O R D E R
UNDER RULE 5 OF THE SEBI (PROCEDURE FOR HOLDING
ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995
READ WITH SECTION 15A OF THE SEBI ACT, 1992
AGAINST
FINE TRADE MERCHANTILE COMPANY PRIVATE LIMITED
1. The Securities and Exchange Board of India (SEBI) initiated an investigation into reports of alleged market manipulation and irregularities in the trading of the shares of Prime Capital Market Limited, (for brevity’s sake, hereinafter referred to as PCML) for the period between March 17, 2005 and September 16, 2005 so as to determine in the said process, the possible violation of the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 and the SEBI (Stock brokers and Sub-brokers) Regulations, 1992 (hereinafter referred to as FUTP Regulations and the Broker Regulations, respectively) by various entities. The scrip of PCML was listed on the Calcutta Stock Exchange (CSE) at the time of investigation. In connection thereof, the trading details of various entities who had transacted in the scrip of PCML were collected and their trading patterns were analysed along with the data and the volumes contributed by them.
2. The preliminary investigation findings, inter alia revealed that the trades of these entities had largely contributed to the price movement and the false appearance of liquidity and volumes in the said scrip. M/s Fine Trade Merchantile Company Private Limited (for brevity’s sake, hereinafter referred to as Fine Trade ) a common client of M/s D K Khandelwal & Co (DKK) and M/s Shivam Stock Broking (P) Limited, both registered with the SEBI as a broker and member of CSE, was along with their brokers; alleged to have played a role in raising the price of the scrip of PCML at the CSE, thus facilitating the manipulation in the scrip of PCML. Incidentally the investigation findings also revealed that three other members of CSE i.e. DB & Co (DBC), Sanju Kabra (SK) and Shivam Stock Broking Pvt. Ltd (Shivam); had traded extensively in the scrip of PCML) through their respective clients and that most of them were inter related and acting in concert.
3. In view of these findings, during the process of investigation, the various brokers and their respective clients were summoned for examination of their books of accounts and other relevant documents including KYC norms and were also asked to produce other related information viz, trading details etc. Fine Trade being the common client of DKK and Shivam was also summoned by the investigating officer to appear before him and to produce the required documents and books of accounts on certain dates. It has been alleged that the said entity failed to comply with the said summons and thus violated the provisions of Section 11C(6)(c) of the Act and Regulation 8(1) of the FUTP Regulations, thereby making them liable for being proceeded against in terms of Section 15A of the SEBI Act, 1992 (Act).
4. Accordingly adjudicating proceedings were ordered against Fine Trade and in that context I was appointed as the adjudicating officer vide the order of SEBI dated October 18, 2006 to enquire into the alleged acts of omissions and commissions of Fine Trade.
NOTICE/REPLY/PERSONAL HEARING
5. A notice dated December 22, 2006 under Rule 4 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by the Adjudicating Officer) Rules, 1995 was issued to Fine Trade along with relevant documents annexed thereto 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. However no response was received to the notice sent by registered post acknowledgement due.
6. Hence the notice was sent to the eastern regional office of SEBI at Kolkota (ERO) vide letter dated January 22, 2007 with a request to forward the same to Fine Trade. Vide letter dated February 13, 2007, ERO informed that as the notice could not be served by way of hand delivery as the party was no longer available at the said address, the said notice was affixed on the outer door of the premises and witnessed by two persons in terms of Regulation 7 (c) of the Rules, as the premises was the place where Fine Trade appeared to have last resided. A report of affixture to this effect was forwarded along with the said letter.
7. Thereafter a notice of hearing dated March 07, 2007 was issued to Fine Trade with an advice to appear before me on March 29, 2007. The said notice that was sent through the ERO under cover of letter dated March 12, 2007, was acknowledged on March 20, 2007. However neither Fine Trade nor their representative appeared on the scheduled date of hearing nor did they send any letter giving reasons for their failure to appear for the hearing. Another notice of hearing dated May 04, 2007 was sent to Fine Trade at another address provided by them in their earlier correspondence with SEBI and which was stated to be their new changed address for communication. Vide the said notice, Fine Trade were advised to appear before me for the personal hearing scheduled on May 28, 2007. However the notice once again returned undelivered The summons returned undelivered with the endorsement of the postal authorities “not known”.
8. As there has been adequate service of notice on Fine Trade and as they have, despite the same, failed to reply to the notices issued to them or even participate in the present proceedings, the case is proceeded with based on the material available on record.
APPRECIATON OF FACTS:
9. I have carefully examined the investigation report, the documents available on record and other facts and circumstances relevant to this case. While taking into account, the issues highlighted in the report as against Fine Trade, I consider it necessary to recapitulate certain details of the case that gave rise to the present proceedings.
10. The average price of the scrip of 'PCML' at the CSE was Rs.14.00 on March 17, 2005 which then went up to Rs.280.40 on September 15, 2005. That is to say, the scrip of PCML witnessed a price rise of 1903% within a period of 5 months and 28 days. Incidentally the scrip of PCML was also suspended from trading at the exchange for various listing irregularities and the company is listed as one of the many vanishing companies, which fact was brought to the notice of the general public by the Ministry of Company Affairs vide Notice dated October 14, 2005.
11. In view of the same, vide an ad interim ex-parte order dated September 29, 2005 passed under Sections 19 read with 11(1), 11B, 11(4)(a) and 11(4)(b) of the SEBI Act, 1992, (Act), SEBI inter alia suspended trading in the shares of PCML on the CSE till further directions and also directed DBC, SK and Shivam not to buy, sell or deal in securities in any manner either directly or indirectly, pending further directions in this regard.
12. The interim order of SEBI dated September 29, 2005 was confirmed by SEBI in the order dated January 12, 2006. The said order also directed that the suspension on the trading in the shares of PCML on the exchange could be withdrawn, subject to the deletion of the name of PCML from the list of vanishing companies as appeared in the Public Notice dated October 14, 2005 issued by the Ministry of Company Affairs.
13. In this context, I have noted on record a letter dated March 9, 2006 addressed by PCML to the Ministry of Company Affairs, Kolkata and another letter dated January 13, 2006, to the Ministry of Company Affairs, Delhi, inter alia requesting for the deletion of the name of PCML from the list of vanishing companies. However there is no evidence on record to verify whether the name of PCML was deleted from the said list.
14. Be that as it may, the role of four brokers and their respective clients in the rise in the share price of PCML from Rs.14/- to Rs.280.40/- was a matter of suspect, primarily because of the nature of the trades executed by them in tandem and the fact that all of them were collectively found to have contributed to the majority of the volume of PCML at the CSE between March 17, 2005 and September 16, 2005. These brokers and their clients are listed below:-
a) DBC and their clients; M/s Bhuwania Vinimay Pvt Ltd (Bhuwania) and TDB;
b) SK and their clients; Bhuwania and Zenser Merchantile Pvt. Ltd. (Zenser);
c) Shivam and their clients; Bhuwania, Zenser, Pravin Kumar Jain and Fine Trade Merchantile Co Ltd;
d) DKK and their clients; Fine Trade Merchantile Co. Pvt. Ltd, Jain Stock & Share Brokers Ltd, Machindra Nath Multi Trade Pvt. Ltd and Silver Flag trading Co. Ltd.
15. A total of 36, 43,606 shares of PCML (both buy and sale) were traded at the exchange. The major brokers were found to be DBC, SK and Shivam while the trades of DKK were found to be to the extent of 22,100 shares constituting 0.6 % of the total volume of PCML at the CSE during the period of investigation (the volume of others i.e. DBC being 41.67%, Shivam being 21.1% and that of SK being 30% of the total volume of PCML at the CSE). As can be seen from the table below, the transactions executed by these brokers together constituted more than 93% of the trading volume at CSE during the period under investigation:
|
Sl.
No.
|
Name of the broker
|
Volume
Buy/Sell
|
Traded from
Rs.
|
Traded upto
Rs.
|
|
1
|
D K Khandelwal & Co.
|
22,100
|
18.00
|
159.00
|
|
2
|
Sanju Kabra
|
10,82,151
|
73.00
|
280.60
|
|
3
|
Shivam Stock Broking
|
7,68,851
|
199.80
|
280.60
|
|
4
|
D B & Co
|
15,18,402
|
229.00
|
281.00
|
16. The trades of DKK were found to have been created through very thin trading volume at the exchange. Almost all the trades of DKK were executed as cross deals (wherein the buying and selling broker was the same) such that 22,000 shares out of 22,100 shares which comprised of 99.5% of the volume of their trades in the scrip of PCML were in the nature of cross deals and were created at their terminal alone. The extent of cross deals in the same terminal of DKK in the shares of PCML between March 17 2005 and September 15, 2005 and that with the other brokers is given below.
|
Name of the broker
|
Cross and Matched transactions
|
|
D B & Co
|
Sanju Kabra
|
Shivam Stock Broking
|
D K Khandelwal & Co
|
|
Qty
|
%
|
Qty
|
%
|
Qty
|
%
|
Qty
|
%
|
|
D K Khandelwal & Co
|
0
|
0
|
100
|
0.5
|
0
|
0
|
22000
|
99.5
|
| |
|
|
|
|
|
|
|
|
|
17. These trades by DKK were also singly found to have been responsible for raising the price of the scrip of PCML from a lower level of Rs.18/- to Rs.159/- through thin trading volumes and were executed such that the price of the scrip of PCML was raised by 7-10% on a daily basis. The details of such price rise are given below:
|
Date
|
Previous day’s closing price(Rs)
|
Opening price (Rs)
|
Exchange volume
|
Volume created by DKK
|
% of increase in share price
|
|
01.04.2005
|
18.40
|
19.90
|
200
|
200
|
8.15
|
|
04.04.2005
|
19.90
|
21.40
|
200
|
200
|
7.54
|
|
05.04.2005
|
21.40
|
23.30
|
500
|
500
|
8.88
|
|
06.04.2005
|
23.30
|
25.20
|
400
|
400
|
8.15
|
|
07.04.2005
|
25.20
|
27.10
|
300
|
300
|
7.54
|
|
19.04.2005
|
35.00
|
38.00
|
400
|
400
|
8.57
|
|
20.04.2005
|
38.00
|
41.00
|
500
|
500
|
7.89
|
|
21.04.2005
|
41.00
|
45.00
|
500
|
500
|
9.76
|
|
26.04.2005
|
49.00
|
53.00
|
1000
|
1000
|
8.16
|
|
27.04.2005
|
53.00
|
57.60
|
500
|
500
|
8.68
|
|
28.04.2005
|
57.60
|
61.00
|
500
|
500
|
5.90
|
|
29.04.2005
|
61.00
|
67.00
|
500
|
500
|
9.84
|
|
17.05.2005
|
87.00
|
95.00
|
2100
|
100
|
9.20
|
|
18.05.2005
|
95.00
|
103.00
|
100
|
100
|
8.42
|
|
09.06.2005
|
140.00
|
146.00
|
100
|
100
|
4.29
|
|
10.06.2005
|
152.50
|
164.00
|
500
|
500
|
7.54
|
18. The main entities found to have transacted through DKK and the details of their transactions in the scrip of PCML is as shown below:
|
Sl.
No.
|
Name of the client and address
|
Quantity
|
% to brokers volume of 22,100 shares
|
|
1
|
Silver Flag Trading Co. Ltd.(Silver)
|
7600
|
34%
|
|
2
|
Fine Trade Mercantile Co. Pvt. Ltd.(Fine trade)
|
3000
|
14%
|
|
3
|
Machindra Nath Multi Trade Pvt. Ltd (Machindra)
|
2100
|
10%
|
|
4
|
Jain Stock & Share Brokers Ltd.(Jain)
|
600
|
3%
|
19. Upon an analysis of the information given above, it appears that although DKK did not trade extensively in the scrip of PCML, their trades for their respective clients were so executed so as to ensure an apparent increase in the price of the scrip.
20. The trades of Shivam too were found to have created large volumes at the exchange as is evident from their turnover in the scrip of PCML as given below :-
|
Name of the Member
|
Trading Data
|
|
No. of shares bought
|
% to total buy
|
No. of shares sold
|
% to total sell
|
Total no. of shares
|
% to total buy & sell
|
|
Shivam Stock Broking
|
7,52,950
|
41.33
|
15901
|
0.87
|
7,68,851
|
21.10
|
21. Almost all the trades of Shivam were executed as cross deals (wherein the buying and selling broker was the same) or as synchronized deals and all the earlier mentioned brokers acted as the counter party of their own transactions. The extent of cross deals in the same terminal of Shivam in the shares of PCML between March 17 2005 and September 15, 2005 and that with the other brokers is given below:
|
Name and address of the broker
|
Cross and Matched transactions
|
|
D B & Co
|
Sanju Kabra
|
Shivam Stock Broking
|
|
Qty
|
%
|
Qty
|
%
|
Qty
|
%
|
|
Shivam Stock Broking Pvt. Ltd.
2, India Exchange Place
1st Floor, Room No. 2, Kolkatta -700 001.
|
3000
|
0.3
|
7,40,250
|
96.2
|
25,600
|
3.3
|
22. The cross deals executed by Shivam in the scrip of PCML constituted a large portion of their trading such that 7,40,250 shares out of 7,69,851 shares which comprised of 96.2% of the volume of their trades in the scrip of PCML were in the nature of cross deals and were created at the terminal of SK. Incidentally SK and Shivam shared the same office address i.e. 2, India Exchange Place, 1st Floor, Room No. 2, Kolkatta -700 001. During the period when Shivam was actively trading in the said scrip, the share prices of PCML has gone up from Rs. 199.80 to Rs. 280.60. The two clients of Shivam i.e. Pravin Kumar Jain and Fine Trade Merchantile Ltd had purchased 48,750 and 39,000 shares constituting 6% and 5% respectively of Shivam’s total volume in the scrip of PCML during the period of investigation.
23. Thus it is clear that all the trades of these brokers and their clients were client-to-client trades and executed on a single terminal of the same broker. These brokers had allowed their clients to place simultaneously, both buy and sale orders of the same quantity at the same price in PCML, which led to the price rise and matched trades. These trades had identical quantities and rates and the order time of these trades showed that both buy and sale orders were given either in identical time or within a gap of a few seconds. Instances of matched trades between the selected brokers/clients were also noticed.
24. However due to the lack of information/specific details about Fine Trade and with a view to determine exactly the extent of their nexus between the various brokers, clients and the management/ employees/promoters of PCML as also their respective roles if any, in the manipulation in the scrip of PCML, on the basis of the information that would be obtained and the violations committed by them in the said process, the investigating officer of SEBI also sent summons to Fine Trade, to reply and to appear before the investigation authority along with the information as called for on specific dates as detailed below:-
|
Sl.No.
|
Date of Summons
|
To reply by/to appear on
|
Date of reply / appearance
|
|
1
|
March 31, 2006
|
April 10, 2006
|
The summons was returned undelivered with the endorsement ‘not known’.
|
|
2
|
April 07, 2006
|
April 17, 2006
|
The notice served through the broker was received and acknowledged by the director of Fine Trade on April 13, 2006 who sought time vide letter dated May 16, 2006 but did not send the information.
|
|
3
|
April 28, 2006
|
May 09 , 2006
|
The notice served through the broker was received and acknowledged by director of Fine Trade on May 03, 2006 who sought time of 10 days vide letter dated May 09, 2006 but did not send the information.
|
|
4
|
May 10 , 2006
|
May 16, 2006
|
The director of Fine Trade acknowledged the summons on behalf of Fine Trade and vide letter dated May 16, 2006 requested for 10 days time on the ground of illness of the dealing officer.
|
|
5
|
May 17 , 2006
|
May 24 , 2006
|
The director of Fine Trade acknowledged the summons on behalf of Fine Trade and vide letter dated May 24, 2006 submitted some unauthenticated information which was received on May 30, 2006.
|
25. As is apparent from a reading of the table given above, summons were issued to Fine Trade by the investigating authority to appear personally before the investigation authority along with the information as called for on several occasions which were not complied with and upon SEBI persisting, only part of the said information was submitted, that too only after the due date.
26. The extent of the information sought for from Fine Trade and the details if any as provided by them is given below: -
i. The address of Fine Trade. The same was provided.
ii. Name and address of the promoter/director/partner, if the entity is not an individual. The names and addresses of two directors i.e Pravin Sawant and Eknath Mandavkar was provided.
iii. PAN No which was provided.
iv. Demat Account Details, which was provided.
v. Details of transactions in the scrip of PCML during the period from January 1, 2005 to September 30, 2005 with details of the date, quantity, rate of shares purchased/sold and the dates, if and when the shares were sold /bought during this period and also the holding statement if the shares were still on hold, which was provided.
vi. Copy of the Contract Notes issued by the broker for the transactions in the scrip for the period January 1, 2005 to September 30, 2005. The information was provided.
vii. Copy of the relevant statement of accounts issued by the broker for the transactions of Fine Trade in the scrip during the period January 1, 2005 to September 30, 2005. The same was provided.
viii. Statement of deliveries made to the broker and received from the broker for the transactions of Fine Trade in the scrip during the period giving details of the date of transaction, quantity of shares bought/sold, dates of delivery i.e. received from and made to the broker and quantity received and delivered. The same was provided.
ix. Details of relevant bank transactions, evidencing the receipts and payments from/to the broker for the transactions of Fine Trade pertaining to the scrip of PCML. The same was provided.
x. Details of all off market transactions, if any, in the scrip during the period from January 1, 2005 to September 30, 2005. It was stated that no off market deals were done.
xi. Details of relationship with the promoters/directors of the company, if any. It was stated that there was no relationship with the promoters/directors of the company.
xii. Details of relationship with the brokers dealing in the scrip, if any - It was stated that there was no relationship with the brokers.
xiii. Reasons for trading in this scrip. Fine Trade stated that there were no specific reasons.
27. I have perused the information submitted by Fine Trade and have noted that although the information furnished is indeed quite comprehensive, some of it is not entirely correct. This incorrect information capable of hampering the process of investigation appears to have submitted by Fine Trade to deliberately mislead SEBI.
28. I have listed out a few instances where incomplete information appears to have been provided by them which could be discerned based on the information received from certain other sources; which is noteworthy of repetition.
29. I have examined the client registration forms submitted by DKK and noted that almost all their clients had common directors. The directors of Fine Trade; Pravin Sawant and Eknath Mandavkar, were also found to be the directors of Machindra Nath Multi Trade Pvt. Ltd and Silver Flag Trading Co. Pvt. Ltd. Incidentally Machindra Nath Multi Trade Pvt. Ltd, Jain Stock and Share Brokers Limited Shares and Silver Flag Trading Co. Pvt. Ltd shared common addresses. Fine Trade Mercantile Co. Pvt Ltd who was a client of DKK was also a client of Shivam.
30. I have also examined the details of the trades done by Fine Trade as submitted by them. From the same I have noted that they started trading in the shares of PCML at the rate of Rs 171.50/- per share from June 21, 2005 which continued till September 28, 2005 at which time, the shares of PCML were purchased at the rate of Rs 278/- per share.
31. All the trades executed through DKK were in the nature of cross deals and hence were meant to generate artificial volumes while resulting in the artificial rise in the price of the scrip.
32. Similarly almost all the trades of Shivam were executed as cross deals or as synchronized deals. The cross deals executed by Shivam constituted a large portion of their trading i.e. 96.2% of the volume of their trades in the scrip of PCML which were created at the terminal of SK. Incidentally SK and Shivam shared the same office address. During the period when Shivam was actively trading in the said scrip, the share prices of PCML has gone up from Rs. 199.80 to Rs. 280.60. The two clients of Shivam i.e. Pravin Kumar Jain and Fine Trade Merchantile Ltd had purchased 48,750 and 39,000 shares constituting 6% and 5% respectively of Shivam’s total volume in the scrip of PCML during the period of investigation.
33. Apart from this information, there are other relevant details gathered subsequently which require to be highlighted.
(i) Shri Dhruv Narayan Jha, who was found to be one of the two directors of M/s Jain Stock and Share Brokers Limited, another client of DKK, who was also found to be earlier a director of PCML for more that 4 years i.e. from August 12, 2001 to October 15, 2005 and was found to have resigned from PCML on personal grounds on December 15, 2005 soon after the interim order was passed by SEBI, suspending trading of the shares of PCML.
(ii) Incidentally PCML and M/s Jain Stock and Share Brokers Limited were also found to share the same office address.
(iii) Moreover the client registration forms of Bhuwania and Zenser, (common clients of SK and Shivam) who were found to have purchased 14,10,204 shares i.e. 1140454 and 269750 shares respectively out of 16,73,803 shares purchased in PCML during the period of investigation i.e. 84% of the combined bought position of the three brokers and 77% of the total bought quantity at the exchange, revealed that Dhruv Narayan Jha was also a director of Bhuwania and Zenser.
34. Thus clearly, there exists a nexus between the various brokers, clients and the management/employees/promoters of PCML especially discernable in terms of common directors, common addresses, common clients etc which enabled all of them to act in concert while trading in the scrip of PCML. There was thus a specific reason for Fine Trade to trade in the scrip of PCML, which was never revealed by them.
35. It would also be relevant to mention here that for the years ended March 31, 2002 and March 31, 2003, PCML incurred a net loss of Rs.4 lakhs and Rs.6 lakhs respectively. However during the year 2004-05, PCML earned a profit of Rs.5.46 lakhs (unaudited) and for the three months period ending June 30, 2005 (unaudited), PCML earned a profit of only Rs.68, 000 and had a negative reserve of Rs.2.81 lakhs. It stands to reason that the financials of PCML were not strong enough to have boosted the share price from Rs.14/- to Rs.280.40/- without sufficient cause, clearly indicating that, but for the trading of Fine Trade along with the other persons acting in concert, such a steep price rise in the said scrip would not have been witnessed.
36. In this context, I have examined the provisions of Section 11C(3) of the Act which read as under:
“The Investigating Authority may require any intermediary or any person associated with securities market in any manner to furnish such information to or produce such books, or registers, or other documents, or record before him or any person authorised by it in this behalf as it may consider necessary if the furnishing of such information or the production of such books, or registers or other documents, or record is relevant or necessary for the purposes of its investigation”.
37. Further 11C(5) of the Act reads as under:
“Any person, directed to make an investigation under sub-section (1), may examine on oath, any manager, managing director, officer and other employee of any intermediary or any person associated with securities market in any manner, in relation to the affairs of his business and may administer an oath accordingly and for that purpose may require any of those persons to appear before it personally”.
38. Further 8(1) of SEBI FUTP Regulation reads as under
1) It shall be the duty of every person in respect of whom an investigation has been ordered under regulation 7-
(a) to produce to the Investigating Authority or any person authorized by him such books, accounts and other documents and record in his custody or control and to furnish such statements and information as the Investigation Authority or the person so authorized by him may reasonably require for the purposes of the investigation;
(b) to appear before the Investigation Authority personally when required to do so by him under regulation 6 or regulation 7 to answer any question which is put to him by the Investigation Authority in pursuance of the powers under the said regulations.
39. Thus every entity connected with an investigation process is under an obligation to provide the information as sought for by the Investigating Authority. The decision to call for such information and the judgment as to its relevancy is completely the discretion of the investigating authority and is in furtherance of the discharge of its official duties. It is not for the noticee to question the relevance of the information sought for. The noticee under the summons is only obliged legally or morally, to cooperate with the Investigating Authority and furnish the required information.
40. From a perusal of the Annexure listing the information sought for from Fine Trade by the investigating authority, it is clear that this information was crucial and central to the investigation findings. Moreover the presence of Fine Trade along with the necessary documents was also essential, among other things, to examine the veracity of the entity in question. However, as Fine Trade did not provide the said information accurately, the same thwarted the attempts of SEBI to effectively gather vital evidence for the timely conclusion of the investigation proceedings.
41. Taking into account the sensitivity of the securities market, an early conclusion of investigation is a very important objective. Although there is evidence on record that the said summons were acknowledged by them on their behalf, it is apparent that Fine Trade were not willing to and in fact delayed sending the information sought for. In fact even in the present proceedings, Fine Trade could have availed of the opportunity of being heard in person and come clean, but they failed to do so which indicates that they were not willing to reveal any information about their role in this case.
42. These facts clubbed together indicate that Fine Trade were not totally unconnected with the manipulation of the shares of the PCML in the market and were in fact a willing accomplice to the management of PCML in the said exercise as is apparent from the findings of investigation.
43. As Fine Trade have failed to appear before SEBI or even before me to furnish the correct information as sought for and in the absence of any adequate explanation on their part as regards their non appearance even before me, it can be reasonably concluded that they have failed to comply with a regulatory directive. Such an act on the part of Fine Trade suggests blatant and deliberate non-cooperation clearly warranting severe action.
44. Any evasion of the regulatory provisions of the regulator issued in the interests of the investors or non-adherence to the same for any reason whatsoever is bound to affect the interests of such investors as also the sound and smooth functioning of the capital market. If no cognizance were to be taken of the same, and no liability fixed there upon, the entire purpose of incorporating the provisions in the said enactments would become redundant.
45. Hence, Fine Trade is liable for a penalty under Section 15A of the SEBI Act, 1992 for their failure to comply with summons issued under section 11C(3) of the SEBI Act, 1992, by failing to furnish the timely and at times inaccurate information and also to appear in person before the investigating team. Section 15 A of the SEBI Act, 1992 inter alia provides that in case of failure to furnish any information to the Board, the same would invite a liability of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.
46. At the time of levying penalty certain factors are also be taken in to account by the adjudicating officer, as is evident from the provisions of Section 15J of the Act which also find mention in Rule 5(2) of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 i.e. the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; the amount of loss caused to an investor or group of investors as a result of the default and the repetitive nature of the default.
47. These factors mentioned above, are to be relied upon with due discretion that is to be exercised judiciously, depending upon the facts and circumstances of each case as well as after analysing all the relevant material available on record. In the present case, manipulation is a serious issue and fraudulent activities such as these are per se illegal and are bound to affect a lot of parties in a way, not necessarily expressly highlighted at all times. Moreover 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. However in a limited way, there is some record of the extent of gains made in this case by some entities.
48. From the information provided by PCML, it was gathered that Bhuwania had transferred 5,69,050 shares of PCML to various entities on September 20, 2005. During this period, the share price of PCML was around Rs.280/-. Bhuwania has sold these shares for Rs.15,93,34,000./-Therefore the gain made out of these transfers can be estimated to be Rs.1.1 crores (approx). This is because the acquisition price of 5,69,050 shares of PCML works out to Rs.14,74,06,372.43 i.e.
Rs.30,16,67,704.60 (total value of the purchase details of Bhuwanai)
11,64,563 (total purchase quantity of Bhuwania in PCML) x 5,69,050 (total shares of PCML transferred to various entities)
= Rs.14,74,06,372.43.
49. From the figures given above and keeping in mind the relationship between Fine Trade and the others as highlighted above, there can be no two opinions on the fact that Fine Trade too made disproportionate gains and enjoyed unfair advantage in the whole scenario to the detriment of thousands of innocent investors. This is because Fine Trade traded in the scrip of PCML in a manipulative manner, so as to create volumes which in turn affected the normal price discovery mechanism of the securities market and gave 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. Moreover the nature of offence in this case is repetitive in nature.
PENALTY:
50. Keeping in mind these facts, I am of the view that the imposition of a penalty is warranted and hence in exercise of the powers conferred upon me under Rule 5 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995, in the interest of justice, equity and good conscience, think it is appropriate to levy a penalty of Rs. Two Lakhs only (Rupees 2,00,000/-only ) on M/s Fine Trade Merchantile Company Private Limited.
51. 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 Jayanta Jash, Deputy General Manager, Securities and Exchange Board of India, L&T Chambers, 16, Camac Street, Kolkata 700017.
PLACE: MUMBAI G. BABITA RAYUDU
DATE: MAY 09, 2007 ADJUDICATING OFFICER