IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal
No: 281 of 2004
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Date
of Hearing
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30/06/2005
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Date
of Decision
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06/07/2005
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|
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Appellant � Represented by:
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|
Visaria Securities Pvt.
Ltd.
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�Mr. Navroz
Seervai, Sr. Advocate with Mrs. Prarthana Awasthi and Mr. Vinay Chouhan, Advocates
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|
Versus
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|
|
Securities & Exchange
Board of India
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Respondent- Represented by
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|
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�Mr. Kumar
Desai, Advocate with Ms. Daya Gupta, Advocate
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|
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CORAM
��������� Justice
Kumar Rajaratnam, Presiding Officer
��������� C.
Bhattacharya, Member
��������� R.N.
Bhardwaj, Member
���������
Per:��� R.N. Bhardwaj, Member
1.
The
appeal is taken up for final disposal with the consent of both the parties.
2.
The
facts of the case are as under:
3.
The
appellant is a member of NSE and BSE. The appellant had filed an appeal on
which interlocutory order was issued on 27th �October, 2004 against the impugned order of 11th
October, 2004
of SEBI, the operative portion of which reads as under:
�Therefore, I, in exercise of powers
conferred on me in terms of Section 4(3) of the SEBI Act read with Regulation
13(4) of the Enquiry Regulations do hereby suspend the Certificate of
Registration granted to M/s. Visaria Securities Pvt. Ltd., for a period of 3
months.
�This order shall come into effect on
expiry of 21 days from the date of order�
By the interim order dated 27th
October, 2004
the Tribunal stayed the impugned order.
4.
SEBI
conducted an investigation into the rise in price of the scrip of Global Trust
Bank and vide order of Chairman, SEBI, dated 17th September, 2003 an
Enquiry Officer was appointed to enquire into the allegations of violations of
SEBI (Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations, 1995/2003 and SEBI (Stock Brokers and Sub-Brokers) Regulation,
1992 in respect of acquisition of shares of Global Trust Bank. The appellant
had been issued a show cause notice by the Enquiry Officer on 27th
September, 2003 which was replied by appellant vide his letter dated 22/10/2003 rebutting the charges in the show
cause notice.� Another show cause notice
dated 26/05/2004 was issued by the respondent forwarding with a copy of the
enquiry report and calling upon the appellant to show cause in terms of
Regulation 29(1) of SEBI (Stock Brokers and Sub Brokers) Regulation, 1992 read
with Regulation 13(2) of the Securities and Exchange Board of India (Procedure
for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulation, 2002
as to why penalty considered appropriate should not be imposed on them.� The appellant submitted the reply to the show
cause notice vide their letter dated 10/06/2004. The appellant were granted an
opportunity for a personal hearing before the respondent on 26/07/2004 and the appellant thereafter filed a
detailed written submission on 05/08/2004.
5.
The
Chairman, SEBI passed the order dated 11/10/2004 under Section 4(3) of the Securities
and Exchange Board of India Act, 1992 read with Regulation 13(4) of the SEBI
(Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulation,
2002 against Visaria Securities Pvt. Ltd., in the scrip of Global Trust Bank.
It was stated in the order that the price of the scrip during November, 1999 to
February, 2002 rose sharply on account of manipulation through methods such as
synchronized trading in which several brokers had traded in the scrip during
the period under investigation.� The main
charges in the show cause notice of May 26, 2004 pertained to mainly 3 dates i.e., 19th
November, 1999; 26th November, 1999 and 7th
December, 1999. It mentioned that the said broker on 19/11/1999 placed an order for
5000 shares at the end of the day at a price which was very near to the upper
circuit filter whereas the previously traded price was Rs. 40.50 and the appellant
placed the order at Rs. 41/- and at 15.28.52 hrs., modified order was at Rs.
42.80 for 1299 shares. This price of Rs. 42.80 was the upper circuit filter
price on that day.� On 26/11/1999 the appellant placed orders as
below:
|
Time
|
Buy/Sell
|
Price
|
Quantity
|
|
10:58:56
|
Buy
|
45.60
|
20000
|
|
11:00:20
|
Buy
|
45:65
|
5000
|
|
11:00:36
|
Buy
|
45:75
|
5000
|
|
11:01:58
|
Buy
|
46.00
|
10,000
|
The appellant placed 4 orders within
a time span of three minutes at different prices ranging from Rs. 45.50 to Rs.
46/-.
6.
On
07/12/1999 the appellant placed a buy order at Rs. 64/- and the said buy
order matched with all pending sale orders for a price below Rs. 62.90. At that
point of time the last traded price was Rs. 59/-. This buy order established a
new average price of Rs. 62.90. In view of the above it was alleged that the appellant
had acted in a manner to manipulate the price of the scrip to a higher level on
all these three days.� The Enquiry
Officer who completed the enquiry on 06/05/2004 confirmed the charges and he
recommended that Visaria Securities Pvt. Ltd. should be suspended for a period
of 3 months.
7.
The
learned senior counsel for the appellant Shri Seervai, on behalf of the
appellant drew our attention to the various written submissions made by the
appellant and also the oral submissions he made before the Enquiry Officer. It
has been pointed out by the learned senior counsel for the appellant that of the
three dates mentioned in the Enquiry Report, the SEBI Chairman while passing
the order on 11/10/2004 has himself admitted that at 15:16:12 hrs., M/s.
Dharamshi Securities placed a buy order for 10,000 shares at Rs. 41/- whereas the
previously traded price was Rs. 40.50. Immediately thereafter the appellant
placed a buy order for 5,000 shares at Rs. 41/- and modified the order at
market price for 1,299 shares which shows that the price of Rs. 41/- had
already been discovered by another market participant. Therefore, the
contention of the appellant had been accepted by the respondent that the order
placed by the appellant on 19/11/1999 was in accordance with the market
trend and was in order.� Out of the three
dates only two dates i.e., 26/11/1999 and 7th
December, 1999 remained to be considered. On 26/11/1999, 4 orders were placed which are
given as under:
|
Time
|
Buy/Sell
|
Price
|
Quantity
|
|
10:58:56
|
Buy
|
45.60
|
20000
|
|
11:00:20
|
Buy
|
45:65
|
5000
|
|
11:00:36
|
Buy
|
45:75
|
5000
|
|
11:01:58
|
Buy
|
46.00
|
10,000
|
8.
Out
of the order of 40000 shares, order for 19,845 shares only could be executed.
The learned senior counsel pointed out that the total shares traded on 26/11/1999 were 42,84,243 and the volume of the
shares that the appellant placed buy order as a percentage of the total volume
traded on that day was merely 0.93%. It was miniscule compared to the total
trade on that day and such small transactions could not have any impact in manipulating
the market.�
9.
In
respect of transaction on December 7, 1999 the Enquiry Officer in his report
had pointed out that when the scrip was being traded around Rs. 59/60 the order
was placed at Rs. 64/- which was not proper. It was argued by the learned
senior counsel that on 7th December, 1999 the opening price of the share was
at Rs. 61/- and the appellant wanted to punch at Rs. 61/- whereas inadvertently
he punched at Rs. 64/-. It was an error which he had already admitted in his
submissions. In the instant case the average price at which the orders got
executed was Rs. 62.90 which was higher than the price of Rs. 61/- at which the
appellant wanted to place the order but was lower than Rs. 64/- per share. It
had been argued in the enquiry report that the appellant could have complained
to the exchange for cancellation on NEAT system if he had placed an order
inadvertently at Rs. 64/- instead of Rs. 61/-. The learned senior counsel
argued that this was not done because the orders had been executed at a price lower
than Rs. 64/- and he did not want to lodge a claim from insurance company for
which cancellation of order was necessary to take a certificate from the
exchange. He further pointed that on 07/12/1999, �28,86,881 shares were traded and the total
trading of the appellant on 07/12/1999 was 50,000 shares, it was only 1.73%
of the total volume traded on that day.� He
further argued that it was a human error which could be committed by
anyone.� The learned senior counsel
pointed out an inadvertent mistake in the impugned order at item (e) on page 2
where the price is mentioned as Rs. 54/- which in fact should be Rs. 64/-, he
argued that when an error can be committed by even the SEBI Chairman, such
errors can be committed by anyone and no motive should be attributed to such
inadvertent errors.�
10.
The
learned senior counsel further argued that SEBI has dropped the charges under Regulation
4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations, 1999 which it had mentioned in its notice of 29th
September, 2000 for enquiring, where the Enquiry Officer had recommended
suspension of certificate of registration for a period of three months when he
was considering all the three dates i.e., 19th November, 26th
November and 7th December, 1999. But SEBI in its order dated 11/10/2004 has dropped the charge of manipulation
of 19th November, 1999 and in that case the penalty could
have also been reduced accordingly by the SEBI Chairman in his final order of 11/10/2004.�
11.
The
learned senior counsel for the appellant cited the judgment of the Tribunal in
the case of S.S. Corporate Securities
Ltd. in appeal No. 242 of 2004 which had lot of similarity with the present
case, where the Tribunal had taken the view that since all purchases were made transparently
on the screen, there were no off-screen transactions and no irregularity in the
transaction. It was further stated that to find a person guilty strong proof is
required. It was further stated that the Enquiry Officer has found that the
trades entered into those 3 days when compared to the total trades in GTB scrip
for the month were miniscule. He mentioned that the trades done by the
appellant are of 1,70,000/- shares which is very insignificant compared to the
total trading in this scrip.� Moreover,
the shares bought by the appellants were all sold out at a profit on 07/12/1999 itself and, thereafter the
appellants had not had any trade in these shares. He also cited the order of
SEBI Chairman against ICICI Brokerage Services Limited. The learned senior
counsel mentioned that ICICI Brokerage Services Limited had sold over 1 crore
shares of GTB on 11/04/2000. The Enquiry Officer had mentioned
that the entire quantity of 1 crore shares of GTB were purchased by entities
associated with Ketan Parikh and that the trades executed by the said broker on
11/04/2000 were synchronized trades. The SEBI Chairman in his order on
10/09/2004 had set aside the Enquiry Officer�s recommendation of suspension of
certificate of registration for a period of 4 months on the ground that charge
of synchronization was found to be improbable when the trades by the broker
have not in any way impacted the market for the share of GTB or the price of
scrip in any manner and therefore it cannot be said that the said broker had
indulged in manipulative practice. The learned senior counsel mentioned that if
this could be ignored by SEBI then surely there was no case against the
appellant under clause A(4) of the Code of Conduct for Stock Brokers because
the quantum of shares involved on all the three days were very small. The price
of GTB scrip was different in BSE than what was available in NSE which also
provided opportunity for arbitrage. It is shown by the historical data of BSE
and NSE.
HISTORICAL DATA OF BSE
|
Date
|
Open (Rs.)
|
High (Rs.)
|
Low (Rs.)
|
Close (Rs.)
|
Wtd Avg Price (Rs.)
|
No.of Shares
|
No.of Trades
|
Net T/O (Rs.
|
Spread (Rs.)
|
|
H-L
|
C-O
|
|
17/11/1999
|
39.60
|
40.50
|
39.00
|
40.05
|
39.64
|
53592
|
149
|
2,124,534.00
|
1.50
|
0.45
|
|
18/11/1999
|
39.15
|
39.55
|
39.00
|
39.55
|
38.70
|
22925
|
93
|
887,311.00
|
0.55
|
0.40
|
|
19/11/1999
|
39.50
|
41.50
|
39.50
|
41.00
|
40.16
|
52110
|
168
|
2,092,513.00
|
2.00
|
1.50
|
|
22/11/1999
|
40.60
|
44.25
|
40.60
|
43.40
|
41.46
|
1209104
|
405
|
50,129,637.00
|
3.65
|
2.80
|
|
24/11/1999
|
44.00
|
46.85
|
44.00
|
46.85
|
46.28
|
712717
|
775
|
32,986,942.00
|
2.85
|
2.85
|
|
25/11/1999
|
47.00
|
47.75
|
44.50
|
45.00
|
46.52
|
273666
|
506
|
12,731,491.00
|
3.25
|
-2.00
|
|
26/11/1999
|
46.00
|
46.50
|
44.50
|
44.80
|
45.04
|
646564
|
425
|
28,671,177.00
|
2.00
|
-1.20
|
|
06/12/1999
|
64.00
|
67.00
|
61.60
|
61.80
|
62.94
|
1422055
|
983
|
89,504,652.00
|
5.40
|
-2.20
|
|
07/12/1999
|
63.00
|
66.70
|
58.50
|
66.70
|
60.46
|
1485991
|
898
|
89,843,298.00
|
8.20
|
3.70
|
|
08/12/1999
|
68.25
|
69.95
|
61.90
|
63.20
|
67.08
|
365836
|
792
|
24,540,016.00
|
8.05
|
-5.05
|
HISTORICAL
DATA OF NSE
|
Date
|
Prev Close
|
Open
|
High
|
Low
|
Close
|
Total Traded Qty
|
Turnover in Lacs
|
|
17/11/1999
|
39.75
|
40.05
|
40.45
|
39.25
|
40.10
|
118843
|
47.37
|
|
18/11/1999
|
40.10
|
39.80
|
39.95
|
39.00
|
39.60
|
786985
|
309.49
|
|
19/11/1999
|
39.60
|
39.15
|
41.50
|
39.15
|
40.70
|
133895
|
53.82
|
|
22/11/1999
|
40.70
|
41.25
|
44.00
|
40.50
|
43.20
|
837879
|
362.07
|
|
24/11/1999
|
43.20
|
44.90
|
46.70
|
44.05
|
46.65
|
1703275
|
783.34
|
|
25/11/1999
|
46.65
|
47.50
|
48.00
|
44.90
|
45.60
|
2508652
|
1152.09
|
|
26/11/1999
|
45.60
|
45.95
|
49.25
|
44.75
|
49.10
|
3647679
|
1739.38
|
|
06/12/1999
|
63.30
|
64.50
|
65.50
|
61.10
|
61.85
|
672533
|
425.28
|
|
07/12/1999
|
61.85
|
61.00
|
66.80
|
58.50
|
66.75
|
1400890
|
911.00
|
|
08/12/1999
|
66.75
|
70.00
|
70.00
|
61.50
|
64.45
|
2034338
|
1357.39
|
12.
The
learned counsel for the respondent Shri Kumar Desai argued that there was no
dispute about the facts of the case.� He
admitted that the quantum of shares traded by the appellant on these three days
were very small compared to the total trade in the scrip in both the exchanges.
He also admitted that there was no dispute about the transaction of 19/11/1999 which has been accepted by the
respondent in the impugned order. He also argued that because of this reason the
appellant has not been charged under Regulation 4 of SEBI (Fraudulent and
Unfair Trade Practices Relating to Securities Market) Regulations, 1995/20000.
But he pointed that the manner in which the trading was done on 16/11/1999 showed that there was an attempt to
increase the price from Rs. 45.50 to Rs. 46/- in a span of 3 minutes when the
orders were successively placed at higher price which was leading to establish
a new higher price of the scrip.� He also
said that on 07/12/1999 when the price was ranging at Rs.
59/- the order was placed at Rs. 64/- even though the opening price of the
scrip was Rs. 61/- at NSE. He said that it was not rational to place an order
at a higher price when the scrip is available at lower price. He therefore said
that the appellant had violated Clause A(4) of the Broker Regulations which
stipulated that every stock broker should abide by the Code of Conduct.
13.
We
have carefully gone through the enquiry report, the submissions made by the
appellant and the impugned order. We are of the opinion that the trades entered
into by the appellant on those three days when compared to the trades of GTB
shares for the day are miniscule and this could not have made any impact on the
market.� More over the trades have been
screen based and there were no large fluctuations in the price as borne out
from the data extracted from Exhibit �F� of the appeal dated 19/11/1999.�
NSE DATA
|
Date
|
High
|
Low
|
Closing
|
Total Quantity Traded
|
Quantity traded by Appellant
|
|
19/11/1999
|
41.50
|
39.50
|
41.00
|
1,33,895
|
5,000
|
|
26/11/1999
|
49.25
|
44.75
|
49.10
|
36,47,679
|
19,845
out of order of 40,000/-
|
|
07/12/1999
|
66.80
|
58.50
|
66.75
|
14,00,890
|
50,000
|
14.
It
is clear that there is no mis-conduct in the purchase and sale of shares on
screen based price unless there is a manipulation. The enquiry report could not
establish that the appellant had worked along with other brokers to influence
the price. Even the learned counsel for respondent admitted that he could not
give any evidence of the appellant having worked in nexus with other brokers for
increasing the price of the share. There is no evidence that the appellant had
violated Regulation 7 of the SEBI (Stock Broker and Sub-Broker) Regulations,
1992 or Clause A(4) of the Code of Conduct.�
Therefore, in the facts and circumstances of this case, we are of the
view that the entire transaction done by the appellant seem to be too
insignificant to have any impact on the prices of the scrip.
15.
In
the facts and circumstances of the case having regard to the pronouncement of
the Tribunal in S.S. Corporate Securities
in appeal 242 of 2004 and after perusing SEBI�s order in the case of ICICI
Brokerage Services Limited, we feel that the appeal is liable to be allowed. We
accordingly set aside the impugned order.
16.
No
order as to costs.
|
(Justice Kumar
Rajaratnam)
Presiding
Officer
|
|
(R.N.Bhardwaj)
Member
|
(C. Bhattacharya)
Member
|
Place: Mumbai
Date:�� 06/07/2005
*/as
