Order against M/s. Sanchay Finvest Limited

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

 

AGAINST

 

M/s. SANCHAY FINVEST LIMITED

 

1.                 M/s. Sanchay Finvest Limited (for brevity’s sake, hereinafter referred to as SFL) 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. INB231167934. SFL is also a member of the Madhya Pradesh Stock Exchange (MPSE) and the OTC Exchange of India. (OTCEI)

 

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 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 there was an attempt on their part to create liquidity /volumes in the said scrip.
   
   
2. As per the investigation findings, SFL was found to be one of the entities who had traded extensively in the scrip of RMIL at NSE on behalf of their clients; Anil Kumar Agrarwal, Kishan Agrawal, Shree Shyam Investments and Bhavesh Pabari (hereinafter referred to as ‘Anil’, ‘Kishan’, ‘SSI’ and ‘Bhavesh’ respectively) 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.
   
   
3. 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 SFL while transacting in the scrip of RMIL.
   
   
   

 

 

NOTICE / REPLY / PERSONAL HEARING

 

1.                 A notice dated September 2, 2005 along with relevant documents annexed thereto was issued to SFL under Rule 4 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by the Adjudicating Officer) Rules, 1995 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 in terms of which reference was made to an earlier notice dated August 11, 2005 that was inadvertently issued to SFL, advising them to treat the earlier notice as invalid.

 

2.                 SFL vide their letter dated September 16, 2005, while clarifying their position vis-à-vis the charges leveled against them, inter alia submitted as under:

 

a.                 SFL had entered the trades in the scrip of RMIL on behalf of their clients; Anil and Kishan who were jobbers and did jobbing on a daily basis in the said scrip.

b.                  There were hardly any delivery based transactions in the said scrip.

c.                  The member-client agreement and other supporting documents were duly filled by them. They had taken margins from these clients to cover unforeseen deficit.

d.                 SFL had dealt in the scrip of RMIL through the screen based trading mechanism of the exchange, without being aware of the counterparty. Since the counter looked attractive, there were many other parties who were interested in the same counter and were dealing in the said scrip. In view of the same, there was every possibility of structured trades which only an exchange could know from their mechanism.

e.                 SFL had dealt for the said clients in the normal course of business without being aware of the counterparty brokers’ viz. Haven Financial Services Pvt. Ltd. and Bonanza Portfolio Ltd. (Haven and BPL respectively) who in turn dealt for their respective clients, namely, Shrawan Kumar Goyal through Haven and Chirag Pujara and Ashok Sharma through Bonanza Portfolio Ltd.

f.                   SFL did not know nor have relations of any sort with the said brokers or clients and came to know about them only when they received the notice of structured deal or price manipulation in the said scrip from the exchange.

g.                  The average volume of their two clients for the said period was very less when compared to the total market volume of the scrip with a spread of nearly 37 settlements which was negligible looking at the volatility of the counter and also interest and volume concentration of other parties in a particular counter.

h.                 All the trades on behalf of these clients had been executed in good faith and if there were synchronized trades, the same were purely coincidental and not intentional.

i.                   SFL had no role or involvement nor have any intention of creating any sort of artificial volume or structured deal or price fluctuations.

On the basis of these submissions, SFL requested that no proceedings be initiated against them and that they be granted an opportunity of personal hearing. Accordingly, in terms of Rule 5(1) of the Rules, a notice of hearing dated September 19, 2005, was sent to SFL advising them to attend the proceedings on October 11, 2005. On the scheduled date, Shri Avinash Tiwari, Manager-Accounts and Shri Vijay Sharma, Compliance Officer of SFL attended the hearing and reiterated the contentions earlier advanced by them. They also submitted that Anil and Kishan were known to them for the last three years and were introduced to them by their then sub broker; Shri Shyam Investments (SSI) who was no longer their sub broker. Subsequently, vide their letter dated October 20, 2005, SFL submitted that the total delivery turnover during the relevant period was approx Rs.13.08 crores, squared up turnover was approx Rs.124.42 crores and that the last trade of Anil was on June 27, 2003 while that of Kishan on September 3, 2003. They also forwarded the following documents:-

·         Details of trading of the two clients in the scrip of RMIL during the period of investigation

·         Copy of the member client agreements of Anil and Kishan

·         Copy of MOA and AOA of SFL

·         Details of trades executed by them on behalf of their clients in other scrips during the investigation period.

·         Detail of the information sought by NSE and their replies to the same with regard to trading in RMIL

 

APPRECIATION OF EVIDENCE

 

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

 

4.     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.

 

5.     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.

 

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

(A) Trading Members of NSE: 

1.           Sanchay Finvest Limited (Sanchay)

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

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

4.           Grishma Securities Pvt. Ltd.

5.           Bonanza Portfolio Limited 

(B) CLIENTS

1.           M/s Rajesh Jhaveri

2.           Nrupesh Shah

3.           Shravan Kumar Goyal (Shravan)

4.           Kishan Agarwal

5.           Ak Agarwal

6.           Chirag Pujara

7.           Ashok Sharma

 

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

• The major trading members 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 the trading member in the said scrip. Of the above mentioned qty, 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 (trading through Sanchay) had executed a series of structured deals among themselves. Shrawan has also executed structured deals with Ashok and Chirag, trading through BPL. In turn, Ashok and Chirag had executed structured deals with Kishan Agarwal and A K Agarwal. Through these structured deals, amongst themselves and with 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

 

12. Apart from these facts, I would also like to highlight the statements made by some of the entities in question:

(A) Statement of Sanjay Chakor of Sanchay Finvest on June 25, 2004 

 

a)     SFL is a public limited company incorporated in 1991. Sanchay FIncom Ltd. is their group company and a member of BSE.

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

c)      These clients were A K Agrawal, Kishan Agrawal, Ashok Gupta, Basant Marketing, Shri Shyam Investments (SSI) etc.

d)     He knew A K Agrawal, Kishan Agrawal and SSI since 5 years. Shravan Kumar Goyal was introduced to them by Radheshyam Sharma, accounts officer of SFL.

e)     SSI, was a proprietary concern of Shravan, and a sub broker of Sanchay Fincom at BSE. On NSE, SSI was their client.

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

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

h)     They were in the process of applying for cancellation of the certificate of registration of SSI.

i)       They were not aware of any artificial deals.

 

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

 

a)     He was the proprietor of SSI, sub broker of Sanchay FIncom Ltd., broker, BSE. In NSE, he traded as an individual in his name through Haven. He had traded in the account of SSI 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 and SFL

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 since January 2003 to April 2003. He introduced them to Sanchay as they wanted to trade in the stock market.

 

C) Statement of Kishan Agrawal dated August 30, 2004 

 

a)     He traded as an individual only. He met Shrawan Kumar Goyal in the train and was introduced to him. Shrawan introduced him to Anil.

b)      Anil is his cousin

c)      He did not have any relationship with SFL, Haven, Chirag, BPL, Ashok or RMIL.

d)     He did only jobbing in the scrip of RMIL.

 

(E) Statement of Anil dated July 22, 2004.

a)     He traded in the scrip of RMIL during the period of investigation

b)      There was no relationship between their company with RMIL.

c)      He did only jobbing in the scrip of RMIL

d)     He was introduced to Shrawan Kumar Goyal by his friend Anil Ruwatia. Shrawan later introduced him to Sanchay. Shrawan was his friend.

e)     Kishan is his cousin.

f)       Kishan also traded with him at SFL and they were trading together. They stopped trading in September 2003. Kishan was also introduced by Shrawan Kumar Goyal.

g)      They were related to Sanchay only as a client.

h)     They did not have any relationship with Haven and BPL

Introductions of the clients

 

13. Upon a cumulative analysis of the statements reproduced above, it is clear that the main clients of SFL were A. K. Agarwal, Kishan Agarwal and SSI and the same was also confirmed by SFL. Anil was introduced to SFL by Shrawan Kumar Goyal and entered into an agreement with SFL dated July 30, 2002. The client code of Anil was A026. Kishan was also introduced to SFL by Shrawan Kumar Goyal and entered into an agreement dated June 16, 2003 with SFL. The client code of Kishan was K031. The said forms did not contain client identification documents like the PAN/ driving license etc. The other documents viz, client introduction and broker client agreements of other clients such as SSI etc. are not before me.

 

14. Notwithstanding the same, it would thus appear that the clients as observed above, who had traded extensively in the scrip of RMIL were introduced to SFL by a common person; Shrawan Kumar Goyal, who was the proprietor of SSI. SSI was the sub broker of Sanchay Fincom, member BSE and an associate of SFL. The said fact was also confirmed by SFL during their statement recording before SEBI on June 25, 2004 and in the proceedings before me.

 

15. I have also examined the correspondence exchanged between NSE and SFL and in this context perused the letter of NSE dated August 22, 2003, addressed to SFL which sought the details of the trades of SFL in the scrip of RMIL during the period of investigation and the sauda summary of all the scrips for the said period in respect of the following clients: Anil, Kishan, Bhavesh and Kuber Finstock Pvt. Ltd. (Kuber) which was provided by SFL vide letter dated September 9, 2003. Thereafter NSE had vide letter dated September 29, 2003, advised SFL that the said clients had entered into a series of synchronized trades with apparently related entities through other trading members, over a period of time and hence advised SFL to review the trading pattern of the said entities and had also advised SFL to exercise necessary caution while executing similar such trades for the said clients. NSE had further advised SFL to set up systems and procedures to monitor such trading activity at their end, if not already in place. However, this letter of NSE was relied upon by SFL only on July 8, 2004 where they stated that the said trades was executed by them as per the clients’ instructions only...

 

16. I have also noted that NSE vide letter dated August 29, 2003 had sought a detailed account of the trades done by SFL in the scrip of RMIL and many more details, which was provided by SFL on September 15, 2003. I have perused the contents of the said letter and noted certain necessary details from the said letter which are reproduced below:-

·         SSI started trading with them since April 2, 2002 with client code S080. The contact person was stated to be Shrawan Goyal.

·         Anil started trading with them since March 25, 2003 with client code A026

·         Kishan started trading with them since June 12, 2003 with client code K031.

 

17. It is common ground that all these clients knew each other well and that SSI was the sub broker of Sanchay Fincom Ltd (a group company of SFL) and acted as a client to SFL on the NSE. The proprietor of SSI; Shrawan Kumar Goel had traded as a client in the scrip of RMIL through the member; Haven where the counterparty broker was SFL while trading for their clients; Anil and Kishan who also traded during the same period.. The introduction of Anil and Kishan was strong enough as it came from SSI; their then sub broker who was associated with SFL’s associate namely Sanchay Fincom Ltd. Even the proprietor of this sub broker traded through Haven and got his trades matched with Anil and Kishan, clients of SFL. This inter relationship between them enabled them to act in concert with each other and execute the deals in a structured/synchronized manner. The series of synchronised trades which I will be discussing in the later part of this order took place to such an extent, that the time, price and quantity matched with each other at almost every point of time.

 

18. Kishan started trading with SFL from 12-June-2003 i.e. prior to entering into an agreement with them which was on June-16-2003. The date of commencement of trading by Anil is March 25, 2003. I have examined the details of the trades done by these clients during the period of investigation and noted that although the said clients had traded in other scrips, both Anil and Kishan started trading through SFL specifically in the scrip of RMIL and later on traded in other scrips as well. While Kishan had traded for 16 other scrips during the period of investigation, Anil had traded for 8 other scrips during the said period.

 

Synchronised trades

19. The facts discussed above have also to be read in context with the synchronised trades/ structured deals entered into with other brokers namely Haven while trading for Shrawan and BPL while trading for clients; Chirag and Ashok sharma. In all, SFL appear to have entered into 277 structured deals with BPL and 298 structured deals with Haven.

 

Trades between SFL and Haven

 

20. The details of the trades between SFL and Haven (constituting more than 75 pages) have been annexed as Annexure 2 to the notice dated September 02, 2005 issued to SFL in the present proceedings and are hereinafter referred to as Table A.

 

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

 

TABLE B

 

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

 

 

22. As per the data pointed above, the said 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. The clients stated to have traded through SFL are Anil, Kishan and Bhavesh, Kuber while the clients stated to have traded through Haven were Shrawan and Naresh N Shah. However, synchronised trades executed for Bhavesh and Naresh Shah were quite less.

 

23. The summary reveals that SFL had traded in all the settlements from 2003090 to 2003129 with the average price range being Rs.59.86 to Rs.122.92/-. The total quantity so traded was 5,94,036 shares.

 

Trades between SFL and BPL

 

24. The details of the trades between SFL and BPL (constituting more than 75 pages) have been annexed as Annexure 4 to the notice dated September 02, 2005 issued to SFL in the present proceedings and are hereinafter referred to as Table C. As per the said data, the series of synchronised trades began from April 26, 2003 and ended on June 26, 2003.

 

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

 

TABLE D

 

SUMMARY OF STRUCTURED DEALS BETWEEN
SANCHAY FINVEST 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
2003093	3	77.90	7575	2.87	0.06
2003096	3	84.25	7700	5.68	0.06
2003097	1	86.50	1125	0.60	0.01
2003098	2	85.95	6150	1.35	0.05
2003099	1	84.75	2500	1.85	0.02
2003101	1	90.85	1150	0.53	0.01
2003102	2	88.63	6650	2.20	0.05
2003104	1	84.25	2450	1.09	0.02
2003108	2	79.48	3850	1.55	0.03
2003110	2	87.58	4500	1.70	0.03
2003111	2	83.45	4143	1.48	0.03
2003112	2	82.40	3775	1.39	0.03
2003113	3	80.43	5750	2.15	0.04
2003114	5	80.27	8150	2.54	0.06
2003115	3	79.98	5300	1.98	0.04
2003116	5	80.03	7400	2.66	0.06
2003117	2	80.30	3850	1.75	0.03
2003118	6	78.65	10300	4.09	0.08
2003119	3	79.15	5950	2.27	0.05
2003120	2	77.98	2500	1.01	0.02
2003121	2	78.53	3250	1.55	0.02
2003122	2	81.03	3750	0.73	0.03
2003093	2	76.70	5500	2.09	0.04
2003097	3	86.82	9250	4.93	0.07
2003102	1	89.10	1875	0.62	0.01
2003103	2	86.88	5275	4.12	0.04
2003108	2	76.08	3400	1.37	0.03
2003112	3	82.17	7000	2.58	0.05
2003113	1	80.60	2000	0.75	0.02
2003114	5	80.41	6200	1.93	0.05
2003115	2	80.53	2500	0.93	0.02
2003116	1	80.50	1500	0.54	0.01
2003117	3	79.88	6700	3.05	0.05
2003118	6	78.90	12200	4.84	0.09
2003119	2	78.38	4975	1.90	0.04
2003120	4	77.86	5400	2.18	0.04
2003121	1	77.90	1750	0.83	0.01
2003122	1	81.55	2250	0.44	0.02
2003096	2	87.58	3375	2.49	0.03
2003097	1	86.10	500	0.27	0.00
2003102	1	88.10	2500	0.83	0.02
2003105	1	84.50	3000	1.30	0.02
2003115	2	79.65	3750	1.40	0.03
2003118	1	78.50	1700	0.68	0.01
2003120	2	78.58	3750	1.51	0.03
2003093	2	77.58	5530	2.10	0.04
2003097	1	84.95	2500	1.33	0.02
2003101	1	89.25	700	0.32	0.01
2003103	1	87.90	2250	1.76	0.02
2003104	1	86.10	1275	0.57	0.01
2003106	1	80.85	2625	1.82	0.02
2003109	1	79.40	1750	0.86	0.01
2003110	1	86.45	1750	0.66	0.01
2003111	1	84.75	1950	0.70	0.01
2003112	1	82.25	1700	0.63	0.01
2003113	4	80.28	7950	2.97	0.06
2003114	4	80.55	7000	2.18	0.05
2003115	5	80.21	6650	2.48	0.05
2003116	1	80.00	1150	0.41	0.01
2003117	2	80.33	3550	1.62	0.03
2003118	1	78.35	1000	0.40	0.01
2003119	1	79.65	1500	0.57	0.01
2003120	1	78.10	2150	0.87	0.02
2003121	1	74.60	600	0.29	0.00
2003122	2	82.65	2800	0.55	0.02
2003097	1	85.90	2250	1.20	0.02
2003104	1	86.75	1400	0.62	0.01
2003110	1	89.45	1050	0.40	0.01
2003116	1	79.75	775	0.28	0.01
2003117	2	80.10	4250	1.93	0.03
2003122	1	80.10	1650	0.32	0.01
2003094	1	79.85	3500	1.85	0.03
2003101	2	90.20	3000	1.37	0.02
2003109	1	79.75	1250	0.62	0.01
2003115	2	79.50	4500	1.68	0.03
2003116	2	80.33	3475	1.25	0.03
2003122	1	81.75	1500	0.29	0.01
2003093	2	76.95	5075	1.92	0.04
2003097	1	84.90	2500	1.33	0.02
2003098	1	87.45	2750	0.61	0.02
2003106	1	81.60	2700	1.87	0.02
2003108	2	77.55	4150	1.67	0.03
2003109	4	79.95	5225	2.58	0.04
2003111	1	83.50	2500	0.90	0.02
2003112	4	82.36	8000	2.95	0.06
2003115	1	80.55	1500	0.56	0.01
2003118	1	78.05	2150	0.85	0.02
2003120	1	78.20	1650	0.67	0.01
2003121	2	75.48	4650	2.22	0.04
2003122	1	80.00	100	0.02	0.00
2003103	1	86.25	2300	1.80	0.02
2003114	1	80.05	1250	0.39	0.01
2003093	1	75.65	2720	1.03	0.02
2003097	1	86.95	2000	1.07	0.02
2003110	1	89.35	1500	0.57	0.01
2003114	1	81.60	2000	0.62	0.02
2003119	1	79.75	1725	0.66	0.01
2003093	1	78.30	3000	1.14	0.02
2003095	1	83.85	2250	1.60	0.02
2003097	1	86.65	2750	1.47	0.02
2003099	1	84.75	900	0.67	0.01
2003102	1	87.75	2600	0.86	0.02
2003104	1	86.85	2000	0.89	0.02
2003108	1	79.25	2000	0.81	0.02
2003109	1	79.35	2150	1.06	0.02
2003110	1	85.90	1750	0.66	0.01
2003115	1	80.50	2250	0.84	0.02
2003118	1	76.90	3150	1.25	0.02
2003119	1	79.75	2400	0.91	0.02
2003095	1	83.15	3250	2.31	0.02
2003096	1	84.25	3000	2.21	0.02
2003110	1	86.25	2950	1.11	0.02
2003114	1	80.10	1500	0.47	0.01
2003109	1	79.35	1350	0.67	0.01
2003098	1	86.45	2000	0.44	0.02
2003096	1	87.65	2625	1.94	0.02
2003103	1	88.10	3000	2.34	0.02
2003106	1	80.65	1425	0.99	0.01
2003105	1	81.75	550	0.24	0.00
2003101	1	89.75	1450	0.66	0.01
2003110	1	85.75	150	0.06	0.00
2003098	1	85.85	1150	0.25	0.01
2003102	1	86.25	2500	0.83	0.02
2003091	1	63.60	500	0.05	0.00
2003103	1	87.15	2000	1.56	0.02
2003105	1	81.75	2475	1.07	0.02
2003095	1	82.05	1850	1.31	0.01
2003105	1	83.70	2425	1.05	0.02
2003114	1	74.80	2250	0.70	0.02
2003118	1	77.30	200	0.08	0.00
2003104	1	85.10	4200	1.86	0.03
2003080	1	60.90	2912	0.54	0.02
2003112	1	82.50	1950	0.72	0.01
2003082	1	59.30	2750	2.80	0.02
2003092	1	70.75	2500	1.27	0.02
2003080	1	60.75	2000	0.37	0.02
2003092	1	70.85	2650	1.34	0.02
2003080	1	61.60	3100	0.57	0.02
2003081	1	61.50	1800	2.20	0.01
2003083	1	59.25	3000	5.00	0.02
2003111	1	84.90	2650	0.95	0.02
2003113	1	81.95	2500	0.93	0.02
2003110	1	88.55	1500	0.57	0.01
2003081	1	61.00	774	0.95	0.01
2003092	1	70.90	2140	1.08	0.02
2003081	1	61.85	2500	3.06	0.02
2003083	1	59.30	3000	5.00	0.02
2003092	2	70.70	3200	1.62	0.02
2003110	1	87.75	2897	1.09	0.02
2003080	1	61.75	1475	0.27	0.01
2003083	1	59.40	4250	7.08	0.03
2003082	4	59.49	4421	4.50	0.03
2003083	1	59.30	3750	6.25	0.03
2003082	1	59.00	2500	2.54	0.02
2003113	1	82.90	2750	1.03	0.02
2003083	1	59.15	2850	4.75	0.02
2003080	1	60.65	3200	0.59	0.02
2003081	1	60.80	2500	3.06	0.02
2003082	1	59.50	3200	3.26	0.02
2003113	1	82.55	2410	0.90	0.02
2003081	1	61.80	3000	3.67	0.02
2003080	1	62.05	3200	0.59	0.02
2003083	1	58.50	1970	3.28	0.02
2003112	1	82.00	2500	0.92	0.02
2003080	2	61.65	5800	1.07	0.04
2003082	1	59.70	2500	2.54	0.02
2003080	1	62.30	2500	0.46	0.02
2003081	1	61.50	2450	3.00	0.02
2003092	1	70.95	2750	1.39	0.02
2003082	1	59.85	3200	3.26	0.02
2003080	1	62.60	3200	0.59	0.02
2003081	1	62.05	2000	2.45	0.02
2003113	1	81.75	2500	0.93	0.02
2003082	2	59.33	5650	5.75	0.04
2003080	1	60.70	2600	0.48	0.02
2003092	1	70.10	2700	1.37	0.02
2003113	1	80.50	2600	0.97	0.02
2003080	1	62.30	350	0.06	0.00
2003081	2	62.13	4720	5.78	0.04
2003117	1	79.65	2250	1.02	0.02
2003082	1	58.75	1300	1.32	0.01
2003112	2	82.63	4500	1.66	0.03
2003080	1	60.80	2900	0.53	0.02
2003081	1	61.15	2476	3.03	0.02

 

26. As per the data pointed above, while SSI, A.K.Agarwal and Kishan Agarwal were the clients trading through SFL, the two clients who traded through BPL were Chirag and Ashok.

 

27. The summary reveals that SFL had traded in all the settlements from 2003093 to 2003122 with the average price ranging between Rs 58.75/- to Rs 90.85/-. The total quantity so traded was 5,62,288 shares.

 

28. Overall, SFL accounted for 17.89% of the market gross during the traded period.

 

29. Besides these facts and figures, I think it relevant to discuss the role of the counterparty clients in respect of the trades executed in the scrip of RMIL i.e. Shravan Kumar Goel, Chirag Pujara and Ashok Sharma.

 

30. As per the statement of Shravan Goel, Mahesh Pujara, uncle of Chirag was well known to him since the last 2 years. He also knew Anil and Kishan who are cousins. He was the proprietor of SSI, the then sub-broker of the associate company of SFL and also a client of Haven. The trades executed through Haven got matched with those of Chirag and Ashok executed through BPL. Shravan was introduced to Haven through Bhavesh and Mitesh Pabari (both are brothers) and Bhavesh was the client of Haven and used to work for them part time. It is also pertinent to note here that Bhavesh was also the client of SFL, whose trades got matched with Naresh N Shah, client of Haven while trading in the scrip of RMIL. i.e. the client Bhavesh, who is a part time employee of Haven traded through SFL in the scrip of RMIL. Introducing Shrawan to Haven is thus one of the links between the clients, all of who were well known to each other. The date of commencement of trading of Bhavesh was June 10, 2003. However as per the data available on record, for the synchronized trades, Bhavesh traded with Naresh on the other side in the scrip of RMIL from July 4, 2003 i.e. from settlement no. 2003128 to July 7, 2003 i.e. settlement no. 2003129. All the said trades were squared off during the same settlement, although the trades were meager in quantity.

 

31. It is also common ground that SFL knew Anil, Kishan and SSI since 5 years. Shravan Kumar Goyal was introduced to them by Radheshyam Sharma, their accounts officer. In turn Shravan had introduced his friends; A K Agrawal and Kishan Agrawal (both cousins) to SFL. They had stopped trading in the stock market after September 2003 i.e. almost after the period of investigation.

 

32. Chirag was registered as the client of BPL on September 25, 2002 through their Vashi branch. He was introduced by their then sub-broker; Maitri Investments (a partnership concern of which he was one of the partners) while Ashok was introduced by Chirag. Ashok was registered as the client of BPL on June 11, 2003. Both the clients were registered in their Vashi branch. They knew Bhupesh Gupta, the authorized signatory at Vashi branch and Shravan Kumar Goyal through the stock market, since January 2003. It appears that they used to be in contact with each other to get information from the market.. One and a half years prior to the statement recording, Chirag had traded with Shravan once or twice on the BSE while Ashok Sharma had traded under the guidance of Chirag Pujara and used to trade as per his instructions or instructions of his representative at the terminal. As per the statement of Ashok Sharma dated July 21, 2004, he knew Kishan but did not know A K Agrawal. Although BPL in their statement dated June 2, 2004, also confirmed that Chirag was introduced by Maitri Investment, their then sub broker which is also revealed in the client registration form, where Maitri is shown as the introducing party and the registration date of Chirag as a client of BPL is September 25, 2002 , BPL did not state that Maitre was a partnership formed between Chirag and another person. This kind of interrelationship between the entities read in tandem with their trading activity is revelatory of the behind the scene action.

 

33. 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.

 

34. In fact even in the table attached as annexure A to the reply of SFL dated September 16, 2005, it is noted that all the trades in the scrip of RMIL were almost squared off.

 

35. SFL have however denied these allegations and any relationship with either BPL or Haven and have contended that the orders were placed in an anonymous screen based trading system where the identity of the counter party is never known, based on the instructions received from the client and that the said structured deals were purely coincidental and not intentional.

 

36. Notwithstanding these contentions, it is clear that in almost all the deals, there was a matching of the buy and the sell quantity and the buy and the sell price. The buy and the sell orders were placed at almost the same time between the two 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. BPL 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. The phenomenal regularity with which these brokers 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 spread over more than 300 cities in the country, that is to say, it would be an amazing coincidence that such a huge number of synchronized trades get matched, between the same set of brokers and same set of clients. 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. As is evident from the details of the trades provided, these matching of trades were not isolated transactions. It is clear that the buy and sell orders were matched at the same price and almost at the same time, 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.

 

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

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

 

38. Keeping in mind the dicta of the SAT as reproduced above; I see no reason to take a different view. As far as the argument raised by SFL about the apparent lack of nexus between the brokers is concerned, besides the interlinkages between the parties as has been elaborated above, 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.

 

39. Moreover I do not accept the contention of SFL that the transactions that were so synchronized were unintentional or purely coincidental. The total number of synchronized trades between SFL and Haven were 321 and between SFL and BPL were 277 and the same has been reflected in the table. Moreover SFL have failed to explain as to how the said transactions cannot be adjudged to be synchronsied, 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. 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.

 

40. This situation can be exemplified by referring to the trades executed by SFL 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 C, the first synchronized trade between the said brokers was of the total traded quantity of 2800, where the disclosed quantity of SFL was 280 with “the original buy volume” being 2800 shares of RMIL. Although the disclosed quantity of BPL was also 280 (this quantity may be different but here it was the same) with the “original buy volume” being 2800 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, 280 shares of SFL would first get matched with 280 shares of BPL. The other 280 shares of SFL would then automatically be sucked out of the remaining i.e. (2800-280 = 2520) 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 the Tables. Thus, while the total traded quantity remained the same (as the original buy volume with the completion of trades, was 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.

 

41.             The fact that at every point of time, the original buy volume was the same, while putting different disclosed quantities in the system revealed the prior tacit understanding between the two members. Infact SFL did not choose to point out anything on this aspect when they were provided with all the documents pertaining to the said trades. The total number of synchronized trades between SFL and Haven were 321 and between SFL and BPL were 277, as has been reflected very well in the earlier tables. Instead they have submitted that there was no manipulative intent on their part in as much as they were unaware of the identity of the counter broker party, since the aforesaid deals were executed on the system.

 

42.             However had the trades executed by SFL with other brokers been in the normal course of business as a broker, the possibility of such perfect matching would not have been possible. The buy and sell prices of SFL were close to the buy/sell rates of Haven and BPL in all the settlements, such that the trades of these entities were always matched. Trades to the extent of 277+321 i.e. 598 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. Greater the numbers of synchronized trades, the larger are the chances of trades not being genuine in nature which is bound to affect the market equilibrium. A trade can be executed on the screen and still be manipulative in nature. Trades like cross deals, reverse transactions, circular trades, synchronized trades are all executed on the screen and with proper delivery versus payment system. However, considering the number of such trades, it is clear that there has been a gross misutlisation of the screen based system. SFL have however argued that the fact that the trades were found to be synchronised was purely unintentional. However, “intention” is inherent in all cases of synchronized trading involving large scale price manipulation and the same was also brought out in the earlier cited case of Nirmal Bang Securities (P) Ltd. vs. SEBI by the Hon’ble SAT whereby it was observed that “Intention is reflected from the action of the Appellant. Choosing selective time slots does not appear to be an involuntary action.”

 

43.             Thus the very act of manipulation of the scrip of RMIL on the part of SFL is revealed in their acting in tandem with other brokers / clients. Clients’ trades of such magnitude are left undone, and generally cannot take place, without the broker being party to it. They have not denied at any point of time that the clients had not acted in good faith. It is quite evident that these trades were entered into due to the concerted effort of a set of brokers i.e. SFL, BPL and Haven with the same set of clients, which ensured a semblance of trading activity, almost every day during the investigation period which was earlier not observed. 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. However as the trades were done between the same group of entities, the same 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.

 

44.             It should also be noted that the concept of transfer of beneficial ownership does not merely involve the transfer of shares from one account to another account. The identity of the ultimate beneficiary in the said trades also needs to be looked into. The trades of SFL as discussed earlier were in the nature of reversal of trades/ matched deals with the same set of clients on both sides, trading through the same set of brokers. Furthermore, when a client reveals a clear and set pattern/ behavior in a particular scrip, such as execution of a large number of trades, on the same day, in the same scrip, consistently throughout the month and with the same set of brokers, then the same is indicative of a concerted level of activity and the underlying intention of the brokers acting in tandem with the clients.

 

45.             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 SFL and Haven were around 6 lakh shares which represented around 4.5% of the gross traded quantity with just one broker during the entire period of investigation and merely for three to four clients (i.e. Anil, Kishen, Bhavesh and Kuber) speaks volumes about the level of concerted activity of SFL with the other entities. Further the total quantity traded through structured deals between SFL and BPL was around 5.7 lakh shares of RMIL representing approximately 4.3% of the total quantity traded on the exchange during the entire period, with just one broker during the entire period of investigation and for merely three clients (SSI, Anil and Kishan) is also a clear indication of the concerted activity between them. It would also be wrong on my part to compare the percentages of trades with the overall turnover of SFL. 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. 4.5% 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.

 

46.             In this context, I would also like to bring out certain additional yet relevant facts. 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.

 

47.             Upon perusal of the historical scrip wise price volume data of the scrip of RMIL from February 2, 2003 to July 7, 2003 in the EQ segment, I have noted the following facts.

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 SFL and BPL from April 28, 2003 onwards.

49.  During May, the largest traded quantity was recorded on May 14, 2003 being 5,32,621 shares. Coincidentally SFL along 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.

1. On the basis of these facts and figures, the involvement of the impugned entities in the manipulation cannot be denied. 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.

 

52. On a cumulative analysis of the facts mentioned above, it is clear that the modus operandi of SFL to manipulate the scrip of RMIL in a concerted manner was effected in the following manner:

a) Trading on behalf of three to four clients extensively in the same scrip i.e. RMIL through the same set of brokers i.e. BPL and Haven. One of the said clients was a proprietary concern and a registered sub broker of the associate of SFL.

b) Execution of a number of synchronized trades

c) Execution of 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.

d) Squaring off most of the trades

e) Bhavesh, a client of SFL, being the part time employee of Haven

and introducing Shrawan to SFL.

f) SFL accounting for nearly 17.89% of market gross during the

period traded.

 

53.             SFL have thus, for the said acts, been charged under the penal provisions of Sections 15HA and 15HB of the Act which inter alia provide 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.

54. Reference in this context may also be made to the relevant provisions of Regulation 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 which reads 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;

55 . In order to establish the fraudulent nature of trades indulged in by SFL, it would also be relevant to read 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. As opposed to the above, upon a reading of Section 15HB of the Act, it is clear the said provision 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 SFL 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 thus tried to induce the general public to deal in those securities. 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.

 

58.             I have also noted that in the process of perpetuating these artificial trades, SFL have 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, SFL were fully aware of the Rules and Regulations of SEBI. From the facts detailed above, it is established that BPL 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.

 

59.             Thus 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.

 

60.             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.

 

61. 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 and the consequent losses suffered by the investors. Accordingly the investigation report also does not dwell on the extent of specific gains made by SFL. Suffice to say that keeping in mind the practices indulged in by SFL, gains per se were made by them in that SFL certainly traded in the scrip of RMIL 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 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.

 

62. 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 other relevant factors can also be considered while having due regard to the factors enumerated in the statute.

 

63. 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.

 

64. 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 SFL by the initiation of adjudicating proceedings against them rather than action in terms of the Enquiry proceedings.

 

PENALTY

65. Hence, on 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, on analyzing the material available on record, I am of the considered view that for the aforementioned violations as discussed earlier, it would be appropriate to impose a penalty of Rs. 10,00,000/- (Rupees Ten Lakhs only) on M/s. Sanchay Finvest Ltd., the member of the National Stock Exchange (NSE) with SEBI registration no. INB231167934.

 

67. 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 25, 2006	ADJUDICATING OFFICER