Securities Appellate Tribunal
Shreehari Hira Stock Broking Private ... vs Sebi on 4 March, 2010
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 208 of 2009
Date of decision: 4.3.2010
Shreehari Hira Stock Broking Private Limited
R-638, Rotunda Bldg., 6th Floor,
B. S. Marg, Fort, Mumbai. ......Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East), Mumbai. ...... Respondent
Mr. Vinod 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) This appeal is directed against the order dated August 14, 2009 passed by the adjudicating officer imposing a monetary penalty of Rs.10 lacs on the appellant for violating Regulation 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (for short the FUTP Regulations).
2. The Securities and Exchange Board of India (for short the Board) carried out investigations relating to the buying and selling of shares of M/s. Zigma Software Limited (for short the company) as the price of the scrip had suddenly risen. Investigations were carried out for the period from August 2003 to November 2003 and again for the period from May 2004 to June 2004. Investigations revealed that the appellant which is a stockbroker alongwith two other brokers, namely, Ramaben Samani Finance Private Limited and DPS Shares and Securities Private Limited (for short Ramaben and DPS respectively) had traded among themselves in large volumes and most of the trades were synchronized and structured in a premeditated 2 manner and orders were placed at almost the same time for the same quantity and at the same price which resulted in the creation of artificial volumes. The appellant and DPS were also alleged to have executed fictitious trades for connected clients. On the basis of the investigation report, the appellant was served with a show cause notice dated March 13, 2007 alleging violation of Regulation 4 of the FUTP Regulations and was called upon to show cause why a monetary penalty be not imposed on it. The appellant filed its reply on May 10, 2007 denying all the allegations. On a consideration of the material collected during the course of the enquiry and the investigations and taking note of the reply filed by the appellant, the adjudicating officer came to the conclusion that the appellant in collusion with the other brokers and clients who were connected to each other had executed structured and synchronized trades and that some of the trades executed were fictitious in nature where the buying and selling entities were either the same or associate companies. However, on an analysis of the order and trade logs and the rates at which the trades were executed, the adjudicating officer concluded that even though the appellant executed manipulative trades, there was no effort on the part of the different entities including the appellant to influence the price of the scrip. In view of these findings, a monetary penalty of Rs.10 lacs was imposed on the appellant. Hence, this appeal.
3. We have heard the learned counsel for the parties who have taken us through the record and the impugned order. We have on record different charts showing the details of the trades executed by the appellant on behalf of its clients. It is the appellant's own case that while trading in the scrip of the company, it only sold shares on behalf of three entities namely, Net Equity Broking (India) Pvt. Ltd., Raj Kumar Masalia and ENPEE Enterprise Pvt. Ltd. It is also not in dispute that the appellant sold 15,89,500 shares on behalf of its clients during the first period of investigations and another 21,66,010 shares during the second period. We also have on record a chart showing the details of the trades executed by the appellant during the first period. It is clear from the chart that in most of the sell orders executed by the appellant, the shares were purchased by DPS on behalf of its clients. On 3 November 3, 2003 the appellant sold 25,000 shares on behalf of Net Equity and these were picked up by DPS which was the counter party broker. It is pertinent to mention here that Net Equity, the client of the appellant and DPS, the counter party broker are associate companies in which two brothers Sujal Shah and Pratik Shah are directors. There is also on record the statement of Sujal Shah in which he has admitted that manipulative trades were executed between Net Equity and DPS which had taken opposite positions. The appellant was the broker in these trades. This is not a solitary instance but large number of shares were sold in the aforesaid manner. Moreover, there were a group of entities who were found to have executed manipulative trades in the scrip of the company alongwith the appellant and action has been taken against all of them. We are informed that one or two of the entities have gone in consent proceedings before the respondent Board. A large percentage of the sell orders executed by the appellant on behalf of its clients particularly Net Equity and ENPEE were with DPS as the counter party broker. In these circumstances, we are unable to agree with the learned counsel for the appellant that his client was innocent and only executed the orders as per the directions of the clients and was not aware of the manipulation. This apart, there is material on the record to show that the appellant also executed fictitious trades on behalf of its client. For instance, on August 7, 2003 Net Equity which was the client of the appellant received 1,49,000 shares of the company in an off market transaction from one Atul Gandhi who is a part of the group which traded in the scrip in a manipulative manner. Having received these shares, it transferred them to ENPEE on August 13, 2003 again by way of off market transfers and ENPEE sold these shares on the same day through the appellant as its broker and the purchaser was also ENPEE through DPS. In other words, in the transaction executed through the system of the exchange on August 13, 2003, the buyer and the seller was the same i.e. ENPEE and the trades were executed by the appellant as a stockbroker. There are large numbers of such trades executed in this fashion. We are, therefore, satisfied that the appellant as a stockbroker executed not only synchronized and structured trades in a manipulative manner on behalf of its clients but also executed fictitious trades. In this view of the 4 matter, no fault can be found with the impugned order holding the appellant guilty of violating Regulation 4 of the FUTP Regulations. The appellant also violated the Code of Conduct prescribed for the stockbrokers which was also a charge levelled in the show cause notice.
4. The learned counsel for the appellant then strenuously urged that the amount of penalty imposed is highly excessive and that in the case of another broker which was a part of the group namely, Ramaben Samani Finance Pvt. Ltd. a penalty of only Rs. 2 lacs had been imposed whereas Rs. 10 lacs had been levied on the appellant. We cannot accept this contention. It is pointed out by the learned counsel for the respondent that the number of trades executed by Ramaben Samani as a stockbroker were far less than the trades executed by the appellant. Be that as it may, we do not have the case of Ramaben Samani before us and it is not known under what circumstances the penalty of Rs. 2 lacs had been imposed in that case. We are, however, of the view that the amount of penalty imposed on the appellant deserves to be reduced in the light of the fact that the adjudicating officer found that by executing manipulative trades, there was no intention on the part of any of the entities including the appellant to influence the price of the scrip. In this background, we are of the view that the ends of justice would be adequately met if the amount of the penalty imposed is reduced to Rs. 5 lacs. We order accordingly.
In the result, the findings recorded by the adjudicating officer are upheld but the impugned order is modified to the extent indicated above. The appeal stands disposed of accordingly with no order as to costs.
Sd/-
Justice N. K. Sodhi Presiding Officer Sd/-
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