Order against M/s Dev Stock Broking Services Ltd - in the case of Infoquest Software Limited

ORDER UNDER REGULATION 29 (3) OF SEBI (STOCK BROKERS AND SUB-BROKERS ) REGULATIONS, 1992 IN RESPECT TO M/S DEV STOCK BROKING SERVICES LTD., MEMBER THE STOCK EXCHANGE, AHMEDABAD, IN THE CASE OF INFOQUEST SOFTWARE LTD.

M/s Infoquest Software Ltd. (ISL) having its registered office at 1, Gas House Road, M. G. Road, Indore 452 001 came out with a public issue of 43,18,800 equity shares of Rs. 10/- for cash at par aggregating Rs. 431.88 Lacs during April 15-18, 1996. The shares of the company which were issued at face value of Rs. 10/- were listed on June 11, 1996 at Rs.50/- and thereafter the scrip touched a high of Rs. 70/- shortly. Investigations were conducted by SEBI into the alleged price manipulation and grey market dealings in the shares of Infoquest Software Ltd.

Investigations prima-facie revealed that, M/s Dev Stock Broking Services Ltd., member, The Stock Exchange, Ahmedabad (ASE) had dealt in the shares of Infoquest Software Ltd. (ISL) on behalf of mainly Shri. Deep Trivedi having the address of 2^nd Floor, Apollo Towers, M. G. Road, Indore, who manipulated the price of the shares of ISL. It was further seen that, most of these transactions were done in grey market i.e. before the listing of the scrip on the stock exchanges. It was seen that, the payment for these transactions were made by way of Demand Drafts issued by various banks from Indore. It was seen that DSL was yet to receive approx. Rs. 1 crore for the purchases made by Shri Trivedi. During the course of investigations, statement of Shri. Devendra Shah was recorded. Shri Shah was asked to state the intention of Shri Deep Trivedi in purchasing such large quantity of around 11 Lac shares of ISL shares prior to listing. It was replied that Shri Trivedi was making both purchases and sales in the grey market and was making regular payments. It was also stated that Shri Deep Trivedi has purchased approx. 11 lac shares before listing at the rate of Rs.30/- per share or so. Shri Shah also stated that he did not think of price rigging by Shri Trivedi and he was concerned only about earning brokerage. Investigations brought out that, Dev Stock Broking Services Ltd. had dealt in the shares of ISL prior to listing in large quantities mainly on behalf of Shri. Deep Trivedi, which led to manipulation of price of shares of ISL.

Pursuant to investigations, an enquiry officer was appointed to enquire into the alleged contraventions of SEBI (Stock brokers and Sub-Brokers) Rules and Regulation, 1992 by the broker. The Enquiry Officer thereafter proceeded with the enquiry and issued a show cause notice dated May 25, 1999 to the broker. A reply dated June 25, 2001 was submitted by the broker, which was found to be inconclusive by the Enquiry Officer. An opportunity for personal hearing was granted by the Enquiry Officer on April 04, 2001 and June 28, 2001, however, the broker did not appear for the personal hearing on these days. The Enquiry Officer vide report dated November 05, 2001 concluded that, the allegations against the broker stand proved. The Enquiry Officer observed that, the broker for sole personal gain of brokerage indulged in grey market operations, before listing of the scrip on the stock exchange, which were manipulative, fraudulent and deceptive and thereby the broker had violated Clause A (3) of Code of Conduct prescribed under Regulation 7 of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 and recommended in terms of Regulation 28 of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 that, the registration of the broker be suspended for a period of six months.

Pursuant to submission of Enquiry Report, a show cause notice no. IES/ID2/RKK/BK/42682/01 dated December 28, 2001 in terms of Regulation 29 (1) of SEBI (Stock Brokers and Sub-Brokers) Rules and Regulations, 1992 was issued to the broker. No reply was received from the broker. An opportunity for personal hearing was granted to the broker to appear on May 29, 2002, however, the broker did not appear for the hearing and sought an adjournment. In view of this, another opportunity for personal hearing was granted to the broker to appear on August 17, 2002, in which Shri. Mitesh D. Shah appeared in person on behalf of Dev Stock Broking Services Ltd. and made oral submissions. During the personal hearing, Shri. Mitesh Shah stated that, they had purchased around 11 Lac shares of ISL prior to listing on behalf of Shri. Deep Trivedi, who had not made payment to the broker till date and as a result they have suffered huge losses. Shri. Mitesh Shah requested to take a lenient view.

I have carefully examined the enquiry reports, submissions made from time to time, facts and material on record. I find that Dev Stock Broking Services Ltd., member ASE purchased shares Infoquest Software Ltd. (ISL) prior to listing of the scrip on stock exchanges in large quantities, mainly on behalf of Shri. Deep Trivedi. It is seen that, these large purchases prior to listing in the scrip of ISL have not been disputed by him. I find that, these large purchases led to manipulation of price of scrip of ISL and were in violation of Regulation 7 of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992. In view of this, I agree with the recommendations of the enquiry officer in this regard. I, therefore, in exercise of the powers conferred in terms of Sub-Section (3) of Section 4 of SEBI Act read with Regulation 29(3) of Securities and Exchange Board of India (Stock Brokers and sub brokers) Regulations, 1992, hereby direct that the registration granted to M/s Dev Stock Broking Services Ltd., member ASE be suspended for a period of six months. The Order shall come into force with effect from September 30, 2002.