IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

Appeal No.46/2006

 

Date of Decision

22.02.2006

 

 

In the matter of:

 

Rolex Finvest Pvt.Ltd.,	Appellants – Represented by Mr. P.N. Modi, Advocate.
Versus
Whole Time Member, Securities & Exchange Board of India	Respondent – Represented by Mr. Paras Parekh,  Advocate.

 

Coram:

            Justice N. K. Sodhi, Presiding Officer

            C. Bhattacharya, Member

            R. N. Bhardwaj, Member

 

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

 

            The Securities and Exchange Board of India (for short “the Board”) conducted investigations into the alleged price manipulation in the trading of the shares of  Warner Multimedia Limited (for short “the Company”).  The investigations revealed that the price of the share had moved from Rs.18/- on September 8, 2000 to Rs.53.00 on December 13, 2000 and that average traded volume also increased.  The investigating officer also found that all the clients of  the major trading brokers in the scrip were interconnected with each other and also to the promoters of the Company.  The Board appointed an enquiry officer to enquire into the alleged violations.  The enquiry officer served the appellant with a notice calling upon it to show cause why action be not taken against it for facilitating price manipulation and creation of false market in the shares of the Company  by aiding and abetting the promoters and other entities associated with them.  It was also alleged that the appellant had not acted with due care and diligence and thereby violated the code of conduct prescribed for the sub brokers.  The appellant filed a detailed reply to the show cause notice and after affording a personal hearing the enquiry officer found that there was no evidence to suggest that the appellant was connected with the Company or its promoters.  He also found that the appellant as a sub-broker had traded in the shares at declining prices and, therefore, the charge for price manipulation could not be substantiated unless it could be shown that the appellant acted in concert with others.  The enquiry officer also found the appellant responsible for creating  artificial volumes thereby failing to exercise due skill and care and this according to the enquiry officer was in violation of the code of conduct prescribed for the sub brokers.  Accordingly, he submitted his report and recommended that the certificate of registration granted to the appellant as a sub broker be suspended for a period of one month.  On receipt of the enquiry report the Board issued a show cause notice to the appellant and also furnished to it a copy of the enquiry report to enable it to furnish its explanation.  A detailed reply was filed pointing out that it had no concern with the Company or its promoters and that it had traded in the shares of the  Company only on the basis of genuine orders placed by the clients.  As a matter of fact the appellant had produced before the enquiry officer the three clients on whose behalf it had traded in the shares of the Company with a view to enable the enquiry officer to satisfy himself in regard to the genuineness of the transactions gone into by the appellant on behalf of  its clients.  The enquiry officer however, refused to record the statements of the clients and found that the appellant was responsible for creating artificial volumes.  Be that it may, the Board also afforded a personal hearing to the appellant and after examining the report of the enquiry officer passed an order suspending the certificate of registration of the appellant for one month.  The operative part of the order which is contained in para 4.4 reads as under:

            "Having examined the Enquiry Report, the Show Cause Notice issued to

              the sub-broker and the reply from the sub-broker reiterating the

              submissions already made before Enquiry Officer, and the oral and written

              submissions made before me during the personal hearing, I agree with

              the findings and the recommendation of the Enquiry Officer, in the

              absence of any substantial information to differ”.

 

In para 4.2 of the impugned order the Board has noticed the findings of the enquiry officer but failed to take note of those findings which were recorded in favour of the appellant.  A reading of the impugned order leaves us with the impression that the Board did not apply its own mind to the facts of the case and the submissions made by the appellant.  It has blindly followed the recommendations made by the enquiry officer without appreciating the fact that he had found that there was no evidence to suggest that the appellant was connected with the Company or its promoters.  We are satisfied that the impugned order has been passed without application of mind and that the Board appears to have abdicated its functions by acting as a mere rubber stamp in following the recommendations of the enquiry officer.  This is not what is expected of a quasi judicial body like the Regulator which has to  pass orders imposing penalties on the functionaries of the securities market.  Since we are inclined to set aside the impugned order on this ground alone,  it is not necessary for us to examine the merits of the other contentions advanced by the learned counsel for the appellant.

            In the result, the appeal is allowed, impugned order dated 1-2-2006 set aside leaving the parties to bear their own costs.  It  will however, be open to the Board to proceed against the appellant and pass a fresh order  in accordance with law.

 

Justice N. K. Sodhi

Presiding Officer

 

C. Bhattacharya

Member

 

R. N. Bhardwaj

Member

 

22/02/2006