BEFORE THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

Appeal No.88/2002

In the matter of:

Kinglet Finlease & Securities Ltd.,� �� �� Appellant

Vs.

Securities and Exchange Board of India �� Respondent

Appearance:

Shri K. S. Jhaveri,

�Advocate �� For Appellant ��

Shri Ananta Barua,

Jt. Legal Adviser, SEBI�� 

Shri Joby Mathew

Legal Officer,

SEBI�� For Respondent

ORDER

�� The present appeal is directed against the Respondent�s order dated 22.8.2002.� By the said order, the registration certificate granted to the Appellant to act as a stockbroker on the National Stock Exchange of India Ltd., was suspended for a period of one year with effect from 6.9.2002.

�� The background in which the impugned order was issued has been detailed in the order itself.� The factual position has not been disputed in the appeal.� The factual position stated in the order is considered relevant for the purpose of deciding the appeal.� The text of the order extracted below provides the factual position and the reasons for the order:

�1. Investigations were conducted by SEBI into the alleged market manipulations in the scrip of Kamal Overseas Ltd., (KOL).� Investigations brought out that the shares of Kamal Overseas Ltd., were listed for trading on NSE w.e.f. 9^th October 1996.,� The trading activity in the scrip was very thin and sporadic, so much so that, only 1200 shares of the company were traded between 9^th October 1996 and 15^th April 1997.� Trades took place only on 6 days during this period and the share price moved in a narrow range of Rs.75 to Rs.81.� It was observed that suddenly from 22^nd April, 1997 onwards (which was the last day of St.No.16/1997), trading activity picked up in the scrip and a volume of 10,200 shares were recorded and the price of the scrip moved upto Rs.82/-.� The next two settlements viz. No.17/1998 (23-29 April 1997) and No.18/1997 (30^th April � 6^th May 1997) saw feverish trading activity in the scrip with a trading volume of 7,53,600 shares and 11,97,100 shares respectively.

2. It was seen during the course of investigations that there was only one net buyer namely, Kinglet Finlease & Securities Ltd., and there was only a handful of net sellers.� Investigations brought out that Rahil Investments & Finance Ltd., (Rahil) was the client on whose behalf Kinglet had purchased these shares of KOL.� Since Rahil failed to pay for its purchase obligations, Kinglet failed to honour its commitment to the exchange.� Investigations conducted by NSE revealed that these trades were not genuine trades and, therefore, ordered annulment of these trades in accordance with their bye laws.� The matter was sent to SEBI for further investigations.

3. Investigations of SEBI brought that the trading in the scrip of KOL in St.17 and 18 of 1997 were collusive.� The buying and selling entities put trades with prior understanding in terms of quantity, rate and time of putting the buy and sell order which ensured that the orders matched and resulted in trade.� The shares sold by one set of entities were picked up by a specific set of other entities only which means that the trades were circular in nature.� It appeared that the trading was with an intent to defraud the Clearing Corporation of NSE.

4. In Settlement No. 17/1997, Kinglet had bought 5,69,000 shares and sold 2,800 shares.� Thus their net obligation was 5,66,200 shares receivable which constituted 100% of the net receivable position.� The above purchases were made at an average rate of Rs.80/- per share. �Hence in Settlement No.17, Kinglet had a pay-in liability of approximately Rs.425 lacs.� However, Kinglet failed to discharge its funds pay-in obligation in respect of Settlement No.17.

5. In Settlement No.18/97, Kinglet had bought 6,03,000 shares.� �Since, Kinglet failed to discharge its pay-in obligations of St.17, at the insistence of NSE, Kinglet reduced its exposure in St.18 by selling 5,27,700 shares.� Thus, Kinglet had a net buy obligation of 75,300 shares, which constituted 98.69% of the net receivable position.� Kinglet Finlease & Securities Ltd., Member-NSE, was the only member who had net buy obligations.� Thus SEBI investigations found that while Kinglet was purchasing the shares in their card,� they had sold through Anagram Securities Ltd.,� and GLFL Securities Ltd.�� Kinglet had carried out these transactions on behalf of their client � Rahil Investments and Finance Ltd,, Sheth Investments Pvt. Ltd., and Ancient Investments Pvt. Ltd.� SEBI noticed that all the three clients have the same address.� Rahil Investments, is disabled trading member of NSE.

6. It was claimed that Kinglet had incurred huge liabilities to the tune of Rs.2.7 crores� towards Anagram Group of Companies viz. Anagram Securities Ltd., and Anagram Finance Ltd.� Anagram had proposed to Kirit Shah (Chairman of Kinglet) that he should hand over the� operations of Kinglet to Anagram Securities Ltd., in lieu of all his debts or else face winding up proceedings against Kinglet Finlease & Securities Ltd.� Kinglet agreed to the proposal and was informed by Sh. Milan Shah of Anagram that till the time certain formalities regarding the takeover, including NSE�s approval, were obtained, all operations on Kinglet�s NSE terminal will be as per Anagram�s instructions.� It was also stated by Sh. Milan Shah of Anagram that he wound appoint three directors on the board of Kinglet in place of the existing Directors.� Accordingly, Kirit Shah signed Form No.29 and Form No.32 for appointment of Haresh J. Bhavsar, Balwantsingh Parmar and Pravin Giri Bava as Anagram�s representatives and Additional Directors on the board of Kinglet.� Amongst the directors who resigned from the board of Kinglet was Darshan Joshi who is also the brother-in-law of Milan Shah, whole-time Director of Anagram.� The relevant formalities in this regard were completed with the Registrar of Companies at Amhedabad between April 21 and April 23, 1997.� A new bank account in the name of Kinglet was opened at Dena Bank, Ashram Road Branch, and the operating authority for this lay with the newly appointed Directors of Kinglet.

7. It was further contented that, Anagram took over the operations of Kinglet�s NSE terminal from April 23, 1997, which was also the first day of Settlement No.17.� During this settlement, Anagram issued instructions to Kinglet to buy shares of Kamal Overseas Ltd. (KOL).� As the volumes were very high, Kinglet inquired about Anagram�s holdings in the scrip and was informed that all purchases will either be squared up or Anagram would take the entire liability on themselves.� Before the settlement ended, NSE called upon Kinglet� to deposit additional margin of Rs.90 lacs as their exposure in the scrip of KOL was very high.� This was informed to Sh. Milan shah of Anagram by Kinglet and Sh. Milan shah, in turn, made a payment of Rs.90 lacs by way of 2 cheques No.86592 dated 28.04.97 for Rs.15 lacs and No.86598 dated 30.04.97 for Rs.75 lacs both drawn on Anagram�s HDFC Bank account at Ahmedabad.,� The payment to NSE was routed through Kinglet�s account at HDFC Bank at Ahmedabad.� At the end of Settlement No.17, Kinglet had a net buy obligation of 566200 shares of KOL.

8. It was further stated that in Settlement No.18 too, Sh. Milan Shah of Anagram continued giving instructions to Kinglet to purchase shares of KOL in huge quantities.� However, before the settlement ended, the pay-in for previous Settlement No.17 fell due on May 05, 1997.� Kinglet�s pay-in liability for Settlement No.17 was approximately Rs.4.67 crores.� Although, Anagram had paid Rs.1.5 crores to Kinglet vide Cheque No.84341 dated May 03, 1997 drawn on HDFC Bank, Ahmedabad, they had failed to bring in the additional requisite funds towards pay-in.� As a result Kinglet failed to discharge its pay-in obligations to NSE for Settlement No.17.� Further in Settlement No.18 too, Kinglet had built up a huge� purchase position of 603000 shares.� However, subsequent to its default in Settlement No.17, Kinglet was asked by NSE to square up all transactions in Settlement No.18.� This was communicated by Kinglet to Sh. Milan Shah of Anagram and accordingly majority of the trades were reversed.� At the end of Settlement No.18, Kinglet had a net buy obligation of 75300 shares.

9. It was observed during the course of investigations that Anagram had sold 258100 shares of KOL in Settlement No.17 out of which 100000 shares were sold on behalf of Kinglet.� Kinglet, when confronted with this fact, stated that these sales of shares by Anagram in their name were made without their knowledge and also the deliverable shares were given to Anagram directly by Rahil Investments and that no shares passed through the hands of Kinglet.

10. It was also seen that GLFL (Member, NSE) has sold 110000 shares of KOL in Settlement No.17 out of which 85000 shares were sold in the name of Kinglet.� Kinglet has stated that these sale of shares in their name were made without the knowledge of Kinglet and that these shares were sold on behalf of Kinglet pursuant to the instructions of Haresh Bhavsar, newly appointed director of Kinglet as nominee of Sh. Milan Shah of Anagram.� As regards the board resolution of Kinglet, which was signed by Sh. Kirit shah duly authorising Haresh Bhavasar to deal on behalf of Kinglet, it was contented that this resolution bears forged signature of Kirit C.� Shah and Kinglet had, vide a board resolution, authorised Rajesh Sonawalla only to deal with GLFL on its behalf.� It was contented by Sh. Kirit Shah that the sale proceed of 85000 shares of KOL sold by GLFL in the name of Kinglet were discounted through them for spot finance and a payment of approximately Rs.66 lacs was deposited into the newly opened bank account of Kinglet at Dena Bank, Ashram Road Branch, which was being operated by the newly appointed Directors of Kinglet, as nominee of Sh. Milan Shah of Anagram.� The 85000 shares in question were registered in the name of Block Buster who have alleged that these shares were lodged for safe custody and that the transfer deeds bearing signature of their Directors are forged.

11. In short, Kinglet has submitted that all their operations in Settlement No.17 and 18 were at the behest of Anagram and hence Anagram was responsible for all trades conducted during this period.� However, investigations found that this argument of Kinglet does not inspire confidence because Kinglet was all along aware of payments being routed through its bank account.� The fact that Rs.150 lakhs received by Kinglet from Anagram, toward pay-in of St.17 was never transferred to NSE settlement account but was used to pay-off the creditors of Kinglet clearly show manipulative and malafide intentions of Kinglet.

12. Since Kinglet failed to meet its obligation of St. 17, NSE asked the members to square off their position.� In spite of the fact that KOL was highly illiquid� scrip and such large quantities cannot be purchased and sold easily and the fact that all the positions were squared off, corroborates the fact that the buyers and sellers were operating in collusion.� Further, complete matching of buy and sell orders on each occasions between Kinglet on the one side and other associates of Rahil on the other side clearly indicates that the above transactions were not done on the basis of genuine sales and purchases.

13. At the exchange, the total net deliverable position in Settlement No.17 was 566200 shares and the entire receivable position was resting on Kinglet Finlease.� Out of these 566200 shares delivered at the exchange, majority of the shares belonged to Amritmoya Projects, Block Buster and Ascon Exports.� It was observed that later these entities claimed that shares were lost by them and these were sold in the market with their forged signatures.� Thus, there were disputes/irregularities in respect of 4,40,100 shares, which accounted for more than 77% of the total deliverable position.� The settlers as well as the buyers were acting in collusion with an intent to defraud and cheat the exchange and Clearing Corporation.� The buyer had no intention to honour its purchase obligations to the exchange.� The sellers and buyers put the orders in such a manner that the shares sold by the sellers were purchased only by Kinglet.

14. Thus, prima-facie, it was found that Kinglet, Member, NSE, had violated Clause A(1), A(2), A(3), A(4) and A(5) of the Code of Conduct specified in Schedule II of SEBI (Stock Brokers and sub Brokers) Regulations, 1992 compliance of which is mandatory in terms of Regulation 7 of that Regulations.� It is also alleged that the member had violated Regulation 4(a), 4(b), 4(c) and 4(d) specified in Chapter II of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995.

15. Based on the findings of the investigation, an Enquiry Officer was appointed by Chairman of SEBI, vide order dated 9^th March, 2000.� Pursuant to the said order of the Chairman, the Enquiry officer issued a Show Cause Notice vide letter No. OTW/255/2001 dated 29^th May, 2001.� The member replied to this Show Cause Notice vide letter dated 29^th June, 2002.(?)� An opportunity of personal hearing was given by the Enquiry Officer on 30^th August, 2001 which was attended by Shri Kirit Shah who made submissions.� Subsequent to the hearing the� broker made further submissions vide letter dated 18.9.2001.

16. On completion of the enquiry proceedings, the Enquiry Officer concluded that there was an attempt on the part of the member, in collusion with other brokers, to create false market for the scrip by making sales and purchases through the counter of various brokers and their clients and with the sole purpose of inducing interest in the script.� By way of circular trading, an attempt was made to give a misleading appearance of trading in the securities.� In these two settlements, the entire net buying obligation was on Kinglet Finlease.� Amongst the major sellers in these two settlements were anagram Securities.�� Further, Kinglet Finlease was also a selling client of Anagram Securities.� Also, Rahil Investments, an already suspended member of NSE was buying shares through Kinglet Finlease and selling them through Anagram.� The Enquiry Officer found that the member took position on behalf of an NSE Member who had defaulted at the exchange; undertaken transactions in St.17 and 18 which were irregular and fraudulent; did not have requisite control over their operations (trading/back office) and hence did was not professional in their business; aided and abetted Anagram and Rahil with malafide intentions to create false market in this scrip. The Enquiry Officer also held that Kinglet is a party to the plan to defraud the Clearing Corporation of NSE.� The Enquiry Officer recommended that the registration of the member be suspended for a period of one year.

17.Pursuant to the submission of the report by the Enquiry officer, a Show Cause Notice dated 28^th March, 2002 was issued to the member.� The member replied to this Show Cause Notice vide letter dated 18^th April, 2002.� An opportunity of personal hearing before Chairman, SEBI was granted to the member on 25^th July, 2002 which was attended by Shri Kirit Shah, Chairman and Sh. Kalpesh Jhaveri, Advocate.� The member also submitted a letter dated 23^rd July 2002 wherein they had submitted that a settlement between Kinglet, Anagram and GLFL Securities have already been arrived in the High Court of Gujrat and no payment is to be made by Kinglet to Anagram and GLFL; a settlement has been arrived with Indus Bank Ltd. , and all money due has been paid for which the bank guarantee was evoked by NSE; the MoU between GLFL and Anagram suggest that Kinglet was� not the prime accused but it was at the instance of Anagram they have agreed to cancel the sauda of Kamal Overseas & a Power of Attorney in favour of Mr. Pinakin Shah of GLFL was also executed to collect the margin money from NSE & distribute amongst GLFL and Anagram; Kinglet has been suspended for 51/2 months by NSE and a heavy penalty of Rs.,29 lakhs has already been paid to NSE; Anagram has been let off with a warning and the same stand may be taken with them also.

18.I have carefully examined the enquiry report, submissions made from time to time, facts and documents available on record.� I find that the broker had dealt for Rahil Investments who was a disabled trading broker of NSE and was suspended in May 1996 and later declared a defaulter from 1/7/97 onwards.� The argument that Anagram controlled the operations of Kinglet and Kinglet only acted at the behest of Anagram, while putting the buy orders, is not tenable.� This also does� not absolve Sh. Kirit shah of Kinglet from his obligations, duties and responsibilities as manipulation by any entity is prohibited by SEBI.� Whenever any immovable property is transferred or any company is taken over, elaborate procedures are required to be followed.� Thus, the contention of Sh. Kirit� Shah that Anagram was dealing through the terminal of Kinglet is not very convincing.� Moreover, Kinglet was aware that Rahil Investments is a defaulted broker of NSE and purchase of shares on its accounts and its associates shows that Sh. Kirit Shah was aware of this fact and had dealt for a defaulted broker.� Further, payment were being routed through its bank account and this shows the intentional participation of Kinglet in circular non genuine trades.� The fact that, Rs.150 lakhs received from Anagram towards pay-in liability of St.17 was never transferred to NSE settlement account, by Kinglet, but was used to pay-off the creditors of Kinglet shows that Kinglet never had the intentions to honour its pay-in commitments at the exchange.� This clearly establishes malafide intentions of Kinglet to defraud the Clearing Corporation of NSE.

19.As regards comparing the facts of the case of Kinglet with the case of Anagram, I find that the facts of both the cases are different and hence cannot be compared.� It was seen that Sh.Milan Shah, who was in charge of the operations, had acted beyond his scope of employment and has perpetrated a fraud on the company.� He was not authorized� to takeover Kinglet and to give further funds to Kinglet (Rs.90 lakhs and Rs.1.50 crores), especially when large amounts were to be recovered from Kinglet.� Anagram had initiated criminal and civil proceedings against Sh. Milan Shah.� Appropriate action is also being taken by SEBI against Sh. Milan Shah separately.

20.The Disciplinary Action Committee had imposed a penalty of Rs.29 lakhs on Kinglet and deactivated its terminal for 51/2 months, since NSE found that there was prima facie attempts of market manipulation and defrauding the clearing corporation by Kinglet.� The contention that Anagram was dealing through the terminal of Kinglet is also not very convincing.� It was seen that, Kinglet was buying on the one side on behalf of Rahil Investments and selling on the other side through Anagram and GLFL Securities.� Moreover, GLFL Securities had discounted the payment due to Kinglet and had made the payment to Kinglet well before the pay-out date.� Investigations have brought out clearly that the transactions in the scrip of KOL were not done on the basis of genuine sales and purchases and were done with an intent to create false and misleading appearance of trading in an illiquid scrip and to defraud the clearing corporation of NSE.

21.Considering the facts and circumstances in totality, I tend to agree with the recommendations of the Enquiry Officer.� I am of the view that the registration of the broker should be suspended for a period of one year.� This order shall come into force with effect from 6^th September, 2002.�

Shri K. S. Jhaveri, learned Counsel submitted that the Appellant has been penalised twice for the same charges, that NSE had suspended the Appellant�s trading on NSE for four and a half months from 29.4.1997 to 10.9.1997 and also imposed a penalty of Rs.29 lacs, which the Appellant has already paid.� Learned Counsel submitted that the Appellant had brought this fact to the notice of the Enquiry Officer, and the factual position in this regard� has been recorded in para 8.1 of the enquiry report.� In support of the contention he referred to the following averments in the reply (para 7) filed by the Respondent that �the total net deliverable position in Settlement No.17 was 5,66,200 shares and 100% of this obligation rested on the Appellant, that out of these 5,66,200 shares, disputes/irregularities had been reported in 4,40,100 shares accounting for more than 77% of the deliverable position, that this indicated that the activity in the above shares during this period was not in the normal course of trading and that there was an arrangement between parties acting in collusion with an intent to defraud and cheat the exchange and clearing corporation.�� Learned Counsel referred to the gist of the findings in the investigation report and also the findings of the Enquiry Officer in this regard and submitted that the charge against the Appellant is that it defaulted towards NSE and for that NSE has already� awarded punishment and therefore the Respondent is precluded from imposing any penalty on the Appellant for the same misconduct which NSE had already considered and acted upon.� He submitted that the finding of NSE and the Respondent is same.� The fact that the Appellant was suspended by NSE and penalty was imposed was known to the Chairman while passing the order and this factual position has been taken note of by the Chairman by observing that �The Disciplinary Action Committee had imposed a penalty of Rs.29 lakhs on Kinglet and deactivated its terminal for 51/2 months, since NSE found that there was prima facie attempts of market manipulation and defrauding the clearing corporation by Kinglet.�� Learned Counsel submitted that Chairman has not dealt with the submission put forth by the Appellant before him� as to the non permissibility of imposing penalty on the Appellant in the light of the action taken by NSE, that� the Respondent can not make good that deficiency through its reply.�

Shri Jhaveri submitted that in the investigation report, the enquiry report and the impugned order it has been stated that the Appellant aided M/s. Anagram Securities Ltd.,� and M/s. Rahil Investment & Finance Ltd., with malafide intentions to create false market.� He submitted that though Anagram Securities Ltd., has also been allegedly� held responsible along with the Appellant for acting with malafide intentions and create false market in the scrip, the said Anagram�s conduct was viewed lightly and let off with a warning whereas the Appellant was subjected to harsh penalty by suspending it from doing business for one year.� He further pointed out that while the enquiry officer had identified Anagram�s role in the market manipulation, the Chairman has come to a different conclusion, without any supporting material.� He said that since the Respondent has viewed the Appellant and the said Anagram is a part of the team allegedly having indulged in market manipulation, the punishment,� if at all called for,� can not vary,� that the Appellant should not have been subjected to the penalty of suspension while Anagram was let off with a warning.� He submitted that in fact the Appellant�s case is stronger than that of� Anagram�s, to be spared of any penalty� as it has already been penalised by NSE, as per the Respondent�s own admission.

Learned Counsel submitted that the order passed by the Respondent is contrary to the provisions of regulation 29, which requires the Respondent to pass an order within 30 days of the receipt of the reply from the� noticee, that in the instant case the Appellant had failed to comply with the said� statutory requirement in as much as the order was not passed within 30 days from the receipt of the reply filed by the Appellant nor was it passed within 30 days from the date of hearing i.e. 25.7.2002, that though the impugned� order is� dated of 22.8.2002 it was communicated by the Respondent vide its letter dated 3.9.2002 leaving one to believe that the order is back dated to overcome the statutory restriction provided in regulation 29.� He submitted that in any case since the order was communicated vide the Respondent�s letter dated 3.9.2002 that date� should be considered as the date of the order and as such the order is time barred and hence void.� He further submitted that the decisions in the case laws relied on by the Respondent have no application to the present case in view of the distinguishable facts of the cases.

Shri Ananta Barua, learned Counsel� Representing the Respondent submitted that the Appellant has been charged for market manipulation, which is a very serious charge and can not be viewed lightly.� He submitted that the Appellant has not challenged the factual matrix of the case and the finding arrived at based on the same, that the Appellant�s� grievance is mainly on the penalty part of the order for the reason that it has already been punished by NSE by suspending it from trading for about 51/2 months and awarding a penalty of Rs.29 lakhs.� Shri Barua submitted that NSE had conducted a domestic enquiry under its bye laws and regulations and having found the Appellant guilty of violating the same took action, whereas the impugned order, as has been clearly stated in the show cause notice is in the context of the violation of the provisions of the Broker Regulations and FUTP Regulations.� In this context, in support of his contention that a domestic enquiry and consequential action does not preclude other enforcement authorities proceeding against the delinquent on the same facts, Shri Barua cited the following decisions of the Supreme Court � (1) State of Bihar V. Murad Khan (1988) 4 Scc 655 in which it was held� that if there are two distinct and separate offences with different ingredients under two different enactments, double punishment is not barred (2) Supreme Court Bar Association v. Union of India (1998) 4 Scc 409. while examining the issue of whether an advocate who committed contempt of court can be also punished for professional misconduct under the Advocate Act, the Hon�ble Supreme Court had held that there is no such bar, though the punishment for contempt and penalty for professional misconduct were for the same offence i.e. contempt of court, the two punishments were to be imposed by two different authorities � the Supreme Court and the State Bar Council exercising powers conferred on them by separate statutes � the Constitution and the Advocates Act,� respectively.

Shri Barua has also relied on a Civil Writ Petition No.4331/97 filed before the Hon�ble Delhi High Court by M/s. RCM Broking Serves against the Respondent wherein the petitioners had contended that Delhi Stock Exchange had imposed a penalty of Rs.25,000 and suspension of trading by the Petitioner on the basis of the direction of the Respondent (SEBI) and as such it was not open to SEBI to initiate again action against the Petitioner as such a step would amount to double jeopardy that in the said Writ Petition the petitioner had also contended that the power of SEBI under regulation 26(i)(x) of the Broker Regulation to suspend the registration of a broker whose membership has already been suspended by the stock exchange is ultra vires Article 20(2) of the Constitution of India and that the same is in violation of Articles 14 and 19(1)(g) as the same amounted to double jeopardy and had prayed for a writ of certiorari to declare regulation 26(i)(x) ultra vires the Constitution and invalid, that the Hon�ble Court dismissed the petition for the reason that alternate remedy was available and held that they are not expressing any opinion on the vires of the regulation.

�� Shri Barua submitted that in the present appeal, the suspension of trading rights and imposition of penalty on its trading member was done by NSE under the bye laws and the penalty of suspension of certificate of registration on the Appellant was imposed by the Respondent under the SEBI Regulations which are required to be enforced by the Respondent and therefore can not be treated as a double jeopardy/double punishment for the same offence.

�� Shri Barua submitted that NSE had only deactivated the terminal, as stated in the order, that the deactivation of the trading terminal can not be considered as a suspension of the membership of the Appellant in NSE, that the said deactivation was with reference to defrauding the clearing House.� In this context he referred to the Appellant�s averment in para 5(iii) of its Memorandum of appeal that �during October 1996 there was abnormal trading in Kamal Overseas and an inquiry was conducted by the NSE and penalty was imposed to the tune of Rs.29 lacs vide order dated 16^th Aug. 2000.�� He submitted that the impugned order is in the context of the violation of the regulations� of the FUTP Regulations and for violation of Code of Conduct under regulation 7 read with clause A in Schedule II of the Broker Regulations.� Shri Barua submitted that the finding in the order that the Appellant violated the said Regulations has not been contested� by the Appellant and the order has been challenged in the present appeal only on certain technical grounds.

Shri Barua., with reference to the Appellant�s contention that Anagram Securities Ltd.� placed in the same situation has been let off by the Respondent, submitted that Anagram was proceeded against separately and in the light of the facts and circumstances emerged in the said proceeding, action which was considered necessary has been taken against Anagram.� He submitted that Anagram�s case is not comparable to that of the Appellant�s is clear from the factual position explained in the order.� In this context he referred to the following paragraphs in the impugned order:-

�It was further contented that, Anagram took over the operations of Kinglet�s NSE terminal from April 23, 1997, which was also the first day of Settlement No.17.� During this settlement, Anagram issued instructions to Kinglet to buy shares of Kamal Overseas Ltd. (KOL).� As the volumes were very high, Kinglet inquired about Anagram�s holdings in the scrip and was informed that all purchases will either be squared up or Anagram would take the entire liability on themselves.� Before the settlement ended, NSE called upon Kinglet� to deposit additional margin of Rs.90 lacs as their exposure in the scrip of KOL was very high.� This was informed to Sh. Milan shah of Anagram by Kinglet and Sh. Milan shah, in turn, made a payment of Rs.90 lacs by way of 2 cheques No.86592 dated 28.04.97 for Rs.15 lacs and No.86598 dated 30.04.97 for Rs.75 lacs both drawn on Anagram�s HDFC Bank account at Ahmedabad.,� The payment to NSE was routed through Kinglet�s account at HDFC Bank at Ahmedabad.� At the end of Settlement No.17, Kinglet had a net buy obligation of 566200 shares of KOL. It was further stated that in Settlement No.18 too, Sh. Milan Shah of Anagram continued giving instructions to Kinglet to purchase shares of KOL in huge quantities.� However, before the settlement ended, the pay-in for previous Settlement No.17 fell due on May 05, 1997.� Kinglet�s pay-in liability for Settlement No.17 was approximately Rs.4.67 crores.� Although, Anagram had paid Rs.1.5 crores to Kinglet vide Cheque No.84341 dated May 03, 1997 drawn on HDFC Bank, Ahmedabad, they had failed to bring in the additional requisite funds towards pay-in.� As a result Kinglet failed to discharge its pay-in obligations to NSE for Settlement No.17.� Further in Settlement No.18 too, Kinglet had built up a huge� purchase position of 603000 shares.� However, subsequent to its default in Settlement No.17, Kinglet was asked by NSE to square up all transactions in Settlement No.18.� This was communicated by Kinglet to Sh. Milan Shah of Anagram and accordingly majority of the trades were reversed.� At the end of Settlement No.18, Kinglet had a net buy obligation of 75300 shares.� It was observed during the course of investigations that Anagram had sold 258100 shares of KOL in Settlement No.17 out of which 100000 shares were sold on behalf of Kinglet.� Kinglet, when confronted with this fact, stated that these sales of shares by Anagram in their name were made without their knowledge and also the deliverable shares were given to Anagram directly by Rahil Investments and that no shares passed through the hands of Kinglet.� It was also seen that GLFL (Member, NSE) has sold 110000 shares of KOL in Settlement No.17 out of which 85000 shares were sold in the name of Kinglet.� Kinglet has stated that these sale of shares in their name were made without the knowledge of Kinglet and that these shares were sold on behalf of Kinglet pursuant to the instructions of Haresh Bhavsar, newly appointed director of Kinglet as nominee of Sh. Milan Shah of Anagram.� As regards the board resolution of Kinglet, which was signed by Sh. Kirit shah duly authorising Haresh Bhavasar to deal on behalf of Kinglet, it was contented that this resolution bears forged signature of Kirit C.� Shah and Kinglet had, vide a board resolution, authorised Rajesh Sonawalla only to deal with GLFL on its behalf.� It was contented by Sh. Kirit Shah that the sale proceed of 85000 shares of KOL sold by GLFL in the name of Kinglet were discounted through them for spot finance and a payment of approximately Rs.66 lacs was deposited into the newly opened bank account of Kinglet at Dena Bank, Ashram Road Branch, which was being operated by the newly appointed Directors of Kinglet, as nominee of Sh. Milan Shah of Anagram.� The 85000 shares in question were registered in the name of Block Buster who have alleged that these shares were lodged for safe custody and that the transfer deeds bearing signature of their Directors are forged.�� In short, Kinglet has submitted that all their operations in Settlement No.17 and 18 were at the behest of Anagram and hence Anagram was responsible for all trades conducted during this period.� However, investigations found that this argument of Kinglet does not inspire confidence because Kinglet was all along aware of payments being routed through its bank account.� The fact that Rs.150 lakhs received by Kinglet from Anagram, toward pay-in of St.17 was never transferred to NSE settlement account but was used to pay-off the creditors of Kinglet clearly show manipulative and malafide intentions of Kinglet.�

�� With reference to the Appellant�s version that the impugned order is time barred, Sri Barua referred to� the provisions of regulation 29 and submitted that the order is� not time barred as has been alleged.� He submitted that the reply of the Appellant to the show cause notice issued by the Respondent on 28.3.2002 was received by the Respondent on 22.4.2002, that at the request of the Appellant, a personal hearing was given to the Appellant by the Chairman of the Respondent on 25.7.2002, that thereafter the Chairman passed the impugned order on 22.8.2002 which is sell within 30 days from the date of last hearing granted to the Appellant, that the 30 days� time provided in regulation 29(3) is relatable to the last date of hearing has been recognised by this Tribunal in several cases in the past, that the date on which the communication forwarding the letter is of no relevance as far as compliance of regulation 29(3) is concerned.

�� On a perusal of the material placed before me and the arguments advanced on behalf of the Appellant it is clear that the challenge to the order in the� appeal is on three grounds, that the Appellant has been subjected to double punishment on the same set of facts and violations, that the Appellant has given discriminatory� treatment vis-�-vis Anagram Securities, by imposing a penalty of suspension of the certificate of broker registration lasting for a year� and that the order is time barred having been issued beyond the one month period specified in regulation 29(3).

�� The Appellant has not contested the facts and the findings based thereon arrived at by the Respondent.� The order has nailed the Appellant on two counts � for non compliance of the requirements of the code of conduct provided in the Broker Regulations and for violating the provisions of regulation 4(a) (b) and (c) of the FUTP Regulations.� The code of conduct which the Appellant stated to have been violated as per the regulation 7 is as under:

�A�� (1) �� Integrity : A stockbroker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business.

(2) Exercise of due skill and care: A stockbroker shall act with due skill, care and diligence in the conduct of all his business.

(3) Manipulation : A stock broker shall not indulge in manipulative,

fraudulent or deceptive transactions or schemes or spread rumors with a view to distorting market equilibrium or making� personal gains.

(4) Malpractices: A stockbroker shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors interest or which leads to interference with the fair and smooth functioning of the market.� A stockbroker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness.

(5) Compliance with the statutory requirements: A stockbroker shall abide all the provisions of the Act, rules, regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to him.

It is noted that in terms of regulation 26, SEBI is empowered to impose a penalty of suspension of registration of� a stockbroker in the circumstances specified therein which inter alia includes:

a) Violation of the provisions of the Act, rules and regulations.

b) Not following the code of conduct

c) Indulges in manipulating or price rigging or cornering activities in the market.

d) Guilty of misconduct or improper or unbusiness like or unprofessional conduct.

In this context it is also noted that the said regulation specifically provides in clause (x) to impose the penalty of suspension by SEBI �if the membership of the stock broker is suspended by the stock exchange.�

According to regulation 4 of the FUTP Regulations:

�� 4. 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.

(c) Indulge in any act, which results in reflection of prices of securities based on transactions that are not genuine trade transactions.

In terms of regulation 13, in the circumstances specified in the FUTP Regulations, SEBI is empowered to initiate action for suspension or cancellation of registration of an intermediary holding a certificate of registration.

Thus it is clear that both the Regulations i.e. Broker Regulations and FUTP Regulations empower SEBI to impose penalty for violation of the respective regulations.

��

On a perusal of the governing regulations cited above it is beyond any doubt that the Respondent is empowered to suspend the certificate of registration granted to a Stock broker independent of any action by a stock exchange against a broker for not acting in accordance with the bye laws/regulations of the exchange.� In my view the fact that NSE had deactivated the trading terminal of the Appellant and that a sum of Rs.29 lacs was debited towards �fines and penalties� does not in any way preclude the Respondent exercising its powers under the Broker Regulations and the FUTP Regulations. �It is not material as to whether the facts relied on by the Respondent and NSE are one and the same.� It is the distinct nature of the offence that matters.� Offence is relatable to the omission or commission made punishable by any law.� The action taken by NSE and the Respondent is not with reference to the same offence.� It is well settled that imposition of monetary penalty as a result of a domestic enquiry can not be considered as punishment for the purpose of considering protection from �dual jeopardy.�.� I do not find any merit in the Appellant�s argument that since NSE had deactivated the Appellant�s trading terminal and collected Rs.29 lacs as penalty, the Appellant is immune to any� other� action for violation of the Broker Regulations and FUTP Regulations, based on the same facts relied on by NSE.� It is not that a broker who has been punished by an exchange under its bye laws/regulations is untouchable by SEBI.�

�� Coming to the contention that Anagram Securities was let off with a warning and the Appellant was punished by suspending its certificate of registration and thereby the Appellant was subjected to harsh treatment is also baseless.� The impugned order has� clearly distinguished the role of the said Anagram and the Appellant.� Since the Respondent�s representative had referred to the relevant portion in the said order (extracted in the earlier part of this order) I am not reproducing the same again.� I find the explanation given in the order satisfactory.� In any case, in the context that the charge against the Appellant has been established and the Respondent has imposed the penalty in exercise of the authority vested in it, I do not find any support to the Appellant, from the Anagram�s case.

�� The contention that the order is time barred is also baseless.� According to Regulation 29(3) �the Board after considering the reply to the show cause notice, if received shall as soon as possible, but not later than thirty days from the receipt of the reply, if any, pass such order as it deems fit.�� The reply referred to therein is not confined to written reply alone.� If a noticee seeks personal hearing, to explain his stand with reference to the charges leveled against him in the notice the oral submissions so made should also be considered as reply.� �� It is an admitted fact that the Appellant was given a personal hearing on 25.7.2002.� The order bears the date 22.8.2002.� In the absence of any cogent proof to show that the order is a� back dated one as alleged, I am not prepared to accept the Appellant�s version.� What regulation requires is to pass an order within 30 days which the Respondent has apparently done.

�� For the reasons stated above I do not find any merit in the appeal.� The appeal deserves to be dismissed.

�� Appeal Dismissed.

�� (C.ACHUTHAN)

�� PRESIDING OFFICER

Place: Mumbai

Date:January�� 29, 2003