IN THE
SECURITIES APPELLATE TRIBUNAL
MUMBAI
�����������������������������������
In the matter of : Appeal No. 159 of 2003
Coram: ����������� Justice N. K. Sodhi, Presiding Officer ����������� C. Bhattacharya, Member ����������� R. N. Bhardwaj, Member Per:���� Justice N. K. Sodhi, Presiding Officer(Oral) ��������� Challenge in this appeal is to the order dated December 4,
2003 passed by the Securities and Exchange Board of India (for short the Board)
holding the appellant guilty of violating the Securities and Exchange Board of
India (Prohibition of Fraudulent and Unfair Trade Practices Relating to
Securities Market) Regulations, 1995 (for short the Regulations) and
restraining him from buying, selling or dealing in securities in any manner
directly or indirectly for a period of one year. 2.������ Substantial spurt in the volumes and price of the shares of
Snowcem India Limited (hereinafter called the Company) was noticed by the Board
at the Bombay Stock Exchange and also at the National Stock Exchange during the
period from June, 1999 to August, 1999.�
The price of the share of the Company had risen from Rs.50/- in the
first week of June to Rs.160/- by the last week of August, 1999.� During this period the trading volumes had
also increased.� The Board ordered investigations
into the alleged price manipulation in the scrip of the Company and they
revealed that the appellant was one of the top clients who had traded in the
scrip of the company with an intention to artificially raise the price of the
scrip in collusion with some other entities.�
The investigations further revealed that the appellant had acted in
concert with a selected cartel of brokers on both the exchanges and was
involved in �circular trading�.� Notice
was issued to the appellant on 3.������ On a consideration of the entire material that was available
with the Board it came to the conclusion that the appellant had violated
Regulation 4(a), (b) and (d) of the Regulations and an order restraining him
from dealing in the securities was passed.�
Hence this appeal. 4.������ We have heard the learned counsel for the parties and are of
the view that the impugned order cannot be sustained.� The Board has found in the impugned order
that the trading in the scrip of the company was very infrequent during the
period prior to June, 1999 and it has referred to the average trades in the
scrip of the company per day which had risen from 3 to 173 during the relevant
period.� At the outset we may mention
that the yardstick adopted by the Board in this regard is not the correct
method of ascertaining the actual spurt in the scrips of the company.� It is possible that the number of shares
traded may be very few but the number of trades may be very large.� The proper yardstick could be on the basis of
the average quantity of shares traded per day.�
This figure has also been mentioned by the Board in the impugned order
and we find that during the period from March to May 1999 the average quantity
of shares traded per day was 12,521 and this had risen to 68,370 during the
relevant period.� This increase can, by
no standards be said to be alarming keeping in view the fact that the sensex
during the relevant period had risen by almost 1000 points.� Be that as it may, the Board found that the
appellant had traded in the scrip of the company as a client with Kaynet
Finance Ltd. and Kasat Securities Pvt. Ltd. as his brokers.� It is not in dispute that the appellant is
the Managing Director of one of these companies and is a director in the
other.� Having found this fact, the Board
recorded the following finding in the impugned order: ��������� � Due to these circumstances, RK could not have been
unaware ��������� that KIL and Bora, clients of M/s. Kasat Securities
Pvt.Ltd., � member NSE, were also trading
heavily in the scrip of the ��� company
along with the group of closely related entities.� Since ��������� RK was trading heavily in the scrip of the company, he
would ������� have been aware of the
shareholding pattern of the company and
that KIL is one is one of the Indian Promoters of the �������� Company.� Being a
regular investor in the market, RK could ��������� also
not have been unaware that Bora was known to provide �� finance of the company on regular basis.� Based on these facts, ��� it can be inferred that RK acting in concert with these entities ��������� had traded in the scrip, and indulged
in artificially raising the ������ price
of the scrip.� These transactions of RK,
especially during ������� the period of
investigation only in a particular scrip and the ������ fact of RK trading with the specific entities, with whom he
and ����� the company were closely
associated, clearly leads to the nexus existing
between the said entities.� This finding in our view is
based on surmises and no material could be shown to substantiate the same.� It is true that the appellant is closely
associated with the two companies which acted as his brokers when he traded in
the scrip of the Company.� One can also
agree with the Board that the appellant may have known that KIL and Bora were
the clients of the companies of which he was the Director and Managing Director
and that they had traded through those companies as well.� But that does not lead to the inference that
the appellant would have been aware of the shareholding pattern of the
company.� The finding that being a
regular investor in the market, RK could also not have been unaware that Bora
was known to provide finance to the company is without any basis and no such
allegation was levelled in the show cause notice.� The finding recorded is not only without any
material on the record but is also beyond the show cause notice.� We fail to understand how the Board could
draw any inference to the nexus between the appellant, KIL and Bora and that
too for manipulating the price of the scrip.�
Not only this, in paragraph 16 of the impugned order the Board records a
finding regarding the matched trades allegedly entered into by the
appellant.� It has found that the sale
orders placed by the appellant as a client �were getting ostensibly matched
with� the buy orders of KIL on NSE on
several occasions.� I believe that it has
to be sheer coincidence wherein such a big quantity of shares got absorbed through
some other entity almost immediately.�
These transactions were nothing but structured transactions.�� This finding again is without any basis and
no material could be produced before us in support thereof nor has the Board
referred to the same in the impugned order.�
If the appellant and KIL were executing matched trades on a large scale
as has been observed in the impugned order, surely some instances could have
been referred to in the impugned order or placed before us during the course of
the hearing of the appeal.� If such were
the case, the Board would be having some material with it on the record.� Similar allegations were made against the
intermediaries of the market in some other cases and the allegations therein
had been substantiated by the record obtained from the terminals of the concerned
exchanges where the transactions get recorded along with the time and date at
which they are traded.� In the instant
case no such transaction has been referred to in the order.� We have, therefore, no hesitation in setting
aside the finding recorded by the Board which is speculative in nature and
based more on surmises than on any substantial material. 5.������ In view of what we have stated above, the findings recorded by
the Board cannot be upheld.� Resultantly,
the appeal stands allowed and the impugned order set aside leaving the parties
to bear their own costs. Sd/- N. K. Sodhi Presiding
Officer Sd/- C.
Bhattacharya Member �Sd/- R. N. Bhardwaj �����
Member Smn/1/5
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