Professional Documents
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3. Pursuant to the said investigation, SEBI initiated Enquiry proceedings against the
Noticee vide Order dated July 09, 2004 under Regulation 6 of SEBI (Procedure for
Holding
Enquiry
and
Imposing
Penalty)
Regulations,
2003
('Enquiry
Regulations')and issued a Show Cause Notice dated September 29, 2004 for the
alleged violations of SEBI Act read with Regulations 4 (2) (a), (e) & (n) of PFUTP
Regulations and Regulation 7 read with Clauses A (1), (2), (3), (4) & (5) and Clause B
(4) (a) of the Code of Conduct for Stock Brokers, specified in Schedule II of the
Brokers Regulations. In response, the Noticee replied vide letter dated November
11, 2004 and denied all the charges.
4. It is noted that the Enquiry Regulations were repealed and SEBI (Intermediaries)
Regulations, 2008 (Intermediaries Regulations) were notified on May 26, 2008,
hence, after considering the charges of contravention of the provisions of the
aforementioned Regulations and the replies and submissions made by the Noticee
during the hearing, the Designated Authority, in terms of Regulation 27 of the
Intermediaries Regulations, vide Report dated November 27, 2009, recommended a
penalty of suspension of Certificate of Registration of the Noticee for a period of
one month.
5. Thereafter, SEBI issued a Show Cause Notice dated December 17, 2009 ("SCN") to
the Noticee under Regulation 28(1) of the SEBI (Intermediaries) Regulations, 2008 to
show cause as to why the action should not be taken against the Noticee as recommended by the
Designated Authority vide its report dated November 27, 2009 or higher penalty as deemed fit.
The Noticee was advised to reply to the SCN within twenty one days of the receipt
thereof. A copy of the Enquiry Report was also forwarded to the Noticee along with
the SCN.
6. Subsequently, on April 15, 2010 the Noticee had applied for consent proceedings.
The consent application was rejected by HPAC in its meeting held on January 19,
2011. Thereafter, vide letters dated April 19, 2011 and June 13, 2011 the Noticee was
granted an opportunity of hearing before the Whole Time Member, SEBI which was
duly acknowledged by the Noticee.
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7. In this regard, the Noticee filed its written submissions to the SCN vide its letter
dated June 20, 2011. The submissions of Noticee inter alia, are as under:
i.
The enquiry officer has not dealt with the submissions made by the Noticee.
ii.
The trading volume data with price for the period from January, 2001 to November, 2001
submitted by the Noticee has not been dealt with by the Enquiry Officer.
iii.
Noticee was not aware as to how the cut-off for the investigation period is chosen.
iv.
The investigation report assumes that this scrip was illiquid, completely oblivious of the fact
and that this scrip was traded earlier in EQ segment.
v.
The price was moving in both directions even during the period from January 1, 2001 to
March 12, 2001 from as low as Rs. 72 to as high as Rs.127 when its clients were not
transacting. This volume reflects that there was heavy trading in the scrip even before
Noticee's clients commenced trading.
vi.
The Enquiry Report has not taken into consideration that its clients had applied in the
public issue of VOL and had been allotted equity shares. They had been doing jobbing
against their holding which is perfectly legitimate.
vii.
That the placing of order above or below the LTP is perfectly legitimate activity and is
permitted by law.
viii.
Noticee had also provided analysis of the data in respect of structures and cross deals
however, again the report has not dealt with it.
ix.
x.
That Noticee has been in business since last 16 years and at no point they have been
subjected to any disciplinary proceedings. No investor complaints or arbitration proceedings
have been initiated against the Noticee.
xi.
Due to Noticees trading on behalf of its clients, no harm has been caused to the market or
to any other persons.
xii.
They have always maintained high standard of integrity, promptitude and fairness in the
conduct of all their business.
8. It is noted that the Whole Time Member, SEBI who heard the Noticee on July 12,
2011 demitted the office, hence, another opportunity of Personal Hearing was
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granted to the Noticee on July 09, 2014 wherein the Noticee appeared and made the
following submissions before me:
(i)
That the submissions made before the earlier WTM have been reiterated.
(ii)
The Noticee relies on the judgment of the Honble Securities and Appellate Tribunal
(SAT) order dated October 28, 2010 in the matter of NCJ Share & Stock Brokers
Limited (Appeal No.40 of 2013) wherein Hon'ble SAT modified the penalty of
suspension for a period of one week to prohibition of the Appellant from taking up any
new assignment for a period of two weeks.
(iii)
The Noticee relies on the judgments of the Honble SAT in the matter of (i) Ms. Aditi
Dalal Vs. SEBI (Appeal No.143/2011) and (ii) HB Stock Holdings Ltd. Vs. SEBI
(Appeal No.114/2012) to claim that there is inordinate delay in completing the
proceedings against them by SEBI.
(iv)
The Noticee relies on further the judgment of the Honble SAT in the matter of Viram
Investments Pvt. Ltd. Vs. SEBI (Appeal No.160/2004) to claim that there is no
intention on their part to artificially influence the market and induce investors even though
they are engaged in synchronized trades.
9. I have carefully considered the Enquiry Report of the Designated Authority and
other material available on record including the reply received from the Noticee and
the submissions made before me during the personal hearing. The questions that
arise for consideration here are:
i.
Whether the Noticee has violated Regulations 4 (2) (a), (e) & (n) of PFUTP
Regulations?
ii.
Whether the Noticee has violated Regulation 7 read with Clauses A (1), (2),
(3), (4) & (5) and Clause B (4) (a) of the Code of Conduct for Stock Brokers,
specified in Schedule II of the Brokers Regulations?
10. Before moving forward I consider it appropriate to refer to the relevant provisions
of PFUTP and Broker Regulations which read as under:PFUTP Regulations 2003
4. Prohibition of manipulative, fraudulent and unfair trade practices
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(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;
(e) any act or omission amounting to manipulation of the price of a security;
(n) circular transactions in respect of a security entered into between intermediaries in order to
increase commission to provide a false appearance of trading in such security or to inflate,
depress or cause fluctuations in the price of such security;
Brokers Regulations:
Stock-Brokers to abide by Code of Conduct.
Regulation 7. The stock-broker holding a certificate shall at all times abide by
the Code of
(1) INTEGRITY: A stock-broker, shall maintain high standards of integrity, promptitude and
fairness in the conduct of all his business.
(2) EXERCISE OF DUE SKILL AND CARE: A stock-broker, 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 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.
(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.
B. DUTY TO THE INVESTOR
(a) A stock-broker shall not encourage sales or purchases of securities with the sole object of
generating brokerage or commission.
11. Now, considering the issues and giving my findings, it is noted that during the period
from July 09, 2001 to November 06, 2001 an abnormal trading pattern observed in
the scrip of VOL and the price of the scrip of VOL moved between `82 to
`132. The investigation revealed that the Trading Members viz., the Noticee, H.
Nyalchand Financial Services Limited, Khandwala Integrated Financial Services
Private Limited and ISE Securities & Services Limited transacted in the scrip of
VOL on NSE in considerable quantities and the transactions by the aforesaid entities
constituted a significant portion of the total transaction in the scrip on the stock
exchange. As per the Enquiry Report of the Designated Authority, the following
pattern of price movement is revealed during the investigation period:
12.
(a)
July 19, 2001 to July 31, 2001: price moved from `124 to `84/-
(b)
August 1, 2001 to August 10, 2001: Price moved from `76.55 to `125/-
(c)
August 24, 2001 to September 10, 2001: Price moved from `130/- to `85.05
(d)
September 11, 2001 to September 26, 2001: Price moved from `88/- to `111/-
(e)
October 12, 2001 to October 25, 2001: Price moved from `86/- to `82.10
(f)
October 29, 2001 to November 9, 2001: Price moved from `85.20 to `118.80
It is also noted that the Noticee had transacted in the scrip of VOL in significant
quantities during the investigation period mainly on behalf of the clients viz., Ketan
Shah & Co., V.K. Consultants, Ms. Heena Soni and Ms. Snehal Joshi. It is observed
that the transactions executed by the Noticee on behalf of its client Ketan Shah &
Co. constituted a major percentage of the total gross market quantity and the total
market net quantity of scrip of VOL.
investigation that Mr. Ketan B. Shah and Mr. Rahul B. Shah were the active
Directors of the Noticee and the former was also the proprietor of the Noticees
client Ketan Shah & Co. Furthermore, Mr. Ketan B. Shah along with one Mr. Amit
R Pathak was holding 15.85% shares of VOL.
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13.
It is noted that as per the investigation, the Noticee had executed trades in the scrip
of VOL on behalf of its aforesaid clients during the period March 13, 2001 to
November, 2001 the same is illustrated as under:
% of
SN
Segment
& Period
SN
Start
SN End
Date
Date
Client Name
Buy
Sell
Qty.
Qty.
% of
Client
Mkt.
client
Client
Mkt.
client
Gross
Gross
gross
Net
Net
net to
Qty.
Qty
to Mkt.
Qty
Qty.
mkt.
Gross
EQ-
13-Mar-
13-Mar-
Rolling
01
01
EQ-
19-Mar-
19-Mar-
Rolling
01
01
EQ-
26-Mar-
26-Mar-
2001059
Rolling
01
01
EQ-
21-May-
21-May-
2001096
Rolling
01
01
EQ-
22-May-
22-May-
Rolling
01
01
EQ-
25-May-
25-May-
2001100
Rolling
01
01
EQ-
30-May-
30-May-
2001103
Rolling
01
01
EQ-
31-May-
31-May-
Rolling
01
01
EQ-
1-Jun-
Rolling
01
EQ-
4-Jun-
2001106
Rolling
01
4-Jun-01
2001127
Account
9-Jul-01
13-Jul-01
BE-
16-Jul-
Account
01
BE-
23-Jul-
2001129
Account
01
BE-
30-Jul-
2001130
Account
01
3-Aug-01
Co.
BE-
6-Aug-
10-Aug-
Account
01
01
BE-
13-Aug-
17-Aug-
Account
01
01
2001050
2001054
2001097
2001104
2001105
2001131
2001132
1100
1100
2200
50.00
1100
1100
100.00
200
200
400
50.00
(200)
200
(100.00)
400
400
800
1054
75.90
0.00
500
500
1000
50.00
(500)
500
(100.00)
50
50
100
50.00
(50)
50
(100.00)
1450
1450
2900
50.00
(1450)
1450
(100.00)
100
100
200
50.00
100
100
100.00
100
100
200
50.00
(100)
100
(100.00)
101
101
402
25.12
(101)
200
(50.50)
60
60
120
50.00
(60)
60
(100.00)
24226
26441
50667
334002
15.17
(2215)
2395
(92.48)
24796
25306
50102
167306
29.95
(510)
3000
(17.00)
16294
12718
29012
87996
32.97
3576
6276
56.98
21777
20153
41930
110340
38.00
1624
2699
60.17
38619
36982
75601
225530
33.52
1637
1687
97.04
32952
32752
65704
206006
31.89
200
200
100.00
1-Jun-01
Co.
Ketan Shah &
BE-
2001128
Net
Co.
Ketan Shah &
Ketan Shah &
20-Jul-01
Co.
Ketan Shah &
27-Jul-01
Co.
Ketan Shah &
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Co.
Co.
Ketan Shah &
Co.
% of
SN
Segment
& Period
SN
Start
SN End
Date
Date
Client Name
Buy
Sell
Qty.
Qty.
% of
client
Client
Gross
gross
Qty
to Mkt.
Client
Mkt.
Gross
Qty.
Mkt.
client
Net
Net
net to
Qty
Qty.
mkt.
Gross
BE-
20-Aug-
24-Aug-
Account
01
01
BE-
20-Aug-
24-Aug-
2001133
Account
01
BE2001134
Account
2001133
Net
7032
6907
13939
99674
13.98
125
150
83.33
01
V.K.Consultant
8616
8691
17307
99674
17.36
(75)
150
(50.00)
27-Aug-
31-Aug-
01
01
Co.
5060
8887
13947
87286
15.98
(3827)
5828
(65.67)
BE-
27-Aug-
31-Aug-
Account
01
01
V.K.Consultant
7967
8037
16004
87286
18.34
(70)
5828
(1.20)
BE-
3-Sep-
2001135
Account
01
BE-
3-Sep-
2001135
Account
2001134
Co.
4960
3879
8839
70786
12.49
1081
5727
18.88
01
7-Sep-01
V.K.Consultant
7597
7702
15299
70786
21.61
(105)
5727
(1.83)
BE-
10-Sep-
14-Sep-
Account
01
01
45620
4180
49800
166698
29.87
41440
41480
99.90
BE-
10-Sep-
14-Sep-
Account
01
01
V.K.Consultant
7037
7037
14074
166698
8.44
41480
0.00
BE-
17-Sep-
21-Sep-
2001137
Account
01
01
Co.
9876
5766
15642
152078
10.29
4110
4064
101.13
BE-
17-Sep-
21-Sep-
2001137
Account
01
01
V.K.Consultant
9083
9132
18215
152078
11.98
(49)
4064
(1.21)
BE-
24-Sep-
28-Sep-
Account
01
01
Co.
7710
6313
14023
131104
10.70
1397
1338
104.41
BE-
24-Sep-
28-Sep-
Account
01
01
V.K.Consultant
9498
9557
19055
131104
14.53
(59)
1338
(4.41)
BE-
1-Oct-
11913
10737
22650
94708
23.92
1176
1279
91.95
2381
2381
4762
94708
5.03
1279
0.00
Co.
12786
13375
26161
164730
15.88
(589)
815
(72.27)
10445
10366
20811
164730
12.63
79
815
9.69
Co.
33508
17862
51370
300442
17.10
15646
17365
90.10
2001136
2001136
2001138
2001138
2001139
Co.
01
5-Oct-01
V.K.Consultant
BE-
8-Oct-
12-Oct-
Account
01
01
BE-
8-Oct-
12-Oct-
2001140
Account
01
01
V.K.Consultant
BE-
15-Oct-
19-Oct-
2001141
Account
01
01
BE-
15-Oct-
19-Oct-
2001141
Account
01
01
V.K.Consultant
16639
16921
33560
300442
11.17
(282)
17365
(1.62)
2001142
BE-
22-Oct-
26-Oct-
29199
29956
59155
156866
37.71
(757)
4310
(17.56)
2001140
01
BE-
1-Oct-
Account
2001139
Account
Co.
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% of
SN
Segment
& Period
SN
Start
SN End
Date
Date
Client Name
Buy
Sell
Qty.
Qty.
% of
client
Client
Gross
gross
Qty
to Mkt.
Client
Mkt.
Gross
Qty.
Mkt.
client
Net
Net
net to
Qty
Qty.
mkt.
Gross
2001143
2001143
Account
01
01
BE-
29-Oct-
2-Nov-
Account
01
01
BE-
29-Oct-
2-Nov-
Account
01
01
BE-
29-Oct-
2-Nov-
Account
01
01
BE-
5-Nov-
9-Nov-
Account
01
01
BE-
5-Nov-
9-Nov-
2001144
Account
01
01
BE-
5-Nov-
9-Nov-
2001144
Account
01
01
2001143
2001144
14.
Net
Co.
Ketan Shah &
Co.
13320
11317
24637
720968
3.42
2003
2725
73.50
Heena Soni
28458
28398
56856
720968
7.89
60
2725
2.20
Snehal Joshi
11494
11496
22990
720968
3.19
(2)
2725
(0.07)
6325
13802
20127
1037474
1.94
(7477)
15084
(49.57)
Heena Soni
36553
36779
73332
1037474
7.07
(226)
15084
(1.50)
Snehal Joshi
20672
20842
41514
1037474
4.00
(170)
15084
(1.13)
It is noted that during the period March 13, 2001 to November 09, 2001, the Noticee
had dealt in 18 settlements on the BE segment1 and in 13 settlements on the EQ
segment.2 The trades executed on the BE segment by the Noticee on behalf of its
clients had accounted for 25.50% of the gross quantity traded in the scrip for the
market. Settlement wise, the said trades had ranged from 14.64% to 43.45% of the
gross quantity traded and from 92.48 % to 100.00% of the net quantity traded in the
scrip during the above mentioned period in BE segment. Further, the trades
executed on the EQ Segment by the Noticee on behalf of its clients had accounted
for 21.38% of the gross quantity traded in the scrip for the market. Settlement wise,
the said trades had ranged between 25.12% to 75.90% of the gross quantity traded
and 100.00% of the net quantity traded in the scrip during the above mentioned
period in EQ Segment.
15.
Investigation also revealed that Ketan Shah & Co. had dealt in 18 settlements
through the Noticee on the BE segment and was observed to be a net seller in 6
1.
1.
2.
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settlements and net buyer in 12 settlements. The trades executed by the clients of the
Noticee have ranged between 1.94% to 38.00% of the market gross during the
investigation period. The said trades had accounted for 14.68% of the gross quantity
traded during the entire period on the BE segment. On the EQ segment, Ketan Shah
& Co. had dealt in 10 settlements and was a net buyer except for one settlement in
which the client of the Noticee squared up its position. These trades had accounted
for 22.35% of the gross quantity traded during the investigation period on the EQ
Segment.
16.
It is also noted that some of the clients of the Noticee viz., V. K. Consultants, Ms.
Snehal Joshi and Ms. Heena Soni had also dealt in the scrip of VOL through the
Noticee. V. K. Consultants had dealt in 9 settlements through the Noticee on the
BE segment, Snehal Joshi and Heena Soni had dealt in 2 settlements through the
Noticee on the BE segment. The trades executed on behalf of V. K. Consultants,
Ms. Snehal Joshi and Ms. Heena Soni had accounted for 3.69%, 1.5% and 3.02%
respectively of the gross quantity traded during the investigation period on the BE
Segment.
17.
It is noted from the Investigation that there were 63 cross deals alleged to have been
executed by the Noticee (62 deals in BE segment and 1 deal on EQ segment) on
behalf of its clients. The 62 cross deals in BE Segment amount to 12167 shares and
constituted 0.56% of the overall market gross quantity for the investigation period.
These cross deals constituted approximately 7.65% of the market gross quantity for
individual during the investigation period. The major client of the Noticee in the said
deals was Ketan Shah & Co. Further, in respect of 6 trades the client on both the
buy and sell side was Ketan Shah & Co. The other clients of the Noticee in the said
deals were Snehal joshi, Heena Soni, Thakkar Stock Brokers Pvt Ltd., V.K.
Consultant, Gunjan Shah, Perfect Finance Consultants, Swami Investment, Vaishali
Patel, Chokshi Securities and Samir Shah. There was one cross deal in EQ segment
amounting to 150 shares executed by the Noticee. It is also noted from the data for
cross deals that Ketan Shah & Co executed self trades i.e. the client for both the
buy and sell side through the Noticee. It is noted that all the above cross deals were
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executed at a variation from the Last Traded Price (LTP) in the range of (-)5.53% to
5.79%. A summary of the alleged cross deals executed by the Noticee for its clients
in the scrip of VOL during the period under investigation, are as under:.
Summary of Cross Deals
Name of the
Segmen
No. of
Traded
broker
trades
Quantit
period
M/s.
SDFC
Securities Ltd.
18.
BE
62
12167
0.56
EQ
150
1.50
to
Market
Gross
19.
It is noted that there were 20 structured deals alleged to have been executed between
the Noticee and H. Nyalchand Financial Services Limited amounting to 30940 shares
and constituted 0.72% to the overall market gross quantity on the BE segment and
these deals constituted in the range of 0.01% to 6.37% to the market gross quantity
for individual settlements during the investigation period.
20.
Further, there were 39 structured deals alleged to have been executed between the
Noticee and Khandwala Financial Services Pvt. Ltd., amounting to 36265 shares and
it constituted 0.84% to the overall market gross quantity on the BE segment. These
deals constituted in the range of 0.01% to 11.25% to the market gross quantity for
individual settlements during the investigation period.
21.
It is also noted that there were 15 structured deals alleged to have been executed
between the Noticee and ISE Securities & Services Ltd., amounting to 4620 shares
constituting 0.11% to the overall market gross quantity on the BE segment and these
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deals constituted in the range of 0.02% to 1.79% of the market gross quantity for
individual settlements during the investigation period. Further, there were 3
structured deals alleged to have been executed between the said two trading
members, amounting to 5500 shares constituting 27.56% to the overall market gross
quantity on the EQ segment and these deals constituted 50.00% to the market gross
quantity for individual settlements during the investigation period.
22.
It is also noted that the trades executed by the Noticee on behalf of its clients mainly
Ketan Shah & Co. had also influenced the price of the scrip on daily basis, thereby
manipulating the price of the scrip. The same is tabulated as under:
Date
Time
Qty
Order No.
B/S
Rate
*LTP
Change
in
Name
Price (%)
client
of
the
20/7/2001
13:34:23
276
200107200514793
119.10
124.00
(3.95)%.
27/7/ 2001
10:57:44
114
200107270229197
112.95
114.50
(1.35)%.
27/7/ 2001
10:39:35
250
200107270229197
112.95
114.50
(1.35)%.
27/7/ 2001
11:27:27
200107270300523
108.30
112.95
(4.12)%.
27/7/ 2001
13:58:51
10
200107270565677
105.95
101.55
(4.15)%.
31/7/2001
09:57:22
200
200107310014370
84.00.
94.95
(11.53)%
01/08/2001
10:33:05
1000
200108010167694
78.50
76.55
0.64%.
01/08/2001
14:42:43
1000
200108010723599
84.00
81.45
3.13%.
Thakkar
Stock
15:29:47
200108030888097
98.50
95.30
3.36%.
09/8/2001
09:55:22
100
200108090001424
123
119
3.36%
10/8/2001
14:26:49
1000
200108100616989
125.00
121.00
3.31%.
24/8/2001
09:58:36
50
200108240023545
126.00
132.00
(4.55)%.
24/8/2001
09:58:41
25
200108240023997
127.00
132.00
(3.79)%
24/8/2001
09:58:50
65
200108240024788
128.00
132.00
(3.03)%.
24/8/2001
09:59:09
25
200108240026679
126.50
132.00
(4.17)%.
24/8/2001
09:59:18
10
200108240027539
126.55.
132.00
(4.13)%.
27/8/2001
10:02:37
1755
200108270051031
119.50
139.75
(14.49)%
27/8/2001
14:12:58
1500
200108270657407
119.40
126.60
(5.69)%.
23.
From the above table it is noted that the Noticee on behalf of their clients had
entered the purchase orders of shares of VOL with a limit price which was above the
last traded price. The Noticee was regularly placing buy orders at prices higher than
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Last Traded Price (LTP) and sell order at a prices lower than the LTP. For instance,
a sell order 200107200514793 was placed at 13:34:23 PM with the limit price of
`119.10 when the last traded price was `124.00 for 500 shares. The order got
executed for 276 shares by 13:35:13 PM and the trade price moved down to `119.10.
The remaining order got cancelled. The price variation of the limit price as compared
to the last traded price was -3.95%. The sell order was placed on behalf of the clientKetan Shah & Co. Similar transactions were executed in the entire investigation
period. It was also observed that the Noticee on behalf of their clients had placed
sell orders with a limit price which was below the last traded price.
24.
It is further seen from the trade and order log that the Noticee had executed its
cross trades at a variation from the LTP in the range of (-)5.53% to 5.79% and
structured trade at a variation from LTP in the range of 1.245% to 5.20%. It is seen
that during period under investigation which cover all the cross trades and structured
trades executed by the Noticee, the Noticee was continuously putting buy orders at
prices higher than earlier buy orders and was squaring up the said buy orders by
putting sell orders at prices lower than the LTP or identical prices and quantity
within gap of a few seconds. The Noticee was constantly executing such trades even
though there was hardly any other buyer or seller in the scrip in the market during
the investigation period. This pattern is evident throughout the trades of the Noticee
during the investigation period.
25.
The pattern of trading evident from the trades of the Noticee as detailed in the
preceding paragraphs leads to the conclusion that the trades executed through the
terminal of the Noticee created a false and misleading appearance of trading in the
scrip. It is noted from the trade and order log available on record that a large number
of trades were executed by the Noticee on behalf of Ketan Shah & Co. and Ketan
Shah was the active director of the Noticee.
26.
I have considered all the contentions made by the Noticee. However, for the
observations and reasons already explained above, I do not find any merit in the
explanations offered by the Noticee. It is noted that the Noticee has relied on the
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judgment of the Honble SAT order dated October 28, 2010 in the matter of NCJ
Share & Stock Brokers Limited (Appeal No.40 of 2013) wherein Hon'ble SAT had
modified the penalty of suspension of Registration certificate for one week by
imposing a penalty of restriction for taking up new assignments for two weeks.
27.
As regards, the judgments of the Honble SAT in the matter of (i) Ms. Aditi Dalal
Vs. SEBI (Appeal No.143/2011) and (ii) HB Stock Holdings Ltd. Vs. SEBI (Appeal
No.114/2012) to claim that there is inordinate delay in completing the proceedings
against the Noticee by SEBI, it is noted that a Show Cause Notice is being served
on the Noticee informing about the detailed charges/allegations in respect of the
Noticee immediately on notice of the said activities by the Noticee along with its
clients. I have also noted that the delay in completing the proceedings was due to
various procedures to be followed in the case such as SEBI had to conduct elaborate
investigation in co-ordination with concerned stock exchange, appoint designated
authority, issue show cause notice, complete its enquiry, change in the officers
handling the investigation/enquiry, earlier Whole Time Member demitted his office,
the Noticee itself filed the consent application, consideration and disposal of the
consent application etc. Thus, I am of the view that there is sufficient reason for the
delay in completing the proceedings against the Noticee.
28.
The reliance of the judgment of the Honble SAT in the matter of Viram Investments
Pvt. Ltd. Vs. SEBI (Appeal No.160/2004) is also of no help to the Noticee since in
view of the facts and evidences stated above, the Noticee cannot claim that there is
no intention on its part to artificially influence the market and induce investors even
though they are engaged in synchronized trades.
29.
I note that the Designated Authority in its report with reference to the PFUTP
violations against the Noticee has held that the Regulation 4(2) (a), (e) & (n) on
PFUTP Regulations came into force from 17.7.2003. However, the alleged violation pertains to
period July 2001 to November 2001 and since, the above provision are prospective in nature they
are not applicable in said case and it is also well settled principle of law that penal provision of law
cannot be applied retrospectively.
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30.
However, I do not agree with the observations of Designated authority in this regard
and I note that prior to the notification of PFUTP Regulations on July 17, 2003,
PFUTP regulations 1995 were in force and as per Regulation 13 of the PFUTP
Regulations 2003, "any violation of regulations 3, 4, 5 and 6 of the PFUTP Regulations,
1995 shall be investigated and proceeded against in accordance with the procedure laid down in the
Regulations 2003. Further, any investigation pending at the commencement of Regulations 2003
shall be continued and disposed of in accordance with the procedure laid down in the said
regulations". The only added new regulation is Regulation 4 (2) (n) of the PFUTP
Regulations.
31.
Considering the facts and circumstances narrated above, I am of the view that the
Noticee has facilitated the clients to execute structured and cross deals which
created a false and misleading appearance of trading in the scrip. Hence, the
violation of Regulation 4 (2) (a) and (e) of the PFUTP Regulations (corresponding to
Regulation 4 (a) and (b) of PFUTP Regulations 1995) against the Noticee is
established.
Since Regulation 4(2) (n) does not find a mention in the PFUTP
The next issue is whether the Noticee violated the Code of Conduct specified under
the Brokers Regulations. It is noted from para 16 & 30 of the Enquiry Report of the
Designated Authority that Ketan Shah was the active director of the Noticee and was
also the proprietor of Ketan Shah & Co. In this context, I have noted the submission
of the Noticee that Mr. Ketan Shah was the client of the Noticee since 1996 and
joined the company in 1999. Further, Mr. Ketan Shah and his family members were
holding shares of VOL allotted to them in the public issue. Hence, they were doing
jobbing activity to hedge their holdings. It is also submitted that the Noticee
permitted him to trade only after considering his financial strength. The Noticee also
contended that the allegation of PFUTP Regulations and the violation of code of
conduct of Brokers Regulations are inseparable and if former is not proved, then
latter cannot be established. I do not subscribe to this view. Every broker has to
abide by the provisions of the Code of Conduct under the Brokers Regulations upon
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It is pertinent to mention that the crux of the matter pertains to the trades executed
by the Noticee largely on behalf of its client M/s Ketan Shah and Co. In this
context, it is noted that though the enquiry proceedings were initiated for the alleged
violations of provisions of PFUTP Regulations 2003 against Ketan Shah and Co., the
said proceedings were consented by SEBI vide Order dated June 22, 2009 upon
payment of settlement charges of `5 lakh. Further, the Noticee vide its reply dated
November 11, 2004 submitted that NSE had taken disciplinary action against the
Noticee for the trades executed in the scrip of VOL and imposed a penalty of `3
lakhs and the said amount was duly paid by the Noticee. It is also noted that SEBI
issued an administrative warning against the other trading members viz.,
H.Nyalchand Financial Services Limited and Khandwala Financial Services Pvt.
Limited who executed trades in the scrip of VOL.
34.
I have considered the submissions made by the Noticee. I note that the Noticee has
been in business for the last 16 years and they have not been subjected to any
disciplinary proceedings except in this case and that there have been no investor
complaints or arbitration proceedings against them. It is noted that this case also
pertains to transactions which took place in the year 2001 i.e. almost 14 years ago.
The other main parties involved have been allowed to conclude their cases in
consent proceedings or have been let off with administrative warning. Considering
all these facts and the circumstances of the case in totality, I am of the view that it
would meet the ends of justice if a strong warning is issued to the Noticee for
executing trades on behalf of its clients in the manner stated above.
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35.
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S. RAMAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA