BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA
CORAM : V. K. CHOPRA, WHOLE TIME MEMBER
ORDER
{Under Regulation 13(4) SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 against the broker, M/s Pioneer TCP Stock Brokers Limited in the matter of Sun Infoways Ltd.}
1.0 BACKGROUND
1.1 Sun Infoways Limited (hereinafter referred to as “SIL”) promoted by Shri Shrikant Vasant Joglekar and Shri Sujit Shrikant Joglekar was incorporated on June 29, 1994 as Best Mulyankan Consultants Pvt. Ltd. The main object of the company was to render consultancy services for valuation of assets such as land, building, machinery, agricultural land etc. This company was subsequently converted into public company and its name was changed to Best Mulyankan Consultants Ltd. on June 21, 1995. The name Sun Infoways Ltd. was adopted by the company after it changed its name with effect from May 11, 2000 from Best Mulyankan Consultants Limited.
1.2 The company got listed on Bombay Stock Exchange Ltd (BSE) on May 16, 1996, after the public issue. Shri Joglekar and his family members sold their stake in SIL in the year 2000 to Shri Anil Pujari, Shri Rajan Tawate, Shri Tanvir Zaki, Shri Pravin Sonalkar, Ms Hafeza Vohra and Shri Kuldeep Handoo and all of them were introduced by Manish Marwah. Shri Hemant Damodar Mehta, a consultant, introduced Shri Manish Kumar Marwah to Shri Joglekar and his family members.
1.3 It was observed that on February 9, 2000, only one trade was executed in the scrip at a price of Rs.10/- per share with the quantity traded being only for 100 shares for Rs.1000/-. However, without any reverse trends, the price and the volume in the SIL scrip, continued to rise and reached its highest price of Rs 697/- on September 11, 2000 with volume going upto 24,800 shares.
1.4 SEBI initiated investigations into the alleged price manipulation in the trading of SIL shares between February 2000 and December 2000 (hereinafter referred to as “investigation period”). On analyzing the price/volume data of the SIL scrip during the investigation period, it was observed that the rise in the price of the SIL scrip was accompanied with increased trading volumes allegedly effected through large number of entities, associated with the new promoters, directors and associates of SIL as well as few brokers including the BSE broker M/s Pioneer TCP Stock Brokers Limited (formerly called TCP Stock Brokers Limited and hereinafter referred to as ‘Noticee’) with SEBI registration number INB 010997832.
1.5 In the light of above facts, the trading details of the various entities who had traded in SIL scrip were collected and analyzed along with the data of the volumes contributed by these entities. It was observed that the transactions of the Noticee in SIL scrip during the investigation period contributed to the creation of a certain amount of trading activity in the said scrip and also influenced the price of the scrip.
2.0 ENQUIRY PROCEEDINGS.
2.1 After considering the Investigation Report, SEBI appointed an Enquiry Officer to enquire into the violations allegedly committed by the Noticee under the of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, (hereinafter referred to in short as “PFUTP Regulations”) and SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to in short as “Stock brokers Regulations”) and bye laws, rules and regulations of the exchange.
2.2 The Enquiry Officer issued a show cause notice dated December 20, 2004 to the Noticee under Regulation 6(1) of SEBI (Procedure for holding Enquiry by Enquiry Officer and imposing penalty) Regulations, 2002 (hereinafter referred to as “the Enquiry Regulations”) and advised to show cause, as to why enquiry proceedings should not be initiated against them for the violations of Regulation 4(a) and (b) of PFUTP Regulations 1995 and code of conduct as per schedule II read with Regulation 7 of Stock brokers Regulations, 1992.
2.3 The Noticee vide letter dated February 25, 2005 replied to the said show cause notice and the gist of the submissions made by Noticee as recorded by the Enquiry Officer are given hereunder:
2.3.1 Aroma Securities Limited (ASL); their sub broker, had surrendered their SEBI registration as a sub broker in September 2003 and they had also applied for cancellation of the registration of ASL.
2.3.2 ASL was their registered sub broker and accepted their contract notes/ bills containing trades in the scrip of SIL which were duly accounted for in their ledger account at the relevant time.
2.3.3 They had issued consolidated scrip wise contract notes to ASL and in turn ASL had issued split confirmation memos to each of their clients.
2.3.4 They had maintained register of accounts of ASL and in turn ASL fulfilled their obligation regarding paying their dues and giving/ taking deliveries of shares.
2.3.5 The correct volume of the shares of SIL bought and sold by them was 49,400 and 29,300.
2.3.6 Date wise trade details and ultimate client details in SIL scrip had been provided by them on pages 8-10 of their reply dated August 16, 2006. These trades happened from April 2000 to September 2000.
2.3.7 The volume of shares of SIL bought and sold were insignificant. There was no speculation in such trades.
2.3.8 On a net basis, clients had purchased the shares during the relevant period.
2.3.9 They did not have any direct dealings with SKG Stock and Share Brokers Ltd and JV Portfolio Pvt Ltd (JVP). Their business relationship was with ASL.
2.3.10 SKG and JVP had followed all the routine procedures like maintaining database of clients, collection of margins etc.
2.3.11 SKG and JVP were not related/ connected to their clients and were not aware of anything negative happening in the scrip of SIL.
2.3.12 They had not executed even a single transaction in the scrip of SIL scrip in their own account.
2.4 The Enquiry Officer, after conducting enquiry in accordance with the provisions of the Enquiry Regulations submitted a report dated April 12, 2007. The Enquiry Officer in her report recommended that a penalty of “censure” against the Noticee for their failure to exercise due skill, care and diligence as required to be observed by a registered broker.
3.0 SHOW CAUSE NOTICE & REPLY
3.1 Pursuant to the receipt of the Enquiry Report, Show Cause Notice dated April 24, 2007 was issued to the Noticee along with copy of the Enquiry Report and advised them to show cause as to why the action, as recommended by the Enquiry Officer should not be imposed on them. Noticee submitted reply vide letter dated May 12, 2007 to the said show cause notice which is almost similar to that of their reply filed before the Enquiry Officer and the relevant extracts of the said reply had already been discussed in paragraph no. 2.3 above. They have not requested for an opportunity of personal hearing, instead they requested to consider their reply while deciding the matter.
4.0 CONSIDERATION OF ISSUES & FINDINGS
4.1 After having carefully examined findings of investigation, enquiry report, show cause notice and reply of the Noticee, I observe that consequent to a change in shareholding of SIL during January 2000, large scale volumes were witnessed in the trading of the SIL scrip. The price of SIL scrip shot up from a low of Rs 10 as on February 9, 2000 to a high of Rs 654.90 as on September 4, 2000.
4.2 The trades in SIL shares were executed by certain connected entities as well as a few sub brokers and brokers, who indulged in artificial trades resulting in the manipulation of SIL scrip. The Noticee was one of the broker who had executed trades in SIL scrip during the investigation period, through one of its sub-brokers; Aroma Securities Ltd (ASL), a connected entity to the new directors of SIL.
4.3 After examining the materials on record, the Enquiry Officer came to the conclusion that the Noticee had never transacted in the scrip of SIL on their own account but their sub broker; ASL had carried out all the impugned trades in SIL scrip for various clients.
4.4 The Noticee also informed that all the transactions were carried out by their sub-broker whose certificate of registration was cancelled on their initiative on September 2003. The Enquiry Officer had confirmed that the said fact after examining the documents evidencing Noticee seeking cancellation of the registration of ASL as their sub broker.
4.5 The Enquiry Officer had observed that the investigation report does not highlight the total buy and sell volume of the Noticee. The Noticee had given the details of their total buy and sell volume i.e 49,400 and 29,300 shares respectively as also the clients trading details. The Enquiry Officer also observed that there was no concrete evidence on record to suggest that the Noticee had any relationship with any client of ASL or nexus with any of the entities mentioned in the show cause notice or even any of the promoters of SIL. Hence, the Enquiry Officer suggested exonerating the Noticee on the charges of PFUTP Regulations. Having considered this aspect and totality of the facts and circumstances of the case and the findings/recommendations of the Enquiry Officer mentioned in the report, I have come to the conclusion that the Enquiry Officer has rightly concluded that the charges against the Noticee have not been established with reasonably good evidence. Further, viewed from the relevant legal position, I feel that there is no sustainable evidence on record to prove the charges levelled against them under the provisions of PFUTP Regulations.
4.6 As regards the violations of code of conduct for stock brokers, Enquiry Officer observed that the Noticee had exercised a certain amount of skill, care and diligence, as required to be observed by a registered broker. At the same time, the Enquiry Officer had also observed that the trades executed through them could have best been avoided and also held that they should be vicariously responsible for the acts of the sub-broker since they have failed to exercise the necessary due diligence. I find that there is no clear cut finding regarding the violation of Code of Conduct also and as such benefit of doubt can be given to the Noticee in this regard. Keeping in view all facts and circumstances of the matter, I am of the considered view that no penalty against the Noticee is warranted and a direction to the Noticee to be careful in future while dealing in securities will meet the ends of justice.
5.0 ORDER
5.1 Therefore, in exercise of the powers conferred upon me in terms of 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, I direct M/s Pioneer TCP Stock Brokers Limited (SEBI registration no. INB 010997832 and PAN No AABCT2172Q) to be careful and cautious in future, while dealing in securities market.
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Place: Mumbai
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V. K. CHOPRA
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Date: July 19, 2007
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WHOLE TIME MEMBER
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SECURITIES AND EXCHANGE BOARD OF INDIA
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