Securities Appellate Tribunal
M.J. Patel Shares And Stock Brokers Ltd. vs Securities And Exchange Board Of India on 17 July, 2006
ORDER
N.K. Sodhi, J. (Presiding Officer)
1. Having heard the learned senior counsel for the parties, we are of the view that the dispute herein is squarely covered in favour of the appellant and against the respondent Board by our order dated 20th June, 2006 passed in Kasat Securities Pvt. Ltd. v. Securities and Exchange Board of India Appeal No. 27 of 2006.
2. National Stock Exchange conducted some internal investigations in the trading of the scrip of Snowcem India Limited (hereinafter called the Company) and found that there was major spurt in the volumes during the period from June, 1999 to August, 1999. On receipt of the report from the exchange, the Securities and Exchange Board of India (for short the Board) ordered detailed investigation into the dealings in the scrip of the company. These investigations revealed that Kosha Investments Ltd. and one Shri Sourabh Bora (hereinafter referred to as KIL and Bora respectively) were the two predominant traders in the scrip of the company during the period under investigation and that they traded through a number of brokers including the appellant herein. On detailed enquiries conducted in the matter, the Board found that KIL and Bora had indulged in manipulative trading whereby they jacked up the price of the scrip and also its volumes. It is not in dispute that by separate orders the Board had debarred both KIL and Bora from buying, selling or dealing in securities in any manner directly or indirectly for a period of two years from the dates when the orders were passed. Some of the brokers through whom the trades were executed were also found guilty of manipulative trades and action had been taken against them as well. Kasat Securities Pvt. Ltd. was one such broker like the appellant through whom KIL and Bora had traded and, therefore, its certificate of registration had been suspended for a period of four months. Kasat Securities Pvt. Ltd. filed appeal No. 27 of 2006 before this Tribunal which was allowed by us on 20th June, 2006 holding that merely because the appellant therein had acted as a broker it could not be inferred that it was party to the manipulations of KIL and Bora. Same is the case in the present appeal. The appellant herein was also one of the brokers through which KIL and Bora had traded in the scrips of the company and we find from the impugned order that the appellant has been found guilty of manipulative trades merely because it acted as a broker. We do not think that such an inference is justified. As observed in Kasat Securities case (supra), there has to be some additional material on the record to show that the broker had knowledge that its clients were executing manipulative trades. There was no such material in the case of Kasat Securities Pvt. Ltd. nor is there any such material in the present case. The only difference the learned senior counsel for the Board has pointed out is that in the instant case the appellant had taken a loan from KIL and, therefore, the relationship between KIL and the appellant was not merely that of client and broker but something more than that. We find from the record that one of the directors of the appellant prior to its corporatisation in the year 1997 had taken loan from KIL and on the coming into existence of the corporate entity the loan was taken over by that entity and a part of it has been repaid after corporatisation. We agree with the Board that the relationship between the appellant and KIL is something more than the relationship between a client and broker and that additional relationship too does not lead us to the inference that the appellant as a broker knew that KIL was executing manipulative trades when it dealt with the scrip of the company. The distinction pointed out by the learned senior counsel, in our opinion, is of no consequence and does not improve the case of the Board.
3. The other ground on which the certificate of registration of the appellant has been suspended is that it had not collected sufficient margins while executing trades on behalf of KIL and Bora. The learned senior counsel for the parties are agreed that our decision in Kasat Securities case (supra) covers this issue in favour of the appellant.
4. For the reasons recorded in our order dated 20th June, 2006 passed in Kasat Securities case (supra) the present appeal is allowed and the impugned order dated 31st August, 2004 suspending the certificate of registration of the appellant set aside leaving the parties to bear their own costs.