IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

 

Appeal No. 141 of 2006

 

Date of Decision

28.8.2007

 

Arcadia Share & Stock Brokers Pvt. Ltd.	……	Appellant
Versus
Securities and Exchange Board of India	……	Respondent

 

Present :  Mr. Aditya Bhansali with Mr. Antony Sequeira, Representatives

 of  the appellant

 Mr. Mihir A. Mody, Advocate  for the respondent

 

  

 

Coram:

 Justice N.K. Sodhi, Presiding Officer

 Arun Bhargava, Member

 Utpal Bhattacharya, Member

 

 

Per: Justice N.K. Sodhi, Presiding Officer (oral)

 

 

 This order will dispose of three Appeals nos. 141, 142 and 143 of 2006 which arise from proceedings initiated by the Securities and Exchange Board of India (for short the Board) as a result of an investigation in which it was found that the appellants allegedly committed a common set of violations.

   2.            The Board conducted investigations into the buying, selling and dealings in the scrip of Orient Information Technology Ltd. (hereinafter called the company) to find out whether there was any violation of the provisions of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations , 1995 (hereinafter referred to as FUTP Regulations). It is not in dispute that the scrip of the company is listed on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and the Delhi Stock Exchange. The investigations revealed that Nirjay Securities Pvt. Ltd. and Kaushik Shah Shares and Securities Pvt. Ltd. (for short Nirjay and Kaushik respectively) had actively traded in the scrip of the company and that their trading contributed to an unusual spurt in the traded volumes. It was further revealed that Arcadia Share & Stock Brokers Pvt. Ltd. (for short Arcadia) had also executed some trades as a stock broker.

   3.            Kaushik is a registered stock broker and a trading member of the BSE. Arcadia is also a registered stock broker of the NSE. The investigating officer prepared a chart of the trades executed by Nirjay, Kaushik and Arcadia which was supplied to the appellants during the course of the proceedings initiated against them. This chart, which is not in dispute, gives the details of the cross deals executed in a synchronised manner. A mere look at the chart makes it clear that Nirjay sold shares of the company to Kaushik who purchased them in its proprietary account i.e. as a client. Having purchased them on the BSE, Kaushik in its proprietary account sold them through Arcadia as a broker on the NSE and the purchaser was Nirjay. This transaction between Kaushik and Nirjay through Arcadia is also a cross deal because Arcadia was the common broker of the buyer and the seller. Now it is the turn of Nirjay to sell the shares at the NSE. It does so through Arcadia and the purchaser is Kaushik in its proprietary account. Kaushik then sells them as a proprietor on the BSE and the shares are purchased by Nirjay. This transaction is also a cross deal because Kaushik acted as the common broker on his own behalf and on behalf of Nirjay. When we look at the entire cycle, the shares started moving from Nirjay and have reached back to it through different transactions which are cross deals. It is, thus, clear that circular trades had been executed in a synchronised manner. The investigating officer and the Board in the impugned order have recorded a finding that in all 35 such trades had been executed. Show cause notices were issued to the appellants who filed their reply denying the allegations but did not dispute the trades referred to in the chart. On a consideration of the material available on the record including the explanation furnished by the appellants, the Board came to the conclusion that the appellants had violated the FUTP Regulations. It also concluded that Arcadia and Kaushik as registered stock brokers had also violated the code of conduct prescribed for stock brokers. Having recorded these findings, the whole time member of the Board by his three separate orders dated 1.11.2006 suspended the certificate of registration of Arcadia and Kaushik for a period of seven days whereas in the case of Nirjay which is an investment company and not a market intermediary, passed an order under section 11(4) of the Securities and Exchange Board of India Act, 1992 (for short the Act) restraining it and its non-executive director Jatin A. Khandwala from buying, selling or dealing in securities for a period of six months. It is against these orders that the present three appeals have been filed.

   4.            We have heard the representatives of Arcadia and Kaushik and also the learned counsel for Nirjay and the learned counsel for the Board. As already observed, the chart depicting the trades executed between Nirjay, Kaushik and Arcadia are not in dispute and we have no doubt that the trades were circular in nature which were executed in a synchronised manner. It is also true that only 35 trades in this manner were executed during the period from December 2000 to January 2001. The charges levelled against the appellants stand established but we are surprised to note that the whole time member while dealing with the case of the three appellants simultaneously passed orders on the same day holding them guilty of the same charges and in the case of Nirjay he debarred that company from accessing the capital market for a period of six months whereas in the case of Arcadia and Kaushik, their certificates of registration have been suspended for seven days. It has to be clearly understood that when identical charges are established against the three entities which together had executed circular trades in a synchronised manner, there was no reason for the whole time member to impose different penalties on them. Even in the matter of imposition of penalties, the Board has to be fair and reasonable and mete out equal treatment to those who are found to have committed similar/identical irregularities. In this view of the matter, we have no hesitation to hold that Nirjay too should have been debarred from accessing the capital market only for a period of seven days when the certificates of registration of the other two had been suspended for that period. It is no answer to say that Arcadia and Kaushik were market intermediaries and Nirjay was not.

   5.            The learned counsel for the appellants in Appeal no. 143 strenuously contended that the appellants had executed only 35 trades and those, too, in the year 2000-01 and that almost seven years have since elapsed and that the appellants were allowed to operate in the market since then and, therefore, it would be in the interest of justice if the penalty in the case of Nirjay and the other appellants is substituted by a monetary penalty under Chapter VIA of the Act.  Having regard to the facts and circumstances of this case, we are of the view that the prayer made on behalf of the appellants is reasonable. A similar course was adopted by this Tribunal in Devichand Hansraj Oswal vs. Securities and Exchange Board of India Appeal no. 23 of 2006 decided on 8.2.2006. After the decision in this case, the Board filed a review petition no. 1 of 2006 which was dismissed on 26.6.2006 holding that even though the penalty was levied by the Board under the provisions of the enquiry Regulations yet the Tribunal in appeal could convert the same into a monetary penalty in exercise of its powers under Rule 21 of Securities Appellate Tribunal (Procedure) Rules, 2000(for short the Rules). Again, in Shilpa Stock Brokers Pvt. Ltd. vs. Securities and Exchange Board of India Appeal no. 10 of 2006 decided on 27.6.2006 a similar view was taken by this Tribunal wherein the penalty of suspension of certificate of registration of a stock broker for a period of one month was converted into a monetary penalty to meet the ends of justice. Here again, power under Rule 21 of the Rules was exercised to secure the ends of justice. In the present case, we are of the view that the ends of justice would be adequately met if the penalty imposed on the appellants is converted into a monetary penalty and they are directed to pay a sum of Rs. 1 lac each by way of penalty for the irregularities committed by them. We order accordingly. In Appeal no. 143 of 2006 the liability of the appellants shall be joint and several.

   6.            The appeals stand disposed of as above with no order as to costs.