MO/68/IVD/12/2006
SECURITIES AND EXCHANGE BOARD OF INDIA
Coram: Shri T C Nair, Whole Time Member
DATE OF HEARING: 09-05-2006
Appearance of parties
For Noticee : None
For SEBI : Shri P K Bindlish
Shri Ashok Nimbekar
ORDER MADE UNDER SECTION 11B READ WITH SECTION 11 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 AGAINST Shri NAVZER N TARA AND Shri SHARUKH N TARA, PARTNERS OF M/s. SHARUKH N TARA, ERSTWHILE MEMBER OF THE BOMBAY STOCK EXCHANGE, FOR THEIR DEALING IN THE SCRIP OF M/s. KREB BIOCHEMICALS LIMITED
1.0 BACKGROUND
1.1 M/s. Sharukh N Tara (herein after called ‘SNT’ or ‘broker’) was registered as an individual member of Bombay Stock Exchange with SEBI Registration Number INB010025718 on 26-11-1992. It was later converted to a partnership firm with SEBI Registration number INB010589527 on 16-05-1994 with partners being Shri Sharukh N Tara and Shri Navzer N Tara (herein after referred to as partners). The certificate of registration of the above named intermediary was cancelled by SEBI on 15-12-1999.
1.2 SEBI conducted an investigation into trading of the scrip of M/s. Kreb Biochemicals Limited (herein after referred to as ‘KBL’) during the 1998. It was alleged that three entities – M/s. CDP Fincap Private Limited, M/s. Damayanti Finvest Private Limited and M/s. Rituja Finvest Private Limited were seen to be acting in concert with each other and their trading pattern had influenced the price of KBL. The records also revealed that they have enrolled themselves as common clients to the members of National Stock Exchange (NSE for short) and Bombay Stock Exchange (BSE for short). It was found from the records that M/s. Rituja Finvest Private Limited was a common client to M/s. R R Bohra on BSE and M/s. Asian Securities on NSE, M/s. CDP Fincap Private Limited was a common client to M/s. Sony Securities on NSE and SNT, RR Mohta, SN Nanglia etc on BSE. As per records the broker has executed trades on behalf of M/s. CDP Fincap Private Limited.
1.3 The investigation revealed that such transactions were possible because of the failure of the broker to exercise due care and diligence while executing trades for their clients. It was alleged that since the broker had failed to exercise due care and diligence, it has contravened the relevant provisions of SEBI (Stock Brokers and Sub-Brokers Regulations), 1992. In order to enquire into the said allegation, Enquiry proceedings were initiated by appointing an Enquiry Officer vide order dated 29-05-2003 of the Chairman, SEBI to enquire and adjudge into the said allegation. The Enquiry Officer submitted his Report dated 08-12-2003, whereby he has observed that as the registration of the member was already cancelled on 15-12-1999, no further purpose would be served by the enquiry proceedings. The Enquiry Officer further recommended that accordingly the proceedings be dropped.
1.4 Since the enquiry proceedings was dropped against the broker on a technical ground, it was felt necessary that in the interest of investors and in the orderly development of the capital market, directions need to be issued to the partners of the broking firm who were alleged to have failed to exercise due skill, care and diligence while dealing with their clients. Therefore action against the partners of the erstwhile broking firm was initiated under Section 11 read with Section 11B of the Securities and Exchange Board of India Act, 1992.
2.0 SHOW CAUSE NOTICE U/S. 11B READ WITH S. 11 OF THE SEBI ACT, 1992, ITS REPLY AND HEARING
2.1 Accordingly, a Show Cause Notice under Section 11B read with Section 11 of the SEBI Act, 1992 dated 23-08-2004 was issued to Shri Sharukh N Tara and Shri Navzer N Tara. The noticees in their capacity as partners of M/s. Sharukh N Tara were charged for the alleged violation of the code of conduct for stock brokers prescribed under the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. The noticees were required to show cause as to why suitable directions under Section 11B read with Section 11 of the SEBI Act, 1992 including directions prohibiting them from associating with any corporate body in accessing the capital market and also prohibiting them from buying, selling or dealing in securities for a suitable period should not be imposed. The show cause notice required them to send in their submissions within 21 days and also intimating them that on failure to submit their reply within the stipulated period, it will be presumed that they have no explanation to offer and that action shall be initiated as per law.
2.2 After the expiry of 21 days, when no reply was received from the partners, a letter dated 30-09-2004 was sent to both the partners requiring them to attend a personal hearing scheduled on 14-10-2004, before the then Hon’ble Member, SEBI. On the said date of hearing, the partners did not attend the hearing but their reply dated 20-10-2004 was received and the hearing was postponed to 08-12-2004. In their reply, they stated that the address at which the show cause notices were sent were no longer their regular address. The person at that address had given them the documents as per his convenience and hence notices though accepted at the address were not handed over to them in time in order to make effective representation. They further requested to consider the written reply dated 20-10-2004 and prayed for quashing the proceedings under Section 11B read with Section 11 of the SEBI Act, 1992 for the alleged price manipulation in the scrip of M/s. Kreb Biochemicals Limited on the following grounds:
i) The alleged transaction took place around the period July, 1998 and the show cause notice was issued in August 2004 after more than six years of the alleged violation. As per SEBI rules, contract notes, registers etc. are to be retained for a period of maximum of 5 years. There has been no prior notice of such alleged violation to procure evidence during the last six years
ii) The show cause notice was only an allegation and full of assumptions and conjectures, none of which are supported by any substantial evidence to prove the allegation of any type of price manipulations
iii) The only evidence given in the notice is a summary statement showing the number of shares bought or sold by various entities which by itself does not by any stretch of imagination constitute evidence of any type of price manipulations
iv) It is shown that M/s. S. N. Tara had bought 2000 shares and sold 2000 shares and the mere act of buying 2000 shares and selling 2000 by taking and giving delivery or even by squaring off does not lead to any conclusion of price manipulation or any type of rigging
2.3 Subsequently another letter dated 17-04-2006 was addressed to the broker requiring them to attend a personal hearing before me which was scheduled on 09-05-2006. In reply, the partners, through their father sent a reply dated 25-04-2006 wherein the submissions made in their earlier correspondence (dated 20-10-2004 - a copy of the said letter was also enclosed) were reiterated. In the reply it was urged to treat the contents of the said letter as their submissions. I note that the partners have not wished to attend the hearing even though several opportunities were provided to them. I, therefore proceed to consider the issues based on the material placed on record before me.
3.0 CONSIDERATION OF ISSUES
3.1 I have perused all the material placed on record before me. The issue to be considered in the instant case is whether the partners of the broking firm were responsible for the alleged violation of the code of conduct prescribed for brokers under the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992.
3.2 The main allegation against the broker was that they have not exercised the due care and diligence as prescribed by the Code of Conduct for Brokers mentioned in SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 while executing trades for their clients and that because of their carelessness the clients had manipulated the scrip of KBL. Thus the brokers were alleged to have violated Clause A (2) of the Code of Conduct for Stock Brokers under SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992. Since the broker is one of the market intermediaries, Enquiry proceedings were initiated. But the said proceedings were dropped because at that point of time the broker was no more an intermediary as its registration was cancelled by SEBI on 15-12-1999 and it was felt that no useful outcome would ensue if the proceedings had been continued. Thus the proceedings had to be dropped only on the technical ground that the broker had ceased to be a broker thereby going beyond the governance and supervision of SEBI as an intermediary. I opine that any person associated with the securities market who manipulates in the market or aides in any manipulation should not be spared. But in the instant case, I find from the records that there is no enough material to prove that the said broker has been careless while executing the trades for their clients, thereby encouraging manipulation by their clients.
3.3 I also note that the enquiry proceeding against the said broker was dropped by the Enquiry Officer for the reason that their certificate of registration granted by SEBI was already cancelled. Since no allegation of the violation of code of conduct by the entity could be proved, no action would be warranted against its partners under Section 11 of the SEBI Act, 1992.
4.0 ORDER
4.1 I, therefore in exercise of powers conferred under Section 19 of the SEBI Act, 1992 read with Regulation 13(4) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, hereby direct that no action under Section 11B read with Section 11 of SEBI Act, 1992 need to be taken against Shri Sharukh N Tara and Shri Navzer N Tara, erstwhile partners of M/s. Sharukh N Tara.
| Place: Mumbai |
T C NAIR |
| Date: 21st December, 2006 |
WHOLE TIME MEMBER |
| |
SECURITIES AND EXCHANGE BOARD OF INDIA |