BEFORE THE SECURITIES APPELLATE
TRIBUNAL
MUMBAI
Appeal No.�� 71/04
In the matter of:
Coram: ����������� Justice
Kumar Rajaratnam, Presiding Officer ����������� N.L.
Lakhanpal, Member Per:� Justice
Kumar Rajaratnam, Presiding Officer
1.
Appeal is taken up with
consent of both parties for final disposal.
2.
The appellants are husband
and wife and they have been debarred from associating, buying, selling or
dealing in securities directly or indirectly for a period of one year by an
order passed by the respondent dated 6.5.2004.�
Aggrieved by the order of the respondent the appellants have preferred
this appeal.� There was a company known
as Magic Trading and Agencies Ltd. (hereinafter referred to as MTAL).�� This company was listed in the Stock
Exchange, Mumbai.� It was basically an
investment company.� The scrip of the
company was not actively traded and between the years 1998-99, there were only
three trades for a total volume of 900 shares.
3.
In February 2000, the first
trade was noticed at the price of Rs. 28.25.�
The price of the scrip slowly fell from Rs. 28.25 in February 2000 to
Rs. 9 by the end of August 2000.� The
scrip never witnessed any upward movement.
4.
The Registrar of Companies,
Chennai received certain complaints alleging that MTAL was taken over by name
QPRO IT Services Pvt. Ltd. (hereinafter referred to as QPRO).� The said company was contemplating to go for
a private placement of share to the tune of Rs. 10 crores.� The complaint of R.O.C. further alleged that
the management of QPRO comprising of one Mr. Madhusudan Khemka and Ms. Geeta
Sundaresh were involved in criminal activities and cases and there were cases
of FERA violation.��� The further
allegation against Mr. Khemka and Ms. Sundaresh was that they were trying to lower
the market for the shares and ultimately to offload the shares in the market at
an enhanced price.� The allegation was
that Mr. Khemka and Ms. Sundaresh were trying to hammer down the price before
they are offloaded in the market.
5.
When this complaint was
brought from the Registrar of Companies to SEBI, SEBI noticed that there was an
amalgamation of both these companies under Section 395 of the Companies Act and
the Company had applied for listing of the equity shares issued on
amalgamation.� The agreement was that
50,000 equity shares of Rs.10/- each of MTAL were allotted to the holders of
QPRO in the ratio of 1:1.� The listing
committee of BSE rejected the claim of the amalgamated company and came to the
conclusion that there was hammering of the share price on the exchange and
ultimately rejected the listing in the market.�
It was further revealed that price manipulation had taken place even
before the extra ordinary general body meeting of MTAL to obtain the approval
of amalgamation scheme.
6.
SEBI on further
investigation came to the conclusion that two brokers JRM Shares and Stock
Brokers Pvt. Ltd. (hereinafter referred to JRM) and MJP Shares and Stock
Brokers (hereinafter referred to MJP) were acting in concert in trying to bring
down the price of MTAL.� During
investigation it was revealed that the appellants Mr. and Mrs. Shah and one
other Sushil Moti Shah traded in MTAL before the amalgamation.
7.
The transactions through
these two brokers are as follows.��
8.
The question that arose for
consideration before SEBI was whether Mr. & Mrs. Shah dealt with these
shares to manipulate the price and to hammer it down at the behest of the
management company.� The SEBI answered
the question by holding that the appellants by manipulating the shares were
guilty of violating the provisions of Regulation 4 (a), (b) (c) and (d) of SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities
Market) Regulations, 1995.�
9.
The 1995 Regulation has
been saved with regard to action taken after repeal under Regulation 13 of SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities
Market) Regulation, 2003.� Therefore, it would
be necessary to proceed under 1995 Regulation as if it is still in force.� 10.
The learned counsel for the
appellant submitted that there was no connection or nexus between the
management of the acquiring company with the appellant.� Not a single material has been produced to
show that the appellants acted at the behest of Khemka and Ms. Sundaresh, on
the contrary, it was submitted that it is common ground that the appellants
have suffered a loss of Rs. 31,529/- and Rs. 40,758/- by the sale of these shares.�� It was further submitted that the appellant
had exercised the use of these two brokers for purchase of other scrips and the
turnover of the scrip of MTAL is extremely small.� It was vehemently submitted further that if
the appellants wanted to take advantage of the acquisition they would have
waited for the acquisition by Khemka and not sold the MTAL shares. 11.
We are not persuaded to
accept this submission because the appellant did not have any alternative but
to sell MTAL shares because the acquisition by Khemka was not permitted to be
listed in the market.� There is no doubt
that the investigation was to detect the bigger investors and especially the
role played by the stock brokers JRM and MJP in the hammering down of the
price.� In this connection the appellant was
a small investor who was caught in the investigation.� Nothing is known or placed before the
Tribunal as to what steps have been taken against the stockbrokers.� No materials have also been placed before
this Tribunal as to whether QPRO IT Services was ultimately able to make
private placement to the tune of Rs. 10 crores.�
It may not be necessary in the facts and circumstances of this case as
we are dealing with two small investors. 12.
The fact undoubtedly
remains that the appellants acted as agents of the brokers at the instance of
unscrupulous management of Khemka to hammer down the price.� It is entirely another matter that the
appellant ultimately ended by burning their fingers and incurring a loss.� No material has been placed before us to show
that there was any nexus between the appellants and the brokers except the fact
that the appellant had used these two brokers to buy and sell the shares of
MTAL.� However, it can be said that the
appellants were victims of the machination of bigger elements in this
concert.� The fact that they actively leant
their name and paid money in buying the scrip of MTAL would no doubt indicate
that they were a small part of the concert.��
It is not even known what actions have been taken on the brokers and others
who are involved in the price rigging.� 13.
Although Section 15J of the
SEBI Act is in Chapter XIA which deals with penalties and adjudication it
certainly gives a guidelines even with regard to the severity of any directions
to be given under Section 11 of the Act.�
The benevolent guidelines contained in 15J is as follows: - a)
the amount of
disproportionate gain b)
the amount of loss caused
to the investor c)
repetitive nature of the default. We feel that these factors are relevant even with regard to issuing directions under Section 11 and any ban on any person must not be disproportionate to the nature of the misconduct.� Looking at it from any angle, there is no material placed on record to show that the appellants acted in concert with the promoters Khemka or with the stockbrokers except for the fact that the inferences that the stockbrokers were very much involved with the promoters in hammering down the price of MTAL.� Although there is no clinching proof the conduct of the appellant in placing orders in a lightly traded scrip leads to the inevitable conclusion that the appellants acted at the behest of the Brokers.� 14. It leads to the conclusion that the appellants were aware of the possible private placement of QPRO.� Taking also into account the fact that both the appellants are more a victim of the concert rather than part of the conspiracy, we propose to take a lenient view of the matter in the punishment. 15.
Taking a practical view of
the matter and also taking into account that the needle of suspicion clearly
points at the brokers, we feel that the ends of justice would be met if the
period of embargo is reduced from one year to three months.� 16.
We therefore hold that the
appellant is guilty of violating SEBI (Prohibition of Fraudulent and Unfair
Trade Practices relating to Securities Market) Regulations, 1995.� We however modify the restrain period at
paragraph 26 (a) and (b) of the impugned order from one year to a period of
three months.� With this modification,
the appeal is disposed of. No costs.
Place: Mumbai Date:� 28.6.2004 //sr04628 |
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