with
the average price ranging between Rs 62.08/- to Rs 90.23 /-. The total quantity
so traded was 5,49,939 shares. � ���������� Trades between Shravan/Haven and AK
Agarwal-Kishan Agrawal/ ���������� SFL 23. ��� The details of the trades
between Shravan through Haven and AK Agarwal-Kishan Agrawal through SFL (again
constituting more than 75 pages) have been annexed as Annexure 2 to the notice
dated 24.���� The summary of such
structured deals is as revealed in the table below: TABLE D
��������� The summary reveals that
Shravn through Haven had traded in all the settlements from 2003090 to 2003129
with the average price ranging between Rs.59.86 to Rs.122.92/-. The total
quantity so traded was 5,94,036 shares. Overall,
these trades accounted for 11.74% of the market gross during the�� traded period. � 25.
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 the scrip of RMIL viz; �Shravan,� Haven, SFL, Anil Agrawal and Kishan Agrawal
all of who were found to be acting in sync with each other, in the context of
the inter-relationship existing between them. 26.� Shravan, the client of Haven as also of SFL
and incidentally also the proprietor of Shree Shyam Investments, (SSI) a
registered sub-broker of Sanchay Fincom; an associate of SFL, traded in his own
name through Haven, during when his trades got matched with Chirag and Ashok,
trading through BPL. Shravan admitted knowing Mahesh Pujara, uncle of Chirag
since the last 2 years as also A K Agrawal and Kishan Agrawal but denied
knowing both Chirag and Ashok. Chirag had however not denied his association
with Shrawan and in fact has admitted conversing with him telephonically about
markets/trades during his proceedings.. Further the trades of Shravan through
Haven got matched with those of AK Agarwal and Kishan Agarwal, trading through
SFL. A perusal of the client introduction forms of A K Agrawal and Kishan
Agrawal (both cousins) reveals that Shravan had introduced them to SFL who in
turn have admitted that they knew A K Agrawal, Kishan Agrawal and Shree Shyam
Investment since 5 years and that Radheshyam Sharma, their accounts officer
introduced Shravan to them 27. Upon a perusal of the
details of the trades as brought out in�
Tables A and C, 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. 3 brokers and 6 clients. Reversal of
trades reflects the transactions being entered into in a circular fashion,
without the actual change of beneficial ownership taking place. 28. Shravan has however denied
doing any trades in a structured or synchronized manner and has stated that
that he only did jobbing in the scrip of RMIL, as in the case of the other
scrips that he traded in. However it
would be an amazing coincidence that while doing jobbing, such a huge number of
synchronized trades got matched, between the same set of brokers and same set
of clients.� 29.�� 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. This is apparent from the proximity
in the inputting of orders at the same price and for the same quantity, which 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. The same has been attributed to coincidence. One
could accept it as a coincidence in case of a solitary incident or two. However
the same happened regularly.� The
phenomenal regularity with which these brokers and their clients were
counter-parties, leads one to conclude, that these transactions were
effectively meant to be� synchronized as is
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. 31. While examining the issue of synchronized trades, the
Hon�ble Securities Appellate Tribunal (SAT) 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 establish that BEB had indulged
in synchronized trading in violation of regulation 47 of the FUTP Regulations. In
a synchronized trading intention is implicit.� (emphasis not supplied) 32. Keeping
in mind the dicta of the SAT as reproduced above; I see no reason to take a
different view.� Besides the
interlinkages between the parties as has been elaborated earlier, another
significant factor that requires consideration is that when a peculiar pattern
of trading between a set of brokers is deciphered, the set relationship between
the concerned entities is further established. There after one needs to also
consider 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. 33. The
understanding between the clients and the brokers is often settled on the basis
of a tacit understanding, without proper paper documentation as was done in the
present case, where the clients were clearly interlinked, as demonstrated
above. The total number of synchronized trades between Shravan through Haven
with AK Agarwal and Kishan Agarwal through SFL were 321 and between Shravan
through Haven and Ashok/Chirag through BPL were 243 and the same has been
reflected in the tables. Despite these trades, Shravan has never considered it
important to explain as to how the said transactions cannot be adjudged to be
synchronsied, when such perfect matching has been indicated and documents for
the same have already been furnished to him. I would also like to highlight the
fact that although �the disclosed quantity� (as defined by NSE) have been shown
differently consistently, �the total traded quantity� between one entity, involving
the traded time and the price were matched at every point in time. In this
context, a better elaboration is required. An order with a Disclosed Quantity
(DQ) condition allows the client/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. 34. This
situation can be exemplified by referring to the trades executed by Shravan
through Haven with Ashok/Chirag through BPL 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 the two set of entities was of the total
traded quantity of 3250. But the disclosed quantity of the trade done through Haven
was 500 i.e. �the original buy volume� was 3250 shares of RMIL. Although the
disclosed quantity of the trade done through BPL was 400, the �original buy
volume� was 3250 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 client/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 client/broker
that should be compared with that of the original buy volume of the other client/broker
for the purpose of perceiving the element of synchronization between them. In
the present case, 400 shares of RMIL through Haven would first get matched with
400 shares of RMIL through BPL (i.e. 100 would remain out of 500 for them as
400 would have been matched) The other 400 shares of thr trade through Haven would
then automatically be sucked out of the remaining i.e., (3250-400 i.e. 2850)
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 sets of
clients through their 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 Tables A and C. 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 clients/brokers was not displayed on the screen. This
enabled the two parties to present a fa�ade of ignorance of the identity of the
counter party, which was in reality not the case. 35. 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 sets of clients through their members. Infact Shravan
did not chose to point out anything on this aspect when provided with all the
documents pertaining to the said trades. Instead he contended that his trades
were genuine and that there was no manipulative intent on his part. Had the
afore discussed trades been genuine and executed in the normal course of
business, the possibility of such perfect matching would not have been
possible.� The buy and sell prices of one
entity was close to the buy/sell rates of the other entity in all the
settlements, such that the trades of these entities were always matched. Trades
to the extent of 321+243 ie. 564 deals as pointed in the tables earlier, and
spread over a period of 2 months are definitely done with some inbuilt
component of �intent� involved. Greater the numbers of synchronized trades, the
larger are the chances of trades not being genuine in nature which is bound to
affect the market equilibrium. A trade can be executed on the screen and still
be manipulative in nature. Trades like cross deals, reverse transactions,
circular trades, synchronized trades are all executed on the screen and with
proper delivery versus payment system. However, considering the number of such
trades, it is clear that there has been a gross misutlisation of the screen
based system. It is also to be stated that �intention� is inherent in all cases
of synchronized trading involving large scale price manipulation and the same
was also brought out in the earlier cited case of Nirmal Bang Securities (P)
Ltd. vs SEBI by the Hon�ble SAT whereby it was observed that� �Intention is reflected from the action of
the Appellant. Choosing selective time slots does not appear to be an
involuntary action.� 36. �Thus the very act of Shravan manipulating the
scrip of RMIL is revealed in him acting in tandem with other entities through
their respective brokers, based on the nexus existing between them which
reveals the inherent intention of manipulating the said scrip. 37. I am also
aware of the fact that clients� trades of such magnitude are left undone, and
generally cannot take place, without the broker being party to it. It is quite
evident that these trades were entered into due to the concerted effort of the
concerned brokers i.e., Haven, BPL and SFL which ensured a semblance of trading
activity, almost every day during the investigation period which was earlier
not observed. 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. However here is a
case where there was no transfer of beneficial ownership in the trades executed
by them. These trades as discussed earlier were in the nature of reversal of
trades/ matched deals with the same set of clients on both sides, trading
through the same set of brokers. Furthermore, when a client reveals a clear and
set pattern/ behavior in a particular scrip, such as execution of a large
number of trades, on the same day, in the same scrip, consistently throughout
the month and with the same set of brokers, then the same is indicative of a
concerted level of activity and 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
apart the regulatory authorities. 38. Furthermore,
price manipulation does not involve only manipulation in the prices of the
scrip but also includes building up volumes.�
The very fact that the total quantities of structured deals entered into
through the respective brokers i.e. Haven and BPL were around 5.5 lakh shares
which represented around 4.2% of the gross traded quantity during the entire
period of investigation and merely for�
two sets of clients, speaks volumes about the level of concerted
activity of Shravan with the others. The total quantity by way of structured
deals through BPL and SFL were around 5.7 lakh shares of RMIL representing
approximately 4.3% of the total quantity traded on the exchange during the
entire period of investigation and for only two clients. 39. I
would also like to bring out certain additional yet relevant facts. The scrip
of RMIL was listed on the NSE only on 40. Upon
perusal of 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. On
the basis of these facts and figures, the involvement of the entities impugned in
the manipulation cannot be denied. It would also be relevant to bring out the
fact that the findings of investigation revealed that these entities accounted
for 94.37% of the gross quantity traded in the scrip of RMIL during the period
under scrutiny. � 45. �To sum up
the facts, it is clear that the modus operandi of Shravan to
manipulate the scrip of RMIL in a concerted manner with several other entities was
effected in the following manner: a) Trading extensively in the same scrip i.e. RMIL
through the same set of brokers i.e. Haven, BPL and SFL and an identified set
of clients. b) Being a proprietary concern and a registered sub
broker of the associate of SFL. � c Involvement in
large scale synchronized trades with the disclosed buy or sell volume being the
same not being reflected on the screens. d) Execution of trades which led to a reversal of
positions at the end of the settlement, resulting in no actual transfer of
beneficial ownership. e) Nexus existing between him
an the other counter party clients� and
the brokers.
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. 47. ��� Shravan is also found to have contravened
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; 48.�������������� In order to
establish the fraudulent nature of trades indulged in by Shravan, 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, ���"
52.
Notwithstanding these facts, people 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.
�������� �PENALTY
55. ��� On analyzing the material available on record as also the facts
and circumstances of this case including the extent of trades executed by Shravan,
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 Shravan Kumar Goyal. �56.��� 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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