BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI
Appeal No.62/2002
Date of Hearing: 28th April, 2004
Date of decision: 21st May, 2004
In the matter of
M/s. Rajkumar Chainrai Appellant – Represented by
Basantani Shri S. K. Sen, Advocate
Versus
Securities and Exchange Board Respondent – Represented by
of India Shri Kumar Desai, Advocate
Coram:
Justice Shri Kumar Rajaratnam, Presiding Officer
Dr. B. Samal, Member
Shri N. L. Lakhanpal, Member
Per : Dr. B. Samal, Member
The present appeal is against the order of SEBI on 22nd August, 2002 whereby the registration of the appellant has been suspended for a period of six months in exercise of the powers conferred upon the Respondent under sub section (3) of Section 4 of the SEBI Act, 1992 read with sub regulation (3) of Regulation 29 of the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations 1992.
The appellant is the proprietor of a sole proprietary concern carrying on the business of shares and stock broking in the name and style of Rajkumar C. Basantani operating on the capital market segment of the National Stock Exchange. Shri Rajkumar C. Basantani is also the Chairman of a company viz. Sound Craft Industries Ltd., (SIL) listed on the Bombay Stock Exchange as well as National Stock Exchange. The Respondent conducted an investigation into the alleged circular trading and/or market manipulation under the SEBI (Fraudulent & Unfair Trade Practices Relating to Securities Market) Regulations, 1995 on 31st August, 2000. An enquiry was held. Subsequently personal hearing was fixed on 19th July, 2002 which the appellant did not attend. The appellant’s request for an alternative date was stated to have been refused. Finally the order was passed on 22nd August, 2002.
Heard the Counsel for the Appellant and the Respondent.
The Counsel for the appellant stated that the said proprietary concern of the appellant is professionally managed. The appellant actually sits in the office of SIL and other companies at Dadar and is not involved in day today running of the said concern. The appellant’s concern is run by employees. It is alleged that the appellant acted in concert with four other persons viz. Shri Dinesh Patel, Subhas Patil, Nagraj Kunder and Yogesh Panchal, whom it was stated, that the appellant has never met. Out of the four persons mentioned, only Shri Dinesh Patel is an employee who trade through the concern but is not known personally to the appellant. The others traded elsewhere but had some transactions/dealing not related to trading with employees of the said concern and/or the said concern. It is alleged that placing buy orders below the quoted price and sell orders above the quoted price were only for creating artificial depth. The appellant did not agree with this observation. However, it was admitted that even with the said alleged trades, only 8,00,000 scrips were traded which were genuine. It is also alleged that trading of these parties form a large part of the gross trades. Since the scrip is not freely available, trading is naturally limited and price is naturally maintained. In the limited availability, the appellant actually holds a large part of the corporate holding and is able to trade more freely than others. It is therefore, natural that the appellant’s trades will be significant. This does not warrant the finding of circular trading. In any event in circular trading, either the funds or the shares must originate from the appellant and finally come to rest with the appellant. Not one single instance is shown. Some isolated instances of purchase and sales where the same clients are shown as instances of circular trading. The appellant stated that these are punching errors where orders are countermanded immediately usually because the prices or the trade are wrongly entered, which is not correct. This cannot be taken as instances of circular trading.
The learned Counsel for the Respondent pleaded that the submissions made by the appellant are not convincing and acceptable and it is not necessary that the acts should always result in loss or gain. The act of manipulation per se is illegal. The member is trying to escape from the responsibility by passing on the blame to his subordinate staff. There is difference between the member and Shri Basantani as far as the transactions are concerned. Shri Basantani also being the chief promoter of SIL is interested in promotion of the scrip of his company. The clients mentioned in the enquiry report being acted hand in glove with Shri Basantani in the manipulative practices which is noticeable from the scrutiny of his bank account that fund flow have taken place consistently to the account of his clients prior to the placement of transactions in the scrip. The learned Counsel also pointed out that common introducer, common telephone number etc. only substantiate that these clients were merely acting as front to the Member.
Taking all the above factors into consideration and the available documents we pass the following order.
ORDER
We do not find any material to interfere with the order of the Respondent. Therefore, the appeal is dismissed.
No order as to costs.
(Pronounced in Court)
Sd/-
Justice Kumar Rajaratnam
Presiding officer
Sd/- Sd/-
Dr. B. Samal,
Member N. L. Lakhanpal,
Member
Place: Mumbai
Date: 21st May, 2004.