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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA
[ ADJUDICATION ORDER NO. EAD-2/DSR/VVK/ RG/ 197-198 /2014 ]
__________________________________________________________________

UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA
ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING
INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES,
1995
In respect of
1. Shri Jai Kishan Lakhmani [PAN- ADDPL8212H]
2. Religare Securities Limited [PAN: AAACF1952D]

In the matter of
Veritas (India) Limited

BACKGROUND :
1. Securities and Exchange Board of India (hereinafter referred to as "SEBI ") had
conducted an investigation into the alleged irregularity in the trading in the
shares of Veritas (India) Limited ( hereinafter referred to as "VIL" ), a company
listed on the Bombay Stock Exchange Limited (hereinafter referred to as "BSE")
and into the possible violation of the provisions of the SEBI Act, 1992
(hereinafter referred to as the Act) and various Rules and Regulations made
there under during the period from J anuary 01, 2009 to March 31, 2012.

2. On the basis of Integrated Market Surveillance System (IMSS) alert touching
circuit filters, two snap investigations were carried out by SEBI in the scrip of VIL
for the period from May 26, 2008 to October 30, 2009 and November 03, 2009
to February 06, 2010. During the said period, it was observed that the price of
the scrip had increased from ` 100/- as on April 06, 2009 to ` 825.63/- as on
May 10, 2010. It was further observed that one entity viz. Kamalasini Tradelinks
Private Limited (KTL) had approached the shareholders of VIL and acquired
around 6.08% shares of VIL through off-market transfers from various
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shareholders. As on March 2010, it was observed that the share capital of VIL
was only 9,96,000 shares, out of which 6,71,310 shares (67.4%) were held by
one promoter and remaining 3,24,690 shares (32.60%) were held by 106 non-
promoter entities.

3. During the investigation, inter alia, it was revealed that one Shri J ai Kishan
Lakhmani (hereinafter referred to as the "Noticee No. 1") had traded in the scrip
of VIL through his stock broker Religare Securities Limited (hereinafter referred
to as "Noticee No. 2"). The Noticee No. 1 while trading in the scrip had indulged
in fictitious trades on 09 trading days for 09 shares of VIL which were self trades
in nature. While placing the said alleged self trades, it was observed that the
Noticee No. 1 had placed his orders much higher than the Last Traded Price
(LTP) which had resulted in increase in the price of the scrip.

4. It was, therefore, alleged that the Noticee No. 1 by indulging in self trades had
violated the provisions of Regulation 3(a), (b), (c), (d) and Regulation 4(1),
4(2)(a), 4(2)(b), 4(2)(e) and 4(2)(g) of the SEBI (Prohibition of Fraudulent and
Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (
hereinafter referred to as "PFUTP Regulations"). Further, it is also alleged that
the Noticee No. 2 by acting as a broker and counter party broker of Noticee No.
1 in executing the alleged self trades had assisted its client in placing the
fictitious trades thus, violated the provisions of Regulation 3(a), (b), (c), (d) and
Regulation 4(1), 4(2)(a) and 4(2)(e) of the PFUTP Regulations and Clauses
A(1), A(3), A(4) and A(5) of the code of conduct as specified in Schedule II
under Regulation 7 of the SEBI (Stock Broker and Sub-Broker) Regulations,
1992 (hereinafter referred to as Broker Regulations).

APPOINTMENT OF ADJUDICATING OFFICER
5. SEBI has, therefore, initiated Adjudication proceedings against the Noticees and
I have been appointed as the Adjudicating Officer vide order dated the August
26, 2013 under Section 15-I of the Act read with Rule 3 of the SEBI ( Procedure
for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995
(hereinafter referred to as the said Rules) to inquire into and adjudge under
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Section 15HA of the Act the alleged violation of the provisions PFUTP Regulations
by the Noticee No. 1 and 2 and under Section 15HB of the Act for the alleged
violation of provisions of the Broker Regulations by Noticee No. 2.

NOTICE, REPLY AND PERSONAL HEARING
6. The Noticees were issued separate Show Cause Notices dated September
25, 2013 (hereinafter referred to as SCN/s) under Rule 4(1) of the said
Rules to show cause as to why an inquiry should not be held and why penalty
be not imposed on them for the aforesaid violations. However, the SCN issued
to Noticee no. 1 was returned undelivered. Thereafter, vide letter dated
February 06, 2014, the SCN was issued to the Noticee through its broker i.e.
Noticee No. 2 at the last known address of the Noticee No. 1 who in turn
attempted to deliver the said SCN. However, no delivery report has been
received till date. Therefore, the said SCN was affixed on the last known
address of the Noticee No. 1 on November 21, 2013 and the report of affixture
is on record. Also, vide email dated March 27, 2014, a copy of the SCN was
sent to the Noticee No. 1 on his email ID (jai_lakhmani@yahoo.com) as
provided by Noticee No. 2. However, there has been no response from the
Noticee in the matter. The Noticee No. 2 vide letter dated November 26, 2013,
submitted its reply in the matter.

7. Thereafter, in the interest of natural justice and in order to conduct an inquiry as
per Rule 4 (3) of the said Rules, an opportunity of personal hearing was
granted to the Noticees on May 26, 2014 vide notice of hearing dated May 08,
2014. However, the notice issued to Noticee No. 1 was returned undelivered.
Simultaneously, the said hearing notice was forwarded on the Noticee No. 1's
email ID vide email dated May 13, 2014. However, the Noticee No. 1 neither
attended the said hearing nor made any correspondence in this regard.

8. In view of the above, I note that ample attempts were made to deliver the SCN
to the Noticee No. 1 and several opportunities were given to him to reply and
appear for personal hearing in this matter to meet the ends of natural justice.
Therefore, I am proceeding with the inquiry taking into account the documents
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and material as available on record.

9. Further, the Noticee No. 2 attended the said hearing through its authorized
representatives and made oral submissions. The Noticee No. 2 reiterated the
submissions made in its earlier reply dated November 26, 2013 and further
sought time to file additional reply in the matter. Accordingly, vide letter dated
J une 02, 2014 the Noticee No. 2 submitted its additional reply.

CONSIDERATION OF EVIDENCE AND FINDINGS
10. I have carefully perused the charges leveled against the Noticees in the SCN,
written & oral submissions made by Noticee No. 2 and the documents and
material available on record. In the instant matter, the following issues arise for
consideration and determination :-

a) Whether the Noticee No. 1 has violated the provisions of Regulation
3(a), (b), (c), (d) and Regulation 4(1), 4(2)(a), 4(2)(b), 4(2)(e) and 4(2)(g) of
the PFUTP Regulations?

b) Whether the Noticee No. 2 has violated the provisions of Regulation
3(a), (b), (c), (d) and Regulation 4(1), 4(2)(a) and 4(2)(e) of the PFUTP
Regulations and Clauses A(1), A(3), A(4) and A(5) of the code of conduct
as specified in Schedule II under Regulation 7 of the Broker Regulations?

c) Do the violations, if any, on the part of the Noticees attract any penalty
under Section 15HA and 15HB of the SEBI Act ?

d) If yes, what should be the quantum of monetary penalty?

11. Before proceeding further, I would like to refer to the relevant provisions of the
PUFTP Regulations and Broker Regulations which read as under :-

Relevant provisions of PFUTP Regulations.
Prohibition of certain dealings in securities
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3. No person shall directly or indirectly -
(a) buy, sell or otherwise deal in securities in a fraudulent manner;
(b) use or employ, in connection with issue, purchase or sale of any security listed
or proposed to be listed in a recognized stock exchange, any manipulative or
deceptive device or contrivance in contravention of the provisions of the Act or the
rules or the regulations made thereunder;
(c) employ any device, scheme or artifice to defraud in connection with dealing in
or issue of securities which are listed or proposed to be listed on a recognized
stock exchange; and,
(d) engage in any act, practice, course of business which operates or would
operate as fraud or deceit upon any person in connection with any dealing in or
issue of securities which are listed or proposed to be listed on a recognized stock
exchange in contravention of the provisions of the Act or the rules and the
regulations made thereunder."

4. Prohibition of manipulative, fraudulent and unfair trade practices
(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a
fraudulent or an unfair trade practice in securities.
(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade
practice if it involves fraud and may include all or any of the following, namely;-
(a) indulging in an act which creates false or misleading appearance of trading in
the securities market;
(b) dealing in a security not intended to effect transfer of beneficial ownership but
intended to operate only as a device to inflate, depress or cause fluctuations in the
price of such security for wrongful gain or avoidance of loss;
c) ........
d) ........
(e) any act or omission amounting to manipulation of the price of a security;
(f) .........
(g) entering into a transaction in securities without intention of performing it or
without intention of change of ownership of such security.

Relevant provisions of Broker Regulations
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Stock brokers to abide by Code of Conduct
7. The stock brokers holding certificate shall at all times abide by the Code of
Conduct as specified in Schedule II.
SCHEDULE II
CODE OF CONDUCT FOR STOCK BROKERS
[Regulation 7]
A. General
(1) Integrity: A stock-broker, shall maintain high standards of integrity,
promptitude and fairness in the conduct of all his business;
(2) .................
(3) Manipulation: A stock broker shall not indulge in manipulative, fraudulent
or deceptive transactions or schemes or spread rumours with a view to
distorting market equilibrium or making personal gains;
(4) Malpractices : A stock broker 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 stock broker shall not involve himself in excessive speculative business in the
market beyond reasonable levels not commensurate with his financial
soundness; and,
(5) Compliance with statutory requirements: A stock broker shall abide by all the
provisions of the Act and the Rules, regulations issued by the Government, the
Board and the Stock Exchange from time to time as may be applicable to him."

12. I find from the investigation report and the SCN that the Noticee No. 1 had
traded in the scrip of VIL and indulged in fictitious trades which were self trades
in nature through its broker i.e. Noticee No. 2. The said trades were carried out
on 09 trading days for 09 shares of VIL. I note that the Noticee No. 1 was also
one of the top LTP contributors during the investigation period. While trading in
the shares of VIL, the Noticee No. 1 was alleged to have placed the orders at
prices much higher than the LTP which had resulted in increase in the price of
the scrip. The details of the said trades placed by the Noticee No. 1 are as
under :-
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Client
Name
PAN Nega
tive
LTP
Positive
LTP
Overall
LTP
No. of
trades
above
LTP
No.of
trades
below
LTP
Total
Trades
as a
Buyer
Total
Trades
as a
Seller
Total
Trades

JAI
KISHAN
LAKHMAN
I

ADDPL8212
H

0

506.45

506.45

22

0

25

44

69


13. I find that the Noticee No. 1 through Noticee No. 2 had sold 72 shares in 44
trades during October 23, 2009 to March 10, 2010 and purchased 107 shares in
25 trades during March 23, 2009 to March 02, 2010 and contributed to the
overall LTP of ` 506.45/-. I further find that the Noticee No. 1 had created new
high price in the scrip of VIL during J anuary 01, 2009 to March 31, 2012 and
the details are given as below:-


Client
Name
PAN No. of
instances
establishing
new high
Total
contribution
to new high
%age of
contribution
No. of
instances
establishing
new low
Total
contribution
to new low
%age
of
contrib
-ution


Jai
Kishan
Lakhmani

ADDPL8212H

14

235.8

6.51

0

0

0.00

14. Further, I find that the Noticee No. 1 had placed self trades in 09 instances and
traded 09 shares during J anuary 19, 2010 to March 02, 2010 through Noticee
No. 2. I further note that on the balance three days, the Noticee No. 1's self
trades were the first trades executed in the market and established higher LTP.
The analysis of the trading pattern before and after the self trades is as under:-

Period Purchased shares Sold shares

October 23, 2009 -
J anuary 18, 2009

83 shares @ ` 420/- 6 shares @ ` 732/-
J anuary 19, 2010 -
March 02, 2010

24 shares ( 9 shares are
through self trades ) @
`1208/-.

19 shares ( 9 shares are
through self trades ) @
`1288/-.
March 03, 2010 - March
10, 2010
--- 47 shares @ ` 1949/-
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15. From the above table, I find that the Noticee No. 1 had indulged in fictitious
trades during October 23, 2009 to J anuary 18, 2009 and acquired 83 shares @
`420/- and thereby, contributed to the increase of the price of the scrip upto
`1655/- (price established through self-trades on March 02,2010) and sold 47
shares @ `1949/-. Further, the balance 35 shares were transferred by Noticee
No. 1 to one Mr. J itendra Lakhmani on March 31, 2010. Thus, the Noticee No. 1
by indulging in this fraudulent and manipulative trading practices had allegedly
made illegal gains of ` 77,501/- on the BSE.

16. I note that the Noticee No. 1 did not file any reply to the SCN and also did not
avail of the opportunity of personal hearing in the matter. Further, Noticee No. 2
vide its reply dated November 26, 2013 submitted that it is a member of NSE,
BSE, MCX and a Depository Participant with NSDL and CDSL. The major
activities and offerings of the company are Equity & F & O trading, Currency
Derivatives trading and Depository Participant Trading. With respect to the
allegation of self trades executed by the Noticee No. 1 through Noticee no. 2, it
submitted that the client i.e. Noticee no. 1 is a internet enabled client and all the
orders are placed by the client himself through internet enabled terminal and it is
therefore, not possible for a broker to know the real intention of the client at the
time of placing of orders. There was no dealer involved into the order
placement. The Noticee No. 2 submitted that the surveillance team of its
company examines the transactions/trading activity of the clients captured under
its surveillance parameters and in consequence of that, it has been reporting
numerous suspicious/dubious/fictitious transaction reports with the respective
exchanges. The Noticee stated that Noticee No. 1 had dealt in 119 number of
scriops during the years 2009-10 with an approximate total turnover of ` 1.20
crores and the turnover in the scrip of VIL was 1.51% of the total turnover.
Noticee no. 1 was never captured in the surveillance systems of Noticee No. 2
and therefore, it had no reason to suspect the client.

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17. Further, when the information with regard to the Noticee No. 1's fictitious
transactions were provided to Noticee No. 2 by the exchange i.e. BSE, the
Noticee No. 2 had swiftly taken action and an explanation was sought from
Noticee No. 1. As the explanation provided by Noticee No. 1 was not found to
be satisfactory, Noticee No. 2 decided to immediately suspend the trading
facility provided to Noticee No. 1. Further, the Noticee No. 2 stated that as a
measure of abundant precaution, it had withheld the positive close out
difference of ` 82,987/- from Noticee no. 1's account till the investigation
proceedings initiated by BSE were closed. The noticee No. 2 submits that the
Noticee no. 1 is suspended from trading till date and funds withheld from his
account are still lying with Noticee No. 2.

18. Vide reply dated J une 02, 2014, Noticee No. 2 further submitted that it had
been informed about the improper trading activity of its client i.e. Noticee No. 1
vide letter dated February 24, 2010 by BSE, wherein it was stated that BSE had
observed an increase in price of equity shares of VIL during November 03, 2009
to February 06, 2010 where Noticee no. 1 appeared on 19 days in first trades
and placed trades at higher rate. Further, the noticee No. 2 reiterated its
submission made earlier that the trades of Noticee no. 1 did not generate any
alerts in its surveillance systems and therefore, it was not involved in the
manipulative trading practices indulged into by the Noticee No. 1.

19. From the foregoing and the material available on record, I find that the Noticee
No. 1 in all the 9 trades had established new LTP and also, had entered into self
trades for 9 shares while trading through Noticee No. 2. Further, I find that the
scrip of VIL was illiquid one and further, from the above table I also find that the
Noticees by trading in fictitious manner and executing self trades by punching in
orders at higher prices than the LTP in the scrip of VIL had also contributed to
the volumes in the scrip of VIL by 36% to the total volume. I do not find any
merits in the submissions of the Noticee No. 2 that the surveillance system did
not generate alerts and therefore, the fictitious trading on the part of the Noticee
No. 1 was not noticed by the broker. I find that the Noticee No. 2 was under an
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obligation to perform its duties with due care while carrying out its role as a
registered stock broker.

20. Therefore, I conclude that the Noticee No. 1 did violate the provisions of 3(a),
(b), (c), (d) and Regulation 4(1), 4(2)(a), 4(2)(b) and 4(2)(g) of PFUTP
Regulations thus, liable for imposition of monetary penalty under Section 15HA
of the Act. Further, I also conclude that Noticee No. 2 did violate the provisions
of 3(a), (b), (c), (d) and Regulation 4(1) and 4(2)(a) of the PFUTP Regulations
and Clauses A(1), A(3), A(4) and A(5) of the code of conduct as specified in
Schedule II under Regulation 7 of the Broker Regulations thus, liable for
imposition of monetary penalty under Section 15HA and 15HB of the Act. The
said provisions of law read as under:

Penalty for fraudulent and unfair trade practices.
15HA. Penalty for fraudulent and unfair trade practices. - If any person indulges
in fraudulent and unfair trade practices relating to securities, he shall be liable to
a penalty not exceeding twenty-five crore rupees or three times the amount of
profits made out of such practices, whichever is higher."

Penalty for contravention where no separate penalty has been provided.
15HB. Whoever fails to comply with any provision of this Act, the rules or the
regulations made or directions issued by the Board there under for which no
separate penalty has been provided, shall be liable to a penalty which may
extend to one crore rupees.

21. I note that the Hon'ble Supreme Court of India, in the matter of SEBI vs. Shri
Ram Mutual Fund [2006] 68 SCL (216), held that " once a violation of statutory
regulation is established, imposition of penalty becomes sine qua non of
violation and the intention of the parties committing such violation becomes
totally irrelevant. Once the contravention is established then penalty is to follow".

22. Also, the Hon'ble SAT, in Chirag Tanna Vs The Adjudicating Officer, has
observed that:- ..we have on record the trade and order logs from which it has
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been pointed out by the learned counsel for the respondent Board that the
appellant had executed self trades i.e. trades in which he was both the buyer
and the seller. Such trades are, admittedly, fictitious and create artificial volumes
in the traded scrip..

23. While determining the quantum of penalty under Section 15HA and 15HB of the
Act, it is important to consider the factors stipulated in Section 15 J of the Act
which reads as under :-

15-J Factors to be taken into account by the adjudicating officer :
While adjudging quantum of penalty under section 15-I, the adjudicating officer
shall have due regard to the following factors, namely:
(a) the amount of disproportionate gain or unfair advantage, wherever
quantifiable, made as a result of the default;
(b) the amount of loss caused to an investor or group of investors as a result of
the default;
(c) the repetitive nature of the default.

24. Here, it is pertinent to note that the Noticee by indulging in the self trades had
made illegal gains of ` 77,501/-. Also, the defaults of the Noticee are repetitive
in nature in asmuch as the Noticee had traded in fictitious manner on more than
one occasion.

ORDER

25. In view of the above, after considering all the facts and circumstances of the
case and exercising the powers conferred upon me under Section 15-I(2) of the
SEBI Act, 1992 read with Rule 5 of the said Rules, I hereby impose the following
penalties on the Noticees:



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Sr.
No.
Name of the Noticee Penal
provisions as
per SEBI Act,
1992
Monetary
Penalty (in `)
1. Shri J ai Kishan Lakhmani 15HA 10,00,000
(Rupees Ten Lakh
Only)
2. Religare Securities Limited 15HA 8,00,000
(Rupees Eight Lakh
Only)
15HB 2,00,000
(Rupees Two Lakh
Only)

26. In my view, the penalty is commensurate with the default committed by the
Noticees.

27. The penalty amount shall be paid by the Noticees through a Demand Draft
drawn in favour of SEBI Penalties Remittable to Government of India and
payable at Mumbai, within 45 (forty five) days of receipt of this order. The said
Demand Draft should be forwarded to the Division Chief, Investigation
Department (ID-10), Securities and Exchange Board of India, SEBI Bhavan, Plot
No.C4-A, G Block, Bandra-Kurla Complex, Bandra (E), Mumbai 400 051.

28. In terms of Rule 6 of the said Rules, copies of this order are sent to the Noticees
and also to the Securities and Exchange Board of India.






Date : August 27, 2014 D.SURA REDDY
Place: Mumbai ADJUDICATING OFFICER
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