Order against Nrupesh C Shah

ORDER UNDER THE SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY THE ADJUDICATING OFFICER) RULES, 1995. 

 

AGAINST

 

NRUPESH C SHAH

 

1.                 On the basis of stock market alerts issued by the National Stock Exchange (NSE), the Securities and Exchange Board of India (SEBI) had taken up the investigation of the alleged market manipulation and irregularities in the trading of the shares of Radaan Mediaworks India Limited (for brevity’s sake, hereinafter referred to as RMIL) for the period between March 3 2003 and July 7, 2003, as also the possible violation of the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating the Securities Market) Regulations, 1995 (FUTP Regulations 1995) at the relevant time and corresponding provisions of Regulations 4(1), (2) (a), (b), (e) and (n) of the FUTP Regulations, 2003 and the SEBI (Stock brokers and Sub-brokers) Regulations, 1992 (Broker Regulations) by various entities. RMIL was listed on the NSE at the time of investigation. The trading details of various entities that had traded in the scrip of RMIL were collected and their trading patterns analysed along with the volumes contributed by them, whereafter it was inter alia observed that the rise in the price of the scrip of RMIL accompanied with increased trading volume, was primarily on account of the trades executed by these entities.

 

2.                 Shri Nrupesh C Shah (Nrupesh) client of M/s. Anil Mistry (AM) earlier registered with SEBI as a sub-broker and affiliated to the ISE Securities and Services Ltd(ISE) was found to be one of the clients that had traded extensively in the scrip of RMIL at the NSE which was found to have significantly facilitated the market manipulation in the scrip of RMIL and were thereby held to have contravened the provisions of the FUTP Regulations.

 

3.                 In view of the same, adjudicating proceedings were ordered by SEBI on December 27, 2004, to enquire into the alleged acts of omissions and commissions of Nrupesh while transacting in the scrip of RMIL.

 

NOTICE / REPLY / PERSONAL HEARING

 

4.                 A notice dated August 10, 2005 under Rule 4 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by the Adjudicating Officer) Rules, 1995 (Rules) was issued to Nrupesh along with relevant documents annexed thereto with an advice to show cause within 14 days of the receipt of the notice, as to why proceedings should not be initiated against them in terms of the said Rules and why the penalty as prescribed therein should not be levied upon them. 

 

5.                 In their reply to the said notice, Nrupesh vide his letter dated September 1, 2005 denied the charges leveled against him. Thereafter, Nrupesh was granted an opportunity of being heard on September 29, 2005, which upon his request was rescheduled to October 27, 2005. On the said date, Shri Dipak Shah, authorized representative of Nrupesh appeared and reiterated the submissions earlier advanced. The gist of the submissions made on behalf of Nrupesh have been reiterated below:

a) They had earlier received another notice on January 24, 2005 for the alleged violation of Regulation 11 of the FUTP Regulations, 2003.Hence it was unlawful and against the principle of natural justice to initiate two proceedings under various Regulations for the violations arising out of the alleged transactions.

b) The conclusions arrived at by the Investigating Officer were based on surmises and conjectures in that no specific allegations which may lead to the conclusion that he was in any way involved in the alleged price manipulation in the scrip of RMIL were contained in the notice and no particulars were given, furnished or provided in the notice or the annexure attached thereto which substantiated and supported the allegations and charges leveled against him.

c) The period of investigation covered a period of almost 80 to 100 trading days. However he had not traded in the said scrip for the period prior to May 27, 2003 or traded in the said scrip for the period when the price had fluctuated from Rs.62 to Rs.33 and from Rs.62 to Rs.88 on May 27, 2003. He had also not traded during the period when major price variations i.e. down (Rs 62-33) and rise (Rs 33-88) had occurred. He had only traded in the scrip of RMIL between the price range of Rs 88/- to Rs 119/- over a period of 80 days and an increase of Rs.30 was normal and hence the charge of price manipulation did not hold good.

d) The difference between the average sale price and purchase price transaction of all sales and purchases made by him on each such day of the investigation period hardly exceeded 50 paise for each such transaction. The practice of reversal of trade within the price range of 05 to 25 paise could never affect the price of the scrip.

e) While the trading pattern of purchase of shares and consequent reversal of trades by sale could have certainly offset the rise in price on account of his purchase, he had not traded during the opening or closing session in the said scrip.

f) He had gained approximately Rs.68,000 from the alleged transactions for the entire period which worked out less than 5 paise per share which no prudent person with reasonable manipulative intent would have gained after trading for almost 14 lakhs shares in the said scrip.

g) He had traded through AM during the relevant period in the said scrip and the fact that he was the only client of AM trading in the scrip of RMIL came to be known to him only during the course of the investigation.

h) It was not true that his deals that were impugned represented around 10.65% of the gross quantity traded during the period under investigation because from a perusal of the data contained in the volume “trade Qty as % of market gross for the period” it was clear that none of the trades were exceeding 0.04% of the gross market turnover at the relevant point of time.

i) Such a low volume could hardly affect the price volume volatility in the scrip, much less attempt to lead to structured deals and creation of artificial volume in the said scrip. In any case, the investigating officer had not found that the volume of 10.65% was a substantial volume in the scrip and that the said volume had created artificial volume in the scrip during the period.

j) He was situated at Ahmedabad and the terminal of his broker; AM was situated at Bombay during the relevant point of time. All the transactions were placed telephonically at the office of AM. His intention was only to deal for day trading in the scrip.

k) On almost all occasions, the minimum trade quantity was 5000 shares and generally 10 trades, including reversal of trades had been executed by him. The time gap between the first and last trade of each day ranged between few seconds and hardly exceeded a minute on some occasion.

l) The online trading system does not display the name of the counter party and hence was not aware at any point of time identity of the counter party client/broker. In fact as per the online trading system, the orders were matched and executed amongst the available orders in the system at all points of time in almost 164^th fraction of a second with respect to the quantity, rate and timing of each trade.

m) The fact that the counter parties were to a certain extent known to him was not a sufficient ground to allege that he had executed structured deals with them. In any case there was no evidence to suggest that they had indulged in such trades in a concerted manner and he had in fact not indulged in structured deals with the counter party client/ broker.

n) There was regular and consistent volume in the said scrip prior, during or after the investigation and hardly an occasion of sudden rise in the volume of the scrip. m) There was no finding of the investigating officer that such kinds of trades had affected or jeopardized the interest of genuine investors or distorted the capital market system.

o) The delivery ratio in the total trading of the scrip was hardly 5%. Hence 95% of the volume therein are due to reversal of trades i.e., day trading or jobbing not resulting in delivery.

p) None of the provisions of Regulation 4 of the FUTP Regulations, 2005 were applicable to him. Clause (a) was applicable only when there was an abnormal increase or decrease in the prices of the securities which resulted in the inducement of sale and purchases by a third party.

q) He had not contributed to the price discovery since his trades had never been substantially higher or lower than the last traded price. His orders had been at a higher or lower rate compared to the last traded price and if an average was taken out, it would be nearly the same as the last traded price.

r)      His volume at the point when the trades took place was approximately 0.38% which was minuscule compared to the existing trades at the market system. Hence clause (b) which deals with the creation of artificial volume was not applicable to him.

s)      All his transactions were genuine since they were executed in accordance with the procedure and bye laws of the stock exchange and deliveries were given and taken. Hence clause (c) which dealt with transactions that are not genuine was inapplicable to him.

t)       Clause (d), was applicable only if his trades had caused fluctuations in the market price and as the same was not done, and since 95% of his trades were jobbing transactions where a sale trade was counter balanced by a buy trade, it would not have any effect on the market price. Rigging up of market price was possible only with delivery based transactions which were only 5% in his case.

 

APPRECIATION OF EVIDENCE

 

6. I have carefully examined the findings in the investigation report especially those relevant to Nrupesh, the documents available on record and the submissions made on his behalf to counter the charges leveled against him. Before considering these issues, it would be appropriate recapitulate briefly certain details of the case giving rise to the present proceedings.

 

7. RMIL, incorporated as a private limited company on 15 Sept, 1999 and then converted into a public limited company with effect from June 6, 2002, is a television content provider in South India and currently produces television serials in three languages i.e. Tamil, Telegu and Kannada.

 

8.                 At the relevant point of time, the promoters of RMIL were holding 81,33,808 shares which is 75.08% of the total share capital of RMIL and the public holding was only 13.29% amounting to 14,40,200 shares. The paid up equity share capital was 1064.77 lakhs and face value of the share was Rs10/. The trading in the partly paid up equity shares (Series E1/X1) of RMIL was suspended w.e.f. April 03, 2003 for acceptance of allotment of money on the equity shares. The Gross Quantity Traded in the scrip on the EQ Segment during the period under scrutiny was 1, 30, 81,318 shares. The Gross Quantity Traded in the scrip on the E1 Segment during the period under scrutiny had 33, 89,284 shares. Lowest price of Rs. 33.00 was observed on March 31, 2003 with a traded quantity of 26,933 shares while the highest price of Rs.119.85 with a volume of 1,43,701 shares was observed on July 7, 2003. The period of investigation with regard to the dealings of Nrupesh and the other entities in the scrip of RMIL ranged between March 3, 2003 and July 7, 2003. During this period, the scrip price of RMIL initially fell to Rs. 33.00 from Rs. 62.05 on March 03, 2003 and then rose to Rs. 119.85 on July 07, 2003.

 

9. The role of the following entities and the following clients who were found to have traded substantially in the scrip of RMIL were scrutinized during the course of investigation.

(A) Trading Members of NSE: 

1.           Sanchay Finvest Limited (SFL)

2.           ISE Securities & Services Limited (through M/s Anil Mistry)

3.           Haven Financial Services Pvt. Ltd. (Haven)

4.           Grishma Securities Pvt. Ltd.(GSPL)

5.           Bonanza Portfolio Limited(BPL) 

(B) CLIENTS

1.           M/s Rajesh Jhaveri

2.           Nrupesh Shah

3.           Shravan Kumar Goyal

4.           Kishan Agarwal

5.           AK Agarwal

6.           Chirag Pujara

7.           Ashok Sharma

 

10. Upon analysis of the trading details of the above mentioned members and clients, the following major issues were noted:-

·         The major trading members in the scrip of RMIL during the period under scrutiny were SFL (accounting for 17.89%), BPL (accounting for 17 %) ISE Securities (accounting for 12.09%) Haven (accounting for 11.74%) and GSPL (accounting for 10.86% of the market gross during the investigation period). These trading members mainly traded on behalf of one or two clients each and were involved in a series of deals found to be structured in nature.

·               Rajesh Jhaveri was the largest client dealing in the scrip during the period under scrutiny, accounting for 10.85% of the gross quantity traded. He was the only client trading through GSPL in the said scrip. Out of 10.85% of the gross quantity traded, 10.65% of the market gross quantity traded by the said client was done through structured deals executed with the trading member; ISE Securities and Services Limited for their client; Nrupesh Shah trading through Sub-broker, Anil Mistry.

• Shrawan (trading through Haven) and Kishan Agarwal along with A K Agarwal (Kishan and Anil) trading through SFL, had executed a series of structured deals among themselves. Shrawan had also executed structured deals with Ashok Sharma and Chirag Pujara (Ashok and Chirag) trading through BPL. In turn, Ashok and Chirag had executed structured deals with Kishan and Anil. Through these structured deals, amongst themselves and by certain other clients, this group of clients traded for a total of 17,99,392 shares representing 13.75% of the total quantity traded during the entire period under scrutiny.
• No major cross deals were observed during the period under scrutiny.

 

11. Apart from these facts, some of the statements made by the entities in

question merit reiteration:

 

(A) Statement of Shri Nrupesh Shah dated July 21, 2004

 

a)           He had traded as an individual in the scrip of RMIL from May 27, 2003 to July 14, 2003

b)            He knew Anil Mistry through a friend; Kirit Pandya, who worked as a client of Anil Mistry

c) He knew M/s Rajesh N Jhaveri as the broker of ASE.

 

 

(B) Statement of Shri Anil Mistry dated June 17, 2004

 

a)           M/s Anil Mistry was a proprietary concern and member of ISE Securities & Services Ltd. with SEBI Regn No. INS239639911/23-10777.

b)            They had applied for cancellation of the certificate of registration since September 2003 and had surrendered the trading rights in ISE but continued to be the member.

c)            They had traded in the scrip of RMIL during the period under investigation for their client; Shri Nrupesh Shah.

d)           He knew Nrupesh Shah since 1994-95. The client was trading through them since 2001.

e)           He was a director of GSPL and for the last three years did not have any business relationship with them

f)             After his resignation, he did not know what GSPL were doing

g)            He was a Chairman of the disciplinary committee in ISE

h)           He suffered losses due to client debts and hence had stopped his business.

 

(C) Statement of Shri Paresh Vinchhi, Compliance Officer, GSPL dated June 17, 2004

 

a)           They had traded in the scrip of RMIL on behalf of their client M/s Rajesh N Jhaveri

b)            He was their client since January 2001 i.e. last four years

c)            Anil Mistry was an ex-director of GSPL and resigned on April 2001.

d)           They were not aware of the latest profession of Anil Mistry

 

Introduction of the clients

 

12. Upon a conjoint reading and analysis of the facts of the case and the statements reproduced above, it is clear that Nrupesh was the only client of AM, who traded extensively in the shares of RMIL through ISE; their main broker. I have perused the client registration form and the sub-broker/client agreement that had been forwarded by AM with regard to Nrupesh. The introducer is shown as Kirit Pandey, which fact was also confirmed by Nrupesh during the recording of his statement on July 21, 2004. The client registration form is dated April 22, 2003, but the sub-broker client agreement is undated.

 

13. Upon perusal of the details of the counter parties who traded with Nrupesh /AM in the scrip of RMIL i.e. M/s Rajesh Jhaveri through GSPL, the following is noted; the member-client agreement entered into between GSPL and M/s Rajesh Jhaveri is dated May 26, 2003. The proprietor of M/s Rajesh Jhaveri is shown as Gautum Jhaveri. The client code offered to M/s Rajesh Jhaveri is R004. I have also perused a letter that was stated to have been issued by M/s Rajesh Jhaveri to GSPL requesting them to register him as their client. The same is dated May 26, 2003. Co-relating this with the statement made by Paresh Vinchhi, Compliance Officer, GSPL on June 17, 2004, that Rajesh was their client since January 2001, it is evident that no credence could be attached to the submission advanced on behalf of GSPL. In fact it would also appear that Rajesh commenced trading with GSPL, prior to entering into an agreement with them and that the same was permitted by GSPL without the necessary documentation. This would stand to reason considering that admittedly the director of GSPL; Ketan Shah knew Rajesh for more than 15 years.

 

14. The close association of all the concerned entities in the instant case is thus not in dispute. Admittedly all the concerned entities belonged to Ahmedabad. Anil had admitted knowing Rajesh N Jhaveri and Nrupesh Shah very closely Besides it is a matter of record that Nrupesh was known to AM since 1994-95 although he traded through them only since 2001. It is also a matter of record that the proprietor of AM; Anil Mistry was the director of GSPL till the time he resigned on April 2001.

 

15. During the course of his hearing proceedings, Nrupesh Shah too had admitted knowing Rajesh Jhaveri well. Anish Kharidia, Company Secretary, appearing on behalf of Rajesh N Jhaveri during the course of the proceedings before me, also confirmed that Rajesh knew Nrupesh Shah personally. Despite this, Nrupesh has contended that knowing each other to some extent could not be construed as them acting in concert. However the point that arises for due consideration is not that the entities knew each other and hence have been charged with the act of manipulation. The issue is that the entities in question were known to each other, (whether it was AM and GSPL, Nrupesh and Rajesh or AM/ GSPL and their respective clients) both professionally and to a certain extent even personally, and had acted in concert to such an extent that there was synchronization in the trades executed, strictly between the said entities (327 such trades) in a manner which, I will be discussing in the later part of this order in the same scrip (RMIL) during the same period such that the time, price and quantity matched with each other almost every point of time..

Synchronised trades

 

16. Substantial synchronised trades/ structured deals were found to have been entered into between Nrupesh through AM and Rajesh through GSPL. In all, Nrupesh through AM appears to have entered into 327 structured deals with Rajesh through GSPL.

 

17. The details of the trades between Nrupesh/AM and Rajesh/GSPL (constituting more than 75 pages) have been annexed as Annexure 2 to the notice dated August 10, 2005 issued to Nrupesh in the present proceedings and are hereinafter referred to as Table A. As per the data contained therein, the said series of synchronised trades which began from May 27, 2003 and ended on 7 July, 2003, were executed by Nrupesh through AM with Rajesh being the counterparty client and the only client for GSPL.

 

18. The summary of such structured deals is as revealed in the table below:

 

Table B

 

SN	No. of Structured Deals	Average price	Trd. Qty	% to MKT Gross for the SN	% to MKT gross for the Period
2003100	10	88.59	50000	17.72	0.38
2003101	10	88.78	50000	22.91	0.38
2003102	9	89.28	45000	14.89	0.34
2003104	8	86.03	40000	17.73	0.31
2003105	10	81.02	49000	21.16	0.37
2003106	9	81.19	40000	27.76	0.31
2003107	11	80.05	50000	40.70	0.38
2003108	10	75.57	50000	20.15	0.38
2003109	8	78.73	40000	19.73	0.31
2003110	10	87.16	50000	18.89	0.38
2003111	10	83.96	50000	17.92	0.38
2003112	9	82.07	45000	16.59	0.34
2003113	10	80.00	50000	18.68	0.38
2003114	10	79.98	50000	15.58	0.38
2003115	10	80.26	47450	17.69	0.36
2003116	10	79.48	50000	17.95	0.38
2003117	9	79.24	50001	22.76	0.38
2003118	10	77.60	41000	16.28	0.31
2003119	22	79.01	49000	18.67	0.37
2003120	24	77.19	50000	20.17	0.38
2003121	18	75.52	47955	22.86	0.37
2003122	10	81.10	50000	9.78	0.38
2003123	10	80.25	50000	13.14	0.38
2003124	10	78.21	50000	18.92	0.38
2003125	10	81.56	49795	18.13	0.38
2003126	10	85.49	49975	10.20	0.38
2003127	10	95.35	50000	15.57	0.38
2003128	10	112.24	50000	13.91	0.38
2003129	20	123.10	49400	17.19	0.38

 

The summary reveals that Nrupesh traded through AM in all the settlements from 2003100 to 2003129 with the average price ranging between Rs 75.57/- to Rs 123.10/- while the total quantity so traded was 13,93,576 shares of RMIL.

 

19. For a better appreciation of the details of the trades contained in the tables discussed above, it would also be relevant to highlight the trading pattern of the counterparties in all these trades executed in the scrip of RMIL, in the context of the inter-relationship existing between them as has been brought out earlier.

 

20. All the deals in the scrip of RMIL of Nrupesh were executed by AM through ISE, while the counter party in all these trades was Rajesh who executed these deals through GSPL.

 

21. As regards the trades brought out in Table A, it is seen that while the orders were placed in a synchronized manner, there was a great deal of reversal of positions also happening i.e. the buy entity became the sell entity and the sell entity became the buy entity and vice versa. This trend continued between the same set of clients and the same set of brokers: i.e. 2 brokers and 2 clients. Reversal of trades reflects the transactions being entered into in a circular fashion, without the actual change of beneficial ownership taking place.

 

22. Nrupesh has however denied any manipulation on his part on the ground that he had no nexus with any of the counter parties and that all the impugned trades were placed, co-incidentally and unintentionally in an anonymous screen based trading system, where the identity of the counter party is never known.

 

23. The interrelationship between the said entities has been brought out earlier in unambiguous terms. Besides when a peculiar pattern of trading between a set of clients/brokers is deciphered, it is not necessary to build up or establish a set relationship between them. What is more important to consider then is the method and the manner in which such trades are executed. The motive thereafter automatically falls into line, i.e. the evidence that such trades throws, adds to the findings of investigation, about such a nexus, whether direct or indirect.

 

24. As far as the issue of the deals being executed in the anonymous screen based system is concerned, a trade can be executed on the screen and still be manipulative in nature since although the essence of screen based computerized trading is that it enables investors to transact in a fair and transparent manner and ensures the matching of the orders through the impersonal screen, on the basis of “best offer price” wherein the sellers would realize the true price of their securities within the circuit filters prescribed by SEBI, synchronized transactions can be executed on the screen of the exchange, at the price and order matching mechanism of the exchange, as in the present case, through inputting of trades on the screen of the exchange which are structured in nature, with a prior understanding entered into by the concerned parties as was done by all the above discussed clients, duly facilitated by the brokers.

 

25. The argument that the identity of the other trading client in such cases is not known to each other has also to be disregarded when one considers the frequency of the trades and the perfect matching of the time, order and price in all such trades, which cannot be a mere coincidence, that too, when the trades are executed in only one scrip and all the trades involve the same parties time and again. This is too much of a coincidence.

 

26. Trades like cross deals, reverse transactions, circular trades, and synchronized trades are all executed on the screen and with proper delivery versus payment system Clearly in almost all the deals, the orders are placed so as to ensure a matching of the buy and the sell quantity and the buy and the sell price with the known counter party, with whom a prior tacit understanding exists. The buy and the sell orders are placed at almost the same time between the counter brokers, with just a difference of a few seconds. This proximity in the inputting of orders at the same price and for the same quantity, results in getting them matched, such that there is almost perfect matching in all the trades, with all the three parameters i.e. quantity, price and most importantly, the time, required to conclude the trades, which to a large extent indicates synchronization in the logging in of the orders, albeit executed on the screen of the exchange.

 

27. This is what transpired in the present case. Although the matching of these trades has been attributed to coincidence, this trend was not noted in a solitary incident or two. Instead a huge number of synchronized trades got matched regularly, that too only between the same set of brokers and the same set of clients in the same scrip, during the same period even when there are more than a few thousand investors through their brokers, spread over more than 300 cities in the country.. The phenomenal regularity with which these clients and their brokers were counter-parties, leads one to conclude, that these transactions were effectively meant to be synchronized. It is my considered belief that frequency of such trades ensured consistent matching of the orders (where one entity got themselves as the seller and vice versa) purely for the purpose of projection of the volumes of the shares of RMIL in a way that was not the market determined volumes, possibly to induce other persons to invest in the said scrip.

 

28. While examining the issue of synchronized trades, the Hon’ble Securities Appellate Tribunal in Appeal Nos 54 to 57 of 2002 in the case of Nirmal Bang Securities (P) Ltd. vs SEBI observed as under: 

BEB has been charged for synchronized deals with First Global. I have examined the data provided by the parties on this issue. I find many transactions between BEB and FGSB. There are many instances of such transactions. I find the scrip, quantity and price for these orders had been synchronized by the counter party brokers. Such transactions undoubtedly create an artificial market to mislead the genuine investors. Synchronized trading is violative of all prudential and transparent norms of trading in securities. Synchronized trading on a large scale, can create false volumes. The argument that the parties had no means of knowing whether any entity controlled by the client is simultaneously entering any contra order elsewhere for the reason that in the online trading system, confidentiality of counter parties is ensured, is untenable. It was submitted by the Appellants that it was not possible for the broker to know who the counter party broker is and that trades were not synchronized but it was only a coincidence in some cases. Theoretically this is OK. But when parties decide to synchronize the transaction the story is different. There are many transactions giving an impression that these were all synchronized, otherwise there was no possibility of such perfect matching of quantity price etc. As the Respondent rightly stated it is too much of a coincidence over too long a period in too many transactions when both parties to the transaction had entered buy and sell orders for the same quantity of shares almost simultaneously. The data furnished in the show cause notice certainly goes to prove the synchronized nature of the transaction which is in violation of regulation 4 of the FUTP Regulations. The facts on record categorically establish that BEB had indulged in synchronized trading in violation of regulation 47 of the FUTP Regulations. In a synchronized trading, intention is implicit.

Keeping in mind the dicta of the SAT as reproduced above; I see no reason to take a different view in the present case.

 

29. This view is further reinforced by the finding that the matching of mind between the set of clients /brokers was such that although the “disclosed quantity” as defined by NSE was undoubtedly different, the total traded quantity between the said clients/ brokers involving the traded time and the price were matched at every point in time.

 

30. In this context, a better elaboration is required.

 

31. An order with a Disclosed Quantity (DQ) condition allows the trading member to disclose only a part of the order quantity to the market. For example, an order of 1000, with a disclosed quantity condition of 200 would mean that 200 alone is displayed to the market at a time. After this is traded, another 200 is automatically released and so on till the full order is executed. Most often, the Exchanges set a minimum disclosed quantity criteria, from time to time.

 

32. This situation can be exemplified by referring to the trades executed between Nrupesh and Rajesh through AM and GSPL respectively and for this I consider it sufficient to refer to one of the trades in the series of further transactions that were executed between them. As pointed out to the trades in Table A, the first synchronized trade between two entities was of the total traded quantity of 5000. However the disclosed quantity of Nrupesh/AM was 500 i.e. “the original buy volume” was 5000 shares of RMIL. Although the disclosed quantity of Rajesh/ GSPL was 500, the “original buy volume” was also 5000 shares of RMIL. It is true that the quantity of the orders so disclosed on the screen could be matched with the one disclosed by the other broker and it is also true that the disclosed quantities may not be the same for both of them. Ultimately, however, it is the original buy volume of one broker that should be compared with that of the original buy volume of the other broker for the purpose of perceiving the element of synchronization between them. In the present case, 500 shares of Nrupesh/AM would first get matched with 500 shares of Rajesh/GSPL. The other 500 shares of Nrupesh/AM would then automatically be sucked out of the remaining i.e. (5000-500 i.e. 4500) and this process would continue, till all the deals are executed. However, what is more important is the total traded quantity and the behind the scene “buy original volume” so put forth by them. In the present case, both the brokers continued to put the same ‘buy original volumes’ but the disclosed quantities projected were different for almost all the trades as pointed out earlier in Table A. Thus, while the total traded quantity remained the same (as the original buy volumes with the completion of trades were done at the same time and same price) the said original buy volume which was the same for both the clients/brokers was not displayed on the screen. This went on consistently and thus enabled the two parties to present a façade of ignorance of the identity of the counter party, which was in reality not the case.

 

33. The fact that at every point of time, the original buy volume was the same, while putting different disclosed quantities in the system, is indicative of the prior tacit understanding existing between the two clients and their members. In fact no justification for this aspect has been provided by Nrupesh inspite of being provided with all the documents pertaining to the said trades, apart from stating that his trades were genuine and that there was no manipulative intent on his part. The very fact that the total number of structured deals entered into between Nrupesh and Rajesh through AM and GSPL respectively were 327 and involved around 14 lakh shares, which represented around 10.65% of the gross traded quantity on the exchange in the same scrip during the entire period, speaks volumes about the level of concerted activity of the entities.

 

34. Nrupesh has also challenged the present proceedings on various other grounds, which I propose to discuss hereafter:-

a. Trades were based on the telephonic instructions issued by him when he was in Ahmedabad while the terminal of AM was situated at Mumbai during the relevant point of time. Hence he could not have manipulated the scrip of RMIL.

Although clients’ trades of such magnitude generally cannot take place without the broker being party to it, Nrupesh cannot seek obliteration of his liability simply by reason of this plea. It is not as if Nrupesh was never present at Mumbai at the time of execution of the trades. AM had admitted during the hearing granted to them that Nrupesh often visited their offices and used their terminals at the time of execution of the orders. Besides it is not the case of Nrupesh that the impugned trades were executed by AM on their own. Irrespective of the place from which the orders may have been issued, the act per se would not have happened but for the instructions issued from his end with the broker executing such instructions. Both were responsible for the execution of that class of acts and hence must be answerable for the manner in which the act had happened i.e. they would be answerable for the act committed in the course of their business. Even otherwise considering the structured nature of the trades, the necessity for Nrupesh to be physically present for manipulation of the said scrip does not arise as these trades were entered into with some inbuilt component of ‘intent’ involved and with the tacit understanding of the concerned entities, which ensured trading in the manner discussed earlier. The point to be considered is that the extent of the allegations against Nrupesh would have perhaps been eroded or nullified had the situation contemplated some other set of individuals and had some other clients/brokers entered into the trading system of RMIL. The fact that all the trades were done between the same group of entities, gives rise not merely to an assumption of their acting in concert but a definite finding that there was an element of intent while executing the said deals, precipitated due to a mutual understanding which aspect can be pointed out by any layman / an ordinary investor, leave alone the regulatory authorities.

 

b. An amount of Rs.68,000/ only was earned as profits from the transactions for the entire period, which worked out to less than 5 paise per share which no prudent person with a manipulative intent would have gained after trading for almost 14 lakhs shares in the said scrip.

The answer partly lies in the contention advanced by Nrupesh himself. No prudent person would have executed 327 trades in the same scrip, consistently for a month, merely for a minimal profit. The amount earned as profit on the share price is not the only indication of the gain made in the said trades. The act of Nrupesh went beyond rigging of prices and also involved building up volumes so as to induce other investors to show trading interest in the said scrip. All his transactions were squared off at the end of the day by him and his counter party; through the respective brokers. Not even at a single point of time, during the execution of these 327 synchronized trades was the broker / client different i.e. the same set of clients traded through the same set of brokers and almost all the trades were reversed i.e. buy client acted as a sell client and vice versa resulting in the squaring of almost all the trades. Thus the grave men of the matter for which action was initiated against Nrupesh is manipulation of the scrip of RMIL and not merely the gains allegedly made by him out of the impugned trades. In any case, these issues cannot be treated as mitigating factors to seek absolvement of his culpability. Sufficient evidence has been placed on record to suggest his guilt in this case. 

 

c. The trades of Nrupesh were executed in the said scrip after May 27, 2003 between the price range of Rs 88/- to Rs 119/- over a period of 80 days involving an increase of only Rs.30 within the said period, which was normal and not when the price fluctuated between Rs.62 and Rs.33 or between Rs.62 and Rs.88/- . Hence there was no contribution to the act of manipulation. The highlighted period is the alleged period of price manipulation by various entities who had executed trades in the scrip of RMIL. It is not necessary that all the parties would trade for the entire period of manipulation. What is important is the method and manner of trades of the various parties, who had traded at different times and the contribution made by each of these entities towards such a manipulation. One such set of clients and brokers found to have traded in the scrip of RMIL, was Nrupesh and Rajesh through AM and GSPL, at different but certain points of time, during which time about 327 structured deals, involving almost 14 lakh shares of RMIL were executed. The fact that Nrupesh had not traded during the opening or closing session in the said scrip would not make a difference to the outcome when the trades were executed in a concerted manner.

d. He had earlier received another notice for the alleged violation of the FUTP Regulations, 2003 and hence it was against the principle of natural justice to initiate two proceedings for the violations arising out of the alleged transactions. Since the copy of the notice alleged to have been received by Nrupesh was not enclosed for necessary perusal, no credence can be attached to such a notice. Nonetheless, action under the said provisions can be and is initiated, either pending investigation / inquiry or on completion of investigation or inquiry. On the other hand, adjudication/ enquiry proceedings are a parallel set of proceedings that are initiated against the entity only after the completion of the investigation. In these proceedings, the Adjudicating Officer/ the Enquiry Officer under the Adjudication Rules/Enquiry Regulations respectively, after following the principles of natural justice, enquires into the alleged acts of omissions and commissions, and based on the merits of the case, either does not pass any order against the entity/passes an order imposing a monetary penalty for a specified amount or recommends no penalty/penalty of censure/suspension of the certificate of registration for a specified period/cancellation of the same. Hence, these two sets of parallel proceedings are entirely different.

 

Further, proceedings under Sections 11, 11B and 11(4) of the Act are initiated more as a preventive / corrective action against the entities for the alleged acts of omissions or commissions or any other fraud pertaining to such acts, so as to send a warning signal to other investors who deal in such scrips through such intermediaries or any other entity. However, adjudication or enquiry proceedings are more deterrent in nature. Hence the initiation of action in the present proceedings, does not in any way preclude SEBI from initiating other proceedings, as it may deem appropriate, since the scheme of the Act inter alia involves the issuance of such directions as it may deem fit, to persons associated with the securities market.

 

e. The charges leveled against Nrupesh are based on surmises and conjectures.

In view of the elaborate discussion above, there does not appear to be any merit in this contention. Sufficient evidence has been placed on record to evidence his involvement in the manipulation in the scrip of RMIL

 

f. There was regular and consistent volume in the scrip of RMIL prior, during or after the investigation and hardly an occasion of sudden rise in the volume of the scrip.

The facts state otherwise. Reports indicate that there was an abnormal increase or decrease in the prices of the securities and creation of artificial volume during the relevant point of time which no doubt would have resulted in the inducement of sale and purchases by a third party. The facts stated hereafter give a clearer picture.

The scrip of RMIL was listed on the NSE only on February 27, 2003 i.e. a Thursday although the trading in the said scrip actually commenced from March 3, 2003 i.e. for the first two days, the trading did not take place. The said scrip was listed in the EQ and E1 series.

 

35. A perusal of the price volume data at NSE during the period of investigation i.e. March 3, 2003 to July 7, 2003 provides the following information:

 

Relevant to the EQ series (fully paid up equity shares)

Series Date Prev Close Open High Low Close Total Trd Qty Turnover in Lacs EQ 03-Mar-2003 40.00 41.00 72.90 41.00 62.05 3258 1.82   EQ 04-Mar-2003 62.05 50.10 62.00 49.65 56.45 9729 5.15   EQ 05-Mar-2003 56.45 60.00 62.00 53.25 59.50 3335 1.94   EQ 06-Mar-2003 59.50 59.95 71.15 59.60 69.10 1268 0.83   EQ 07-Mar-2003 69.10 74.00 74.00 55.30 55.95 10359 6.20   EQ 10-Mar-2003 55.95 59.85 62.50 54.00 60.95 1959 1.15   EQ 11-Mar-2003 60.95 59.80 64.00 54.00 54.90 3726 2.17   EQ 12-Mar-2003 54.90 59.35 59.35 44.95 47.25 4573 2.46   EQ 13-Mar-2003 47.25 49.90 49.90 47.00 47.20 366 0.17   EQ 17-Mar-2003 47.20 40.00 46.30 40.00 44.70 1298 0.58   EQ 19-Mar-2003 44.70 36.10 45.00 36.10 40.10 3148 1.31   EQ 20-Mar-2003 40.10 40.00 40.00 36.50 38.80 1879 0.70   EQ 21-Mar-2003 38.80 38.00 40.50 37.50 39.25 1728 0.69   EQ 22-Mar-2003 39.25 37.55 41.40 37.00 39.20 2047 0.79   EQ 24-Mar-2003 39.20 39.20 39.20 37.70 38.00 560 0.21   EQ 25-Mar-2003 38.00 33.50 37.90 33.50 36.10 17719 6.40   EQ 26-Mar-2003 36.10 35.25 37.65 33.95 34.00 22729 8.09   EQ 27-Mar-2003 34.00 34.00 35.90 33.10 35.30 17064 5.71   EQ 28-Mar-2003 35.30 33.95 35.50 33.85 34.90 25714 8.79   EQ 31-Mar-2003 34.90 33.50 34.10 31.85 33.00 26933 9.05   EQ 01-Apr-2003 33.00 33.85 34.00 32.60 33.10 27559 9.25   EQ 02-Apr-2003 33.10 34.80 36.95 33.10 35.50 21476 7.41   EQ 03-Apr-2003 35.50 35.00 35.00 33.00 34.45 15645 5.44   EQ 04-Apr-2003 34.45 33.90 41.30 33.90 37.75 21985 8.17   EQ 07-Apr-2003 37.75 41.00 45.30 41.00 45.30 15501 6.97   EQ 08-Apr-2003 45.30 43.50 48.00 43.50 46.50 85240 38.36   EQ 09-Apr-2003 46.50 44.55 46.80 44.50 45.00 14977 6.78   EQ 10-Apr-2003 45.00 42.20 43.00 40.00 41.65 1015 0.43   EQ 11-Apr-2003 41.65 42.85 46.00 41.00 41.15 882 0.37   EQ 15-Apr-2003 41.15 42.00 49.40 41.90 49.15 7816 3.72   EQ 16-Apr-2003 49.15 48.10 52.00 45.60 46.40 3386 1.60   EQ 17-Apr-2003 46.40 46.00 49.50 42.15 42.85 4056 1.81   EQ 21-Apr-2003 42.85 45.75 51.45 45.75 51.35 59076 29.98   EQ 22-Apr-2003 51.35 51.00 61.65 50.25 59.75 17576 10.45   EQ 23-Apr-2003 59.75 68.50 68.50 57.75 63.45 59916 38.06   EQ 24-Apr-2003 63.45 63.00 66.05 59.10 61.90 9715 6.12   EQ 25-Apr-2003 61.90 62.00 62.00 58.00 60.25 10382 6.27   EQ 28-Apr-2003 60.25 61.70 63.00 59.75 63.00 271368 168.68   EQ 29-Apr-2003 63.00 62.40 62.50 60.10 61.40 40844 25.13   EQ 30-Apr-2003 61.40 61.90 61.90 58.00 59.15 49141 29.23   EQ 02-May-2003 59.15 60.75 60.75 58.10 59.20 30016 17.80   EQ 05-May-2003 59.20 61.60 64.85 61.55 63.70 59925 38.37   EQ 06-May-2003 63.70 64.85 65.00 63.00 63.05 45761 29.56   EQ 07-May-2003 63.05 63.10 64.50 60.00 63.75 8375 5.23   EQ 08-May-2003 63.75 60.75 62.00 59.00 60.65 4296 2.64   EQ 09-May-2003 60.65 59.30 60.00 59.25 59.25 10645 6.37   EQ 12-May-2003 59.25 58.30 60.00 51.00 56.60 3773 2.13   EQ 13-May-2003 56.60 59.70 61.95 58.00 60.15 28604 17.07   EQ 14-May-2003 60.15 60.00 63.75 57.00 63.00 532621 334.82   EQ 15-May-2003 63.00 63.50 73.00 63.50 70.55 98802 69.38   EQ 16-May-2003 70.55 74.60 80.00 74.60 78.95 131846 102.30   EQ 19-May-2003 78.95 80.00 82.70 72.30 76.55 94381 75.22   EQ 20-May-2003 76.55 77.00 87.95 76.00 85.00 70450 58.70   EQ 21-May-2003 85.00 85.50 89.85 83.00 87.10 67778 58.12   EQ 22-May-2003 87.10 90.70 90.70 83.25 84.80 93789 80.82   EQ 23-May-2003 84.80 87.25 87.80 83.00 83.15 227219 190.74   EQ 26-May-2003 83.15 85.65 85.80 83.05 84.25 67469 57.33   EQ 27-May-2003 84.25 85.15 92.00 85.15 90.60 141046 125.52   EQ 28-May-2003 90.60 88.15 91.50 87.00 88.35 109126 97.38   EQ 29-May-2003 88.35 90.95 91.00 85.80 88.05 151153 134.01   EQ 30-May-2003 88.05 90.00 91.70 86.10 86.30 64005 56.03   EQ 02-Jun-2003 86.30 90.00 90.00 81.00 83.45 112815 96.80   EQ 03-Jun-2003 83.45 82.95 85.35 80.05 80.70 115810 95.14   EQ 04-Jun-2003 80.70 82.00 84.50 79.60 81.95 72043 58.43   EQ 05-Jun-2003 81.95 81.00 81.25 76.50 76.65 61429 49.01   EQ 06-Jun-2003 76.65 75.00 80.00 74.75 79.40 124061 95.98   EQ 09-Jun-2003 79.40 81.65 90.95 78.25 86.35 101353 81.02   EQ 10-Jun-2003 86.35 86.75 89.50 81.05 86.35 132345 115.45   EQ 11-Jun-2003 86.35 85.00 85.50 82.15 83.55 139528 117.08   EQ 12-Jun-2003 83.55 84.45 84.50 81.45 82.20 135590 111.69   EQ 13-Jun-2003 82.20 82.90 83.10 73.05 79.80 133865 107.82   EQ 16-Jun-2003 79.80 76.95 82.10 72.45 80.25 160411 128.33   EQ 17-Jun-2003 80.25 79.75 80.95 79.00 79.65 134085 107.45   EQ 18-Jun-2003 79.65 75.05 81.00 75.05 79.30 139275 111.21   EQ 19-Jun-2003 79.30 79.80 81.00 77.80 80.15 109861 87.57   EQ 20-Jun-2003 80.15 80.55 80.55 76.90 77.50 125915 98.37   EQ 23-Jun-2003 77.50 73.90 80.00 73.60 77.50 131205 103.74   EQ 24-Jun-2003 77.50 78.75 78.75 75.50 77.80 123934 96.24   EQ 25-Jun-2003 77.80 78.00 79.90 74.00 74.85 104885 79.47   EQ 26-Jun-2003 74.85 79.95 85.00 78.00 80.90 255548 209.82   EQ 27-Jun-2003 80.90 81.60 83.00 79.50 80.55 190281 153.88   EQ 30-Jun-2003 80.55 80.00 80.00 76.10 78.30 132111 103.55   EQ 01-Jul-2003 78.30 78.90 85.25 77.85 81.65 137336 111.27   EQ 02-Jul-2003 81.65 76.50 86.60 76.50 84.00 244997 208.31   EQ 03-Jul-2003 84.00 92.00 100.80 86.20 100.50 160523 152.64   EQ 04-Jul-2003 100.50 104.85 120.00 103.00 114.45 179724 205.00   EQ 07-Jul-2003 114.45 121.00 127.00 115.05 119.85 143701 176.14   EQ 08-Jul-2003 119.85 121.00 122.70 110.00 111.80 99350 113.82   EQ 09-Jul-2003 111.80 107.40 109.90 100.00 101.65 84931 88.48   EQ 10-Jul-2003 101.65 107.90 112.00 102.00 104.10 83788 88.93   EQ 11-Jul-2003 104.10 105.00 105.00 95.30 102.55 72004 74.19   EQ 14-Jul-2003 102.55 104.00 114.00 104.00 108.00 90951 100.05   EQ 15-Jul-2003 108.00 109.75 109.75 101.00 103.15 33428 34.41   EQ 16-Jul-2003 103.15 103.00 106.95 102.00 103.70 50370 52.49

 

 

 

Relevant to the E1 series (partly paid up shares)

 

Series Date Prev Close Open High Low Close Total Trd Qty Turnover in Lacs E1 03-Mar-2003 20.00 21.40 21.40 20.00 20.90 718704 146.41 E1 04-Mar-2003 20.90 21.00 21.70 18.00 19.90 2876 0.57 E1 05-Mar-2003 19.90 20.00 20.10 18.25 18.40 1430 0.27 E1 06-Mar-2003 18.40 19.75 20.00 18.10 18.30 3950 0.76 E1 07-Mar-2003 18.30 19.45 20.00 19.00 19.25 22900 4.47 E1 10-Mar-2003 19.25 19.00 20.00 19.00 20.00 22900 4.50 E1 11-Mar-2003 20.00 20.00 20.05 20.00 20.00 16000 3.20 E1 12-Mar-2003 20.00 20.75 21.00 20.00 21.00 3300 0.68 E1 13-Mar-2003 21.00 20.50 20.50 20.50 20.50 50 0.01 E1 17-Mar-2003 20.50 19.95 20.00 17.55 17.70 754000 146.58 E1 19-Mar-2003 17.70 17.00 17.00 16.50 16.50 45300 7.65 E1 20-Mar-2003 16.50 19.80 19.80 17.10 17.15 210 0.04 E1 21-Mar-2003 17.15 20.50 20.50 15.75 16.05 100012 17.41 E1 22-Mar-2003 16.05 19.00 19.25 19.00 19.20 2910 0.55 E1 25-Mar-2003 19.20 15.50 15.50 15.50 15.50 100 0.02

Thus from the historical scrip-wise price- volume data of the scrip of RMIL from February 2, 2003 to July 7, 2003 in the EQ segment, the following facts are noted

36. The trading in the EQ series commenced on March 3, 2003 on which date, the total traded quantity was 3258 shares. These shares continued to be traded merely in thousands till the last week of March. Thereafter there was a steady rise such that by the end of March, the total traded quantity was around 27,000 shares of RMIL. In April, the largest total quantity traded was 2,71,368 which was on April 28, 2003. From the details of the synchronized trades as discussed earlier, the synchronized trades in huge volumes were executed by the respective clients of BPL and SFL through them, from April 28, 2003 onwards.

37. During May, the largest traded quantity was recorded on May 14, 2003 being 5,32,621 shares. Coincidentally other entities through their brokers; SFL with Haven started executing large scale synchronized trades from May 13, 2003 while the clients of BPL with Haven started executing large scale synchronized trades from May 14, 2003 onwards amongst themselves. The clients of GSPL and AM were found to have entered into the synchronized dealings through them from May 27, 2003 onwards.

38. The volumes which were in mere thousands at that time then shot to lakhs from April 28, 2003 and after May 22, 2003 the volumes were consistently found to be in lakhs, during which time, all the entities as discussed above were found to have entered into the arena where trades were taking place in sync with a set of common entities. Thereafter the trades which were in lakhs declined and ran into thousands after July 7, 2003. In this regard, it would also be relevant to bring out the fact that the findings of investigation revealed that these entities accounted for 94.37% of the gross quantity traded in the scrip of RMIL during the period under scrutiny.

39. To sum up the facts, Nrupesh manipulated the scrip of RMIL in a concerted manner in the following manner:

a) Trading through a sub broker extensively in the same scrip, through the same set of client/broker i.e. Rajesh Jhaveri/GSPL all of whom were very well known to each other.

b) The sub-broker being a former director of the counter party broker; GSPL.

c) Execution of a number of synchronized trades

d) Execution of trades which led to a reversal of positions at the end of the settlement, resulting in no actual transfer of beneficial ownership

 

40. In view of these facts and circumstances, Nrupesh has been charged under the penal provisions of Sections 15HA and 15HB of the Act which inter alia provides as follows:

Section 15HA

Penalty for fraudulent and unfair trade practices

 

If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher.

Section 15HB

Penalty for contraventions where no separate penalty has been provided

Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which may extend to one crore rupees.

41. Nrupesh has also been charged under the following provisions of Regulation 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 which read as under:

Regulation 4 of Prohibition of manipulative, fraudulent and unfair trade practices 

(1)   Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities.

(2)   Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:-

(a) indulging in an act which creates false or misleading appearance of trading in the securities market;

(b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss;

(e) any act or omission amounting to manipulation of the price of a security;

(n) circular transactions in respect of a security entered into between intermediaries in order to increase commission to provide a false appearance of trading in such security or to inflate, depress or cause fluctuations in the price of such security;

42. In order to establish the fraudulent nature of trades indulged in by Nrupesh through his sub broker; AM, reference may also be made to the definition of fraud laid down in Regulation 2 (c) of the FUTP Regulations, 2003 which provides as follows: 

"2 (c) "fraud" includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person with his connivance or by his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss, ………"

 

43. Section 15HB is a generalized penal provision and takes into account those acts of an intermediary which have not been separately dealt with. In my viewpoint, the facts of the present case, clearly bring out the element of fraud and unfair trade practices indulged in by Nrupesh through AM and the counter parties, since by way of generating artificial volumes, he has along with them created a false impression amongst the general investors as regards the trading activity in the scrip of RMIL.

 

44. As a clear cut violation of the provisions of the above cited FUTP Regulations has been established, the provisions of Section 15HA of the SEBI Act, 1992 would be attracted. Therefore, for the purpose of considering the imposition of an appropriate penalty, the provisions of Section 15HA of the Act alone ought to be considered.

 

45. Persons who indulge in manipulative, fraudulent and deceptive transactions, or abet the carrying out of such transactions which are fraudulent and deceptive, should be suitably penalized for the said acts of omissions and commissions.

 

46. However Section 15J of the Act enumerates certain factors to be taken into account while adjudging the quantum of penalty to be levied and these include the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the said default, the amount of loss caused to the investors and the repetitive nature of default.

 

47. Apart from my views given earlier, it is clear that in cases of such nature, it is difficult to quantify the disproportionate gains or unfair advantage enjoyed by an entity. Further manipulation is a serious issue and it is also difficult to arrive at any specific figure to compute the amount of loss caused to the investing public, especially in a large country like India. Accordingly the investigation report also does not dwell on the extent of specific gains made by Nrupesh or the losses suffered by the investors. Suffice to state that keeping in mind the practices indulged in by him, investors were bound to have suffered losses in that trades were executed in the scrip of RMIL, clearly in a manner meant to create volumes. Besides creation of a trading activity does give rise to an appearance of volumes and liquidity in a particular scrip which is an important criterion, apart from price, capable of misleading the investors while making an investment decision. In fact, liquidity/volumes in particular scrip raise the issue of ‘demand’ in the securities market. The greater the liquidity, the higher is the investors’ attraction towards investing in that scrip. Hence any one could have been carried away by the unusual fluctuations in the volumes and be induced into investing in the said scrip. Besides, this kind of activity seriously affects the normal price discovery mechanism of the securities market. Considering the continuous effort in this aspect by all the entities in question, it can be said that the nature of default was repetitive as the synchronized trades were carried out over a month.

PENALTY

48. On analyzing the material available on record, on a judicious exercise of the powers conferred upon me in terms of Rule 5 of SEBI (Procedure for holding inquiry and Imposing penalties by the Adjudicating Officer) Rules, 1995, I am of the considered view that for the violations as discussed earlier, it would be appropriate to impose upon Nrupesh C Shah, a penalty of Rs. 5,00,000/- (Rupees Five Lakhs only).  

 

49. The penalty amount shall be paid within a period of 45 days from the date of receipt of this order through a cross demand draft drawn in favour of “SEBI- Penalties remittable to the Government of India” and payable at Mumbai which may be sent to Shri P.K. Nagpal, Chief General Manager, Securities and Exchange Board of India, Mittal Court, B Wing, 224 Nariman Point, Mumbai – 400021.

 

PLACE: MUMBAI	G. BABITA RAYUDU
DATE: JULY 06, 2006	ADJUDICATING OFFICER