Feb 21, 2006
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Orders :
Orders of SAT
IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No: 44 of 2006
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Date of Decision
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21/02/2006
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Bharati Thakkar India Securities Pvt. Ltd.
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…..Appellant
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Versus
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Securities & Exchange Board of India
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….Respondent
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Mr. Shyam Mehta, Advocate for the appellant
Mr. Cherag Balsara, Advocate with Mr. Mihir Mody, Advocate for the Respondent.
CORAM
Justice N.K. Sodhi, Presiding Officer
C. Bhattacharya, Member
Per: Justice N.K. Sodhi, Presiding Officer (Oral)
Challenge in this appeal is to the order dated 01/02/2006 passed by the Securities and Exchange Board of India (for short “the Board”) whereby the certificate of registration of the appellant has been suspended for a period of 15 days under Regulation 13(4) of the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter called “the Regulations”).
2. The appellant is a broker registered with the Board. Investigations were conducted into the trading of the shares of Kwality Dairy (India) Limited (for short “the Company”) to find out whether any provisions of the Securities and Exchange Board of India Act, 1992 or the Regulations framed thereunder had been violated. Investigations revealed that large number of shares were traded during the period from April 23 to June 6, 2004 and that the appellant allegedly indulged in circular trading. The precise charge leveled against the appellant as noticed in the impugned order is as under:
“4.3 It was alleged that during the period under investigation, approximately 25% of the day volume in the scrip of KDIL was due to circular trades among different groups of clients and brokers, including the broker. It was alleged that each of these brokers bought and sold the scrip on behalf of their clients amongst themselves by squaring up the deals often on the same day through the same brokers in a circular manner. The details of such trades are given below.
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Date
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Bought Qty
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Bought by
Client (Broker)
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Bought From Client (Broker)
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Sold Qty
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Sold by Client (Broker)
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Sold To Client (Broker)
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25.4.03 to 6.6.03
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90427
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Chirag Pujara
(Bonanza Stock Brokers Pvt. Ltd)
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Sayyed Mustafa
(Bharti Thakkar)
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98621
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Chirag Pujara
(Bonanza Stock Brokers Pvt. Ltd)
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Sayyed Mustafa
(Bharti Thakkar)
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2.6.2003
to 6.6.03
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46575
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Laxman Patel
(Ramaben Samani)
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Chirag Pujara
(Bonanza Stock Brokers Pvt. Ltd)
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27650
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Laxman Patel
(Ramaben Samani)
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Chirag Pujara
(Bonanza Stock Brokers Pvt. Ltd)
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2.6.2003
to 6.6.03
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41775
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Sayyed Mustafa
(Bharti Thakkar)
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Laxman Patel
(Ramaben Samani)
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24497
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Sayyed Mustafa
(Bharti Thakkar)
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Laxman Patel
(Ramaben Samani)”
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3. The Board found that it was not only the appellant but two other brokers as well namely, Ramaben Samani Finance Private Limited (for short “Samani”) and Bonanza Stock Brokers Limited (for short “Bonanza”) were hand in glove with each other in carrying out circular trades in the scrips of the Company whereby the volumes had been artificially created. The Board appointed an enquiry officer to look into the matter who issued notices to all the three brokers including the appellant. It may be mentioned that against the other two brokers as well the charge leveled was the same. The enquiry officer after completing the enquiry submitted his report absolving Samani and Bonanza from the charges holding that there was no material to indicate that any one of them had any connection with any of the other brokers whereas in the case of the appellant he found that he matched trades with the other two brokers and was guilty of having indulged in circular trades resulting in artificial creation of volumes. On receipt of the enquiry report the Board issued a show cause notice to the appellant and the other two brokers. A copy of the enquiry report was also sent to them. After considering the replies filed by the three brokers the Board by separate orders accepted the recommendations of the enquiry officer and exonerated Samani and Bonanza holding that there was no material on record to show that they were in any way connected with each other in carrying on circular trades. However, in the case of the appellant the Board recorded the following finding:
“4.5. It is apparent from the above table that the counterparties to the trades have always been Chirag Pujara or Laxman Patel. From the trade and order log, I observe that the buy and sell orders were placed at the same price and at almost the same time. Moreover, in most of the instances the prices of the orders always showed appreciation. Hence, it may be said that the above transactions created artificial volume in the scrip and impacted the price.
“4.6 From the statement of the other broker viz. Ramaben Samani who dealt for the client Laxman Patel, I observe that Ms. Bharti Thakkar, Director of the broker happens to be the sister of Mrs. Sudha Vithalani, Director of Ramaben Samani Finance Pvt. Ltd. Hence, it cannot be said that the counter party to the trades is not known to the broker. I observe that the broker undertook transaction for the client on 29 days continuously and the client started his transaction at Rs.10.35 and he kept on trading till the price reached Rs.44/-. The rise in price went unchecked. I agree with the observation of the Enquiry Officer that these continuous transactions should have alerted the broker and to this extent there was lack of due diligence on the part of the broker.”
4. Accordingly by order dated 01/02/2006 the Board suspended the certificate of registration of the appellant for a period of 15 days. Hence this appeal.
5. We have heard the learned counsel for the parties and perused the orders passed by the Board in the case of all the three brokers including the appellant. It is common case of the parties that the charges leveled against all the three brokers were that they had joined hands together and indulged in circular trading in the scrips of the company thereby creating artificial volumes. It is really surprising to note that in the case of Samani and Bonanza the enquiry officer and the Board both find that there were no circular trades but in the case of the appellant the finding is otherwise. All the three brokers were parties to the trades and if they were not circular while examining the cases of Samani and Bonanza, how could they become circular when the case of the appellant was considered. The findings are self contradictory and cannot be sustained. The least we can observe is that the impugned order had been passed without application of mind.
6. In the result, the appeal is allowed, impugned order dated 01/02/2006 set aside leaving the parties to bear their own costs.
Justice N.K. Sodhi
Presiding Officer
C.Bhattacharya
Member
Date: 21/02/2006