IN THE SECURITIES APPELLATE TRIBUNAL MUMBAI

 

Appeal No. 88 of 2007

 

	Date of Decision	14.8.2007
Pawankumar Parmeshwarlal			……		Appellant
Versus
Securities and Exchange Board of India			……		Respondent

 

Present : Mr.  J.J. Bhatt, Advocate for the appellant

 Mr. D.P. Desai, Advocate with Mr. Gagan Sharma, 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)

 

 One of the primary allegations levelled against the appellant who is a stock broker is that he acted in concert with his client who is his wife in creating artificial volumes in the scrip of Prabhu Steel Industries Ltd. (hereinafter called the company). It is also alleged that he in concert with his clients who were his family members had indulged in circular trading in the scrip of the company. In order to appreciate the charge it is necessary to understand the two sets of transactions which form the modus operandi of the operations of the appellant. The appellant claims that his close family members advanced instant finance to different parties against scrips of companies. In the first set of transactions the person who wanted finance brought the shares to the appellant who got them transferred in the demat account of his family members or otherwise took delivery of the shares if they were in physical form. Those shares were then transferred in the name of the family members in spot transactions which are off-market. These transactions are legal as they are recognised by the Securities Contracts (Regulation) Act, 1956. Now the second leg of the transaction starts. The person who brought the shares would get instant cash from the account of the family member of the appellant without waiting for the pay out from the exchange after deducting the interest for period from the date of payment till the end of the settlement cycle of the exchange.  After the shares were transferred, the appellant would put them for sale on the screen of the exchange which in the present case was the Bombay Stock Exchange (hereinafter called the Exchange). Those shares were then sold by the appellant on behalf of his family members who were his clients. He received the sale consideration only at the end of the settlement cycle which at the relevant time was the end of the following week in which the trade was executed. He would then make payment to his family member(s) after deducting his brokerage.

   2.            The Securities and Exchange Board of India (for short the Board) carried out investigation in the scrip of the company and discovered that among others, the appellant was receiving the shares in off-market transaction through his family members and was then selling them through the system of the Exchange to the very persons from whom the shares were received by his family members in off-market transactions. As already noticed above, the appellant is said to have executed circular trades and created artificial volumes in the scrip of the company. Is it so is the question that we need to answer. It is clear from the record that G.R. Pandya Share Broking Ltd. which is a registered stock broker in the securities market (hereinafter called Pandya) had brought 23000 shares of the company which were in physical form along with blank transfer forms duly signed by the owner(s) thereof. Having received these shares by way of security, the appellant put them on sale on the Exchange on behalf of his wife who was shown as his client. It is surprising that out of these 20000 shares were picked up by Pandya in different lots. The learned counsel for the respondent has placed before us two charts showing the off-market transactions by which the shares came in the hands of the appellant’s wife and also the trade and order log showing further sale made by the appellant on the screen of the Exchange. We have perused the details of the trades and find that in every sale order placed by the appellant it was Pandya who was the purchaser. It is thus clear that the circle was complete inasmuch as the shares which had come from Pandya to the appellant’s wife on whose behalf the appellant sold and it was Pandya who purchased them back. The charge of circular trading is thus established. Several trades had been executed in this manner. Circular trading by itself creates artificial volumes in the market because the parties buying and selling the shares do not intend to transfer the beneficial ownership therein. This being so, we have no hesitation in upholding the impugned order suspending the certificate of registration of the appellant for two months.

   3.             In the result, the appeal fails and the same is dismissed with no order as to costs.