Securities Appellate Tribunal
M.J. Patel vs Securities & Exchange Board Of India on 8 July, 2002
ORDER
C. Achuthan, Presiding Officer
1. The present appeal is directed against the Respondent's order dated 4.2.2002 suspending the certificate of registration for acting as stock broker granted to the Appellant, for a period of two months with effect from 18.2.2002. The Appellant had sought interim stay against the operation of the order during the pendency of the appeal. After hearing the parties and taking into consideration all the relevant aspects, operation of the impugned order was temporarily stayed by the Tribunal, pending disposal of the appeal.
2. The impugned order is a short order spread over on 2 1/2 pages. Full text of the order is extracted below:
"ORDER UNDER REGULATIONS 29(3) OF SECURITIES AND EXCHANGE BOARD OF INDIA (STOCK BROKERS AND SUB BROKERS) REGULATIONS, 1992 IN THE PUBLIC ISSUE OF MJP LEASING LTD., AGAINST., M/S. M.J. PATEL, MEMBER, MUMBAI STOCK EXCHANGE.
3. MJP Leasing Ltd. (hereinafter referred to as the company) is a company promoted by M/s. M.J. Patel (hereinafter referred to as the member) and M/s. JR Motishaw & Company, a brokerage firm of Smt. Monica Patel, wife of Shri M J Patel. The company came out with a public issue in the year 1993. It is observed during the investigation conducted by Securities and Exchange Board of India (hereinafter refereed to as SEBI) that the price of the scrip of the company which was hardly traded was kept raising by means of internal trading between M/s. M.J. Patel and M/s. JR Motishaw & Company. The price of the scrip of the company increased from Rs.32.25 on 10.10.95 to Rs.925/- on 2.2.96 (hereinafter referred to as the relevant period). It was also observed during the investigation that majority of the total floating stock of the company was in the possession of Shri M J Patel and when the price shot up to Rs.900/- Shri M J Patel started selling the shares in the name of his family members and also offered the shares in auction.
4. The investigation submitted by SEBI revealed that the member acted in concert with M/s. J.R. Motishaw & Company & created a false market in the scrip of the company which is detrimental to the interest of the investors and thereby indulged in manipulative and deceptive transactions with a view to distort the market equilibrium for making personal gains. The above acts of the member are in violation of the provisions of SEBI (Stock brokers & Sub brokers) Regulations 1992, (hereinafter referred to as the said Regulations).
5. An Enquiry Officer was appointed vide Order dated March 21, 1997 and subsequently Denovo enquiry was passed by the Chairman vide the order dated August 31, 1998 to probe into the alleged violations interalia of the said Regulations by the member while dealing in the scrip of the company. The Enquiry Officer issued a show cause notice dated September 18, 1998 to the member communicating the detailed charges. The member denied the charges before the Enquiry Officer.
6. The Enquiry Officer conducted the enquiry by affording fair and reasonable opportunity and the member participated in the enquiry proceedings. Thereafter, the enquiry officer submitted his report wherein he recommended for the suspension of the registration of the member for a period of three months under the said regulations.
7. SEBI issued a notice dated February 2, 1999 to the Member under Regulation 29 of the said Regulations. A copy of the Enquiry Report was also furnished to the member. The Member, vide reply dated March 15, 1999 denied the charges and stated that he traded in the scrip of the company in low volumes when there was hardly any liquidity in the scrip of the company in the market.
8. An opportunity of personal hearing was given to the member on January 15 2002 and the Member attended the hearing before the undersigned and made his submissions. At the time of hearing the member reiterated his reply dated March 15, 1999 and requested to drop the proceedings.
9. I have carefully examined the Enquiry Report, the reply, and other relevant material on record and the submissions made by the member at the time of the personal hearing. It is observed that the member acquired the shares of the company from the market acting in concert with the family members and group concerns to the extent of 85% (approx) of the total subscribed quantity. Since the majority of the shares were held by the member and his group concerns as explained above, there was scarcity in the total scrip of the company which created the price manipulation. Since there was scarcity in the total stock of the company the scrip of the company was hardly traded in the market and the price of the scrip rose from Rs.30 to Rs.900 within a short span of time. Most of the above said transactions were between the member and M/s. Motishaw & Company, a brokerage firm owned by the wife of the member. However, the member submitted that he had transacted in the scrip of the company when the price was in the range of Rs.300/- and thereafter he did not transact in the scrip of the company. It is revealed during the investigation that people who are close to the member transacted heavily in the scrip of the company beyond Rs.300/- and upto Rs.900/- . It is further observed that the transactions executed by the member was only for the purpose of artificially raising the price of the scrip knowing fully well that there was scarcity in the scrip of the company.
10. Taking into account, the above aspects into consideration it has been decided to suspend the registration of the member for a period of 2 months with effect from 18.02.2002.
11. Appeal is allowed.