Securities Appellate Tribunal
Bharti Thakkar India Securities Pvt. ... vs Sebi on 28 October, 2010
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 171 of 2010
Date of decision: 28.10.2010
Bharti Thakkar India Securities Pvt. Ltd.
32, Rajabahadur Mansion,
Ground Floor, Hamam Street,
Fort, Mumbai - 400 001. ......Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ...... Respondent
Mr. Ulhas Deosthale, Advocate for the Appellant.
Mr. Kumar Desai, Advocate with Ms. Daya Gupta and Ms. Harshada Nagare, Advocates for the Respondent.
CORAM : Justice N. K. Sodhi, Presiding Officer P. K. Malhotra, Member Per : Justice N. K. Sodhi, Presiding Officer (Oral) The appellant before us is a corporate member of the Bombay Stock Exchange Limited (BSE) and is registered as a stock broker with the Securities and Exchange Board of India (for short the Board). It is not in dispute that the appellant has been trading in the scrip of M/s KRBL Ltd. (for short the company) which is listed, among others, on the BSE. The trades executed by the appellant were on behalf of its clients. The Board carried out investigations in trading in the scrip of the company which revealed that a large number of brokers had joined hands together in executing trades in the scrip of the company on behalf of their clients thereby manipulating the scrip by executing circular trades. Investigations further revealed that the brokers acted in groups and each group of brokers executed the trades among themselves. The appellant was a part of group III which had 13 brokers. The appellant alongwith other brokers in this group is said to have executed 2 circular trades which were fictitious in nature and did not change the beneficial ownership in the traded scrip and only increased volumes on the trading screen. It is by now well settled that circular trades are not only fictitious and artificial but also increase volumes which tend to lure the lay investors into trading and interfere with the price and order matching mechanism of the exchange.
2. We shall now notice some of the trades in which the appellant was involved. On August 27, 2003 one Pramod Kumar Jain another broker of group III sold 1000 shares of the company to Uttam Financial Services, another broker of the same group. Uttam Financial Services then sold the shares back to Pramod Kumar Jain who then sold the same to the appellant and the appellant then sold to DPS Shares and Securities which is another broker within the group. Finally DPS Shares and Securities sold these shares back to Pramod Kumar Jain. The circle which started with Pramod Kumar Jain, thus, got completed when the shares reached back to him. All these trades were executed by the five brokers including the appellant within a period of 12 minutes. This is not a solitary instance. A large number of such trades were executed and it is on record that the appellant had purchased 75,111 shares and sold 69,611 shares for one of its client Sayyed Mustafa and purchased another 2,02,815 shares and sold 2,04,875 shares for another client Prem Prakash Thanvi while executing circular and reverse trades. Such trading was carried on for 66 days by the appellant. In the ordinary course when shares are bought and sold through the price and order matching mechanism of the stock exchange, trades never get executed in circles. There can be one circle but the same cannot be repeated and if it does the only inference that can be drawn is that the brokers executing the trades were playing mischief in trying to manipulate the scrip. The fact that the appellant executed a large number of such trades is not disputed before us. What is strenuously contended by the learned counsel for the appellant is that his client as a stock broker had no knowledge either of the counter party or of the counter party broker in every trade that he executed and, therefore, had no knowledge of the fact that circular trades were being executed. We cannot agree with him. As already noticed, circular trades cannot be executed in the ordinary course. In this view of the 3 matter, no fault can be found with the finding of the adjudicating officer that the appellant in connivance with other brokers had executed circular trades.
3. The learned counsel for the appellant then contended that the amount of penalty levied by the adjudicating officer is highly excessive in the circumstances of the case and the same needs to be reduced. We cannot agree with him in this regard either. Circular trading, as already observed is fictitious meant only to increase volumes which tend to lure the lay investors into trading. The charge established against the appellant is serious enough and having regard to the quantum of penalties provided in Chapter VIA, the amount of ` 5 lacs cannot be said to be on the higher side which would call for our interference.
In the result, the appeal fails and the same is dismissed with no order as to costs.
Sd/-
Justice N. K. Sodhi Presiding Officer Sd/-
P. K. Malhotra Member 28.10.2010 Prepared and compare by:
ptm / msb