Securities Appellate Tribunal
Sebi vs Arihant Exim Scrip Pvt. Ltd. And Doe ... on 19 January, 2005
ORDER
G.N. Bajpai, Chairman
1. Arihant Exim Scrip Pvt. Ltd. and Doe Jones Investments & Consultants Pvt. Ltd. were former members of Calcutta Stock Exchange ("CSE") (hereinafter referred to as noticees).
2. DSQ Industries Ltd. was formerly known as Lexus Exports Ltd. DSQ Industries now known as Jardine Overseas Ltd. is stated to be a group concern of Shri Dinesh Dalmia-main promoter of DSQ Software. Its shares are listed on the Calcutta Stock Exchange. DSQ Industries has its registered office address at 11/1A, Chowringhee Terrace, Calcutta - 700 020 and corporate office address is at 407-408, G.R. Complex, Anna Salai Nandanam, Chennai - 600 035.
3. SEBI conducted investigation into the trading in the shares of DSQ Industries Ltd. and the following was observed:
The total paid-up share capital of DSQ Industries was Rs. 20,04,29,160 consisting of 2,00,42,916 shares of Rs. 10/- each.
4. As per the distribution schedule furnished by the company to SEBI, its broad shareholding pattern as on 28/09/2001 was as under:
---------------------------------------------------------------------- Particulars No. of Shares % of total no. of shares
---------------------------------------------------------------------- Foreign Hodings 6,68,516 3.33%
- Non Resident Companies Govt / Govt Sponsored FI's 2,76,000 1.37%
- Mutual Funds Directors and Relatives 1,18,800 0.59% Promoter Companies 2,22,300 1.11% Other bodies corporate 1,06,36,700 53.07% Others 8120600 40.51%
---------------------------------------------------------------------- Total 2,00,42,916 100.00%
----------------------------------------------------------------------
5. It was also observed that as per the previous distribution schedule dated 28/09/2000, its shareholding pattern was as under:
---------------------------------------------------------------------- Particulars No. of Shares % of total no. of shares
---------------------------------------------------------------------- Foreign Holdings - Non Resident Companies 95,96,216 47.878% Govt / Govt Sponsored FI's - Nationalised Banks 53,09,300 26.490% Directors and Relatives 1,18,800 0.593% Promoter Companies 27,66,700 13.804% Other bodies corporate 16,29,400 8.130% General Public 6,22,500 3.105%
---------------------------------------------------------------------- Total 2,00,42,916 100.00%
----------------------------------------------------------------------
6. It was noticed that there were discrepancies in the distribution schedule filed by the company with the CSE and with SEBI. Examination of the distribution schedule dated 28/9/00 filed by the company with the CSE revealed that the Non resident shareholding to be 92,63,916 shares (46.17%), Nationalised Banks shareholding to be 3939300 shares (19.65%), other body corporates to be 62,47,000 shares (31.17%) and shareholding of promoter companies was not stated.
7. In view of the above, SEBI sought trade log and order log in the scrip of DSQ Industries from CSE. Based on the trade log details about client, client registration form, client agreement form, client ledger, demat statement, payment details, name of the introducer etc. were sought from all the brokers who traded in the scrip of DSQ Industries in excess of 500 shares. In the case of Arihant Exim Scrip Pvt. Ltd. and Doe Jones Investments & Consultants Pvt. Ltd. the letter seeking above information could not be delivered as their offices were shifted or closed/sealed by Police Authorities.
8. On March 2, 2001, a broker of CSE, namely, Harish Biyani (HB) availed the "Cash on Pay out scheme" (COP) of SHCIL through broker - Biyani Securities Pvt. Ltd. (BSPL). BSPL sold 7,20,000 shares of DSQ Industries for HB. The table showing the details of the transaction is as follows:
-------------------------------------------------------------------------- Sale Selling Selling Price Amount (Rs.) Buying Quantity Quantity Broker Client Broker
-------------------------------------------------------------------------- 720000 BSPL HB 340 244800000 HB 220000 Doe Jones 250000 Arihant 250000 Exim
-------------------------------------------------------------------------- 7,20,000 244800000 720000
--------------------------------------------------------------------------
9. A Show Cause Notice dated 19.02.04 was issued to Arihant Exim Scrip Pvt. Ltd. and Doe Jones Investments & Consultants Pvt. Ltd asking them as to why action under section 11 and 11B of the SEBI Act, 1992 read with regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 debarring them from dealing in securities for certain period or any other appropriate action should not be taken for the allegations stated therein. Further, it was mentioned in the said show cause notice that if their reply does not reach SEBI within 15 days of the date of receipt of the said notice, it would be construed that Arihant Exim Scrip Pvt. Ltd. and Doe Jones Investments & Consultants Pvt. Ltd. have no explanation to offer and SEBI would be constrained to proceed, ex-parte.
10. Although the show cause notice dated 19.2.2004 was issued for the purpose of necessary directions under Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995, the actions are saved under Regulation 13 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.
11. Arihant Exim Scrip Pvt. Ltd. and Doe Jones Investments & Consultants Pvt. Ltd. have failed to reply to the said show cause notice although reasonable opportunity was given to them in accordance with principles of natural justice. They were also forewarned that if they fail to submit reply to the show cause notice, the matter would be decided 'ex-parte'.
12. The investigations by SEBI revealed that there were several trades on 02.3.01 which are synchronized in terms of order quantity, price and time for the buy and sell orders. The order log and trade log are as under :
Trade time Trd No Order time Diff-sec Date Order no B/S Code Client Qty Rate 02-03-01 15:13:06 145 151168469 15:11:21 SELL 545 SELF 10000 340.00 02-03-01 15:13:06 145 180916834 15:13:05 0:01:44 BUY 978 SELF 10000 340.00 02-03-01 15:13:14 146 151168473 15:11:34 SELL 545 SELF 10000 340.00 02-03-01 15:13:14 146 180916836 15:13:14 0:01:40 BUY 978 SELF 10000 340.00 02-03-01 15:13:22 147 151168475 15:11:45 SELL 545 SELF 10000 340.00 02-03-01 15:13:22 147 180916839 15:13:22 0:01:37 BUY 978 SELF 10000 340.00 02-03-01 15:13:33 148 151168480 15:11:54 SELL 545 SELF 10000 340.00 02-03-01 15:13:33 148 180916346 15:13:33 0:01:39 BUY 978 SELF 10000 340.00 02-03-01 15:13:40 149 151168488 15:12:02 SELL 545 SELF 10000 340.00 02-03-01 15:13:40 149 180916849 15:13:40 0:01:38 BUY 978 SELF 10000 340.00 02-03-01 15:13:47 150 151168491 15:12:10 SELL 545 SELF 10000 340.00 02-03-01 15:13:47 150 130916851 15:13:46 0:01:36 BUY 978 SELF 10000 340.00 02-03-01 15:14:04 161 151168495 15:12:19 SELL 545 SELF 10000 340.00 02-03-01 15:14:04 151 180916856 15:14:04 0:01:45 BUY 978 SELF 10000 340.00 02-03-01 15:14:09 162 151168499 15:12:28 SELL 545 SELF 10000 340.00 02-03-01 15:14:09 162 180916859 15:14:09 0:01:41 BUY 978 SELF 10000 340.00 02-03-01 15:14:16 153 151168501 15:12:37 SELL 545 SELF 10000 340.00 02-03-01 15:14:16 153 180916861 15:14:16 0:01:39 BUY 978 SELF 10000 340.00 02-03-01 15:14:22 164 151168503 15:12:45 SELL 545 SELF 10000 340.00 02-03-01 15:14:22 154 180916865 15:14:22 0:01:37 BUY 978 SELF 10000 340.00 02-03-01 15:14:35 155 151168510 15:13:17 SELL 545 SELF 10000 340.00 02-03-01 15:14:35 155 180916869 15:14:35 0:01:18 BUY 978 SELF 10000 340.00 02-03-01 15:14:42 156 151168514 15:13:25 SELL 545 SELF 10000 340.00 02-03-01 15:14:42 156 180916872 15:14:42 0:01:17 BUY 978 SELF 10000 340.00 02-03-01 15:14:48 157 151168518 15:13:33 SELL 545 SELF 10000 340.00 02-03-01 15:14:48 157 180916873 15:14:47 0:01:14 BUY 978 SELF 10000 340.00 02-03-01 15:14:51 158 151168521 15:13:40 SELL 545 SELF 10000 340.00 02-03-01 15:14:51 158 180916874 15:14:51 0:01:11 BUY 987 SELF 10000 340.00 02-03-01 15:14:56 159 151168523 15:13:47 *** SELL 545 SELF 10000 340.00 02-03-01 15:14:56 160 151168525 *** 10000 340.00 02-03-01 15:14:56 159 180916879 15:14:58 *** BUY 978 SELF 10000 340.00 02-03-01 15:14:56 160 180916880 15:14:56 *** BUY 987 SELF 10000 340.00 02-03-01 15:15:00 161 151168528 15:14:01 *** SELL 545 SELF 10000 340.00 02-03-01 15:15:00 162 151168532 15:14:08 *** SELL 545 SELF 10000 340.00 02-03-01 15:15:00 162 180916885 15:15:00 0:00:52 BUY 978 SELF 10000 340.00 02-03-01 15:15:00 161 180916883 15:14:59 *** BUY 987 SELF 10000 340.00 02-03-01 15:15:04 163 151168533 15:14:15 *** SELL 545 SELF 10000 340.00 02-03-01 15:15:04 163 180916886 15:15:03 0:00:48 BUY 987 SELF 10000 340.00 02-03-01 15:15:07 164 151168535 15:14:22 *** SELL 545 SELF 10000 340.00 02-03-01 15:15:07 164 180916887 15:15:07 0:00:45 BUY 987 SELF 10000 340.00 02-03-01 15:15:09 165 151168537 15:14:29 *** SELL 545 SELF 10000 340.00 02-03-01 15:15:09 165 180916889 15:15:09 0:00:40 BUY 978 SELF 10000 340.00 02-03-01 15:15:14 166 151168543 15:14:39 *** SELL 545 SELF 10000 340.00 02-03-01 15:15:14 166 180916890 15:15:14 0:00:35 BUY 978 SELF 10000 340.00 02-03-01 15:15:15 167 151168548 15:14:46 *** SELL 545 SELF 10000 340.00 02-03-01 15:15:15 167 180916891 15:15:14 0:00:28 BUY 987 SELF 10000 340.00 02-03-01 15:15:18 168 151168554 15:14:55 *** SELL 545 SELF 10000 340.00 02-03-01 15:15:18 168 180916892 15:15:17 0:00:22 BUY 987 SELF 10000 340.00 02-03-01 15:15:20 169 151168557 15:15:03 *** SELL 545 SELF 10000 340.00 02-03-01 15:15:20 169 180916893 15:15:19 0:00:16 BUY 978 SELF 10000 340.00 02-03-01 15:15:21 170 151168561 15:15:09 *** SELL 545 SELF 10000 340.00 02-03-01 15:15:21 1/0 180916894 15:15:21 0:00:12 BUY 987 SELF 10000 340.00 02-03-01 15:15:25 171 151168565 15:15:16 *** SELL 545 SELF 10000 340.00 02-03-01 15:15:25 171 180916896 15:15:25 0:00:09 BUY 978 SELF 10000 340.00 02-03-01 15:15:26 172 151168567 15:15:23 *** SELL 545 SELF 10000 340.00 02-03-01 15:15:26 172 180916897 15:15:25 0:00:02 BUY 987 SELF 10000 340.00 02-03-01 15:15:41 1/3 151168572 15:15:31 *** SELL 545 SELF 10000 340.00 02-03-01 15:15:41 173 180916903 15:15:41 0:00:10 BUY 987 SELF 10000 340.00 02-03-01 15:15:45 174 151168576 15:15:37 *** SELL 545 SELF 10000 340.00 02-03-01 15:15:45 174 180916905 15:15:45 0:00:08 BUY 978 SELF 10000 340.00 02-03-01 15:16:08 175 151168587 15:15:46 *** SELL 545 SELF 10000 340.00 02-03-01 15:16:08 175 180916914 15:16:08 0:00:22 BUY 978 SELF 10000 340.00 02-03-01 15:16:13 176 151168595 15:15:53 *** SELL 545 SELF 10000 340.00 02-03-01 15:16:13 176 180916915 15:16:13 0:00:20 BUY 978 SELF 10000 340.00 02-03-01 15:16:20 177 151168598 15:16:00 *** SELL 545 SELF 10000 340.00 02-03-01 15:16:20 177 180916916 15:16:20 0:00:20 BUY 987 SELF 10000 340.00 02-03-01 15:16:23 1/8 151168603 15:16:09 *** SELL 545 SELF 10000 340.00 02-03-01 15:16:23 179 151168608 15:16:16 *** SELL 545 SELF 10000 340.00 02-03-01 15:16:23 178 180916917 15:16:23 *** BUY 978 SELF 10000 340.00 02-03-01 15:16:23 179 180916918 15:16:23 *** BUY 987 SELF 10000 340.00 02-03-01 15:16:26 180 151168614 15:16:23 *** SELL 545 SELF 10000 340.00 02-03-01 15:16:26 180 180916921 15:16:26 0:00:03 BUY 987 SELF 10000 340.00 02-03-01 15:16:31 181 151168616 15:16:30 *** SELL 545 SELF 10000 340.00 02-03-01 15:16:31 181 180916922 15:16:29 0:00:01 BUY 978 SELF 10000 340.00 02-03-01 15:16:49 182 151168619 15:16:38 *** SELL 545 SELF 10000 340.00 02-03-01 15:16:49 182 180916924 15:16:48 0:00:10 BUY 987 SELF 10000 340.00 02-03-01 15:16:50 183 151168623 15:16:44 *** SELL 545 SELF 10000 340.00 02-03-01 15:16:50 183 180916926 15:16:50 0:00:06 BUY 978 SELF 10000 340.00 02-03-01 15:16:53 184 151168632 15:16:51 *** SELL 545 SELF 10000 340.00 02-03-01 15:16:53 184 180916927 15:16:52 0:00:01 BUY 987 SELF 10000 340.00 02-03-01 15:17:02 185 151168635 15:16:58 *** SELL 545 SELF 10000 340.00 02-03-01 15:17:02 185 180916930 15:17:02 0:00:04 BUY 987 SELF 10000 340.00 02-03-01 15:17:10 186 151168640 15:17:05 *** SELL 545 SELF 10000 340.00 02-03-01 15:17:10 186 180916933 15:17:10 0:00:05 BUY 987 SELF 10000 340.00 02-03-01 15:17:18 187 151168649 15:17:13 *** SELL 545 SELF 10000 340.00 02-03-01 15:17:18 187 180916937 15:17:18 0:00:05 BUY 987 SELF 10000 340.00 02-03-01 15:17:22 188 151168654 15:17:19 *** SELL 545 SELF 10000 340.00 02-03-01 15:17:22 188 180916939 15:17:22 0:00:03 BUY 987 SELF 10000 340.00 02-03-01 15:17:30 189 151168659 15:17:25 *** SELL 545 SELF 10000 340.00 02-03-01 15:17:30 189 180916946 15:17:29 0:00:04 BUY 987 SELF 10000 340.00 02-03-01 15:17:36 190 151168664 15:17:32 *** SELL 545 SELF 10000 340.00 02-03-01 15:17:36 190 180916948 15:17:36 0:00:04 BUY 987 SELF 10000 340.00 02-03-01 15:17:43 191 151168666 15:17:39 *** SELL 545 SELF 10000 340.00 02-03-01 15:17:43 191 180916954 15:17:43 0:00:04 BUY 987 SELF 10000 340.00 02-03-01 15:17:48 192 151168669 15:17:45 *** SELL 545 SELF 10000 340.00 02-03-01 15:17:48 192 180916956 15:17:48 0:00:03 BUY 987 SELF 10000 340.00 02-03-01 15:17:56 193 151168671 15:17:52 *** SELL 545 SELF 10000 340.00 02-03-01 15:17:56 193 180916960 15:17:56 0:00:04 BUY 987 SELF 10000 340.00 02-03-01 15:18:01 194 151168674 15:17:59 *** SELL 545 SELF 10000 340.00 02-03-01 15:18:01 194 180916961 15:18:01 0:00:02 BUY 987 SELF 10000 340.00 02-03-01 15:18:21 195 61197636 15:18:20 *** BUY 35 SELF 10000 340.00 02-03-01 15:18:21 195 151168684 15:18:10 0:00:10 SELL 545 SELF 10000 340.00 02-03-01 15:18:27 196 61197640 15:18:27 *** BUY 35 SELF 10000 340.00 02-03-01 15:18:27 196 151168688 15:18:18 0:00:09 SELL 545 SELF 10000 340.00 02-03-01 15:18:40 197 61197648 15:18:40 *** BUY 35 SELF 10000 340.00 02-03-01 15:18:40 19/ 151168692 15:18:26 0:00:14 SELL 545 SELF 10000 340.00 02-03-01 15:19:38 198 120952423 15:19:38 *** BUY 35 SELF 10000 340.00 02-03-01 15:19:38 198 151168696 15:18:34 0:01:04 SELL 545 SELF 10000 340.00 02-03-01 15:19:43 199 61197683 15:19:42 *** BUY 35 SELF 10000 340.00 02-03-01 15:19:43 199 151168724 15:19:40 0:00:02 SELL 545 SELF 10000 340.00 02-03-01 15:19:47 200 61197687 15:19:47 *** BUY 35 SELF 10000 340.00 02-03-01 15:19:47 200 151168727 15:19:47 0:00:00 SELL 545 SELF 10000 340.00 02-03-01 15:19:55 201 61197695 15:19:55 *** BUY 35 SELF 10000 340.00 02-03-01 15:19:55 201 151168733 15:19:53 0:00:02 SELL 545 SELF 10000 340.00 02-03-01 15:20:08 202 61197706 15:20:08 *** BUY 35 SELF 10000 340.00 02-03-01 15:20:08 202 151168739 15:20:02 0:00:06 SELL 545 SELF 10000 340.00 02-03-01 15:20:13 203 61197710 15:20:13 *** BUY 35 SELF 10000 340.00 02-03-01 15:20:13 203 151168741 15:20:09 0:00:04 SELL 545 SELF 10000 340.00 02-03-01 15:20:18 204 61197714 15:20:18 *** BUY 35 SELF 10000 340.00 02-03-01 15:20:18 204 151168746 15:20:17 0:00:01 SELL 545 SELF 10000 340.00 02-03-01 15:20:35 205 61197725 15:20:35 *** BUY 35 SELF 10000 340.00 02-03-01 15:20:35 205 151168751 15:20:29 0:00:06 SELL 545 SELF 10000 340.00 02-03-01 15:20:41 206 61197728 15:20:41 *** BUY 35 SELF 10000 340.00 02-03-01 15:20:41 206 151168757 15:20:38 0:00:03 SELL 545 SELF 10000 340.00 02-03-01 15:20:47 207 61197730 15:20:47 *** BUY 35 SELF 10000 340.00 02-03-01 15:20:47 207 151168764 15:20:45 0:00:02 SELL 545 SELF 10000 340.00 02-03-01 15:20:59 208 61197740 15:20:58 *** BUY 35 SELF 10000 340.00 02-03-01 15:20:59 208 151168770 15:20:52 0:00:06 SELL 545 SELF 10000 340.00 02-03-01 15:21:08 209 61197745 15:21:08 *** BUY 35 SELF 10000 340.00 02-03-01 15:21:08 209 151168776 15:21:00 0:00:08 SELL 545 SELF 10000 340.00 02-03-01 15:21:27 210 61197756 15:21:27 *** BUY 35 SELF 10000 340.00 02-03-01 15:21:27 210 151168784 15:21:21 0:00:06 SELL 545 SELF 10000 340.00 02-03-01 15:21:33 211 61197759 15:21:33 *** BUY 35 SELF 10000 340.00 02-03-01 15:21:33 211 151168785 15:21:29 0:00:04 SELL 545 SELF 10000 340.00 02-03-01 15:21:50 212 61197766 15:21:50 *** BUY 35 SELF 10000 340.00 02-03-01 15:21:50 212 151168788 15:21:36 0:00:14 SELL 545 SELF 10000 340.00 02-03-01 15:21:56 213 61197767 15:21:55 *** BUY 35 SELF 10000 340.00 02-03-01 15:21:56 213 151168792 15:21:42 0:00:13 SELL 545 SELF 10000 340.00 02-03-01 15:22:01 214 61197768 15:22:01 *** BUY 35 SELF 10000 340.00 02-03-01 15:22:01 214 151168794 15:21:52 0:00:09 SELL 545 SELF 10000 340.00 02-03-01 15:22:09 215 61197771 15:22:09 *** BUY 35 SELF 10000 340.00 02-03-01 15:22:09 215 151168796 15:21:59 0:00:10 SELL 545 SELF 10000 340.00 02-03-01 15:22:21 216 61197777 15:22:20 *** BUY 35 SELF 10000 340.00 02-03-01 15:22:21 216 151168800 15:22:13 0:00:07 SELL 545 SELF 10000 340.00 also note that when BSPL sold 7,20,000 shares, on the buying side, its associate broker - Harish Biyani purchased 2,20,000 shares. The balance 5,00,000 shares were purchased by the noticees who were brokers at the relevant time and belonged to the D K Singhania group (2,50,000 shares each) i.e. Arihant Exim Scrip Pvt. Ltd. and Doe Jones Investments & Consultants Pvt. Ltd.
13. I further note that CSE had expunged the entire transactions of 7,20,000 shares on the ground that they were non genuine transactions. As far as the transactions of 5,00,000 shares between the Biyani group of brokers and the noticees viz. Arihant Exim Scrip Pvt. Ltd. and Doe Jones Investments & Consultants Pvt. Ltd. are concerned, I observe from the order and trade log that both Arihant Exim Scrip Pvt. Ltd. and Doe Jones Investments & Consultants Pvt. Ltd. indulged in creation of artificial market and volumes as a result of synchronization of trades as aforesaid. . The ordered quantity, price and time were matched. The time lag in the placement of orders was just under few seconds. The counterparty broker was BSPL and the buy and sell orders for the same quantity of shares were placed almost simultaneously. The value and volume of such transactions are also quite high. Instead of entering the order in the system and allow it to match with other orders pending in the market , the noticees and the counterparty broker had punched the orders almost simultaneously in the system so that they are matched in terms of price , quantity and timing etc.
14. In appeal no 54 of 2002 - Nirmal Bang Securities Pvt. Ltd V/S SEBI, the Hon''ble Securities Appellate Tribunal has held as under with regard to synchronized deals "BEB has been charged for synchronized deals with First Global. I have examined the data provided by the parties on this issue. I find many transactions between BEB and FGSB. There are many instances of such transactions. I find the scrip, quantity and price for these orders had been synchronized by the counter party brokers. Such transactions undoubtedly create an artificial market to mislead the genuine investors. Synchronized trading is violative of all prudential and transparent norms of trading in securities. Synchronized trading on a large scale can create false volumes. The argument that the parties had no means of knowing whether any entity controlled by the client is simultaneously entering any contra order elsewhere for the reason that in the online trading system, confidentiality of counter parties is ensured, is untenable. It was submitted by the Appellants that it was not possible for the broker to know who the counter party broker is and that trades were not synchronized but it was only a coincidence in some cases. Theoretically this is OK. But when parties decide to synchronize the transaction the story is different. There are many transactions giving an impression that these were all synchronized, otherwise there was no possibility of such perfect matching of quantity price etc. As the Respondent rightly stated it is too much of a coincidence over too long a period in too many transactions when both parties to the transaction had entered buy and sell orders for the same quantity of shares almost simultaneously."
15. Such transactions wherein the buy and sell orders were entered almost simultaneously and the time lag is just under few seconds as aforesaid and the transactions are matched in terms of order quantity, price and time are highly irregular and defeat the purpose of normal order matching system in the price discovery process in the exchanges and would also be in violation of Regulation 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) 1995 which reads as under:-
Prohibition against market manipulation.
4. No persons shall
(a) effect, take part in, or enter into, either directly or indirectly, transactions in securities, with the intention of artificially raising or depressing the prices of securities and thereby inducing the sale or purchase of securities by any person;
(b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities markets;
(c) indulge in any act, which results in reflection of prices of securities based on transactions that are not genuine trade transactions;
(d) enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress, or cause fluctuation in the market price of securities;
16. As already noted above, when BSPL sold 7.2 lac shares of DSQ Industries, its associate broker, Harish Biyani purchased 2.2 lac shares and the rest were purchased by the noticees.
17. Acting in concert is something about which actual evidence is normally difficult to come. The Supreme Court had dealt with the issue in the case of CIT vs East Coast Commercial Co.Ltd. AIR (1967) SC 768 (Kedia Family case) in the context of Section 23A of the Indian Income Tax Act, 1922 wherein the question was whether Kedia family had acted in concert to control the affairs of the concerned company. In the facts of that case, there was no evidence of any overt act showing that they were acting in concert and thereby constituted and acted as a block.
18. In para 14 of the judgement, the SC observed as follows:
" .. It is sufficient, if having regard to their relation, etc., their conduct and their common interest, that it may be inferred that they must be acting together, evidence of actual concerted acting is normally difficult to obtain, and is not insisted upon." (p.772)
19. Under the circumstances, it is concluded that BSPL and the noticees who purchased 5,00,000 shares in transactions which are termed as synchronized transactions in terms of order time, quantity and price as discussed above were acting in concert with each other in the synchronized deals.
20. Hence, it is clear from the above that Arihant Exim Pvt. Ltd. and Doe Jones Investments Pvt. Ltd. had together indulged in creation of artificial market, artificial price rise, giving misleading appearance of trades and hence have violated Regulation 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 as aforesaid.
21. In a situation where BSPL had sold 7.2 lac shares on the buying side, its associate broker Harish Biyani purchasing 2.2 lac shares and the noticees purchasing 5 lac shares in synchronized deals, the evidence of connected circumstances and preponderance of probabilities, common course of natural events and combination of facts creating network and artificial volumes gives rise to a reasonable inference that the noticees did not act in good faith and without negligence when they had executed these transactions.
22. The standard of proof required in a proceeding of this nature is at variance with the standard of proof required in criminal cases. It is sufficient if the preponderance of probabilities suggests towards the indulgence of the delinquent in the misconduct. The strict rules of Evidence Act and proof beyond reasonable doubt are not applicable to a proceeding of this nature. The Supreme Court's decision in Gulabchand vs Kudilal AIR, 1966, SC 1734 and the decision of the Special Court for trial of offences relating to transactions in securities in the matter of National Housing Bank versus ANZ Grindlays Bank, 1998 (2 ) LJ 153 is relied upon in this regard.
ORDER
23. Now, therefore, having regard to the nature and gravity of the charges established against the noticees, I hereby, in exercise of powers under Section 11(4), 11B of SEBI Act, 1992, and Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, prohibit Arihant Exim Pvt. Ltd. and Doe Jones Investments Pvt. Ltd. to buy, sell or deal in the securities market for a period of 2 years.
24. This order shall come into force with immediate effect.