Securities Appellate Tribunal
Shreehari Hira Stock Broking Pvt. Ltd. vs Sebi on 14 June, 2010
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No.247 of 2009
Date of Decision : 14.6.2010
Shreehari Hira Stock Broking Pvt. Ltd.
R-638, Rotunda Bldg., 6th Floor,
B.S. Marg, Fort,
Mumbai. .....Appellant
Versus
Securities and Exchange Board of India
SEBI Bhawan, Bandra-Kurla Complex,
Bandra (E), Mumbai. ..... Respondent
Mr. Vinod S. Parekh, Advocate for the Appellant.
Mr. R.S. Loona, Advocate with Mr. Hitesh S. Jain, Advocate for the Respondent. CORAM : Justice N.K. Sodhi, Presiding Officer Samar Ray, Member Per : Justice N.K. Sodhi, Presiding Officer (Oral) The appellant before us is a stock broker registered with the Securities and Exchange Board of India (hereinafter referred to as the Board). It executed several trades on behalf of its clients in the scrip of Wellworth Overseas Ltd. (for short the company). The fundamentals of the company are said to be very weak and trading of its scrip had been suspended from September 8, 1997 to October 23, 2001 due to non compliance of the listing agreement. Even though the order suspending the trading was revoked, there was no trading in the scrip from the date of revocation till the beginning of the investigation period. Board carried out investigations in the trading of the scrip of the company during the period from January 1, 2003 to October 30, 2003 and on the basis of the investigation report it is alleged that the appellant alongwith several other entities created artificial volumes and manipulated the price of the scrip. It is further alleged that the appellant in collusion with certain brokers and clients had executed circular/reversal/structured trades which resulted in the creation of artificial volumes. One Parklight Investments is said to have purchased shares for its clients at rates more 2 than the pervious day's closing price and the appellant was one of the counter party seller broker for the client Genus Commu-trade Ltd. It is also alleged that from January 1, 2003 to March 12, 2003 the scrip of the company had been traded on two days and large quantity of shares were purchased by four members of one Wadhwa family through Parklight Securities Ltd. and the appellant was the broker for the counter party seller Galaxy Infosoft Ltd. and Genus Commu-trade Ltd. In view of these allegations, the appellant is said to have violated Regulation 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (for short the Regulations). A show cause notice dated April 29, 2008 was issued to the appellant calling upon it to show cause why monetary penalty be not imposed on it under section 15HA and 15HB of the Securities and Exchange Board of India Act, 1992 (for short the Act). Despite service of the show cause notice, the appellant did not file its reply even though it had sought time to do so. However, the authorised representative of the appellant appeared before the adjudicating officer at the time of personal hearing. On a consideration of the material collected during the course of the investigations and the enquiry, the adjudicating officer found that the appellant was guilty of the charges levelled against it and that the trades executed by it were manipulative in as much as artificial volumes were sought to be created and price of the scrip raised in collusion with several other entities. He accordingly held that the appellant violated Regulation 4 of the Regulations and also the Code of Conduct prescribed for the stock brokers and accordingly, by his order dated September 11, 2009 imposed a monetary penalty of Rs.6 lacs on the appellant. Rs. 4 lacs was the penalty under section 15 HA of the Act and another sum of Rs.2 lacs under section 15HB. It is against this order that the present appeal has been filed.
2. We have heard the learned counsel for the parties who have taken us through the record, particularly, the trades executed by the appellant. We have also examined the so called link which, according to the adjudicating officer, established the manipulative nature of the appellant's trades in collusion with others and are of the view that the appeal deserves to succeed. Our attention was drawn to the trades executed by the 3 appellant on March 19, 2003 on behalf of one Mukesh Choksi. The appellant bought 100 shares from the counter party broker ASE Capital Ltd. This was the only trade executed on that day as the scrip of the company was highly illiquid. ASE Capital Ltd. is a sub broker of one Parklight Securities Ltd. It is observed that the company is a part of the Parklight group of companies which included Parklight Securities Ltd. as well. Mukesh Choksi on whose behalf the appellant had purchased the shares is said to be an employee of Parklight Securities Ltd. From this connection it is sought to be argued on behalf of the Board that the appellant in collusion with its counter party broker which is said to be linked with the Parklight group of companies executed manipulative trades. This trade executed by the appellant per se does not appear to be manipulative at all. The mere fact that Mukesh Choksi is an employee of Parklight Securities Ltd of which ASE Capital Ltd was the sub-broker with whom the appellant executed the trade does not lead us to conclude that the trade is manipulative. This link/connection is too tenuous for us to hold that the trade was manipulative. Our attention was then drawn to two sell orders executed by the appellant on August 27, 2003 on behalf of its client whose code was 4312. This client is Genus Commu-trade Ltd. It is argued that Genus Commu-trade Ltd is also connected with the Parklight group of companies since one Rajesh Patel who is a director in this company is a major shareholder of Parklight Securities Ltd and is also a person acting in concert with the company. Parklight Securities Ltd is also said to be the counter party broker. Assuming these connections to be correct, we do not think that the two trades which the appellant executed on behalf of Genus Commu-trade become manipulative. There is nothing on the record to show that the appellant was aware of this connection/relationship at the time when it executed the trades on behalf of its client. Admittedly, the trades were executed through the trading system of the stock exchange which maintains anonymity about the counter party and its broker and there is no means for any broker to know about the counter party and/or its broker. The learned counsel for the respondent Board then referred to the trades executed by the appellant on May 26, 2003 by which it sold shares on behalf of its clients whose code was 4310. This client is Galaxy Infosoft Ltd. and the counter party as found out during the course of the investigations was the Wadhwa family 4 which purchased the shares through ASE Capital Ltd. ASE Capital Ltd is said to be a sub broker of Parklight Securities Ltd. which in turn is said to be a part of the Parklight group of companies and the trade(s) are said to be manipulative because of this link. We do not think so. It is pointed out that the Wadhwas who have purchased the shares were at one time the clients of the appellant as well. This fact would hardly be relevant. The appellant is a stock broker and it keeps buying and selling shares on behalf of its clients. As already observed, the link sought to be established is too unsubstantial for us to draw any inference of collusion or manipulation when the trades per se do not give any indication. Same is the case with regard to the trades executed by the appellant on August 20, 2003. It is true that the price of the scrip has been constantly rising as is clear from the different charts referred to by the learned counsel for the Board and after the suspension in the trading was withdrawn, the scrip of the company started trading at 15 paise per share, the face value of which was Rs.10 and was raised to Rs.7.35 but the appellant had executed only two buy orders and all other trades executed by it were sell orders on behalf of its clients. It is well settled that the price of a scrip is usually manipulated through buy orders. With a large number of other entities who traded in the scrip of the company it is difficult to hold that the two buy orders for very small quantities executed by the appellant could have contributed to the price rise. The first buy order of the appellant was at 88 paise per share and the second order was at the rate of 92 paise per share. We are satisfied that there is no material on the record to establish collusion of the appellant with other entities in raising the price of the scrip. In this view of the matter, the charge levelled against the appellant for violating Regulation 4 cannot be sustained. In the result, the appeal is allowed and the impugned order set aside with no order as to costs.
Sd/-
Justice N.K.Sodhi Presiding Officer Sd/-
Samar Ray Member 14.6.2010 Prepared and compared by RHN 5