SECURITIES AND EXCHANGE BOARD OF INDIA
Coram: Dr. T. C. Nair, Whole Time Member
ORDER
UNDER REGULATION 13(4) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING ENQUIRY BY ENQUIRY OFFICER AND IMPOSING PENALTY) REGULATIONS, 2002, AGAINST M/s. HARVIC MANAGEMENT SERVICES INDIA LIMITED (PAN – AABCH1644M), SUB-BROKER AFFILIATED TO M/s. B. M. GANDHI SECURITIES LTD., MEMBER, BOMBAY STOCK EXCHANGE LTD., MUMBAI AND BEARING SEBI REGISTRATION NUMBER INS 010496938 IN THE MATTER OF THEIR DEALING IN THE SCRIP OF M/s. NUMERO UNO PROJECTS LIMITED
WTM/TCN/ID6/ 57/08/2007
1.0 BACKGROUND
1.1 The Securities and Exchange Board of India (hereinafter referred to as “SEBI”) had conducted an investigation in the dealing in the scrip of M/s. Numero Uno Projects Limited (hereinafter referred to as ‘the company’ or ‘NUPL’) for the period from June, 2002 to July, 2002. The investigations alleged that M/s. Harvic Management Services India Limited (hereinafter referred to as ‘sub-broker’), a sub-broker affiliated to M/s. B. M. Gandhi Securities Ltd., Member, Bombay Stock Exchange Ltd., Mumbai, bearing SEBI Registration number INS 010496938 had violated the provisions of Regulation 4 (b) and (d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (herein after referred to as ‘FUTP Regulations’), Code of Conduct for Sub-Brokers specified in Schedule II read with Regulation 15 of the SEBI (Stock Broker and Sub-broker) Regulations, 1992 (hereinafter referred to as ‘Broker Regulations’), SEBI Circular SMD/SED/CIR/93/23321 dated 18-11-1993 and SEBI Circular SMD/POLICY/CIRCULAR/5-97 dated 11-04-1997. In view of the above allegations, it was thought fit to conduct an enquiry against the sub-broker.
1.2 Accordingly, SEBI vide an order dated 26-07-2004 appointed an Enquiry Officer to enquire into the contraventions, if any committed by the sub-broker while dealing in the scrip of the company.
2.0 ENQUIRY PROCEEDINGS
2.1 In order to convey the charges against the sub-broker, a notice in terms of Regulation 6(1) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as the ‘Enquiry Regulations’) was issued to it. The notice also enclosed documents which were the basis for the allegations against the sub-broker. The notice required the sub-broker to reply to the same within 21 days.
2.2 The sub-broker had replied to the notice by its reply dated 21-09-2004 through their counsel. The Enquiry Officer had also heard the sub-broker in accordance with Regulation 9 of the Enquiry Regulations.
2.3 After conducting the enquiry, the Enquiry Officer vide his Report dated 31-01-2005 had concluded that the sub-broker had violated the provisions of Regulation 4 (b) and (d) of the FUTP Regulations and Clauses A(1) and (2), B(8) and D(3), (4) and (5) of the Broker Regulations. The conclusions arrived at by the Enquiry Officer are :
· That the sub-broker has assisted the promoter associated entities in selling their shares
· That the sub-broker had accepted incomplete client registration form from its clients
· That they have routed sale of shares through other related entities so as to escape detection and suspicion of concentration of trading in thinly traded scrips
· That the sub-broker in connivance with other related entities have created artificial volumes in the scrip and thereby a false and misleading appearance of trading in the securities market
· That the sub-broker was buying and selling shares at the same time in connivance with other related entities without intending to effect transfer of beneficial ownership
2.4 The Enquiry Officer based on the findings and conclusions has recommended that the registration granted to the sub-broker be suspended for a period of 3 months as penalty for their violations.
3.0 SHOW CAUSE NOTICE, REPLY AND HEARING
3.1 After considering the Enquiry Report submitted to it, the Board issued a show cause notice dated 21-02-2005 to the sub-broker under Regulation 13(2) of the Enquiry Regulations, whereby the sub-broker was to show cause as to why penalty as recommended by the Enquiry Officer or any other appropriate penalty should not be imposed for its contraventions. The sub-broker replied to the show cause notice by its reply dated 04-03-2005 wherein they made their submissions.
4.0 CONSIDERATION OF ISSUES
4.1 I have carefully perused the Enquiry Report, the notice and the submissions made by the sub-broker. The issue before me for consideration are:
i) Whether the sub-broker has entered into any dealing which contravenes the relevant provisions of the FUTP Regulations?
ii) Whether the sub-broker had acted in a manner so as to contravene the provisions of SEBI Circulars, SEBI Circular SMD/SED/CIR/93/23321 dated 18-11-1993 and SEBI Circular SMD/POLICY/CIRCULAR/5-97 dated 11-04-1997?
iii) Whether the sub-broker has contravened the relevant provisions of the code of conduct prescribed for sub-brokers under the Broker Regulations?
4.2 I note that the charge against the sub-broker was that they connived with the promoters of the company by creating misleading appearance of trading in the scrip of NUPL thereby luring innocent investors to invest in the said scrip. Necessary facts relevant to the case are that, NUPL had advertised in some leading newspapers about the proposed buy-back of its shares. I note that the investigations have revealed that a small part of the advertisement cost has been paid by the sub-broker and another entity called M/s. Havmore Financial Services Limited, an associate of the noticee. But the sub-broker has stated that the payments were made to the advertisement agency only for publishing their annual result which is mandated by the stock exchanges. This submission has not been corroborated by any documentary proof of publishing their annual result in the newspapers. The investigations have brought that Shri Kaplesh K. Chawalla was a director of Harvic and M/s. Havmore Financial Services Limited, Shri Hemang D. Jangla was a director of Harvic and M/s. Danhem Management Services and Shri Dinesh T. Jangla was director in Harvic and in M/s. Havmore Financial Services Limited. This would establish the link between the aforesaid entities.
4.3 I note that prior to the advertisement by the company of their proposed buy-back, the traded volumes increased substantially from 1,50,000 shares to 3,50,000 whereas the price was stable between Rs.2.50/- and Rs.3/-. The sub-broker had started to trade in the scrip of the company during May, 2002 on instructions of Shri Harish Ruparel, promoter of the company. The promoters of the company had transferred 16,30,000 shares to the account of the sub-broker from their associates, namely, M/s. Avdh Investment and Capital Private Limited, M/s. Numero Uno Credit Capital and Investment Private Limited, M/s. Numero Uno Securities Private Limited and Darshna Ruparel. From out of 16,30,000 shares obtained from the promoters of the company, the sub-broker in turn transferred 1,96,000 shares to their associates M/s. Havmore Financial Services Limited, M/s. Danhem Holdings and Shri Kerul Shah (stated to be an employee of the sub-broker) who sold the shares through various other brokers. I note that the sub-broker has done the above transfer instead of selling the shares as instructed by the promoters. The Enquiry Officer has observed that the sub-broker has transferred the shares of the company in order to escape detection and suspicion of concentration in the scrip. I, further note that these transfers enabled the group entities to engage in a series of transactions such as structured deals, that were intended to create artificial volumes and price in the scrip of NUPL. The tables below would throw more light on how Harvic group entered into self deals within the group.
(i) The table below give details of the transactions entered into between M/s. Havmore Financial Services Limited and M/s. Danhem Holdings on 28-06-2002.
Transactions between Havmore and Danhem on 28/6/2002 for 16000 shares
|
Trade no
|
Order no
|
Broker No
|
Qty
|
Rate
|
Buy/
Sell
|
Date
|
Time
|
Counter broker
|
Client code
|
|
554
|
32806100000003376
|
D0328
|
600
|
3.55
|
B
|
28-Jun-02
|
2:49:01 PM
|
D0601
|
MMD007
|
|
555
|
32806100000003376
|
D0328
|
2200
|
3.55
|
B
|
28-Jun-02
|
2:49:01 PM
|
D0601
|
MMD007
|
|
556
|
32806100000003376
|
D0328
|
2200
|
3.55
|
B
|
28-Jun-02
|
2:49:01 PM
|
D0601
|
MMD007
|
|
557
|
32806100000003376
|
D0328
|
2200
|
3.55
|
B
|
28-Jun-02
|
2:49:01 PM
|
D0601
|
MMD007
|
|
558
|
32806100000003376
|
D0328
|
2200
|
3.55
|
B
|
28-Jun-02
|
2:49:01 PM
|
D0601
|
MMD007
|
|
559
|
32806100000003376
|
D0328
|
2200
|
3.55
|
B
|
28-Jun-02
|
2:49:01 PM
|
D0601
|
MMD007
|
|
560
|
32806100000003376
|
D0328
|
2200
|
3.55
|
B
|
28-Jun-02
|
2:49:01 PM
|
D0601
|
MMD007
|
|
561
|
32806100000003376
|
D0328
|
2200
|
3.55
|
B
|
28-Jun-02
|
2:49:01 PM
|
D0601
|
MMD007
|
|
554
|
60100100010040000
|
D0601
|
600
|
3.55
|
S
|
28-Jun-02
|
2:49:01 PM
|
D0328
|
7623
|
|
555
|
60100100010040000
|
D0601
|
2200
|
3.55
|
S
|
28-Jun-02
|
2:49:01 PM
|
D0328
|
7623
|
|
556
|
60100100010040000
|
D0601
|
2200
|
3.55
|
S
|
28-Jun-02
|
2:49:01 PM
|
D0328
|
7623
|
|
557
|
60100100010040000
|
D0601
|
2200
|
3.55
|
S
|
28-Jun-02
|
2:49:01 PM
|
D0328
|
7623
|
|
558
|
60100100010040000
|
D0601
|
2200
|
3.55
|
S
|
28-Jun-02
|
2:49:01 PM
|
D0328
|
7623
|
|
559
|
60100100010040000
|
D0601
|
2200
|
3.55
|
S
|
28-Jun-02
|
2:49:01 PM
|
D0328
|
7623
|
|
560
|
60100100010040000
|
D0601
|
2200
|
3.55
|
S
|
28-Jun-02
|
2:49:01 PM
|
D0328
|
7623
|
|
561
|
60100100010040000
|
D0601
|
2200
|
3.55
|
S
|
28-Jun-02
|
2:49:01 PM
|
D0328
|
7623
|
From the above table it is evident that the transactions which were in the nature of cross/self deals and Havemore and Danhem (Harvic group) were buying and selling through different brokers. It is seen that on 28/6/2002, the Harvic group was buying and selling shares at the same time. The Client Code No. MMD007 belonged to client Danhem Holdings with Geojit Securities (broker No. DO328) and Client Code No. 7623 belonged to Havemore Financial with broker no. DO601- R D Shah. Total trade shares amounted to 16000 shares. Danhem was buying shares and at the same time Havemore was selling them the deals being self deals.
(ii) The table below shows the transactions between Havemore and Kerul
Shah entered on 28/6/2002 for 24000 shares
Transactions between Havmore and Kerul Shah on 28/6/2002 for 24000 shares
|
Trade no
|
Order no
|
Broker No
|
Qty
|
Rate
|
Buy/
Sell
|
Date
|
Time
|
Counter broker
|
Client code
|
|
187
|
60101900000000299
|
D0601
|
1500
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
188
|
60101900000000299
|
D0601
|
1000
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
189
|
60101900000000299
|
D0601
|
1500
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
190
|
60101900000000299
|
D0601
|
1000
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
191
|
60101900000000299
|
D0601
|
1500
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
192
|
60101900000000299
|
D0601
|
1000
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
193
|
60101900000000299
|
D0601
|
1500
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
194
|
60101900000000299
|
D0601
|
1000
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
195
|
60101900000000299
|
D0601
|
1500
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
196
|
60101900000000299
|
D0601
|
1000
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
197
|
60101900000000299
|
D0601
|
1500
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
198
|
60101900000000299
|
D0601
|
1000
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
199
|
60101900000000299
|
D0601
|
1500
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
200
|
60101900000000299
|
D0601
|
1000
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
201
|
60101900000000299
|
D0601
|
1500
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
202
|
60101900000000299
|
D0601
|
1000
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
203
|
60101900000000299
|
D0601
|
1500
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
204
|
60101900000000299
|
D0601
|
1000
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
205
|
60101900000000299
|
D0601
|
1500
|
3.45
|
B
|
28-Jun-02
|
11:24:47 AM
|
D0222
|
7623
|
|
187
|
22200100010041313
|
D0222
|
1500
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
188
|
22200100010041313
|
D0222
|
1000
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
189
|
22200100010041313
|
D0222
|
1500
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
190
|
22200100010041313
|
D0222
|
1000
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
191
|
22200100010041313
|
D0222
|
1500
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
192
|
22200100010041313
|
D0222
|
1000
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
193
|
22200100010041313
|
D0222
|
1500
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
194
|
22200100010041313
|
D0222
|
1000
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
195
|
22200100010041313
|
D0222
|
1500
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
196
|
22200100010041313
|
D0222
|
1000
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
197
|
22200100010041313
|
D0222
|
1500
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
198
|
22200100010041313
|
D0222
|
1000
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
199
|
22200100010041313
|
D0222
|
1500
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
200
|
22200100010041313
|
D0222
|
1000
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
201
|
22200100010041313
|
D0222
|
1500
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
202
|
22200100010041313
|
D0222
|
1000
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
203
|
22200100010041313
|
D0222
|
1500
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
204
|
22200100010041313
|
D0222
|
1000
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
|
205
|
22200100010041313
|
D0222
|
1500
|
3.45
|
S
|
28-Jun-02
|
11:24:47 AM
|
D0601
|
K209
|
From the trade data it is seen that on 28/6/2002, the Harvic group was buying and selling shares at the same time. Client Code No. K209 belonged to Harvic associated client Kerul Shah with broker No. 222 – G R Pandya. Client Code No. 7623 belonged to Havemore Financial with broker No. 601- R D Shah. Consecutive trades from Nos. 555 to 561 are observed in this specific transaction and the total trade was for 24000 shares. Havemore was buying the shares and at the same time, Kerul Shah was selling the shares, wherein the deals were self deals.
From the data collated by the investigations, I find that a total of 40000 shares were traded at the same time between the entities in the Harvic group. This comprised around 8% of the total trading volumes. This volume on a relatively illiquid scrip such as NUPL is significant to arouse investor interest in the market. The table below brings out the volumes traded by the Harvic group and the total volume traded in the market.
|
Date
|
Qty of self deals
|
Total Volume on the stock exchanges
|
Percentage
|
|
9-May-02
|
3000
|
33582
|
8.95
|
|
15-May-02
|
30000
|
84655
|
35.45
|
|
17-May-02
|
40100
|
102789
|
39.05
|
|
24-May-02
|
3000
|
39025
|
7.70
|
|
5-Jun-02
|
3600
|
36607
|
9.85
|
Thus, as a result of such deals, artificial volumes were created by the Harvic group. This was done to create trading interest in the scrip in addition to the trading interest generated by the advertisement by the company.
Harvic group also indulged in large proprietary dealings in the shares of the company. Date-wise proprietary trading details of Harvic group (sub broker – Harvic, Havemore and Danhem) has been tabulated below for reference -
|
Date
|
Quantity Purchased
|
Quantity Sold
|
Exchange Volume on that day
|
Percentage Purchase
|
Percentage Sold
|
|
15.04.02
|
2000
|
0
|
6605
|
30.28
|
0.00
|
|
16.04.02
|
0
|
2000
|
7000
|
0.00
|
28.57
|
|
09.05.02
|
9291
|
5291
|
33582
|
27.67
|
15.76
|
|
10.05.02
|
2205
|
2205
|
32237
|
6.84
|
6.84
|
|
13.05.02
|
3000
|
3500
|
15932
|
18.83
|
21.97
|
|
14.05.02
|
21892
|
7595
|
49112
|
44.58
|
15.46
|
|
15.05.02
|
49605
|
34710
|
84665
|
58.59
|
41.00
|
|
16.05.02
|
58089
|
36010
|
66599
|
87.22
|
54.07
|
|
17.05.02
|
43350
|
59545
|
102789
|
42.17
|
57.93
|
|
20.05.02
|
16812
|
11668
|
25872
|
64.98
|
45.10
|
|
21.05.02
|
1900
|
0
|
5050
|
37.62
|
0
|
|
22.05.02
|
13945
|
18035
|
29380
|
47.46
|
61.39
|
|
23.05.02
|
11615
|
6315
|
17430
|
66.64
|
36.23
|
|
24.05.02
|
17800
|
17800
|
39025
|
45.61
|
45.61
|
|
27.05.02
|
3945
|
3610
|
6365
|
61.98
|
56.72
|
|
28.05.02
|
6810
|
2700
|
12510
|
54.44
|
21.58
|
|
29.05.02
|
5240
|
2020
|
8240
|
63.59
|
24.51
|
|
30.05.02
|
5830
|
4500
|
10840
|
53.78
|
41.51
|
|
31.05.02
|
7300
|
44300
|
56500
|
12.92
|
78.41
|
|
03.06.02
|
6610
|
11024
|
21830
|
30.28
|
50.50
|
|
04.06.02
|
28770
|
4610
|
60620
|
47.46
|
7.60
|
|
05.06.02
|
10300
|
10300
|
36607
|
28.14
|
28.14
|
|
06.06.02
|
10540
|
10540
|
25944
|
40.63
|
40.63
|
|
07.06.02
|
29000
|
22900
|
79500
|
36.48
|
28.81
|
|
10.06.02
|
65086
|
53043
|
149695
|
43.48
|
35.43
|
|
11.06.02
|
155465
|
133063
|
243816
|
63.76
|
54.58
|
|
12.06.02
|
93560
|
87410
|
156470
|
59.79
|
55.86
|
|
13.06.02
|
42265
|
47381
|
108720
|
38.88
|
43.58
|
|
14.06.02
|
46350
|
46350
|
126550
|
36.63
|
36.63
|
|
17.06.02
|
77500
|
60100
|
173500
|
44.67
|
34.64
|
|
18.06.02
|
98721
|
76035
|
170272
|
57.98
|
44.66
|
|
19.06.02
|
53590
|
81266
|
161310
|
33.22
|
50.38
|
|
20.06.02
|
36300
|
46300
|
120160
|
30.21
|
38.53
|
|
21.06.02
|
59880
|
62550
|
185580
|
32.27
|
33.71
|
|
24.06.02
|
23645
|
16160
|
94470
|
25.03
|
17.11
|
|
25.06.02
|
49510
|
31400
|
222765
|
22.23
|
14.10
|
|
26.06.02
|
49050
|
33950
|
129500
|
37.88
|
26.22
|
|
27.06.02
|
12700
|
10300
|
74500
|
17.05
|
13.83
|
|
28.06.02
|
150300
|
132275
|
535725
|
28.06
|
24.69
|
|
01.07.02
|
129450
|
149370
|
261820
|
49.44
|
57.05
|
|
02.07.02
|
147126
|
135251
|
394577
|
37.29
|
34.28
|
|
03.07.02
|
216127
|
193053
|
391255
|
55.24
|
49.34
|
|
04.07.02
|
482066
|
383604
|
1013064
|
47.58
|
37.87
|
|
05.07.02
|
290474
|
403785
|
1013572
|
28.66
|
39.84
|
|
08.07.02
|
6799
|
2000
|
243804
|
2.79
|
0.82
|
|
09.07.02
|
66073
|
46841
|
200665
|
32.93
|
23.34
|
|
10.07.02
|
499350
|
490850
|
1095600
|
45.58
|
44.80
|
|
11.07.02
|
364182
|
396713
|
895049
|
40.69
|
44.32
|
|
12.07.02
|
55839
|
55839
|
481847
|
11.59
|
11.59
|
|
15.07.02
|
9530
|
5900
|
42080
|
22.65
|
14.02
|
|
16.07.02
|
64625
|
18455
|
237885
|
27.17
|
7.76
|
|
17.07.02
|
7400
|
40090
|
90960
|
8.14
|
44.07
|
|
18.07.02
|
16663
|
9900
|
69153
|
24.10
|
14.32
|
|
19.07.02
|
16600
|
3400
|
37950
|
43.74
|
8.96
|
|
22.07.02
|
1305
|
77318
|
90618
|
1.44
|
85.32
|
|
26.07.02
|
10900
|
0
|
22500
|
48.44
|
0.00
|
It can be seen from the above that the dealings of the group were considerable when compared with the volumes traded on the exchange. Harvic group purchases were as high as around 88% and sales were as high as 85% of total exchange traded volume. On other dates as well, both purchase and sale quantities comprised a significant quantity of stock exchanges volumes. I find that the Harvic group had thus generated volume in the scrip in order to facilitate or create an artificial market for selling shares of the company.
4.4 I have also taken note of the deposition of Shri Kalpesh Chawalla, Director of the sub-broker, who testified that he had on certain occasions entered into cross deals and that he had also placed a sell order through one broker and bought the same through another. On a perusal of the trade data of the scrip, it is evident that Harvic group (comprising the sub-broker, Havmore Financials, Kerul Shah and Danhem) was involved in buying and selling the shares of NUPL at the same time. I note that the Enquiry Officer had observed that a total of 40,000 shares were traded at the same time among the Harvic group which comprised about 8% of the total trading volumes. It was also observed that such concentrated trading in relatively less liquid scrip was significant. I am in full agreement with the finding of the Enquiry Officer that such deals were created by the Harvic group only to give a false impression of trading and to increase the attractiveness of the price of NUPL shares, when it had advertised about the proposed buy-back. I also note that the Enquiry Officer had observed that the trades were squared off which resulted in nil deliveries. The manner of trading by the Harvic group would prove that the trades were not in any ordinary course but structured so as to give a false picture of actual trading in the scrip of the company. The creation of artificial volumes also was intended to facilitate the promoters to off load their stake easily.
4.5 I also note that the Harvic group had entered into certain proprietary trades during April 1, 2002 to August 1, 2002 through Shri Kerul Shah (employee of the sub-broker) and Shri Sandeep Sakpal and such trades also contributed to the creation of artificial volumes in the scrip. Trades of these two persons were entered through another sub-broker called My Money Investments (affiliated to JHP Securities). The findings reveal that Shri Kerul Shah was introduced by M/s. Havmore Financial, one of the associates of the sub-broker and Shri Kerul Shah had in turn introduced Shri Sandeep Sakpal to My Money Investments. I note that Shri Sandeep Sakpal had also squared off his trades. The table below would indicate the trades that were squared off.
|
Date
|
Gross Buy
|
Gross sales
|
Buy % to stock exchanges volume
|
sales % to stock exchanges volume
|
|
13/06/2002
|
13000
|
13000
|
12.0%
|
12.0%
|
|
14/06/2002
|
10000
|
10000
|
7.9%
|
7.9%
|
|
17/06/2002
|
12000
|
12000
|
6.9%
|
6.9%
|
|
20/06/2002
|
9000
|
9000
|
7.5%
|
7.5%
|
|
21/06/2002
|
10000
|
10000
|
5.4%
|
5.4%
|
|
26/06/2002
|
15700
|
15700
|
12.1%
|
12.1%
|
|
28/06/2002
|
40000
|
40000
|
7.5%
|
7.5%
|
|
01/07/2002
|
25200
|
25200
|
9.6%
|
9.6%
|
|
02/07/2002
|
18800
|
23600
|
4.8%
|
6.0%
|
|
03/07/2002
|
47249
|
47249
|
12.1%
|
12.1%
|
|
04/07/2002
|
146000
|
146000
|
14.4%
|
14.4%
|
|
05/07/2002
|
118220
|
118220
|
11.7%
|
11.7%
|
|
08/07/2002
|
106778
|
106778
|
43.8%
|
43.8%
|
|
09/07/2002
|
11400
|
11400
|
5.7%
|
5.7%
|
|
10/07/2002
|
166100
|
166100
|
15.2%
|
15.2%
|
|
11/07/2002
|
105300
|
105300
|
11.8%
|
11.8%
|
It is seen from the above that transactions are in the nature of squaring off. No delivery of shares has been taken. These transactions comprised a significant percentage of stock exchanges volume on those dates. The client agreement form of Shri Kerul Shah with My Money brings out that Shri Kerul Shah was introduced by Havemore itself. Further, Shri Kerul Shah had introduced the client, Shri Sandeep Sakpal to My Money. This act of introducing Shri Sandeep Sakpal would prove the nexus between the two. Shri Sakpal traded to the extent of purchase of 783527 shares and sale of 783127 shares and his transactions were in the nature of squaring off. I note that Harvic group had admitted that they knew Shri Bipin Dewani – owner of My Money Investments. The findings as brought out above would indicate that the Harvic group used M/s. My Money Investments for creating artificial volumes and helping in offloading promoter sales.
4.6 It is also noted that the client registration form of Darshana Ruparel is not complete. This is the same for clients, Avdh Investments, Numero Uno Securities, Numero Uno Credit Capital and Shri Mayur Jadeja. The Enquiry officer has also observed that the sub-broker has not paid the entire sale consideration to the promoter group of NUPL and that an amount of Rs.9.67 Lakh was still outstanding. The sub-broker has also admitted errors while punching orders for its clients and not fulfilling the ‘KYC’ requirements properly.
4.7 The sub-broker, by conniving with his associate group has dealt in the scrip thereby manipulating it, so as to create a false appearance of trading in the scrip, which act amounts to fraudulent and unfair practice prohibited by the SEBI Act, 1992 and the provisions of Regulation 4(b) and 4(d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995. The sub-broker has also traded in scrip without any intention to effect transfer of beneficial ownership. Thus, I find that the sub-broker has contravened the provisions of Clause (b) and (d) of Regulation 4 SEBI (Prohibition of Unfair and Fraudulent Trade Practice relating to Securities Market) Regulations, 1995.
4.8 The sub-broker by accepting incomplete client registration forms for some of their clients (M/s. Darshana Ruparel, AVDH Investments, Numero Uno Securities, Numero Uno Credit Capital, Mayur Jadeja) has failed to exercise due care and diligence expected of a sub-broker. The code of conduct prescribed for sub-brokers requires that the sub-broker shall not indulge in manipulative, fraudulent or deceptive transactions which the sub-broker has breached by conniving with its associate group in manipulating so as to create a false appearance of trading in the scrip. The rules of conduct also prescribe that a sub-broker shall not create false market or indulge in any act detrimental to public interest. Thus I find that the sub-broker has contravened Clauses A (1) and (2), B (8) and D (4) and (5) of the Code of Conduct prescribed for sub-brokers in SEBI (Stock Broker and Sub-broker) Regulations, 1992.
4.9 The notice issued under Regulation 6(1) of the “Enquiry Regulations’ also alleges that the sub-broker has contravened SEBI Circular SMD/POLICY/CIRCULAR/5-97 dated 11-04-1997. This circular prescribes a standard format for Client - Registration Form and the Member - Client Agreement. The circular also prescribed that in case of a small investor, an exemption may be made for the Annual Income, Income Tax No. and Market Value of Portfolio details in the Individual Client Registration Application Form, in cases where the Annual Gross Turnover (i.e. Purchases + Sales of securities) of the client is not more than Rs. 500,000/- (Rupees Five Lakhs). But there is no finding with respect to the status of the investor for whom the client registration form was incomplete. Even assuming that the investor was a small investor, still the sub-broker has failed to collect the other relevant details like the name of introducer, demat account details etc. Since there is no finding by the Enquiry Officer with respect to the same, I do not wish to delve further.
4.10 In the result, I find that the sub-broker has contravened the legal provisions mentioned supra and thus have no reasons to differ from the findings of the Enquiry Officer. I find that the penalty of 2 months on M/s Harvic Management Services I Ltd., would meet ends of justice.
5.0 ORDER
5.1 Therefore, in exercise of powers conferred upon me in terms of Section 19 of the SEBI Act, 1992 and Regulation 13(4) SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, I hereby direct that the registration granted to the sub-broker M/s. Harvic Management Services India Limited (PAN – AABCH1644M), SEBI Registration No. INS 010496938 affiliated to M/S. B. M. Gandhi Securities Ltd., Member, Bombay Stock Exchange Ltd., Mumbai, be suspended for a period of 2 months.
The said penalty shall be operative from the expiry of 21 days from the date of this order.
PLACE: MUMBAI T C NAIR
DATE: 23.08.2007 WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA