Order against M/s. Haven Financial Services Private Limited

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

 

AGAINST

 

M/s. HAVEN FINANCIAL SERVICES PRIVATE LIMITED

 

1.                 M/s. Haven Financial Services Private Limited (for brevity’s sake, hereinafter referred to as Haven) is registered with the Securities and Exchange Board of India, 1992 (for brevity’s sake, hereinafter referred to as the SEBI) as a broker and is the member of the National Stock Exchange (NSE) with SEBI registration no. INB 230638238.

 

1. On the basis of stock market alerts issued by the NSE, 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 (hereinafter referred to as FUTP Regulations) at the relevant time and the 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 (hereinafter referred to as the Broker Regulations) by various entities. RMIL was listed on the National Stock Exchange (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 data and the volumes contributed by these entities, whereafter it was inter alia observed that the rise in the price of the scrip of RMIL was accompanied with increased trading volume, primarily on account of the trades executed by these entities.
   
   
2. As per the investigation findings, Haven was found to be one of the entities that had traded extensively in the scrip of RMIL at the NSE on behalf of their client; Shrawan Kumar Goyal (hereinafter referred to as ‘Shrawan) which significantly facilitated the market manipulation in the scrip of RMIL and were thereby held to have contravened the provisions of the FUTP Regulations and the Broker Regulations.

 

 

4.                 In view of the same, I was appointed as the Adjudicating Officer, vide order of SEBI dated December 27, 2004, to enquire into the alleged acts of omissions and commissions of Haven while transacting in the scrip of RMIL.

 

NOTICE / REPLY / PERSONAL HEARING

 

5.                 A notice dated September 2, 2005 along with relevant documents annexed thereto was issued to Haven under Rule 4 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by the Adjudicating Officer) Rules, 1995 (Rules) 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. Annexed to the said notice was a letter dated September 2, 2005 advising Haven to treat an earlier notice dated August 11, 2005 that was inadvertently issued to Haven, as invalid.

 

1. In their reply dated September 12, 2005, Haven while denying the charges leveled against them, inter alia submitted as under:

 

1. The finding that the price of the scrip was Rs.33 on March 31, 2003 with a traded quantity of 26,993 shares and the highest price was Rs.119.85/- with a traded quantity of 143701 shares on July 7, 2003 was unsupported by any documentary evidence.

ii. Haven had not traded during the investigation period in their account

but had only placed orders in the normal course of business on behalf

of their clients alongwith the orders of the other clients..

iii. There was no relationship with either M/s Bonanza Portfolio Ltd. (BPL) or M/s Sanchay Finvest Limited (SFL) and no proof had been provided to evidence a direct or indirect relationship with other brokers.

iv. While executing the transactions in the normal course of business, the counter party is not known and based on the disclosed quantity on the screen of the terminal; the orders are converted into trades which cannot be treated as structured deals.

v. No alert had been issued by NSE as regards any abnormal activity in the market in respect of the scrip of RMIL or else they would have adhered to the said direction and initiated appropriate corrective actions.

vi. All the settlement obligations were duly completed by the clients for the scrip of RMIL as well as for other scrips by Shrawan.

vii. Haven had not acted in any manner so as to create a false and misleading appearance of trading on the securities market. Merely because the impugned transactions had been put by them on behalf of their clients, Haven could not be held responsible for the acts of these clients, unless it was proved that Haven was directly involved in such activities.

viii. All transactions had been executed by Haven in a bonafide manner without any motive or intention to create a false market. Shrawan too had vide letter dated August 2, 2005 accepted that the said transactions were executed for himself and done jobbing in the normal course of business

ix. Haven had executed the necessary member client agreements with their clients before executing the said transactions and the clients too were made aware of the risk or lower liquidity, higher volatility and wider spreads which might hamper the price formation in the market.

ix. No direct or indirect relationship had been established to prove that there was nexus between the other members/clients.

ix. If there was an appearance of a series of transactions leading one to believe that the reflection or prices of the securities were artificially increasing, without any delivery and there was no financial soundness of the client who was placing the orders, then such transactions would be construed as non genuine transactions. The transactions so highlighted in the notice were executed on particular days and placed at market prices on behalf of the clients and hence were genuine transactions.

x. Haven had addressed a letter to the NSE Investigation Department on October 31, 2003 in respect of the scrip of Padmalaya to inform them that they had stopped their dealings with Shrawan. Vide letter dated June 30, 2003 also, Haven had also requested NSE to keep them informed if there was any problem in the trading in the Padmalaya scrip or trading with the above mentioned clients in any respect so that they could immediately stop trading in the said scrip or with the above mentioned clients. Thus, they had taken utmost care and informed NSE in advance, to give them the necessary feedback.

xi. The notice did not mention the violations, for which no separate penalty has been provided in the regulations. In the absence of any specific regulations being made applicable to Haven, treating section 15HB of the Act and Regulation 26(xx) of the Broker Regulations as having no separate penalty is improper and bad in law. Since the said charge was not clear and specific, they would not be able to file an appropriate reply.

On the basis of these submissions, Haven requested that no proceedings be initiated against them and that they be granted an opportunity of personal hearing.

 

Haven also placed reliance on certain pronouncements of various courts and also forwarded the following documents for due perusal.

1. Details of trades done by Shrawan in various scrips for the period from March 3, 2003 to July 7, 2003.

2. Details of trades done by Shrawan in RMIL for the period between May 27, 2003 and July 16, 2003.

3. Letters dated June 30, 2003, October 21, 2003 and October 31, 2003 issued by Haven to NSE.

4. A letter of Shrawan dated August 2, 2005.

5. Client registration form of Shrawan and the member client agreement.

 

1. Thereafter in terms of Rule 4(3) of the Rules, a notice of hearing dated October 7, 2005 was sent to Haven advising them to appear for the hearing scheduled on October 27, 2005. However, since Haven requested for an adjournment, another opportunity of hearing was granted to them on November 14, 2005. On the said date, Shri Ravikumar Varansi, Counsel and Shri Nirav Bhabhera, Authorized Representative of Haven appeared and while reiterating the submissions made earlier, further submitted that Haven had never traded in the scrip of RMIL prior to May 13, 2003 and after July 16, 2003 but that they had traded for Shrawan only for 3 months and that all the orders were done on the instructions of Shrawan, issued on telephone. They further emphasized that Haven had always had a clean track record and never been show caused by SEBI prior to these proceedings.

 

1. During the course of the hearing, a letter dated November 14, 2005 was also submitted in which Haven requested that the factors stated in Section 15J of the SEBI Act, 1992 (Act) be taken into consideration before proceeding in the matter. Subsequently Haven forwarded the soft copy of the trades done reports in the scrip of RMIL for Shrawan under cover of their letter dated November 21, 2005 

 

APPRECIATION OF EVIDENCE

 

9. I have carefully examined the investigation report especially the findings therein that are relevant to Haven, the documents available on record including the submissions made by them and other facts and circumstances relevant to this case. While taking into account the issues highlighted in the investigation report as against Haven and the submissions made by them in this regard to counter the said charges, I consider it necessary to recapitulate certain details of the case giving rise to the present proceedings.

 

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

 

11. 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 143701 shares was observed on July 7, 2003. The period of investigation with regard to the dealings of BPL in the scrip of RMIL ranged from March 3, 2003 to 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.

 

12. The role of the following entities and the following clients were scrutinized during the course of investigation.

(A) Trading Members of NSE: 

1.           Sanchay Finvest Limited

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

3.           Haven Financial Services Pvt. Ltd.

4.           Grishma Securities Pvt. Ltd.

5.           Bonanza Portfolio Limited 

(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

 

13. 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 Sanchay (accounting for 17.89%), BPL (accounting for 17 %) ISE Securities (accounting for 12.09%) Haven (accounting for 11.74%) and Grishma Securities (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 had traded through the trading member; Grishma Securities Pvt. Ltd. and was the only client trading through them in the said scrip. Of the above mentioned quantity, 10.65% of the market gross quantity traded by the said client was done through structured deals and executed between the trading members ISE Securities and Services Limited (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

 

14. Apart from these facts, I would also like to highlight the statements

made by some of the entities in question:

 

(A) Statement of Nirav Bhabhera, authorised representative of Haven made on June 18, 2004:

a)     Haven had dealt in the scrip of RMIL during the investigation period for their client and not for their company.

b)      Haven had dealt for the following clients: Shrawan Kumar Goyal, Naresh N Shah and Pandoo P. Naig.

c)      Bhavesh Pabari and Mitesh Pabari introduced Shrawan to them in January 2003 for personal trading as a jobber.

d)     Bhavesh Pabari worked part time for Haven and was also their client.

e)     None of their clients had acted as a sub broker.

f)       None of the clients were related to Haven.

g)      The trades done for the clients were in the nature of jobbing and as per their instructions.

h)     Haven had stopped dealing for Shrawan since July 2003, with the last trade being executed on July 17, 2003.

i)       Haven was not related to RMIL, SFL, Anil, Kishan, BPL, Shrawan, Shree Shyam Investment (SSI), Chirag or Ashok.

j)       Haven were the members of the NSE since their inception and the firm mainly did jobbing, arbitrage and retail client work. They rarely received queries form NSE and SEBI prior to the present case.

 

(B) Statement of Satya Prakash Goel, Director of BPL made on June 2, 2004.

 

a)     BPL had traded in the scrip of RMIL on behalf of their client and their associate company Bonanza Stock Brokers Ltd.(BSBL), and the trading was only 1306 shares on the buy side and 586 shares on the sell side.

b)      BPL had traded for 7 clients in the scrip of RMIL i.e. Ashok, Chirag, BSBL, Sahu Salil, SKJ Securities, Reema Investments, Nandlal Mittal.

c)      Chirag was registered as their client on September 25, 2002 and was introduced by one of their clients; Maitri Investments and Ashok was introduced by Chirag. Ashok was registered as their client on June 11, 2003. Both the clients were registered in their Vashi branch.

d)     None of the above clients were related to BPL.

e)     The trades so pointed out were done from their terminals on behalf of their clients and was a part of their normal broking business.

f)       BPL and their associate companies had more than 100 branches with 400 trading terminals / franchisee across the country with more than 18000 clients registered aggregating daily turnover of approx Rs.400 crore. The percentage of the total volume in RMIL was aggregating Rs.6 crores spread across 5 months from March 2003 to July 2003 averaging to approx Rs.10 lakh in comparison to the total daily turnover. For them it would be difficult to monitor 1 or 2 such clients, if they traded in such a manner.

 

 

(C) Statement of Chirag Pujara dated June 25, 2004

 

a)           Om Gayatri Securities was his proprietary concern that traded in shares in BSE but had closed down since April 2003.

b)            He traded in his own name at BSE and NSE later.

c)            He had traded in RMIL during the period from April 3, 2003 to July 7, 2003.

d)           He had no relationship with RMIL

e)           He did jobbing transactions and was not aware of the counterparty.

f) He did not know Kishan Agrawwal or A K Agrawal.

g)            He had no relationship with SFL.

h)           He was trading through the franchisee of BPL at Vashi. He knew Bhupesh Gupta, the authorized signatory at the Vashi branch.

i) He was introduced to the stock market by Ashok and later he introduced Ashok to Haven as a client at Vashi.

j) He knew Shravan Kumar Goyal through the stock market since January 2003. They used to be in contact with each other to get the information from the market.. One and a half years prior to the statement recording, he had traded with Shravan once or twice on the BSE.

k)           He did not have any relationship with Haven.

l) He did not know anything about A K Agrawal and Kishan Agrawal being introduced by Sharvan Goyal .

m)         He did not know anything about the structured deals that had been executed by him alongwith Shravan and Shree Shyam Investments

n)           He was not aware of any deals undertaken by Ashok

 

(D) Statement of Shri Ashok Sharma dated July 21, 2004 

a)     He had traded as an individual in RMIL during the period from April 3, 2003 to July 7, 2003.

b)      He did not have any relationship with RMIL.

c)      He had traded under the guidance of Chirag Pujara and used to trade as per his instructions or that of his representative at the terminal.

d)     Chirag Pujara introduced Kishan Agrawal, a trader in the stock market.

e)     He did not have any relationship with A K Agrawal and SFL.

f)       He was a broker in the diamond market and the traders in the diamond market introduced him to Chirag as a trader in the stock market and since the brokerage in the diamond market was quite less, he started trading in the stock market under the guidance of Chirag.

a)     The trading in RMIL was the last trading that he did. All the accounts of trading were kept with Chirag and he had not settled these trades. Chirag was keeping the account of his trading since the commencement of his trading in the stock market.

b)      He did not have any relationship with Haven and Shrawan Kumar Goyal.

c)      He knew Kishan Agrawal and did not know A K Agrawal.

d)     He had stopped trading in the stock market since July 2003. RMIL was the last scrip that he traded in.

 

(E) Statement of Shrawan Kumar Goyal dated July 22, 2004

 

a)     He was the proprietor of Shree Shyam Investment, sub broker of Sanchay Fincom Ltd, broker, BSE. In the NSE, he traded as an individual in his name through Haven. He had traded in the account of Shree Shyam Invesment at Sanchay Fincom, member, NSE though he had not applied as a sub broker.

b)      He had traded in the scrip of RMIL during the period from April 3, 2003 to July 7, 2003.

c)      There was no relationship between his company and RMIL.

d)     He did jobbing in other scrips as well.

e)     He did not have any relationship with Haven.

f)       He knew Mahesh Pujara, uncle of Chirag Pujara since 2 years.

g)      He knew A K Agrawal and Kishan Agrawal as he used to meet them in local trains and had good contact with them between January 2003 and April 2003. He introduced them to Sanchay as they wanted to trade in the stock market.

 

 

 

 

(F) Statement of Sanjay Chakor from SFL dated June 25, 2004

 

a)     SFL is a public limited company incorporated in 1991. Sanchay Fincom Ltd. is their group company, member BSE.

b)      SFL had traded on behalf of their clients in RMIL.

c)      Their clients were A K Agrawal, Kishan Agrawal, Ashok Gupta, Basant Marketing, Shree Shyam Investment etc.

d)     He knew A K Agrawal, Kishan Agrawal and Shree Shyam Investment since 5 years. Shravan Kumar Goyal was introduced to SFL by Radheshyam Sharma, their accounts officer.

e)     Shree Shyam Investment, a proprietary concern of Shravan, is a sub broker of Sanchay Fincom at BSE. On the NSE, Shree Shyam Investment was the client of SFL.

f)       The trades in RMIL were done on the instructions of clients.

g)      SFL did not have any relationship with Haven, RMIL or Shravan Goyal.

h)     SFL were in the process of applying for the cancellation of the registration of Shree Shyam Investment.

 

Introduction of the clients

15. Upon a cumulative analysis of the statements reproduced above, it is clear that the main client of Haven was Shrawan. I have perused his client introduction form and have noted that he was introduced to Haven on January 1, 2003 by Mitesh Pabari. The client code alloted to him was S1046 and that to Mitesh was P1032. Mitesh had a brother; Bhavesh Pabari who was a part time employee of Haven and also traded through them as a client.

 

16. In turn, Shrawan introduced Anil Agrawal and Kishan, both being cousin brothers to SFL. It is the case of Shrawan, that he was their friend and had stopped trading in the stock market after September 2003 i.e. almost after the period of investigation. The client code of Anil was A026. The date of entering into the agreement with SFL was July 30, 2002, while the client code of Kishan was K031 and the date of his entering into the agreement with SFL was June 16, 2003. The said form was not accompanied with the client identification documents like the PAN/ driving license etc. The documents pertaining to the client introduction and broker client agreements of other clients who also traded in RMIL through SFL viz. Shree Shyam Investments (SSI) etc. are not before me.

 

17. Be that as it may, it is common ground that all these clients knew each other well and that the clients as discussed above, who had traded extensively in the scrip of RMIL were introduced to SFL by a common person; Shrawan, the client of Haven. It would also be relevant to state here that Shravan was also the proprietor of SSI, the sub broker of Sanchay Fincom, member BSE and an associate of SFL, which fact has been corroborated by SFL during their statement recording before SEBI on June 25, 2004. Further, SFL in their letter dated September 15, 2003 also admitted that SSI started trading with them since April 2, 2002 with client code S080 and that the contact person was stated to be Shrawan and that Anil started trading with them on March 25, 2003 with client code A026, while Kishan started trading with them on June 12, 2003 with client code K031. Thus Shrawan who was introduced to Haven by their employee as admitted by them, had traded as a client in the scrip of RMIL through Haven, with the counterparties being Anil and Kishan trading through their broker; SFL.

18. As regards BPL and their clients; Chirag and Ashok; who got registered in their Vashi branch, I have noted that Chirag had vide his statement dated June 25, 2004 confirmed that he knew Shrawan since January 2003 and that they were in contact with each other to get the information of the market. Even Shrawan vide his statement dated July 22, 2004 also confirmed that he knew Chirag through his uncle Mahesh Pujara whom he knew for more than 2 years (i.e. before the period of statement recording). Admittedly Chirag was introduced to BPL by Maitri Investment, their then sub broker, and the fact is corroborated from the client registration form where the introducing party is shown as Maitri. Incidentally, Maitre was a partnership firm (since dissolved) of which, Chirag was a partner. This apart, the authorized signatory of BPL at their Vashi Branch; Shri Bhupesh Gupta was very close to Chirag and used to place the orders on behalf of both Chirag and Ashok. In turn Chirag introduced Ashok only on May 8, 2003. As per the statement of Ashok, it was Chirag who used to manage his portfolio right from the start of his trading in the stock market and keep all the accounts of trading. Further, Ashok had stopped trading in the market since July 2003 (i.e. just close to the period of price manipulation).I have seen the relevant client registration forms and member client agreements. The introducer of Ashok is Chirag and the client registration form is dated May 8, 2003.

 

19. While summing up the statements made by all the individuals above discussed and the inter relationship existing between the said entities, it is clear that these brokers and clients knew each other, both professionally and to a certain extent even personally, which has been duly accepted by them. They all traded extensively in the same scrip, during the same period and that too amongst themselves. This inter relationship between them enabled them to act in concert with each other and execute the deals in the scrip of RMIL in a manner (which I will be discussing in the later part of this order) such that the time, price and quantity matched with each other almost every point of time.

 

Synchronised trades

 

20. Substantial synchronised trades/ structured deals were found to have been entered into by Haven with identified brokers namely SFL while trading for their clients A K Agarwal and Kishan Agrawal and BPL while trading for their clients; Chirag and Ashok Sharma. In all, Haven appear to have entered into 243 structured deals with BPL and 321 structured deals with SFL.

 

Trades between Haven and BPL.

 

21. The details of the trades between Haven and BPL (constituting more than 75 pages) have been annexed as Annexure 2 to the notice dated September 2, 2005 issued to Haven in the present proceedings and are hereinafter referred to as Table A. As per the said data, the series of synchronised trades began from May 14, 2003 and ended on June 26, 2003. The two clients seen to have traded through BPL are Chirag and Ashok with Shrawan being the only client for Haven.

 

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

TABLE B

SUMMARY OF STRUCTURED DEALS BETWEEN
HAVAN FINANCIALS PVT LTD AND BONANZA PORTFOLIO LTD.
SN	No. of Structured Deals	Average price	Trd. Qty	% to MKT Gross for the SN	% to MKT gross for the Period
2003091	2	62.08	6000	0.56	0.05
2003092	6	70.66	16400	8.30	0.13
2003093	10	77.42	27440	10.41	0.21
2003094	3	79.77	9500	5.03	0.07
2003095	2	82.43	6150	4.36	0.05
2003096	6	85.12	15250	11.25	0.12
2003097	10	86.28	26875	14.33	0.21
2003098	2	86.63	5250	1.16	0.04
2003099	3	84.97	7700	5.71	0.06
2003100	4	88.74	10600	3.76	0.08
2003101	2	90.23	4900	2.25	0.04
2003102	7	87.42	16025	5.30	0.12
2003103	4	87.66	7825	6.11	0.06
2003104	5	86.28	13425	5.95	0.10
2003105	3	82.92	8700	3.76	0.07
2003106	9	81.21	8125	5.64	0.06
2003107	4	78.96	10000	8.14	0.08
2003108	11	79.04	27882	11.24	0.21
2003109	12	79.78	23100	11.40	0.18
2003110	15	87.08	37335	14.11	0.29
2003111	18	83.87	46032	16.50	0.35
2003112	11	82.71	26375	9.73	0.20
2003113	12	81.10	28590	10.68	0.22
2003114	14	80.25	27660	8.62	0.21
2003115	13	80.18	25150	9.38	0.19
2003116	9	80.09	16950	6.09	0.13
2003117	10	79.61	17750	8.08	0.14
2003118	10	78.36	20400	8.10	0.16
2003119	10	79.21	19300	7.35	0.15
2003120	8	77.99	16600	6.70	0.13
2003121	5	76.00	11200	5.34	0.09
2003122	3	81.82	5450	1.07	0.04

 

 

The summary reveals that Haven had traded in all the settlements from 2003091 to 2003122 with the average price ranging between Rs 62.08/- to Rs 90.23 /-. The total quantity so traded was 5,49,939 shares.

 

Trades between Haven and SFL

 

23. The details of the trades between Haven and SFL (again constituting more than 75 pages) have been annexed as Annexure 4 to the notice dated September 02, 2005 issued to Haven in the present proceedings and is hereinafter referred to as Table C. As per the data given therein, the series of synchronised trades began from May 13, 2003 i.e. settlement no 2003090 and ended on July 7, 2003 i.e. settlement no. 2003129. These two brokers executed 321 synchronised trades which included trades done for SFL’s clients viz. Anil, Kishan, Bhavesh and Kuber with Haven’s clients namely: Shrawan and Naresh Shah. The synchronized trades for Bhavesh and Kuber which matched with Naresh Shah were 23 in number and those of Anil and Kishan with Shrawan were 298 in number.

 

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

 

TABLE D

 

SUMMARY OF STRUCTURED DEALS BETWEEN
SANCHAY FINVEST LTD AND HAVEN FINANCIALS PVT LTD
SN	No. of Structured Deals	Average price	Trd. Qty	% to MKT Gross for the SN	% to MKT gross for the Period
2003090	4	59.86	11300	19.75	0.09
2003091	2	62.75	4500	0.42	0.03
2003092	6	70.43	15099	7.64	0.12
2003093	8	77.94	22520	8.54	0.17
2003094	3	79.63	8200	4.34	0.06
2003095	4	82.79	11100	7.88	0.08
2003096	6	85.73	13840	10.21	0.11
2003097	11	85.86	26775	14.27	0.20
2003098	3	86.58	5250	1.16	0.04
2003099	3	84.70	7300	5.41	0.06
2003101	6	90.18	9100	4.17	0.07
2003102	3	86.73	5375	1.78	0.04
2003103	2	87.70	5775	4.51	0.04
2003104	3	85.20	5875	2.60	0.04
2003105	3	83.37	7700	3.32	0.06
2003106	4	80.99	10000	6.94	0.08
2003108	5	77.72	10118	4.08	0.08
2003109	6	79.78	8300	4.09	0.06
2003110	7	87.10	13750	5.19	0.11
2003111	10	83.47	21132	7.57	0.16
2003112	9	82.31	18278	6.74	0.14
2003113	11	80.42	19050	7.12	0.15
2003114	20	79.89	28610	8.92	0.22
2003115	16	80.08	26850	10.01	0.21
2003116	14	80.10	19550	7.02	0.15
2003117	7	80.17	15150	6.90	0.12
2003118	13	78.62	24450	9.71	0.19
2003119	9	79.16	15800	6.02	0.12
2003120	12	78.06	17500	7.06	0.13
2003121	5	76.60	11200	5.34	0.09
2003122	14	81.56	21619	4.23	0.17
2003123	10	81.27	17600	4.62	0.13
2003124	17	78.70	35040	13.26	0.27
2003125	11	79.67	19600	7.14	0.15
2003126	10	84.66	18696	3.82	0.14
2003127	14	95.01	24079	7.50	0.18
2003128	18	114.75	28875	8.03	0.22
2003129	12	122.92	9080	3.16	0.07

 

 

The summary reveals that Haven had traded in all the settlements from 2003090 to 2003129 with the average price ranging between Rs.59.86 to Rs.122.92/-. The total quantity so traded was 5,94,036 shares. Overall, Haven accounted for 11.74% of the market gross during the traded period.

25. For a better appreciation of the contents of the tables brought out above, it would also be relevant to highlight the details of the trading pattern of the counterparties in the scrip of RMIL, in the context of the inter-relationship existing between them.

 

26. Shravan Goel, also the proprietor of Shree Shyam Investments, a registered sub-broker of the associate of SFL, traded in his own name through Haven, during when his trades got matched with Chirag and Ashok, trading through BPL. The trades of a client of SFL; Bhavesh who was also a client of Haven and worked part time for them, got matched with those of Naresh N Shah, another client of Haven, while trading in the scrip of RMIL. The date of commencement of trading of Bhavesh was June 10, 2003. However as per the data available on record, these synchronized trades of Bhavesh with Naresh on the other side in the scrip of RMIL that took place from July 4, 2003 i.e. from settlement no. 2003128 to July 7, 2003 i.e. settlement no. 2003129, though meager in quantity, were squared off during the same settlement.

 

27. Upon a perusal of the details of the trades as brought out in Tables A and C, 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. 3 brokers and 6 clients. Reversal of trades reflects the transactions being entered into in a circular fashion, without the actual change of beneficial ownership taking place.

 

28. Haven have however denied these allegations and any relationship with either SFL or BPL and have contended that while placing the orders on behalf of their clients, the identity of the counter party is never known. They have also contended that the order placing time and matching time were different.

 

29. Haven have in fact countered that the orders were placed on behalf of the clients as a normal order, along with the orders of other clients and that based on the disclosed quantity on the screen of the terminal, the client placed the orders which are converted into trades. Haven have also accused NSE in failing to alert them of the abnormal activity in the scrip of RMIL.

 

30. As discussed above, the interrelationship between the said entities has been brought out in unambiguous terms. Besides the interlinkages between the parties, another significant factor that requires consideration is that when a peculiar pattern of trading between a set of brokers is deciphered, it is not necessary to build up or establish a set relationship between the concerned entities. In such a case, what is more important to consider is the method and the manner in which such trades were 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. Clearly in almost all the deals, the orders were 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 existed. The buy and the sell orders were 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, resulted in getting them matched such that there was 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. Haven however have attributed it to coincidence. One could accept it as a coincidence in case of a solitary incident or two. However the same happened regularly. It would in fact be an amazing co-incidence if such a huge number of synchronized trades get matched, between the same set of brokers and same set of clients in the same scrip. The phenomenal regularity with which these brokers and their clients were counter-parties, leads one to conclude, that these transactions were not a matter of coincidence but effectively meant to be synchronized as evidenced by the proximity of timing of putting-in the buy and sell orders, exact matching of price and quantity of shares, resulting in the matching of trades almost on every occasion between themselves, even when there are more than a few thousand investors through their brokers, spread over more than 300 cities in the country. 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.

 

31. While examining the issue of synchronized trades, the Hon’ble Securities Appellate Tribunal (SAT) 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.” (emphasis not supplied)

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

 

33. Moreover I do not accept the contention of Haven that the impugned transactions were synchronized unintentionally. The total number of synchronized trades between Haven and SFL were 321 and between Haven and BPL were 243 and the same has been reflected in the tables. Haven have failed to explain as to how these substantial transactions cannot be adjudged to be synchronized, when such perfect matching has been indicated and documents for the same have already been furnished to them. The matching of mind between the said set of brokers was such that the “disclosed quantity” as defined by NSE was undoubtedly different. However the total traded quantity between the said brokers involving the traded time and the price were matched at every point in time.

 

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

 

35. This situation can be exemplified by referring to the trades executed by Haven with BPL 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 the said brokers was of the total traded quantity of 3250. But the disclosed quantity of Haven was 500 i.e. “the original buy volume” was 3250 shares of RMIL. Although the disclosed quantity of BPL was 400, the “original buy volume” was 3250 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, 400 shares of BPL would first get matched with 400 shares of Haven (i.e. 100 would remain out of 500 for them as 400 would have been matched) The other 400 shares of BPL would then automatically be sucked out of the remaining i.e., (3250-400 i.e. 2850) 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 Tables A and C. 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 brokers was not displayed on the screen. This enabled the two parties to present a façade of ignorance of the identity of the counter party, which was in reality not the case.

 

36. The fact that at every point of time, the original buy volume was the same, while putting different disclosed quantities in the system, reveals the prior tacit understanding between the two members. Infact Haven have not chosen to point out anything on this aspect when they were provided with all the documents pertaining to the said trades. Instead they have made elaborate submissions to contend that their trades were genuine and that there was no manipulative intent on their part or reflection of the same on the price of the scrip in as much as they were unaware of the identity of the counter broker party, since the aforesaid deals were executed on the system.

 

37. Haven have also denied knowledge of their clients’ dealings in the scrip of RMIL and elaborated that they had not traded during the said investigation period in their own account but had merely placed orders in a bonafide manner, and hence could not be held responsible for the acts of these clients, unless it was proved that they too were directly involved in such activities. To highlight their due diligence Haven have stated that they had executed the necessary member client agreements with their clients before executing the said transactions and that the clients too were made aware of the risk or lower liquidity, higher volatility and wider spreads which might hamper the price formation in the market. Haven have also stated that all the settlement obligations were duly completed by their client for the scrip of RMIL as well as for other scrips by Shrawan. Haven have also made a reference to a letter of Shrawan dated August 2, 2005 in which he has stated that the said transactions were executed for himself and that he had done jobbing in the normal course of business.

 

38. In this connection, the observations of the Hon’ble Securities Appellate Tribunal in the order dated 18^th September 2003 passed in the case of Madhukar Sheth Vs SEBI (Appeal No.46 of 2002) deserves necessary mention.

“Before executing a series of transactions for his client, any prudent broker would have gone a bit far to ascertain the goings around ……..

……..The Appellant’s submission that he had taken client registration form, entered into agreement etc .by itself was not sufficient. Exercise of due diligence in ongoing transactions is a continuous process and it is not a one time measure to be adhered to while taking up the first transaction. The appellant’s submission that it was B’s dishonesty that created the problem did not absolve him of his failure to discharge his duties as a prudent broker……..

……..On the basis of the material available on record, it was difficult to conclude that the appellant had exercised due skill and care in dealing with ‘B’. It was not that the appellant had carried on only few trade transactions for ‘B’ for a short period. He had transacted in huge volumes for ‘B’ and the association dated back to August 2000. If the appellant could not see any design or pattern in the transactions which ‘B’ was executing through the appellant during the period, then the appellant certainly deserved to be blamed for being indifferent and unconcerned and for that reason he was at fault for the failure to exercise due skill and diligence……….

………It is true that a broker cannot act of his own against the instructions of the client. But no one can compel him to be a party to manipulate the market. No doubt a broker is supposed to protect the interest of his client, but he is also expected to protect the interest of the securities market in which he operates. It is his duty to ensure not to be a party to any market manipulation and that the market in which he operates is run on a health and non-manipulative basis.”

38. The point is that had the trades executed by Haven with other brokers been bonafide and in the normal course of business as a broker, the possibility of such perfect matching would not have been possible. Haven had traded extensively only with an identified set of brokers and clients in the scrip of RMIL. It is quite evident that these trades were entered into with the tacit understanding of Haven and the set of the remaining two brokers i.e., BPL and SFL with the same set of clients, which ensured a semblance of trading activity in the manner discussed earlier, almost every day during the investigation period which was earlier not observed. Clients’ trades of such magnitude are left undone, and generally cannot take place without the broker being party to it. Moreover had the situation contemplated some other set of individuals and had some other clients/brokers entered into the trading system of RMIL, this would have eroded or nullified the extent of the allegations. But 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. The acts of the entities speak of their intentions. In case an entity is alleged to have manipulated the market or distorted the market equilibrium in terms of the FUTP Regulations and their acts are corroborated up to a certain extent by the investigation findings, then the underlying intention of the said entity is brought out.

 

39. These facts being as they are, Haven cannot claim ignorance of the dealings of the clients/brokers or even the nature of trades executed in such magnitude by the client in the scrip of RMIL. An element of doubt/suspicion ought to have arisen at least in the case of reverse transactions such as in the instant case. Moreover the buy and sell prices of Haven were close to the buy/sell rates of BPl and SFL in all the settlements, such that the trades of these entities were always matched. Trades to the extent of 321+243 i.e. 564 deals as pointed in the tables earlier, and spread over a period of 2 months are definitely done with some inbuilt component of ‘intent’ involved.

 

40. Moreover had the trades executed by Haven been genuine, the possibility of such perfect matching would not have been possible. Greater the numbers of synchronized trades, the larger are the chances of such trades not being genuine in nature. 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 ensure 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 to 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 were nothing but structured transactions with a prior understanding entered into by all the above discussed clients duly facilitated by the brokers including Haven. 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 which cannot be a mere coincidence, that too, when the trades are executed in only one scrip. This is too much of a coincidence; and the same is reflected in the cited judgment of the Hon’ble Tribunal. Trades like cross deals, reverse transactions, circular trades, and synchronized trades are all executed on the screen and with proper delivery versus payment system. Considering the number of such trades in the instant case, it is clear that there has been a gross manipulation/ misutlisation of the screen based system.

 

41. Furthermore, price manipulation does not only involve only manipulation in the prices of the scrip but also includes building up volumes. The very fact that the total quantities of structured deals entered into by Haven and BPL were around 5.5 lakh shares which represented around 4.2% of the gross traded quantity on the exchange during the entire period while the total quantity traded through structured deals between Haven and SFL were around 5.7 lakh shares of RMIL representing approximately 4.3% of the total quantity traded on the exchange during the entire period, speaks volumes about the level of concerted activity of Haven. It would also be wrong on my part to compare the percentages of trades with the overall turnover of Haven. The right way to judge the situation would be to compare the said trades with the gross market volume of trades with other brokers on one exchange, in one scrip at the relevant point of time. Hence, the figures in percentages so pointed above i.e. 4.2% and 4.3% are more relevant and give the true picture. The fact that the said figures were drawn only from the impugned structured deals conveys the underlying intent.

 

42. Haven have as pointed out earlier, raised several other issues to deny their involvement in this case. One such argument not yet discussed is that Haven along with their client have denied trading in the scrip of RMIL before May 13, 2003 and after July 16, 2003.

 

43. In this context I would prefer to rely upon the information provided by Haven themselves. The table provided in Annexure A furnished with their letter dated September 12, 2005 details the scrips that Shrawan had traded in through Haven and also reveals that all the said deals were squared off the transactions, in all the said scrips. The said trades are for the period between March 3, 2003 and July 7, 2003. The 2^nd Annexure provided by Haven details the trades done in the scrip of RMIL by their client, for the period between April 01, 2003 and July 15, 2003.

 

44. The authenticity of the data so furnished is again questionable because of the following reasons.

 

The content of the two tables are conflicting. The first table gives data as regards the trades of Shrawan Goyal in the scrip of RMIL for the period between March 3, 2003 and July 7, 2003. The next table gives the data for the period from April 1, 2003 to July 15, 2003 where the buy quantities is seen as 5,38,687 and sell quantity is also seen as 5,38,687 shares. If at all, Haven started trading for Shrawan in the scrip of RMIL only from May 13, 2003 onwards then the data so provided for the said buy and sell quantities should have also been within the said period. (except that in the table in the 2^nd Annexure, the date July 16, 2003 is also included). The number of shares for both the buy and sell quantities in the table of the 2^nd Annexure is quite less as compared to that in the table in the 1^st Annexure. Keeping this information in mind, it would be very difficult, rather impossible for me to rely on the data so furnished by Haven (in soft copy) or even accept their contention in this regard.

 

45. Haven have also argued that the finding that the price of the scrip of RMIL was Rs.33 on March 31, 2003 with a traded quantity of 26,993 shares and the highest price was Rs.119.85/- with a traded quantity of 143701 shares on July 7, 2003, was unsupported by any documentary evidence. In this context, it would be relevant to state that the said data is available on the website: www.nseindia.com --- in the following link, equity--- market information--- historical data, and hence can also be called a public document available for viewing from anywhere in the world. Be that as it may, from the said information, it is apparent that 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.

 

46. 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

 

 

 

47. 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

48. 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, it is gathered that the synchronized trades in huge volumes were executed by BPL and SFL from April 28, 2003 onwards.

49.  During May, the largest traded quantity was recorded on May 14, 2003 being 5,32,621 shares. Coincidentally other entities like SFL with Haven started executing large scale synchronized trades from May 13, 2003 while BPL with Haven started executing large scale synchronized trades from May 14, 2003 onwards amongst themselves. Grishma and Anil Mistry were found to have entered into the synchronized dealings from May 27, 2003 onwards.

50. 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.

51. I would also like to discuss briefly the plethora of judgments of various courts relied upon by Haven to enunciate the following principles:

a)     Preponderance of probability not sufficient to establish a case of market manipulation.

b)      Charges should not be based on surmises and conjectures.

c)      Proof required to evidence concept of acting in concert

d)     FUTP Regulations would be attracted only if element of mens rea is involved.

e)     Suspension of certificate of registration not to be treated lightly.

f)       Quantum of penalty to be proportionate and should be decided on varying factors viz, volume of business, number of individuals involved etc.

g)      Consideration be given to the totality of factors responsible for price manipulation

]

52. These principles on the issue of appreciation of evidence hold – and I respectfully agree with them. However the present case is built up on conclusions, not merely based on preponderance of probability or circumstantial evidence, but actions of the entities that are revelatory of their intention to manipulate a specific scrip. Hence, it would be wrong to state that a finding of guilt against Haven has been arrived at, merely on the basis of surmises and conjectures. Sufficient material is available on record against Haven in the form of trading data etc. for arriving at the findings made hereinabove. On the basis of these facts and figures, the involvement of the impugned entities in the manipulation cannot be denied

 

53. As regards the issue of lack of intention or mens rea, reference may be made to the case of Swedish Match AB and Anr. Vs. SEBI & anr., (2004) 11 SCC 641 wherein the Supreme Court was pleased to hold that only in the criminal proceedings initiated against the appellants, existence of mens rea on the part of the appellants would come up for consideration." The said thought been reaffirmed once again by the Apex court in C.A nos 9523-9524/ 2003 @ The Chairman, SEBI vs. Shriram Mutual Fund & Anr. vide their order dated May 23, 2006 wherein they were inter alia pleased to observe as under “……..unless the language of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not….”. It thus stands to reason that once the contravention is established, then penalty is to follow since 'mens rea' is not a condition precedent for imposition of penalty for contravention of the provisions of a civil nature.

 

54. Haven have also highlighted the order of the Tribunal passed in the case of S S Corporate Securities Ltd vs SEBI. Upon a reading of the said order, it is my considered opinion that the facts of the present case, which deal to a large extent with synchronised trades, bear no similarity with the case so referred as it is not a case involving synchronized transactions, although the Tribunal made a reference to synchronized trades and although it pertained to a case of violation of the FUTP Regulations, wherein the trades in the scrip of GTB were executed only for three days and the period of price manipulation was for a month. The difference between the highest and lowest price in the scrip of GTB at the relevant time was only Rs.24/- within a month. The percentage of trading of the appellant in the said case, to the total trading on the BSE and NSE taken together was only 1.97 i.e. the percentage of trading was insignificant as compared to the total trading in the market.

 

55. In the present case, the trades were spread over a period of 2 months, during which period, the broker uniformly executed a series of synchronised trades associated with the reversal of positions with an identified set of brokers/cleints. i.e. during this period, Haven had acted both as a buying and the selling broker for the same set of client and executed a large number of synchronised transactions (564 in number) while trading in the scrip of RMIL. It is not the case of Haven that their trades were miniscule. Although all the trades were executed on the screen of the exchange, there was a great degree of synchronization between the set of brokers and clients as discussed earlier.

 

56. To sum up the facts, it is clear that the modus operandi of Haven to manipulate the scrip of RMIL in a concerted manner was effected in the following manner:

a) Trading on behalf of one client extensively in the same scrip i.e. RMIL through the same set of brokers i.e. SFL and BPL.

b) Involvement in large scale synchronized trades with the disclosed buy or sell volume which not being reflected on the screens were also the same.

c) Executing trades which led to a reversal of positions at the end of the settlement resulting in no actual transfer of beneficial ownership.

d) Clients well known to each other.

 

1. In view thereof, Haven have 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.

58. Haven are also found to have contravened 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;

59. In order to establish the fraudulent nature of trades indulged in by Haven, 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, ………"

 

1. Section 15HB is a generalized penal provision and takes into account those acts of an intermediary which have not been separately dealt with.

 

1. In my viewpoint, the facts of the present case, clearly bring out the element of fraud and unfair trade practices indulged in by Haven and the other entities, since by way of generating artificial volumes, they have created a false impression amongst the general investors as regards the trading activity in the scrip of RMIL and tried to induce the general public to deal in those securities. This is because creating a false market gives an impression of trading activity in a particular scrip and this entraps the common investor into investing in the said scrip. It is from this angle that SEBI as a regulator has to look into the fact that there are no such artificial trades happening that give a wrong impression of trading activity in a particular scrip, which in turn drives the common investor to invest their hard earned money in the said scrip.

 

62.             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 15H of the Act alone ought to be considered.

 

63.             I have also noted that in the process of perpetuating these artificial trades, Haven also failed to exercise proper skill, care and diligence, required of that of a broker. As a registered member of SEBI and a member of NSE, Haven were fully aware of the Rules and Regulations of SEBI. From the facts detailed above, it is established that Haven did not carry out their business operations in accordance with the provisions of law and failed to maintain the standards of integrity, promptitude and fairness required of that of a broker.

 

64.             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.

 

65.             However certain factors as enumerated under Section 15J of the Act are required to be taken into account while adjudging the quantum of penalty 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.

 

1. Haven have submitted that there had been no disproportionate gain or unfair advantage to them and no investor complaints or arbitration cases against them for the losses suffered by the investors. They have emphasized upon their track record and have also submitted that the termination of dealings for Shrawan was a bonafide action at the relevant time. I consider it relevant to note here that it is very difficult in cases of such nature to quantify the disproportionate gains or unfair advantage enjoyed by an entity. Further manipulation is a serious issue and it is 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 Haven or the losses suffered by the investors. Suffice to state that keeping in mind the practices indulged in by them, gains per se were made by them in that Haven certainly traded in the scrip of RMIL, perhaps to a lesser extent when compared to BPL and SFL, but clearly in a manner meant to create volumes. It cannot be denied that the creation of a trading activity gives 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. It would not be wrong to assume that any one could be 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 their continuous effort in this aspect, it can be said that the nature of default was repetitive as the synchronized trades were carried out over a period of two months.

 

65. It may also be observed from the provisions of Section 15J of the Act that while adjudging the quantum of penalty, the Adjudicating Officer is required to ‘have due regard to’ the factors stated therein. The expression ‘have due regard to’ has been used in other statutes and has been interpreted by the Courts to mean that the other relevant factors can also be considered while having due regard to the factors enumerated in the statute.

 

66. Accordingly in this regard, I have studied at length, the relevant provisions of the SEBI Act and the Rules and Regulations framed there under and the common custom adhered to while initiating disciplinary proceedings against various entities. In this regard I have noted that enquiry proceedings are customarily initiated against intermediaries for their varying acts of omission or commission, which then result in the issuance of a recommendation of a minor or major penalty in the nature of warning/suspension/cancellation of the certificate of registration, in cases where the entity is found to have violated the provisions of the relevant regulations. The repercussions that arise thereafter makes it aptly clear that such proceedings, resulting in an order of suspension or cancellation of the certificate of registration granted to the broker/sub broker to carry on broking business is not a matter to be treated lightly, considering the degree of loss suffered by the entities in such a case.

 

66. As opposed to that, adjudication proceedings culminate in the imposition of a monetary penalty, if at all, the quantum of which, varies from the facts and circumstances of each case. It is therefore apparent that a lenient approach has already been adopted against Haven by the initiation of adjudicating proceedings against them rather than action in terms of the Enquiry proceedings.

 

PENALTY

67. On analyzing the material available on record, including the extent of trades executed by Haven, the volume of their business as also their previous track 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 aforementioned violations as discussed earlier, it would be appropriate to impose a penalty of Rs. 5,00,000/- (Rupees Five Lakhs only) on M/s. Haven Financial Services Private Limited, member of the National Stock Exchange (NSE) with SEBI registration no. INB 230638238.

 

68. 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 : MAY 29, 2006	ADJUDICATING OFFICER