SECURITIES AND EXCHANGE BOARD OF INDIA

AP/AO-02/2005

 

 

ADJUDICATION ORDER AGAINST RAMRAKH R. BOHRA IN THE MATTER OF AKL SOFT AND INFOSYS LTD. UNDER RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 READ WITH SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992.

 

(I)                Pursuant to the investigation into the scrip of AKL Soft and Infosys Ltd. (hereinafter referred to as “AKL company”), Securities and Exchange Board of India (SEBI) appointed the undersigned as Adjudicating Officer under Rule 3 of SEBI (Procedure For Holding Inquiry And Imposing Penalties By Adjudicating Officer) Rules, 1995 read with Section 15 I of SEBI Act, 1992 to inquire into and adjudge the alleged practices of Shri Ramrakh R. Bohra, a stock broker and member of Bombay Stock Exchange (hereinafter referred to as RRB) which are prohibited under SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 for which penalty is imposable under Section 15-HA of SEBI Act, 1992. The aforesaid appointment was conveyed vide order dated September 21, 2004.

 

(II)             NOTICE

 

A show cause notice (SCN) dated December 09, 2004 under Rule 4(1) of the said Rules was issued to RRB communicating the detailed charges leveled against it.

 

(III)          REPLY

 

RRB replied to the SCN vide its letter dated December 22, 2004.

 

(IV)          THE INQUIRY

 

The undersigned was of the view that an inquiry should be held in the matter and a notice of inquiry was therefore issued to RRB, fixing the date of inquiry on February 07, 2005. Accordingly, Shri Manish Bohra, authorized representative of RRB appeared before the undersigned for the inquiry and reiterated the written submissions and also sought additional time to file reply detailing the penalty imposed on him by BSE for the transactions in AKL scrip. However, no additional reply was received from RRB.

 

(V)             BACKGROUND

 

1. SEBI carried out an investigation in the scrip for the period 31^st January, 2003 to 7^th February, 2003, which revealed that the major two clients trading in the scrip were connected/related to each other and therefore a full fledged investigation in the scrip was recommended. Accordingly, investigation in the scrip was initiated for the period from 31^st January, 2003 to 4^th April, 2003.

 

2.      During the period of investigation, it was observed that the scrip had opened at Rs. 8.6 on 31.01.2003, touched a intra-day high of Rs. 9.55 on 03.02.2003, then was traded between the price range of Rs. 8 to Rs. 9 till 12.02.2003. Subsequently, the scrip fell to its intra-day low of Rs. 1.70 on 04.04.2003 and finally closed at Rs. 1.80 on 04.04.2003.

 

1. It was observed that during the period of investigation, the ultimate client of the member RRB (577), was ASK Holdings Pvt. Ltd. (Director Ashok Kumar Jain), and it had net purchased 15,66,001 shares, which accounted for 30.97 % of the total issued shares capital of the company and 79.37 % of the total floating stock of the company. Shri Vinod Khetan, the ultimate client of the member Ramaben Samani Finance P. Ltd. (101) had sold 15,57,405 shares, which accounted for 30.80 % of the total issued capital of the company.

 

1. Shri Vinod Khetan had sold shares 15,57,405 shares in various settlements, which accounted for 30.80 % of the total issued shares capital of the company and 78.93 % of the total floating stock of the company.

 

5.      It was observed that there was a single continuous buyer and a seller who had purchased and sold large quantities and were connected /related to each other and there was a low floating stock in the market. It was observed that these clients were reversing their positions in off market deals and were giving legality to their transactions, which were in the nature of financial accommodation.

 

1. It was observed from the analysis of trades of more than 3000 shares that;

 

6.1.   Total quantity executed in trades of more than 3000 shares was 8,57,584 shares, which was 42.08% of the total traded quantity during the period of investigation.

 

6.2.   Total quantity executed in trades of more than 10000 shares, where the buy and sell orders were placed within one minute, was 7,22,185 shares, which was 35.44% of the total traded quantity during the period of investigation.

 

6.3.   Out of 8,57,584 shares executed in trades of more than 3000 shares, 6,95,00 shares were executed between the buyer member Ramrakh R Bohra (577) and seller member Ramaben Samani Finance P. Ltd. (101), where the buy and sell orders were placed within 15 seconds of each other, where on most of the occasion, the sell orders were placed either prior to the buy orders or at the same time.

1. Following is the tabulation of the valid buy and the sell order for the two brokers and their two clients.

SettNo.	Total Valid Buy order placed in the system	Total no. of Invalid buy orders placed in the system (101 + 262)	Total Valid sell orders placed in the system	Total no. of Invalid sell orders placed in the system (101 + 262)	Total Executed quantity	Buy order placed by the member Ramrakh R Bohra (577)	Sell order placed by the member Ramaben Samani Finance P. Ltd. (101)	Buy Quantity executed in favour the member Ramrakh R Bohra (577)	Sell Quantity executed in favour the member Ramaben Samani Finance P. Ltd. (101)
214	51400	0	58300	0	51200	0	0	0	0
215	236000	0	236000	0	236000	231000	230000	231000	230000
216	0	0	5500	0	0	0	0	0	0
217	4000	0	16500	0	4000	0	0	0	0
218	104000	0	105800		104000	100000	100000	100000	100000
219	100000	0	101300		100000	100000	100000	100000	100000
220	67550	0	90765		67550	30075	30000	30075	30000
221	105020	10	105120		105015	100010	100000	100010	100000
222	45000	0	63260		45000	40000	40000	40000	40000
223	91030	0	1102030		91030	91010	91000	91010	91000
224	105000	0	112100		105000	100000	100000	100000	100000
225	25	0	24485		25	0	0	0	0
226	135000	0	153805		135000	128985	130000	128985	130000
227	118995	0	138575		118995	100005	100000	100005	100000
229	66900	0	91981		66900	30000	30000	30000	30000
230	156001	0	166491		156001	100000	100000	100000	100000
231	39600	0	58082		39600	39100	38000	39100	38000
232	2000	0	58990		2000	0	0	0	0
233	199490	0	252390		199490	199490	192000	199490	192000
235	101	0	77000		101	1	0	1	0
236	50	0	112899		50	0	38000	0	0
237	50	0	90454		50	0	0	0	0
238	5	0	111000		5	5	0	5	0
239	177405	0	256304		177405	177405	177405	177405	177405
240	1050	0	69899		1050	0	0	0	0
241	40000	0	248500		40000	0	0	0	0
242	30200	0	100000		30200	0	0	0	0
244	35050	1	103550		35050	0	0	0	0
245	100	0	75000		100	0	0	0	0
246	200	0	148600		200	0	0	0	0
247	25200	0	406700		25200	0	0	0	0
248	10	0	325000		10	0	0	0	0
249	2201	158	198000		2201	0	0	0	0
250	1	0	325405		1	0	0	0	0
001	10	0	325405		10	0	0	0	0
002	2010	0	325405		2010	0	0	0	0
003	5010	0	196180		5010	0	0	0	0
004	10	0	246180		10	0	0	0	0
005	1000	0	146180		1000	0	0	0	0
006	61180	0	147180	0	46180	0	0	0	0
007	82954	0	45264	100	45264	0	0	0	0
	2090808		7021579		2037913	1566509	1596304	1566509	1558304

 

1. It was observed from the aforesaid table that:

 

8.1.   There were more sell orders than the buy orders indicating a selling pressure during the period of investigation.

8.2.   On the day, when there were large volumes, the member Ramrakh R Bohra (577) and Ramaben Samani Finance P. Ltd. (101) had contributed more than 90% to the same.

8.3.   During the settlement no. DR/240-0203 to DR/007-0304, the member P Suryakant Share & Stock Brokers Pvt. Ltd. (792), Crescent Finstock Ltd.(186) and Ramrakh R Bohra (577) had placed large sell orders, however the same either were executed for small quantity or were not executed, as there were no buyers.

 

1. During the investigations it was submitted by the client ASK Holdings Pvt. Ltd. that these were purely financing transactions. He also stated that there was never any intention to transfer the beneficial interest in the securities.

 

 

(VI) REPLY OF THE MEMBER

 

1.      RRB denied all the allegations levelled against him in the SCN in his reply dated January 22, 2004 and submitted that allegations are unsubstantiated and without any basis and without any material to show or even indicate his role in the allegations.

 

2.      The member stated that M/s ASK Holdings Pvt. Ltd. (ASK) was their client for a while and was trading in several securities through him, besides AKL and was regular in delivery and in payments. Thus the member had no reason to doubt that any artificial trade or synchronized trading was taking place. RRB further stated that it was not possible for him to ascertain whether any of his client or any other person is also simultaneously placing contra order with some other member in the same scrip at the same price and of the same quantity, while placing orders with him. Since all the payments from ASK were received on time and there was no reason to suspect any irregularity and therefore RRB did not seek any explanation from its client for the reason for the purchase in the scrip of AKL, it was stated. At the first hint of irregularity he ceased all such trades for ASK. RRB knew about the irregularities post facto, it was submitted.

 

3.      RRB contented that as the trades were executed on screen based automated trading system of the exchange through the trading terminals, the counter party broker and counter party was not know to him. It was reiterated that they have never met or knew any person from the member Ramaben Samani. The member further denied knowledge of any synchronized trades took place in AKL scrip through their terminals. On this basis the member contented that the allegations made in the show cause notice are misdirected.

 

4.      RRB reiterated that knowledge of acts of their clients cannot be imputed on him and denied helping his client Mr. Ashok Kumar Jain in creating artificial volumes or appearance of liquidity nor distorted the equilibrium or price of the scrip of AKL. He merely placed the orders of their client for which all the necessary payments were being made on time by their client. The very fact that there was no sale transaction by RRB, only demonstrated that they are not responsible for any irregularity in the scrip and in any case the price fall could not be attributed to RRB.

 

5.      RRB contented that he cannot be held responsible for the increase or decrease in the price or volume of any scrip, particularly when there was no proprietary trades. Referring to the details of the trade and the payment to Mr. Vinod Khetan by member Ramaben Samani, it was submitted that this finding was against Mr. Vinod Khetan and not against RRB as there is no complicity on his part. Further, fictitious trades by his client, if any, without RRB’s knowledge or involvement, cannot be attributed to RRB, it was submitted.

 

(VII) FINDINGS

 

1. It was observed that during the period of investigation, the ultimate client of the member Ramrakh R Bohra (577), was ASK Holdings Pvt. Ltd. (Director Ashok Kumar Jain), and it had net purchased 15,66,001 shares, which accounted for 30.97 % of the total issued shares capital of the company and 79.37 % of the total floating stock of the company. Shri Vinod Khetan, the ultimate client of the member Ramaben Samani Finance P. Ltd. (101) had sold 15,57,405 shares, which accounted for 30.80 % of the total issued capital of the company.

 

1. Shri Vinod Khetan had sold shares 15,57,405 shares in various settlements, which accounted for 30.80 % of the total issued shares capital of the company and 78.93 % of the total floating stock of the company.

 

1. It was observed that there was a single continuous buyer and a seller who had purchased and sold large quantities and were connected /related to each other and there was a low floating stock in the market. It was observed that these clients were reversing their positions in off market deals and were giving legality to their transactions, which were in the nature of financial accommodation.

 

4. It was observed form the analysis of trades of more than 3000 shares that;

 

(i) Total quantity executed in trades of more than 3000 shares was 8,57,584 shares, which was 42.08% of the total traded quantity during the period of investigation.

 

(ii) Total quantity executed in trades of more than 10000 shares, where the buy and sell orders were placed within one minute, was 7,22,185 shares, which was 35.44% of the total traded quantity during the period of investigation.

 

(iii) Out of 8,57,584 shares executed in trades of more than 3000 shares, 6,95,00 shares were executed between the buyer member Ramrakh R Bohra (577) and seller member Ramaben Samani Finance P. Ltd. (101), where the buy and sell orders were placed within 15 seconds of each other, where on most of the occasion, the sell orders were placed either prior to the buy orders or at the same time.

 

5. It was also observed that:

 

i.      There were more sell orders than the buy orders indicating a selling pressure during the period of investigation.

ii.     On the day, when there were large volumes, the member Ramrakh R Bohra (577) and Ramaben Samani Finance P. Ltd. (101) had contributed more than 90% to the same.

iii.  During the settlement no. DR/240-0203 to DR/007-0304, the member P Suryakant Share & Stock Brokers Pvt. Ltd. (792), Crescent Finstock Ltd.(186) and Ramrakh R Bohra (577) had placed large sell orders, however the same either were executed for small quantity or were not executed, as there were no buyers.

 

1. During the investigations it was submitted by the client ASK Holdings Pvt. Ltd. that these were purely financing transactions. He also stated that there was never any intention to transfer the beneficial interest in the securities.

 

1. It is observed from the investigation report that clients ASK Holdings Pvt. Ltd. And Shri Vinod Khetan were known to each other and as per their admission they were business partners and friends. Shri Vinod Khetan had stated that he had allowed his name to be used by ASK Holdings Pvt. Ltd. Only with the intention of helping out his friend.

 

1. It is observed that ASK Holding Pvt. Ltd. Sold shares from the offices of Ramaben Samani Pvt. Ltd. In the name of Shri Vinod Khetan. ASK Holdings Pvt. Ltd. had the trading terminal of the broker Ramrakh R Bohra. From this terminal he bought the shares offered by Ramaben Samani Pvt. Ltd.

 

1. ASK Holdings Pvt. Ltd. and Shri Vinod Khetan then synchronized the entry of the orders on the terminal of Shri Ramrakh R Bohra.

 

1. These transactions were performed over and over again. The shares which were received at the end of member Ramrakh R Bohra for the bought transactions were then transferred from Ramrakh R Bohra’s demat a/c no. 14936243 with SHCIL, to the demat account of Shri Vinod Khetan no. 16089888.

 

 

 

 

1. The trades of these clients are as follows:

 

Sr. no.	Settlement no.	ASK Holdings Pvt. Ltd. (buy) Ramrakh R Bohra	Vinod Khetan (sell) Ramaben Samani Pvt. Ltd.
1.	215	231000	231000
2.	218	100000	100000
3.	219	100000	100000
4.	220	30000	30000
5.	221	100010	100000
6.	222	40000	40000
7.	223	91010	90015
8.	224	100000	100000
9.	226	128985	130000
10.	227	100000	100000
11.	229	30000	30000
12.	230	100000	100000
13.	231	39095	38000
14.	233	199490	192000
15.	235	1	0
16.	238	5	0
17.	239	177405	177405

 

 It is obvious from the above that all the trades have been matched exactly with the other with respect to quantity except on a few occasions.

 

1. It is observed from the above that the transactions were fictitious in nature. Shri Ashok Kumar Jain in his statement dated April 16, 2004 stated that “We used to synchronize the entry of the orders at my terminal (RRBohra) at for Shri Vinod Khetan(R Samani). While at times I have been the initiator of the orders i.e. buy orders, at others R Samani has been the initiator. For this purpose I used to speak telephonically online with Ms. Sudha Vithlani on some occasions and at other times with her employees.” He has also further confirmed in his statement before Investigating Authority that these transactions were entered into without the intention of the transfer of the ownership of the shares. He also agreed to the conclusion of the Investigating Authority that these transactions were entered into without the intention of the transfer of the ownership of shares. He also agreed to the conclusion of the Investigating Authority that these transactions created false and misleading appearance of trading in the market in the scrip, as more than 90% of the transactions in this scrip was attributed to ASK especially when they did not even intend to transfer the ownership of the shares.

 

1.  I also find that Ashok Kumar Jain, the director of ASK Holdings Pvt. Ltd. was questioned by investigating officials as to the intentions of these transactions. In his statement recorded on May 13, 2004, he agreed with the conclusion of the Investigating Authority that “Yes I confirm that these transactions were entered into without the intention of the transfer of the ownership of the shares”.

 

1. ASK Holdings Pvt. Ltd. also admitted during investigations that both the brokers at both legs of the transactions were aware of the nature of these transactions. It was registered with both the brokers as a client, though it did not trade in this scrip during the period under reference I also find a reference that “Shri R R Bohra was aware of the financial predicament I was in and he accommodated me during the financial crisis and facilitated these transactions for enabling me to pay my pay-in due and other obligations”

 

1. During investigation the member submitted that they were not aware of the synchronisation of the transactions from their trading terminal and stated that it did not supervise the trading of the client as long as he was getting his payment and delivery in time. However, he agreed with the conclusions of the Investigating Authority and stated “On seeing these transactions it appears that there could have been an attempt to create artificial volumes in the scrip. We are also to state that these are all client transactions and that we have no role to play in this scrip during the time.”

 

1. The member during the hearing and in its additional reply dated 14.2.05 submitted that it has incurred losses on account of trading with its client Ask Holdings who has to give huge amount of money to the member. The member was questioned if that is the case then why it did not take any action against its clients for recovery of dues. To this member stated that they had got some money but some more was expected and that is why they did not take coercive action against the client. Alongwith this additional reply the member filed a letter dated 31.7.03 of BSE vide which a penalty of Rs.25,000/- was imposed upon member for indulging in synchronized dealings.

 

1. The submissions of the member in their reply that they had no reason to believe that there was anything untowards in these transactions, is not at all convincing to me as in a statement before the Investigating Authority, the member has agreed that the scrip was illiquid during the period under reference. When a single investor client is accounted for trading in 30.97% of the total issued share capital of the company and 79.37% of the total floating stock of the company, the member cannot be supposed to be ignorant of these synchronized trading. I have no doubt in holding that without the co – operation of the member with the client, such type of synchronized trading, which has grossly resulted in misuse of stock exchange mechanism thereby causing fluctuation in the price of the scrip, would not have been possible. Further also, had the member exercised due skill and care, the clients would not have succeeded in mis using the stock exchange mechanism for their unlawful gains. The role of the member in these synchronized trading further gets established since BSE has also found member guilty of it and imposed a penalty of Rs.25,000/-

 

1. RRB has therefore been found guilty of having aided and abetted its client in creation of artificial volumes in the scrip and therefore indulged in fraudulent and unfair trade practices relating to securities and which is prohibited under Regulation 4 (b), (c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the securities market) Regulations 1995, which inter – alia provides:- 4 (b), (c) & (d) : No person shall ;

 (b) Indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market;

(c) Indulge in any act which results in reflection of prices of securities based on transactions that are not genuine transactions;

(d) Enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the market price of securities.”

1. In view of the above it is held that RRB has violated the provisions of section 15HA of SEBI Act, 1992 for having indulged in fraudulent and unfair trade practices relating to securities markets. The violations in this regard attracts the penalty as prescribed under section 15HA of the SEBI Act and in order to adjudge the quantum of penalty, I have to consider the following factors:

 

a)        the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default,

b)       the amount of loss caused to an investor or group of investors as a result of the default and

c)        the repetitive nature of the default.

 

 

 

 

As regards the disproportionate gain or unfair advantage there are no exact quantifiable figures available with respect to the default observed on the part of RRB. However, large and substantial money has been involved which has been used by ASK in a design to get rid of their financial crisis. I find that the money given by Shri Vinod Khetan to ASK out of the sale proceeds from Ramaben Samani Pvt. Ltd. has been utilized by ASK in meeting their pay-in obligation to RRB and in doing so they have mis-utilized the stock exchange mechanism for their personal illegal gains and thereby created artificial volumes in the scrip which resulted in artificial increase of the price in the scrip. From the submissions made by counter party broker M/s Ramaben Samani Pvt. Ltd., it was observed during similar adjudication proceedings that they earned a brokerage of Rs. 31,148/- out of these illegal transactions. As per Section 15HA of SEBI Act, I find that penalty equal to 3 times of amount of profits made out of such fraudulent and unfair trade practices, can be levied. I presume in the circumstances that similar amount of brokerage would have earned by RRB in the said transactions. I have also noted that Bombay Stock Exchange has also slapped a fine of Rs. 25,000/- in the said matter. The violation is undoubtedly is very serious and of course repetitive in nature and therefore I consider that the monetary penalty needs to be imposed as a corrective measure.

 

 

(VIII) ORDER

 

The submissions of RRB have been considered and dealt in detail as above and in view of the findings arrived at, I consider it to be a fit case for imposition of penalty under sections 15 HA of the SEBI Act, 1992. In view of the same and in exercise of the powers conferred under section 15-I (2) of the SEBI Act, 1992, read with, Rule 5 of the said Rules, I hereby impose a penalty of Rs. Seventy Five Thousand only (Rs.75,000/-) on RRB.

 

The aforesaid penalty shall be paid by way of demand draft in favour of "SEBI - Penalties Remittable to Government of India" payable at Mumbai within 45 days of receipt of this order.

 

The said demand draft should be forwarded to the General Manager of SEBI, Investigation Department, ID-3 at SEBI, Mittal Court, B- Wing, 1^st Floor, 224 Nariman Point, Mumbai 400 0021.

 

 

 

 

Date: April 11, 2005.

Place: Mumbai

 

AMIT PRADHAN

ADJUDICATING OFFICER