Securities Appellate Tribunal
Sebi vs Salasar Stock Broking Ltd. on 19 January, 2007
ORDER
V.K. Chopra, Member 1.1 Securities and Exchange Board of India (hereinafter referred to in short as "the Board") had ordered an investigation into the affairs relating to buying, selling and dealing in the shares of Ranbaxy Laboratories Ltd (hereinafter referred to in short as "Ranbaxy") against many entities including M/s Salasar Stock Broking Ltd., (hereinafter referred to in short as "Broker") a broker of Calcutta Stock Exchange (hereinafter referred to as "CSE")(SEBI Registration no. INB030752637), National Stock Exchange (NSE) (SEBI Registration no. INB230752635) and Stock Exchange, Mumbai (BSE) (SEBI Registration no. INB010752633).
1.2 The price of the scrip of Ranbaxy had moved up significantly from Rs. 270/-in January 1999 to about Rs. 1200/- in October 1999 accompanied with significant increase in volumes. The Board initiated investigation into the scrip in August 1999 considering the above major spurt in price and volumes traded in the Exchanges particularly on the Stock Exchange, Mumbai (BSE), National Stock Exchange (NSE) and Calcutta Stock Exchange (CSE).
1.3 The Board after considering the Investigation Report appointed an Enquiry Officer vide Order dated November 27, 2002 to enquire into the violations allegedly committed by the Broker under provisions of Regulation 4(a), (b), (c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995 (hereinafter referred to in short as "PFUTP Regulations"), Regulation 7 read with clause A(3) & A(4) of Schedule II of the Code of Conduct for stockbrokers of the SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992 (hereinafter referred to in short as "Stock brokers Regulations") and Rules, Regulations and Bye-laws of Stock Exchanges.
1.4 The Enquiry Officer, after conducting an enquiry in accordance with the provisions of Regulation 6 of the Securities and Exchange Board of India (Procedure for holding Enquiry by Enquiry Officer and imposing penalty) Regulations, 2002 submitted a report dated November 27, 2003 whereby he observed that the Broker violated the provisions of SEBI circular No.SMDRP/POLICY/CIR-32/1999 dated September 14, 1999; Regulation 7 read with clause A(3) and (4) of Code of Conduct as specified in Schedule II of SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992; and Regulation 4(b) & (c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995. He recommended suspension of registration of the Broker for a period of five months.
2.0 SHOW CAUSE NOTICE 2.1 Pursuant to the receipt of the said Enquiry Report, a Show Cause Notice dated April 28, 2004 was issued to the Broker, along with a copy of the said Enquiry Report, advising the Broker to show cause as to why the action, as recommended by the Enquiry Officer, should not be imposed on them. The Broker submitted its reply to the said show cause notice, vide letter dated May 17, 2004.
3.0 REPLY OF THE MEMBER 3.1 The Broker submitted that the Enquiry officer has recommended suspension of registration without mentioning the Registration No. 030752637 pertaining to the membership of CSE. The Broker again submitted that the said recommendation should be restricted to the membership of CSE only and can not become applicable to National Stock Exchange on the ground that the investigation in Ranbaxy had been conducted based on the transactions on CSE.
3.2 The Broker submitted that the finding of the Enquiry Officer regarding the synchronized deals with prior understanding is based purely on presumptions and surmise and not supported by any material evidence.
3.3 The Broker stated that the Enquiry Officer interpreted SEBI circular No. SMDRP/POLICY/CIR-32/1999 dated September 14, 1999 beyond its scope. It is no where mentioned in the circular that the intent of prior understanding will be taken into consideration while interpreting the above circular. All the trades which are executed on the Exchange trading system are good and bonafide trades and can not be construed as outside the trading system when the transactions are appearing in the system. The Broker also submitted that all those trades are not negotiated trades and the aforesaid circular of SEBI is not applicable in the matter.
3.4 The Broker submitted that there was maximum liquidity in the scrip Ranbaxy and hence there was no tampering of price discovery mechanism through synchronised or matching trades.
3.5 With regard to the violation of Regulation 7 read with clause A(3) and (4) of Code of Conduct as specified in Schedule II of SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992, the Broker submitted that they had not indulged in manipulative, fraudulent or deceptive transactions or schemes or had spread rumors with a view to distorting market equilibrium or making personal gain. They submitted that they had put the order in the scrip Ranbaxy on their behalf as jobbing transactions and the said transactions are squared off on the same day and the profit or loss is taken into the Brokers account. They submitted that they are having the financial soundness for buying and selling of securities in their own account and they never involved in excessive speculative business.
3.6 The Broker submitted that the Enquiry Officer has applied Regulation 4(b) & (c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995 on the ground that the Broker has executed the synchronised and matched trades. The Broker denied the same and stated that they had done only jobbing transactions. They added that they have not advanced any money to any person thereby inducing any other person to offer to buy any security in any issue with the intention of securing the minimum subscription to such issue.
4.0 HEARING 4.1 The Broker was accordingly advised to attend the personal hearing before me at SEBI's Eastern Regional Office, Kolkata. Mr. Kiran Kumar Sonthalia, Director, M/s Salsar Stock Broking Ltd attended the hearing on September 13, 2006 and filed written submission on the same date. Therefore, I am proceeding in the matter on the basis of the submission of the Broker and the material before me.
5.0 CONSIDERATION OF ISSUES & FINDINGS 5.1 I have carefully examined the Enquiry Report, Show Cause Notice, Reply of the Broker and submissions made at the time of hearing.
5.2 I find from the Enquiry Report that the scrip of Ranbaxy Laboratories Ltd. (herein after referred as Ranbaxy) traded around the price range of Rs. 270/-at the beginning of January 1999. The price of the scrip moved up to Rs. 320/-by the end of January 1999. Subsequently, price continued to move upward during February - March 1999 and reached to Rs. 650/-by end of March 1999. Further, the price of the scrip moved to Rs. 700/- during May 1999 and came down to Rs. 600/- during June 1999. The price subsequently moved upwards and touched Rs. 800/- during July 1999 and Rs. 1000/during August 1999. The scrip was being traded in the range of Rs. 900/- to Rs. 1100/during August - September 1999 and increased to Rs. 1200/-during October 1999. Effectively the price of the scrip moved up from Rs. 267 on 01.01.99 to a high of Rs. 1215/- on 13.10.99. Later on the price started falling gradually and closed at Rs. 869 on 29.10.99 at BSE. The price of the scrip of Ranbaxy had moved significantly during the period from Rs. 270/-in January 1999 to about Rs. 1200/- in October 1999. The price rise in the scrip was accompanied with significant increase in volumes.
5.3 I find that the Enquiry Officer has arrived at a conclusion in his enquiry report that the Broker has carried out 19 instances of synchronization of trades with a view to create misleading appearance of trading which tampers with price discovery mechanism of stock exchange.
5.4 I find the entire charge levelled against the Broker is on the basis of the aforesaid synchronised trades. The synchronised trade is a kind of transactions where the seller and buyer execute the trade for almost same quantity and price at substantially the same time. I find that synchronised deal is per se not illegal. On the other hand, the synchronised deal with fraudulent or deceptive intention to create misleading appearance of trading and to manipulate the price and volume of the scrip price to tamper the discovery mechanism of stock exchange with a view to get undue gain out of it, is a grave offence.
5.5 Hence the issue to be decided in this case is whether the Broker has carried out any such synchronised trades and to take a decision as to whether the penalty recommended by the enquiry officer against the Broker is warrented. In order to decide the said issue, I felt it necessary to analyse the details of synchronised trades executed by the Broker which are given hereunder;
Part I
Buy Mem Name Trade date Buy Order Buy order Buy orde
time Qty rate
DINESH KUMAR SINGHANIA 5/11/1999 11:43:26 5000 760.50
& CO.
ASHOK KUMAR PODDAR 6/2/1999 14:41:44 5000 641.00
SURYA PRAKASH TOSHNIWAL 7/7/1999 11:21:32 5000 703.00
SALASAR STOCK BROKING 7/7/1999 13:19:08 6000 700.50
LTD.
SALASAR STOCK BROKING 8/16/1999 11:42:53 5500 987.30
LTD.
SALASAR STOCK BROKING 8/20/1999 10:38:20 5000 1052.00
LTD.
KAMAL KUMAR DUGAR & CO. 8/27/1999 9:59:26 5000 1025.00
KAMAL
SALASAR STOCK BROKING 9/14/1999 13:58:37 15000 1065.70
LTD.
SALASAR STOCK BROKING 9/22/1999 10:23:38 5000 995.00
LTD.
KANODIA STOCK BROKING 9/22/1999 12:33:34 10000 1024.70
(P) LTD
SALASAR STOCK BROKING 10/4/1999 15:24:54 20000 997.40
LTD.
SALASAR STOCK BROKING 10/6/1999 10:54:08 11005 1008.70
LTD.
SALASAR STOCK BROKING 10/6/1999 14:17:15 5000 1002.00
LTD.
M/S LOKNATH SARAF 10/8/1999 13:26:20 10000 1153.60
SALASAR STOCK BROKING 10/11/1999 14:07:07 5000 1172.80
LTD.
SALASAR STOCK BROKING 10/13/1999 12:52:32 5000 1190.00
LTD.
AGBROS SECURITIES PVT. 10/15/1999 13:19:53 10000 1174.70
LTD.
SALASAR STOCK BROKING 10/15/1999 14:14:42 15000 1154.20
LTD.
SALASAR STOCK BROKING 10/21/1999 14:17:39 5000 1098.80
LTD.
Part II
Sell Mem Name Sell Sell Sell Time Price
Order Order order Diffe diffe
time Qty rate rence rence
SALASAR STOCK BROKING 11:43:26 5000 760.50 0:00:00 0.00
LTD.
SALASAR STOCK BROKING 14:41:49 5000 641.00 0:00:05 0.00
LTD.
SALASAR STOCK BROKING 11:21:37 5000 703.00 0:00:05 0.00
LTD.
SALASAR PRAKASH CHAND 13:19:07 6000 700.50 0:00:01 0.00
BAID
PRADEEP KUMAR DAGA 11:42:54 5500 987.30 0:00:01 0.00
DINESH KUMAR SINGHANIA 10:38:17 5000 1052.00 0:00:03 0.00
& CO.
SALASAR STOCK BROKING 9:59:25 5000 1025.00 0:00:01 0.00
LTD.
SHYAM SUNDAR DALMIA 13:58:38 15000 1065.70 0:00:01 0.00
DINESH KUMAR SINGHANIA 10:23:34 5000 995.00 0:00:04 0.00
& CO.
SALASAR STOCK BROKING 12:33:34 10000 1024.70 0:00:00 0.00
LTD.
RATAN LAL PODDAR 15:24:54 20000 997.40 0:00:00 0.00
PRADEEP KUMAR SARAOGI 10:54:08 11005 1008.70 0:00:00 0.00
BASANT KR. TODI 14:17:15 5000 1002.00 0:00:00 0.00
SALASAR STOCK BROKING 13:26:22 10000 1153.60 0:00:02 0.00
LTD.
SURENDRA KUMAR DUGAR 14:07:06 5000 1172.80 0:00:01 0.00
& CO.
SURYA PRAKASH TOSHNIWAL 12:52:32 5000 1190.00 0:00:00 0.00
SALASAR STOCK BROKING 13:19:54 10000 1174.70 0:00:01 0.00
LTD.
Agbros Securities Pvt. 14:14:42 15000 1154.20 0:00:00 0.00
Ltd.
GAUTAM BAJORIA 14:17:39 5000 1098.80 0:00:00 0.00
5.6 I note that that the Broker had neither disputed the above price rise nor denied entering into the synchronised deals in the scrip of Ranbaxy during the period under consideration. Synchronized/matching trades are evident from the above table as order quantity and price are same with counter party order quantity and price. Orders were placed at the same time in most of the cases with counter party members while in few cases the orders were matched within a period of 1-5 seconds. I have also observed that the percentage of the matching transactions of the member to his total transactions in the share of RLL during the relevant days under consideration is 7.29%.
5.7 The Enquiry Officer found that in one instance the order quantity is not the usual quantity like 100/1000/5000/100000 shares, etc. Even this order quantity is matched by the Broker with a counter party member simultaneously. Details of the said order are given below:
Mem. Member Order Time Qty. Price B/S Order
Code Name Date No.
D0571 Pradeep 10/6/99 10:54:08 11005 1008.70 S 1440066138
Kumar
Saraogi
D0786 Salasar 10/6/99 10:54:08 11005 1008.70 B 1320098981
Stock
Broking
Ltd
5.8 I observe that order of 20,000 shares out of total of 1,52,505 shares (i.e. 13%) of the Broker were matched with the other Brokers who had dealt for entities connected or associated with Ketan Parekh group. The details are mentioned hereunder:
Part I Buy Mem Name Trade date Buy Order Buy order Buy orde time Qty rate DINESH KUMAR 5/11/1999 11:43:26 5000 760.50 SINGHANIA & CO.
ASHOK KUMAR PODDAR 6/2/1999 14:41:44 5000 641.00
SALASAR STOCK BROKING 8/20/1999 10:38:20 5000 1052.00
LTD.
SALASAR STOCK BROKING 9/22/1999 10:23:38 5000 995.00
LTD.
Part II
Sell Mem Name Sell Sell Sell Time Price
Order Order order Diffe diffe
time Qty rate rence rence
SALASAR STOCK BROKING 11:43:26 5000 760.50 0:00:00 0.00
LTD.
SALASAR STOCK BROKING 14:41:49 5000 641.00 0:00:05 0.00
LTD.
DINESH KUMAR SINGHANIA 10:38:17 5000 1052.00 0:00:03 0.00
& CO.
DINESH KUMAR SINGHANIA 10:23:34 5000 995.00 0:00:04 0.00
& CO.
5.9 These Brokers have been declared defaulters by CSE and SEBI had subsequently cancelled their registrations as per Press Release dated October 22, 2001 and July 30, 2002. I find that this cancellation is subsequent to the transaction in issue. I observe that the Broker executed trades with the said brokers within a period of almost 5 months. I also find that at the time of dealing in issue, there was no classification as to who are the KP related Brokers or KP entities. Hence, I am of the view that the above trades with Ashok Kumar Poddar and Dinesh Kumar Singhania & Co. were mere coincidence. Further, no other evidence supporting their relationship with the said KP Group were available on record.
5.10 During the course of hearing and in the written submission, the Broker submitted that they have executed all the trades on the official trading screen of the exchange in the normal course of their business and they do not understand any concept of synchronisation of trade. They again stated that the aforesaid 19 trades were spread over a period of more than 5 months. They also submitted that during the period under investigation, they have executed 262512 trades out of which 28614 have been executed in the scrip of Ranbaxy. From these 28614 trades, the investigating officer had pointed out only 19 trades as synchronised, which comes to only 0.06% of the total trades in Ranbaxy and 007% of the total trades during the said period. On this basis, the Broker submitted that matching of transaction is nothing but a coincidence. Considering these aspects and the trading details as stated above, I do not find any pattern that would suggest any intended manipulation. In the absence of any other adverse finding in the Enquiry Report regarding specific violation of code of conduct as stipulated in the Stock Brokers Regulation, I am of the view that the said charge is not tenable against the Broker.
5.11 Having regard to the facts stated hereinabove, I find that the Broker had not violated the provisions of 4(b) and (c) of PFUTP Regulations and Regulation 7 read with Section A (3) and (4) of Code of Conduct as specified in Schedule II of Stock Brokers Regulations. Considering this and all other facts and circumstances of the case, I am of the view that this is not a fit case to impose any punishment.
6.0 ORDER
6.1 Taking into account all facts and circumstances of the case and in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 13(4) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, I hereby dispose of the show cause notice issued to the Broker without imposing any penalty or direction.