IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No.242/2004
In the matter
of:
Coram: ��������� Justice Kumar Rajaratnam, Presiding
Officer ��������� Dr. B. Samal, Member ��������� � Per:� Dr. B. Samal, Member 1.������ Appeal is taken up for disposal with
consent of both parties. 2.������ The
appeal is against �the impugned order dated
�Therefore, I, in exercise of the
powers conferred on him(sic) under Regulation 13(4) of the enquiry regulations
and Section 4(3) of the SEBI Act, do hereby suspend the certificate of
registration granted to S. S. Corporate Securities Ltd., for a period of 3
months.� 3.������ The
brief facts of the case is that on getting a reference from RBI that the price
of shares of Global Trust Bank (GTB) had shown a rise from Rs.68.70 on
13/10/2000 to Rs.92.65 on 10/11/2000 on Stock Exchange, Mumbai (BSE)� whereas there was no corresponding increase
in the index of bank�s shares sensex , the Respondent conducted an investigation
into the trades in the shares of GTB during the period 9/10/2000 to 24/11/2000
both on BSE and NSE.� Thereafter, an
investigation was also made into the trades done during the period November
1999 to February, 2000 on the NSE. 4.������ The
investigations into the trades on the NSE during the� period November 1999� to February 2000 revealed that the appellant
alleged to have �indulged in manipulative
practices while dealing in the scrip of GTB on 3 dates viz. 5.������ On
the basis of the findings of the investigation, the respondent appointed an
enquiry officer vide their order dated 17/9/2003 to enquire into the alleged
violation of SEBI (Prohibition of Fraudulent & Unfair Trade Practices
relating to securities markets) Regulations, 19995 (FUTP)� and SEBI (Stock Broker and sub broker)
Regulations, 1002 by the appellant while dealing in the securities of GTB. 6.������ The enquiry officer appointed by the
Respondent issued show cause notice to the appellant on 7.������ On
the basis of the findings the enquiry officer recommended that the certificate
of registration of the appellant be suspended for a period of three
months.� The Chairman, SEBI agreed with
the findings of the enquiry officer and imposed the penalty of suspension of
certificate of registration granted to the appellant for a period of three
months. 8.������ On
the basis of the submissions made by the appellant and after hearing the
counsel of the Respondent, an interim order was granted by this Tribunal on 9.������ The
appellant directors Mr. Sunil Gupta is looking after the 10.���� The
appellant has also stated that it has always serviced its client well and given
them prompt and efficient service.� All
the clients� orders have been executed in time. 11.���� The
appellant has submitted that it has neither faced any arbitration case in the
history of its operation nor have such type of cases pending against it till
date.� The appellant has a long list of
retail clients. 12.���� The
appellant has also stated that it has paid the SEBI turnover Fees up to date to
SEBI. 13.���� On
consideration of the impugned order we find that the Respondent has identified
the following two issues on which the appellant is found guilty: a) Whether the appellant has indulged in
manipulative transactions in the shares of GTB during the period under
investigations. b) Whether the appellant has violated
Regulation 4(A) of Clause A(4) of the Code of Conduct of Stock Brokers and
thereby Regulation 7 of the FUTP Regulations, 1995. 14.���� Regarding
the manipulative transactions in shares of GTB the respondent has identified
three dates on which according to the respondent, the appellant has indulged in
manipulative transactions.� These dates
are 15.���� The
learned Counsel for appellant submitted that all the allegations were belonging
to� the fragmented time period of 30-45
minutes duration in the scrip of GTB on those 3 identified dates.� The total time for which trading took place
in the market during October, 1999 to February, 2000 was 27000 minutes.� The enquiry officer considered only about 150
minutes and ignored the balance period. 16.���� It
was further submitted by the counsel that the Respondent, SEBI has not
commented adversely� on the appellant
trades during 26850 minutes out of the total trade time of 27000 minutes during
October, 1999 to February, 2000. The appellant neither alleged to have
significant� stock of GTB shares.� The maximum stock with SS Corporate at any
time during the period was not more than 1.1 lac shares.� This is negligible compared to GTB equity of
12 crore shares.� The learned counsel for
the appellant clarified their position date-wise. 17.���� The
trading by appellant and its clients was in 33,69,262 shares ( buy + sell)
resulting in net sale (delivery) of 1,82,154 shares.� The total trading on the stock exchanges was
as under: ��������� Total
Trading at NSE ( buy + sell) 11,77,37,946 ��������� Total
Trading at BSE ( buy + sell)��
5,25,37,224 ��������� Total
Trading� (NSE + BSE) ���� ������17,02,75,180 The appellant�s trading percentage to
total trading on the stock exchanges as 1.97. 18.���� As
regards the alleged charges for the trading done on 19.���� The
appellant maintained that the order placed by them was at market price and,
therefore, could not� have influenced the
price in any manner.� The actual traded
quantity at the price Rs.49.25 was only 2001 shares against the total traded
quantity at NSE of 1,15,351 shares at Rs.49.25 i.e. 1.82% of the total traded
quantity.� Further the appellant
submitted that the percentage of trading done by them to total of NSE is only
.5 with a trading of 35,000 shares against the total quantity of 72,95,358
shares at NSE. 20.���� So
far as trading done on 2/12/1999 the main allegation of the respondent was that
at 10:24:19 hours the appellant placed buy order for� 5000 shares at Rs.60/-.� The appellant submitted that the previous close
was Rs.61.90 and the market opened at Rs.62/- and the order placed by the
appellant� was at Rs.60/- only i.e. even
lower than the market opening price of ��������� Time
of modification��������������� Rate
of the order (in Rs.) ��������� ��������� ��������� ��������� According to the appellant this
modification has been necessitated as the order did not get executed at a lower
price.� It is also submitted by the
appellant that the previous close was Rs.69.90 and the market opened at Rs.62/-
and the order was placed by the appellant at Rs.60.20 only which is more than
the market opening price of The appellant submitted a statement
indicating rate-wise break� up of market trades
on
The appellant therefore, submitted that
on 21.���� The
appellant further submitted that the percentage of trading of the appellant to
total trading on NSE full day trading is only 1.8% with a mere trading of
78,704� shares against the total quantity
of 43,33,012 shares at NSE.� Thus
according to the appellant with this minimum share it is impossible for the
appellant to affect the market in any manner. 22.���� The
appellant in view of the above submitted that the overall market was booming
and the appellant�s trading volume has been too insignificant to create any
effect on the market.� Fluctuation in the
rate of scrip was throughout the day with or without giving any effect to the
trading of the appellant. 23.���� On
the alleged charge of the Respondent SEBI for the trading done by the appellant
on 25/1/2000, it has been observed by the Respondent that: �At 24.���� The
appellant submitted that the opening price of GTB on 25//1/2000 was Rs.73.50
and market high was Rs.78.90 and it closed at Rs.76.60 and appellant was
trading between Rs.73 and Rs.78.50.� The
price movement of GTB from 24th to 31st January is
furnished below: ���������
25.���� It
is the submission of the appellant that the overall trend in the market in the
shares GTB at that time was in upbeat mood and all the share prices were
increasing during the period.� Indices
without exception� experienced
unprecedented rise during the same time duration and the appellant could not
have contributed in the market in any significant manner as is clear from the
overall volume during the period in question depicted later on.� To sum up, as per the information furnished
by the appellant the volume of trade by them for 26.11.1999, 2.12.1999 and
25.1.2000 is furnished below:
�Thus
the appellant�s trading was just 1.4% which is too insignificant to create any
impact on the market. 26.���� The
provisions of Regulation 4 of the SEBI (Prohibition of Fraudulent and Unfair
Trade Practices relating to Securities Market ) Regulations, 1995 reads as
under: ���� No person shall � (a)
effect, take part in, or enter into,
either directly or indirectly, transactions in securities, with the� intention of artificially raising or
depressing the prices of securities, and thereby inducing the sale or purchase
of securities by any person; (b)
indulge in any act, which is
calculated to create a false or misleading appearance of trading on the
securities market; (c)
indulge in any act, which results in
reflection of prices of securities based on transactions that are not
genuine trade transactions; (d)
enter into a purchase or sale of any
securities, not intended to effect transfer of beneficial ownership but
intended to operate only as a device to inflate, depress or cause fluctuations
in the market price of securities;(Italics by court) The
observation of the Respondent was that the appellant had placed buy orders at
increasingly high rates specially on 27.���� The
appellant has placed reliance on certain pronouncements of the Supreme
Court/Tribunal with respect to this aspect of the matter which are reproduced
as under: Citation:
AAIR 1964 SC 1366 Mohan Singh Vs. Bhanwarlal The onus of establishing a corrupt practice is
undoubtedly on the person who sets it up, and the onus is not discharged on proof of mere preponderance of probability,
as in he trial of a civil suit; the corrupt practice must be established beyond
reasonable doubt by evidence which is clear and unambiguous. (emphasis supplied)� Citation :
AIR 1999 SC 2407/ Bank Of Strict rules of evidence are not applicable to
departmental enquiry proceedings. The only requirement of law is that the
allegation against the delinquent officer must be established by such evidence
acting upon which a reasonable person acting reasonably and with objectivity
may arrive at a finding upholding the gravamen of the charge against the
delinquent officer. Mere conjecture or surmises cannot sustain the finding of
guilt even in departmental enquiry proceedings. Nirmal Bang Securities (P.) Ltd. Vs Chairman, Securities & Exchange
Board of Respondent-SEBI having
found, on basis of report of Enquiry Officer, that appellant-stock brokers had
indulged in large trading transactions with a view to depress market
artificially in a concerted manner ordered cancellation of appellants�
registration - Whether in absence of adequate evidence to show that appellants
had indulged in large scale transaction with a view to depress market, on mere
suspicion and on weak inference, it could be held that appellants had
transacted in securities with intention of hammering down prices of scrips -
Held, no - Whether, in circumstances penalty of cancellation of certificate of
registration was proper - Held, no (Italics by court) 28.���� While summing up the learned counsel Mr.
Bharucha, the counsel for the appellant stated that the appellant does not have
any link7age with Ketan Parekh group.�
There is no evidence to any circular trading or synchronized trade.� There is also no allegation about bulk
trading.� At a particular time the
appellant might be the largest traders but during that time the appellant did
trade with other scrips also.� The
appellant has to quote higher price as the orders placed at lower rate did not
materialize. 29.���� Shri Kumar Desai, the learned Senior
counsel for the respondent submitted that on the basis of the information
received from RBI, SEBI had conducted investigations about the rise in the
price of GTB scrips.� The appellant was
one of the brokers who was found to be actively traded in GTB scrip at higher
prices.� Hence there was investigation
followed by enquiry.� He was candid in
the submission that it will be difficult for him to make out a case of
intention of pushing of the price by the appellant.� The intent to manipulate the price has to be
seen from the nature of transaction.� It
has to be seen what happened in� price of
scrip on a reference date. ��He also
confirmed that they have no material �to
show that the appellant� was having any
linkage with Ketan Parekh group.� SEBI
has conducted investigations against those brokers who have traded 20% or more
(buy + sell) in GTB scrip and that was the only reason for the enquiry. 30.���� Heard both parties.� We have perused the order dated 31.���� This Tribunal in Cabbot International Corpn. Vs. SEBI held that
where the violation is of technical nature and due to a bonafide error, the
Tribunal should not consider imposing heavy penalty and should help in pointing
out the defect to the appellant so that it does not recur again and the
Tribunal declined to impose any penalty in that case as there was substantial
compliance.� This order of this Tribunal
was confirmed by the Bombay High Court. 32.���� We
have carefully perused the investigation report and the enquiry report in
connection with the appellant.� On a
detailed enquiry, the enquiry officer found that the trades entered into for
those 3 days when compared to the trades of GTB for the month and the month
thereafter was minuscule.� The enquiry
officer in his report has stated that the price at which the appellant bought
the scrip was not above the screen based price and the appellant exited when
the price was around Rs.78.000 and thereafter the price of the scrip went above
Rs.100/-.� The enquiry officer also found
that the appellant was not the only buying broker and that the rise in the
price was due to various other member brokers, but also held that the appellant
purchased shares at different prices from Rs. 73/- to Rs. 78 within this period
of 30 minutes.� (see para 6.10 of the
enquiry report) 33.���� It
is fairly admitted by the respondent that it was not� a misconduct to purchase or sell �the shares at screen based price unless there
was manipulation.� The enquiry officer
further said that the order placed by the appellant was not the only order by
which the price was rising. 34.���� As
stated earlier, we have also perused the investigation report.� The investigation report also finds that the
appellant was not responsible for the rise in the price of the scrip of
GTB.� The price of GTB according to the
respondent, was manipulated by Ketan Parekh and his entities.� It is fairly submitted by the respondent that
the appellant had nothing to do with Ketan Parekh or any of his entities.� The impugned order by the Chairman has held
that it cannot be conclusively proved that because of the conduct of the
appellant the price of the scrip rose.� In
the impugned order the Chairman has stated as follows: �I note that it cannot be conclusively proven that the
trades of the said broker alone can let to an increase in the price of the
shares of GTB on 26.11.1999, 2.12.1999 and 25.1.2000.� However, the manner and pattern of trading by
the said broker shows that they were placing buy orders in such a manner as to
bring about an increase in the price.� In
fact, it is not disputed that on the said days, there has indeed been a rise in
the price of the scrip.� 35.���� As
we have stated earlier, it cannot be said with any certainty that the appellant
was responsible for escalating the price by deliberately purchasing the scrip
with a motive to manipulate the price.�
All purchases and sales were done transparently on the screen. There
were no off-screen transactions.� It was
also fairly conceded by the respondent that the appellant could not have by
himself manipulated the scrip and there was no synchronization of any
deal.� It was further conceded that to
find a person guilty of FUTP Regulation strong proof is required since it is a
serious charge.� We do not find any such
material to hold that the appellant deliberately manipulated the price of the
scrip and artificially inflated the price with a motive of profit or inducing
other than to purchase the scrip. 36.���� The
quantity traded by the above clients and their comparison to the net and the
Gross quantity traded in the market is as under:
It was observed that trading was either on own account or for retail clients.� However, the trading was insignificant as compared to the total trading at the market. 37.������ The entire details have been given.� We have extracted the above� details from the �show cause notice.� It is admitted therein that the trading of
the appellant was insignificant. 38.������ In the facts and circumstances of the
case and taking into account that the entire transactions were screen based and
the transaction was, even according to the respondent, insignificant and that
the transaction had no nexus with the Ketan Parekh entities and also taking
into account that the price were the same as the prevailing market price we do
not find that a case has been made out to find the appellant guilty of
violating FUTP Regulations or the code of conduct as alleged by the respondent. Accordingly
we set aside the impugned order.� No
order as to costs. ������������������������������������������������������������������������������������� Sd/-
Place: Mumbai Date:� 28 /02/2005 //smn/25/02 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||