IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
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Date of Hearing
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22/11/2004
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Date of Decision
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22/11/2004
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Appeal No: 261 of 2004
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Appellant – Represented by:
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P/L Choudhary & Company
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Mr. Parmeshwarlal Choudhary with Mr. Pawankumar Parmeshwarlal
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Versus
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Securities & Exchange Board of India
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Respondent- Represented by
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Mr. Shaunak Satpute, Advocate
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Appeal No: 261A of 2004
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Appellant – Represented by:
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Ms.Sabitari Devi Choudhary
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Mr. Parmeshwarlal Choudhary with Mr. Pawankumar Parmeshwarlal
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Versus
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Securities & Exchange Board of India
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Respondent- Represented by
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Mr. Shaunak Satpute, Advocate
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Appeal No: 261B of 2004
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Appellant – Represented by:
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Ms. Sarita Choudhary
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Mr. Parmeshwarlal Choudhary with Mr. Pawankumar Parmeshwarlal
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Versus
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Securities & Exchange Board of India
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Respondent- Represented by
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Mr. Shaunak Satpute, Advocate
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Appeal No: 262 of 2004
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Appellant – Represented by:
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Pawankumar Parmeshwarlal
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Mr. Parmeshwarlal Choudhary with Mr. Pawankumar Parmeshwarlal
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Versus
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Securities & Exchange Board of India
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Respondent- Represented by
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Mr. Shaunak Satpute, Advocate
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CORAM
Justice Kumar Rajaratnam, Presiding Officer
Dr. B. Samal, Member
N.L. Lakhanpal, Member
Per: N.L.Lakhanpal, Member
1. These appeals are taken up together for disposal by a common order with the consent of parties.
2. The appellant No.1, in appeal No. 261 of 2004, M/s. P/L Choudhary and Company, is a firm owned by Mr. P.L. Choudhary, who is the husband of Ms. Sabitari Devi Choudhary, appellant in 261A of 2004 and father in law of Ms. Sarita Choudhary, appellant in appeal No. 261B of 2004. The appellant in appeal No. 262 of 2004 M/s. Pawankumar Parmeshwarlal is a brokerage firm run by Mr. Pawankumar Parmeshwarlal who is the son of Mr. P.L. Choudhary. The charge against all the appellants relates to their transactions in respect of the shares of M/s. Surya Roshni Limited which were listed for trading at various stock exchanges. The appellants have been charged with violation of Regulation 4(b) and 4(c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995. The certificate of registration of the appellant brokerage firm M/s. Pawankumar Parmeshwarlal in appeal No. 262 of 2004 has been suspended for a period of one month under Regulation 13(4) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulation, 2002. The other appellants have been restrained from accessing the securities market and prohibited from buying, selling or dealing in securities directly or indirectly for a period of 3 months under Sections 11 and 11B of the SEBI Act, 1992 read with Regulation 4(b) and 4(c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995. The appeals have been taken up together because the appellants are related to each other and because the charge against them arises from the same transactions in respect of the shares of M/s. Surya Roshni Limited.
3. While examining the trading pattern of M/s. Surya Roshni Limited for the period May 17, 2000 to September 5, 2000, the National Stock Exchange and SEBI noticed some irregularities and ordered investigations. The investigations indicated that the appellants had traded extensively in the shares of Surya Roshni Limited both on the exchange as well as on spot basis thereby contributing to the creation of artificial volumes in the scrip. The analysis of the trading pattern indicated that most of the transactions entered on their behalf were allegedly matched /structured transactions that mirrored the transactions crystalised outside the exchange mechanism. It seems from the series of transactions outlined in the impugned order that another brokerage firm M/s. Tropical Securities and Investment Private Limited was in need of funds to meet its obligations to the exchange on behalf of its related entities. These related entities sold shares on spot / off market basis to the Choudharys and the Choudharys would make payments to Tropical and its related entities for the shares so brought. However, the Choudharys immediately thereafter sold the shares on the exchange mechanism where they would be bought by Tropical itself on a structured / matched basis. These transactions were put through on the exchange mechanism through the family brokerage firm Pawankumar Parmeshwarlal merely to create an obligation on the part of Tropical to return the money financed. Thus the shares artificially bought from Tropical on spot basis would revert to Tropical itself through the stock exchange settlement system. All this was done simply to finance Tropical without taking any security and instead utilise the comfort cum security of the settlement guarantee fund of the stock exchange. SEBI thus alleged that this amounted to creation of artificial volumes in the market to the extent that these were not genuine trade transactions intended to transfer beneficial ownership of shares.
4. There is no dispute about the facts of the case as narrated above. While admitting the facts that these transactions were indeed, intended to provide temporary finance to Tropical, the appellants have contended in appeal that during the relevant years 1999-2000, financing on spot transaction basis was a general market practice and well known big broking firms and other institutions were also engaged in such spot financing including the Stock Holding Corporation of India Limited. The appellants have also annexed as Exhibit ‘B’ to the memorandum of appeal the pamphlet of one such scheme introduced by Stock Holding Corporation of India Limited called “SELL-N-CASH”. The appellants also argued that during the same investigations for the same period, SEBI had also discovered exactly similar transactions by the same appellants in respect of 3 other scrips, namely, VXL Instruments Limited, CEAT Limited, VB Desai Financial Services Limited, and had closed these investigations by merely cautioning them by orders dated 30/11/2003 and 17/03/2004 while in the present case SEBI had debarred the investors in appeal Nos. 261/2004, 261A /2004 and 261B/2004 from accessing securities market for a period of 3 months and suspended registration of the appellants stock broking firm M/s. Pawankumar Parmeshwarlal in appeal 262/2004 for a period of one month. The appellants have thus drawn our attention to the inconsistent stand taken by SEBI in respect of the same transactions during the same period and between the same parties. In appeal No. 262/2004 the appellants have also pleaded that they were not given an opportunity of personal hearing despite their having asked for it.
5. We have carefully applied our minds to the facts of the above transactions and the pleadings on both sides. The learned counsel for the respondent Shri Shaunak Satpute argued that this was a clear case of creation of an artificial market in violation of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995, and that the fact that many others were also indulging in such practices at the relevant time could be of no help to the appellants. The learned Counsel for the appellants on the other hand contended that SEBI as official regulator of the markets was obliged to follow the same norms and standards at least in respect of the same transactions and the same parties if not vis-à-vis all the stake holders in the market. Since the facts in the present appeals are not in contention we are of the view that these transactions clearly amount to non-genuine trades and mis-utilisation of the settlement guarantee mechanism of the exchange which is intended only for genuine trade transactions. Since the other cases cited by the appellant are not before us, we are not in a position to comment upon the same or to draw any comparisons. The violations of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 need to be penalised adequately and in view of the established and admitted facts, we have no hesitation in upholding the impugned order in appeals 261/2004, 261A/2004 and 261B/2004. In respect of appeal No. 262 of 2004, however, we notice that the respondent Board has reduced the penalty from the period of two months as recommended by Enquiry Officer to only one month on the ground that there has been actually no price manipulation of the scrip. If this indeed, is the conclusion arrived at by the respondent we believe that there is no ground for disrupting the business of the appellant and a simple warning for the irregularities established against them should be sufficient penalty.
6. The appeals are disposed of accordingly. The appeals 261 of 2004, 261A of 2004 and 261B of 2004 are dismissed and the impugned orders are upheld. Appeal 262 of 2004 is also dismissed but the impugned order is modified to a warning instead of suspension of business for a period of one month.
7. No order as to costs.
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(Justice Kumar Rajaratnam)
Presiding Officer
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(Dr. B. Samal)
Member
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(N.L. Lakhanpal)
Member
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Place: Mumbai
Date:22/11/2004
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