In the matter of Shree Harivansha Securities P. Limited

 BEFORE THE SECURITIES APPELLATE TRIBUNAL

 MUMBAI

 

Appeal No.   84/2004

 

Date of Hearing	29.6.2004
Date of Decision	6.7.2004

 

In the matter of:

 

Shree Harivansha Securities P.	Appellant – Represented by
Ltd.	Meera M. Patel, Advocate
Versus
Securities & Exchange Board	Respondent – Represented by
of India	Kumar Desai, Advocate

 

Coram:

            Justice Kumar Rajaratnam, Presiding Officer

            Dr. B. Samal, Member

N.L. Lakhanpal, Member

 

 

Per:  Justice Kumar Rajaratnam, Presiding Officer

 

 

   1.            The appeal is taken up with consent of both parties.

   2.            The appellant in this appeal challenges the order passed by SEBI dated 12.3.2004.  By the impugned order, the certificate of registration of the appellant was suspended for a period of 6 months.  Being aggrieved, the appellant has filed the present appeal. 

   3.            The appellant has been found guilty of violating items (4) & (5) of Clause A of the Code of Conduct read with Regulation 7 of the Broker Regulations as well as Regulation 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995.  The appellant was a broker and the enquiry was conducted after issuing a show cause notice.  The enquiry report dated 30.9.2003 found that the appellant had indulged in off-market deals and in the lending of funds.  With regard to each of the allegations the appellant’s defence was as follows: -

a)    With regard to transactions with outsider, besides principal to principal transactions, outside the price and order matching mechanism of CSE the member stated that it is a common practice among the members of the stock exchange to carry out off-the floor transactions.  The appellant submitted that it is a usual practice at CSE and further stated that in September 1999 a circular was issued by CSE not to enter into negotiated deals in off the floor transactions but to execute transactions only on the screen.  That circular was not strictly given effect by CSE.  The appellant contended that CSE should have made it operative by amending its byelaws or regulations, but it was not.  As such, under the understanding that the circular is simply of directory nature and not mandatory, appellants continued to enter into such transactions.

b)    The appellant also submitted that it carried out the off floor CSE transaction prior to March 2001, bonafidely and in good faith.  The sole object was to minimize its losses in view of drastic unexpected fall in the share prices sometime in March 2001 and none else.  The appellant stated that

c)    The appellant further submitted that whatever it had done was bonafide and was with an honest intention to minimize its losses incurred arising out of drastic fall on the price of securities and to survive and sustain itself and CSE failed to educate it on such deals.

d)   The appellant further submitted that it was a customary practice among the fellow members and business community to extend support in the hour of financial scarcity.  It is reciprocal in nature.  It is solely done with the object of supportive act and not at all with the intention to gain or earn out of it.  The appellant stated that it did not use or utilize any part of portion of investors fund while granting financial accommodation to fellow member as set out in the enquiry report forming part of the show cause notice.  The appellant submitted that whatever was done was done with their own funds with sole intention to assist and support in the hour of need.  The member therefore denied the fact that they carried out business other than that of securities in violation of Rule 8(1)(f) of SC (R) Act, 1957.  The appellant further stated that there was not a single investor complaint and hardly there is any circumstance where it earned or gained out of such financial transactions.

   4.            SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 prohibit transactions undertaken with the intention of artificially raising or depressing the prices of securities.  The Code of Conduct read with the “Broker Regulations” prohibits a broker from involving himself in excessive speculative business and enjoins on him the responsibility of abiding by all the rules and regulations.

   5.            It has been found on materials placed before the enquiry officer that the appellant received substantial amounts and also paid substantial amounts to fellow brokers without there being corresponding transactions for that in securities.  The appellant cannot be both a broker and a money lender.   Even the replies to the show cause notice only sought clemency since the period of enquiry dates back to 1999 and the show cause notice was issued after a lapse of nearly two years.  A large number of off-market transactions reveal the violation of the Code of Conduct and the “Broker Regulations.”

   6.            It was vehemently pleaded before us by the learned counsel for the appellant that the period of enquiry related to the year 1999 to 2001 while the appellant was served with the show cause notice on April 30, 2003.  No explanation was forthcoming from the respondent as to why there was inordinate delay in completing the enquiry.  We also find that there is no evidence whatsoever to sustain the charge under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 and can only hold that the appellant has violated the code of conduct that is meant for brokers.

   7.            Accordingly, we feel that the ends of justice will be met by reducing the period from six months to four months. 

   8.            The appeal is disposed of in the above terms.  No orders as to costs.

 

Justice Kumar Rajaratnam                                  Presiding Officer
N.L. Lakhanpal Member	B.Samal Member

 

Place: Mumbai

Date:  6.7.2004

 

//sr0479