Appeal No. 34/2004
Date of Hearing
29.4.2004
Date of Decision
18.5.2004
In the matter of:
Patel Investments
Ajay Khandhar, Advocate
Jayant Gaikwad, Advocate
Versus
Securities & Exchange Board
of India
Coram:
Justice Shri Kumar Rajaratnam, Presiding Officer
Dr. B. Samal, Member
N.L. Lakhanpal, Member
Per: N.L. Lakhanpal, Member
1. This is an appeal against the order dated Feb. 11, 2004 passed by Securities & Exchange Board of India (SEBI) prohibiting Patel Investments and its proprietor Mohit Patel from dealing in securities for a period of one year. It is seen from the impugned order that SEBI had asked Bombay Stock Exchange (BSE) to look into the trading pattern of certain NBFCs whose share prices had shown movement in the secondary market. BSE reported after investigations that the price rise in the scrip of V.B. Desai Financial Services Ltd. (V.B. Desai) was not justified by the fundamentals of the scrip and that the buyers/sellers in the scrip were connected to the company as their names appeared as top shareholders/directors of the company. SEBI’s detailed investigations revealed that Shri Kamlesh J. Shroff son of Jitender R. Shroff of V.B. Desai and nephew of Shri Pradeep R. Shroff, promoter and managing director of V.B. Desai was the main person behind the trading activity in the scrip through out all the settlements during the investigation period. Kamlesh J. Shroff used a number of brokers, sub-brokers (both registered and unregistered) as well as acquaintances to buy and sell the scrip of V.B. Desai in the market, thereby creating illusion of trading, artificial volume and price rise in the scrip. M/s. Patel Investments, a registered sub-broker had purchased approx. 17000 shares of this scrip on the account of his client, M/s. Ace Finance. This M/s. Ace Finance was found to be a sole proprietorship firm of one Shri Suketu Kapadia (Suketu) who was a sub-broker affiliated to Kamlesh J. Shroff. The charge against the appellant thus is that these 17000 shares of V.B. Desai were purchased by him, not on behalf of M/s. Ace Finance, but actually on behalf of Kamlesh J. Shroff thereby violating the code of conduct for stock brokers and sub-brokers as well as various SEBI circulars, guidelines and rules mentioned in the impugned order.
2. At the time of hearing, the learned counsel for the respondent was at pains to establish that the appellant had himself admitted to the investigating officials that Suketu used to bring clients on whose behalf he had executed transactions passing on part of the brokerage to Suketu. The learned counsel also pointed out that investigations had revealed that Suketu had known Shri Kepal Patel as a friend and college mate and that Kepal Patel was a cousin of Mohit Patel. It is seen from the impugned order that this relationship and the statement of the appellant before the investigating officials constitute the sole basis for clinching the charge of abetting the market manipulation attempts of V.B. Desai against the appellant.
3. The learned counsel for the appellant pointed out during the hearing that simply because his cousin knew Suketu during college days could not amount to any personal knowledge of the activities of Suketu S. Kapadia by the appellant. According to him, the appellant had always known and treated M/s. Ace Finance as his client and dealt with him accordingly. The learned counsel also read out before us the appellant’s statement during investigation to show that the respondent has totally misconstrued his statements as practically amounting to a confession of his involvement in these market manipulation activities of V.B. Desai. The learned counsel further argued that the appellant had merely purchased 17000 shares extending over three settlement periods on behalf of a client he believed to be genuine at the relevant time. These shares were purchased on a delivery basis and he had no reason to become suspicious on a transaction involving such a small quantity which fetched him of a commission of only Rs. 1700/-. This was a routine insignificant transaction put through him as a broker on behalf of the client namely M/s. Ace Finance and that he had absolutely no basis or any reason to believe or even to suspect that someone else other than M/s. Ace Finance was actually funding the transaction. The appellants brokerage income according to the learned counsel, for that settlement alone was about Rs. 2 lakhs and for that year it was Rs. 48 lakhs and it was entirely illogical to expect that he would be tempted to do something so wrong for a paltry brokerage income of Rs. 1700/- in the transactions pertaining to V.B. Desai.
4. We have carefully gone into the impugned order, the memorandum of appeal and the arguments of the learned counsel for both sides. We have particularly applied our minds to the statement of Mohit Patel, proprietor of Patel Investments at pages 20 and 21 of the appeal papers. On perusal of the statement, we are absolutely in no position to construe it the way it has been construed in the impugned order to infer an admission of guilt on the part of the appellant. We are also inclined to agree with the appellant that the friendship of the appellant’s cousin with Suketu during college days without any supporting evidence cannot be treated as evidence of knowledge on the part of the appellant that Suketu was actually backed by Kamlesh J. Shroff. Since no other facts or instances have been cited against the appellant, we are unable to sustain the impugned order. The impugned order is therefore set aside. No order as to costs.
Presiding Officer
Sd/-
N.L. Lakhanpal
Member
Place: Mumbai
Date: 18th May, 2004
//sr04518