Order against M/s. O J Financial Services Pvt. Ltd. in the matter of Havells India Limited

WTM/TCN/61 / IVD3/09/07

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

CORAM : Dr. T.C. NAIR, WHOLE TIME MEMBER

ORDER

Under regulation 13(4) of Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 against M/s. O J Financial Services Pvt. Ltd. Member of the National Stock Exchange of India Ltd., SEBI Regn. No. INB230772831 for their dealings in the scrip of Havells India Limited.

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) had conducted investigation into the alleged manipulation in the trading in the scrip of Havells India Limited (hereinafter referred to as “HIL”) subsequent to the unusual increase in the price and volume of the scrip during the period October 15, 2001 to December 28, 2001 (hereinafter referred to as investigation period).

2. M/s. O J Financial Services Pvt. Ltd. (hereinafter referred to as OJFSL) is registered with SEBI as a broker and is a member of the National Stock Exchange of India (NSE) with SEBI registration no. INB 230772831. OJFSL is also a registered dealer at the Over the Counter Exchange of India Limited (OTCEIL) and a self clearing member of the Derivatives Segment of NSE.

3. The findings of investigation indicated that OJFSL and their counter party broker, Emerging Securities Pvt. Ltd. (ESPL) had together contributed 96.70% of the gross traded quantity in the scrip of HIL during the investigation period in respect of the trades executed for their respective clients, namely Focus Portfolio Pvt. Ltd. (FPPL) and Hind Comtel Ltd. (HCL). It was found that most of the trades between these two clients through the above brokers were found to be structured deals.  It was alleged that the OJFSL had failed to exercise due diligence while dealing on behalf of their clients and violated clause A (2), (3) & (4) of the Code of Conduct as specified under Schedule II of Regulation 7 of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 and also violated  Regulation 4 (b) & (d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices), 1995 for aiding and abetting their clients in creating a false and misleading appearance of trading in the market by entering into synchronised deals.

4. In view of the findings of the investigation, an Enquiry Officer was appointed vide Order dated December 13, 2004, to enquire into the alleged violations committed by OJFSL. Subsequently, due to administrative reasons, the case was transferred to other enquiry officers vide order dated September 28, 2005 and December 20, 2005 respectively. On completion of enquiry, the Enquiry Officer submitted her report dated April 20, 2007 recommending no penalty on OJFSL.

5. In the said report, the Enquiry Officer found that OJFSL had exercised necessary due diligence while dealing with their clients by entering into the required documentation with the clients and taking all due care and precaution to terminate their relationship with the concerned clients prior to being warned by NSE and were not guilty of manipulating the scrip of HIL. Further, the enquiry officer  observed that no case has been made out of OJFSL making any wrongful gains due to the fluctuation in the price of the scrip of HIL.

5. I also note that SEBI while exonerating the charges against ESPL vide order dated December 6, 2006, held that in absence of any material / evidence on record suggesting a nexus between the brokers and the clients, ESPL could not be held guilty of aiding and abetting the client in creation of a false and misleading impression of liquidity in an otherwise illiquid scrip. SEBI vide order dated January 31, 2006 has debarred the clients of OJFSL and ESPL from operating/accessing the securities market for a period of six months.

6. After taking into consideration the facts and circumstances of the case, the findings of the Enquiry Officer and the relevant provisions of law governing the case, I have come to the conclusion that this matter is not a fit case to levy any penalty as the charges against the OJFSL have not been established with reasonably good evidence. Further, from the legal point of view, I feel that there is no evidence on record to prove that the said broker failed to exercise due care, skill and diligence in the conduct of its business or has indulged into manipulative role with its clients.

6. Having regard to what has been stated above, I find no reason to differ with the recommendations of the Enquiry Officer. Accordingly, in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 13(4) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, I hereby dispose of the enquiry proceedings as above against the broker M/s. O J Financial Services Pvt. Ltd.