In Re: Nageshwar Investment Ltd., ... vs Unknown on 31 May, 2006

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Securities Appellate Tribunal

In Re: Nageshwar Investment Ltd., ... vs Unknown on 31 May, 2006

ORDER

G. Ananthraman, Member

1. Facts of the Case

1.1 The preliminary investigations conducted by Securities and Exchange Board of India (hereinafter referred to as "SEBI") revealed rampant price manipulation in the shares of companies with low market capitalization, commonly referred to as "small cap stocks" or "penny stocks" during the year 2005. SEBI had taken action, including initiation of formal investigation against several such companies, their promoters, brokers and unscrupulous traders which are listed and traded on the Calcutta Stock Exchange (hereinafter referred to as "CSE") as well as against the promoters of these companies and brokers who had manipulated the prices on the shares of these companies, in order to protect the interest of investors and the integrity of the market. Shares of the following companies witnessed a sharp price variation ranging from 69% to 323% within a short period between April 2005 and November 2005.

Nageshwar Investment Ltd.

Adinath Bio-labs Ltd.

Globe Stocks & Securities Ltd.

Goenka Business & Finance Ltd.

Coronet Industries Ltd.

1.2 The price movement of the shares of the five companies listed on the CSE during April, 2005 to November, 2005 is given below:

Sr.

Scrip Name

Period

Initial

traded

price

Last

traded

price

% increase/

decrease

Duration

(in Rs.)

Nageshwar Investment Ltd.

25/4/05 to 24/11/05

12.70

45.50

258%

7 months

Adinath Bio-labs Ltd.

16/5/05 to 24/11/05

20.80

323%

6 months 9 days

Globe Stocks & Securities Ltd.

15/7/07 to 24/11/05

19.10

77.65

307%

4 months 10 days

Goenka

Business &

8/4/05 to

7 months 17

Finance Ltd.

24/11/05

60.10

13.60

77%

days

Coronet

4/4/05 to

7 months 21

Industries Ltd.

24/11/05

160.00

270

69%

days

2. Observations of Preliminary Investigation

Nageshwar Investment Ltd.

2.1 Nageshwar Investment Ltd., one of the listed companies at CSE, witnessed a significant price increase during the period under scrutiny. The share price of the company increased from Rs. 12.70 to Rs. 45.50, i.e. a rise of 258% increase in 7 months.

2.2 It was observed from the latest annual report of the company received from CSE that in the year 2004-05 the share capital of the company was Rs.30.70 crore against which the company grossed receipts of Rs.40.87 crore which almost matched its expenditure (Rs.40.87 crore) and consequently its net profit (PAT) for the year was only a paltry Rs.3,437. During the previous year also the company's net profit (PAT) was only Rs.2,497. It was observed that the company had an accumulated loss of Rs.7.27 lakh at the end of financial year 2004-05.

2.3 As per the compliance report obtained from CSE, it is seen that the company did not submit the following documents / reports with the exchange:

a) Balance sheet for the years 2003-04.

b) Share-holding pattern for the years 2002-03, 2003-04, 2004-05 and 2005-06.

c) Unaudited quarterly results in respect of the 2nd quarter for the year 2005-06.

2.4 The CSE suspended trading in the shares of the company with effect from November 22, 2005 for partial / non-compliance of listing agreement of the exchange.

2.5 The financial results coupled with the fact that the company did not bother to file its balance sheet for the year ended March 2004 and its shareholding pattern since 2002-03 only confirmed the belief that the company has scant interest in disclosing its financial results to the investors. The poor financial result of the company in 2004-05 and the fact that it is carrying an accumulated loss, did not appear to warrant a sudden astronomical rise of 335% in the price during April 25, 2005 to November 24, 2005.

2.6 An analysis of the trading data revealed that primarily four brokers traded in the scrip, the details of which are given in the Table below:

Sl. No.

Member Name

Total Volume

% to Scrip
Total

Basant Periwal & Co.- D618

3161955

19.62

Binoy Poddar - D1019

2029155

12.59

Shyam Lal Sultania - D470

2019402

12.53

P K Agarwal & Co.- D923

1980451

12.29

2.7 A further analysis of the trading data revealed that the above members not only acted as counter party of their own transactions, but also had matching transactions among themselves. The extent of such transactions is given in the following table:

Sl No

Name of the member

Basant Periwal

Binoy Poddar

S L Sultania

P K Agarwal

Basant Periwal & Co.- D618

222798

7.05

0.00

187951

5.94

1708050

54.02

Binoy Poddar - D1019

0.00

1248896

61.55

0.00

Shyam Lal Sultania - D470

187951

9.31

0.00

389192

19.27

0.00

P K Agarwal & Co.- D923

1708050

86.25

0.00

179600

9.07

(The percentage mentioned in the table is with respect to their total trades in the scrip during the relevant period (significant percentages shown in bold))

2.8 Clearly the cross deals executed by Binoy Poddar and the transactions between Basant Periwal & Co. and P.K. Agarwal & Co. constituted a large portion of trading in the shares and were responsible for the price rise in the share. Such a rise in the share price of the company with poor track record was clearly out of sync with the fundamentals and was prima facie designed to create a false market and to lure small investors to invest in the shares of the company.

ADINATH BIO-LABS LTD.

2.9 Adinath Bio-labs Ltd., another of the "small cap" listed companies at CSE, witnessed a significant price increase during the period under scrutiny. The share price of the company increased from Rs. 20.80 to Rs. 88, i.e. a rise of 323% in 6 months & 9 days.

2.10 It was observed from the latest annual report of the company received from CSE that in the year 2004-05 the share capital of the company was Rs.5.52 crore against which the company grossed receipts of Rs.20.01 crore which almost exactly accounted for meeting its expenditure (Rs.19.69 crore), leaving a net profit (PAT) for the year of Rs.5 lakh. During the previous year also the company's net profit (PAT) was Rs.8 lakh.

2.11 As per the latest compliance report obtained from CSE, it is seen that the company did not submit the following documents / reports with the exchange: a) Share-holding pattern in respect of 1st and 4th quarter for the year 2002-03, 1st and 2nd quarter for the year 2003-04 and 2nd quarter for the year 2004-05. b) Unaudited quarterly results in respect of 2nd quarter for the year 2005-06.

2.12 Thus, the available information indicated that the financial performance of the company had been consistently not so impressive and certainly not enough to generate a sudden surge of investor expectation to warrant a sharp rise in share price of 323% in six months. The fact that the company did not bother to file the shareholding pattern since 2002-03 also reflects on the attitude of the company and its poor record in terms of disclosures.

2.13 An analysis of the trading data revealed that primarily four brokers traded in the scrip, the details of which are given below:

Sl. No.

Member Name

Total Volume

% to Scrip Total

Pramod K Kothari

164250

37.43

Purshottam Lal Kejdiwal

82700

18.85

Santosh K Kejriwal Sec

79500

18.12

Dinesh Kumar Lodha

51950

11.84

2.14 It was observed from the above table that during April 2005 to May 2005 the price of the scrip fell from Rs.80 to Rs.20.75 and two brokers, i.e. Pramod K Kothari and Santosh K Kejriwal executed majority of the trades in the scrip during the said period. It was further observed from the above table that after May-June 2005 to October 2005 the price of the scrip again rose from Rs.21 to Rs.84.20 and this time the majority of trades were executed by two different brokers, i.e. Purshottam Lal Kejdiwal and Dinesh Kumar Lodha.

2.15 A further analysis of the trading data revealed that the pattern of trading and the modus operandi seems to be identical as in the previous case wherein the above members not only acted as counter party of their own transactions, but also had matched the transactions among themselves, creating artificial volumes. The extent of such transactions is given in the following table:

Sl No

Name of the member

P K Kothari

S K Kejriwal

P L Kejdiwal

D K Lodha

Pramod K Kothari -D475

71200

43.35

79500

48.40

0.00

300

0.18

Santosh K Kejriwal SecD144

79500

100.00

0.00

Purshottam Lal Kejdiwal D739

0.00

200

0.24

46000

55.62

Dinesh Kumar Lodha - D728

300

0.58

0.00

46000

88.55

0.00

(The percentage mentioned in the table is with respect to their total trades in the scrip during the relevant period (significant percentages shown in bold))

It was seen that the transactions executed between P.K.Kothari and S.K.Kejriwal in the first phase and between P.L.Kejdiwal and D.K.Lodha in the second phase constituted a major portion of trading in the shares of the company and helped in creating an artificial market in the shares.

GLOBE STOCKS & SECURITIES LTD.

2.16 Globe Stocks & Securities Ltd., another of the "small cap" listed companies at CSE, witnessed a significant price increase during the period under scrutiny. The share price of the company increased from Rs. 19.10 to Rs. 77.65, i.e. a rise of 307% in 4 months 10 days. The shares of the company are also listed on Magadh Stock Exchange, Uttar Pradesh Stock Exchange, Bhubaneshwar Stock Exchange, Cochin Stock Exchange and Ludhiana Stock Exchange.

2.17 It was observed from the latest annual report of the company sent by CSE that in the year 2004-05 the share capital of the company was Rs.10.50 crore against which the company grossed receipts of Rs.87 lakh, with an expenditure of Rs.33 lakh, posting net profit (PAT) of Rs.45 lakh. During the previous year the company had incurred a loss of Rs.8.58 lakh. The company had an accumulated loss of Rs.32 lakh at the end of financial year 2004-05.

2.18 As per the latest compliance report obtained from CSE, it is seen that the company did not submit the following documents / reports with the exchange: a) Share-holding pattern in respect of 1st and 3rd quarter for the year 200203 and 2nd quarter for the year 2005-06. b) Unaudited quarterly results in respect of the 1st, 2nd and 3rd quarter for the year 2002-03, 3rd quarter for the year 2003-04 and 2nd quarter for the year 2005-06.

The company had not shown any interest in filing quarterly results with the exchange since 2002-03.

2.19 Analysis of the trading data revealed that primarily two brokers traded in the scrip, the details of which are given below:

Sl. No.

Member Name

Total Volume

% to Scrip
Total

Ashish Stock Broking- D498

3522910

31.10

Sunil Kedia - D712

3539800

31.25

2.20 A further analysis of the trading data revealed that the above members have matching transactions among themselves. The extent of such transactions is given in the following table:

Sl No

Name of the
member

Ashish

Sunil Kedia

Sanju Kabra

Ashish Stock BrokingD498

0.00

3484800

98.92

10000

0.28

Sunil Kedia - D712

3484800

98.45

0.00

(The percentage mentioned in the table is with respect to their total trades in the scrip during the relevant period (significant percentages shown in bold))

2.21 It was clearly evident from the above tables that the two stock brokers viz. Ashish Stock Broking and Sunil Kedia were appear to have created an artificial market in the shares of the company by executing large volume of transactions among themselves

GOENKA BUSINESS & FINANCE LTD.

2.22 Goenka Business & Finance Ltd., another of the "small cap" companies listed on the CSE, witnessed a significant price fall during the period under scrutiny. Unlike in the other three cases analysed above, the share price of this company fell sharply from Rs. 60.10 to Rs. 13.60, i.e. a decline 77% in 7 months and 17 days.

Curiously, the sharp decline in share prices was also the result of the common modus operandi of matched transactions between the same two brokers viz.

Ashish Stock Broking and Sunil Kedia, who dealt in the share of Globe Stock and Securities Ltd.,

2.23 As per the latest compliance report obtained from CSE, it is seen that the company did not submit the following documents / reports with the exchange: a) Balance sheet for the years 2003-04 and 2004-05 b) Share-holding pattern for the years 2002-03, 2003-04, 2004-05 and 2005-06.

c) Unaudited quarterly results for the year 2002-03, 2003-04, 2004-05 and 2005-06

2.24 The exchange suspended trading in the shares of the company with effect from November 22, 2005 for partial/non-compliance of listing agreement of the exchange.

2.25 Analysis of the trading data given in the Tables below, showed that only two brokers traded in the share and accounted for 100% of the volume through matched transactions.

Trading data of two brokers accounting for 100% of trading volume

Sl. No.

Member Name

Total Volume

% to Scrip Total

Ashish Stock BrokingD498

3102500

Sunil Kedia - D712

3102500

Trading data of two brokers - matched transactions

Name of the member

Ashish

Sunil Kedia

Ashish Stock Broking- D498

0.00

3102500

100.00

Sunil Kedia - D712

3102500

100.00

0.00

The percentage mentioned in the table is with respect to their total trades in the scrip during the relevant period (significant percentages shown in bold).

2.26 This company also, like in the earlier instances, paid scant regard to disclosures and did not file any past or current financial information. In the absence of relevant disclosures, it was difficult to ascribe any reason for the sudden activity in the shares of the company except to state that through matched transactions, the two brokers appear to have created a false market in the shares.

CORONET INDUSTRIES LTD.

2.27 Coronet Industries Ltd., another "small cap" company listed on the CSE, witnessed a significant price increase during the period under scrutiny. The share price of the company increased from Rs. 160 to Rs. 270, i.e. a rise of 69% increase in 7 months 21 days.

2.28 It was observed from the latest annual report of the company sent by CSE that in the year 2003-04 the share capital of the company was Rs.70 lakh against which the company grossed receipts of Rs.17 lakh which largely accounted for meeting its expenditure (Rs.15.55 lakh) and consequently its net profit for the year was only Rs.1.58 lakh. The exchange informed that they did not submit balance sheet for the year 2004-05.

2.29 As per the latest compliance report obtained from CSE, it is seen that the company did not submit the following documents / reports with the exchange: a) Balance sheet for the year 2004-05 b) Share-holding pattern in respect of the 2nd quarter for the year 2005-06. c) Unaudited quarterly results in respect of the 1st and 2nd quarter for the year 05-06

In the light of lack lustre track record of the company in 2003-04 coupled with the absence of any information about the company, on account of non-submission of balance sheet for 2004-05 and quarterly results during the current year, no justification was apparent for the sudden spurt in prices.

2.30 A further analysis of the trading data revealed that primarily two brokers have traded in the scrip, the details of which are given below:

Sl. No.

Member Name

Total Volume

% to Scrip Total

Ahilya CommercialD588

260350

46.85

Murari Lal GoenkaD835

236700

42.59

2.31 Further analysis of the trading data revealed that the above members not only acted as counter party of their own transactions, but also executed matching transactions among themselves. The extent of such transactions is given in the following table:

Name of the member

Ahilya

M L Goenka

Ahilya CommercialD588

213600

82.04

22550

8.66

Murari Lal GoenkaD835

22550

9.53

207800

87.79

(The percentage mentioned in the table is with respect to their total trades in the scrip during the relevant period (significant percentages shown in bold):

Thus these two brokers Ahilya Commercial and Murari Lal Goenka, through matched transaction among themselves were appear to have created a false market in the shares of the company and contributed to the artificial rise in the price. Of the two brokers, SEBI, had passed orders on September 29, 2005, against Ahilya Commercial, prohibiting them from dealing in securities.

Summary of the observations of Preliminary Investigation

3.1 The facts brought out in the foregoing paragraphs and the analysis of the trade and order log as given in the tables above prima facie seek to indicate the following -

a) All the five companies had either lack lustre or poor track record which did not warrant sharp price variation in a relatively short period.

b) These companies did not make the necessary financial disclosures to the stock exchange, including submission of annual/quarterly reports. There was therefore no information about these companies available to the market.

c) The trading volumes in the shares of these companies were invariably created by a few brokers trading among themselves and through matched transactions (i.e. clients allowed to place simultaneously both buy and sale orders of same quantity at the same price in the selected shares), often executed on a single terminal of the broker. Curiously while in four instances, there was a sharp rise in share prices, in one there was sharp decline, all through a common modus operandi. These brokers therefore created a false market in the shares of the companies.

d) As the variation in the price of the shares rose significantly, except in one case, there was a possibility that investors without having proper information about the company might be lured to those illiquid scrips and get trapped in the process, which is highly detrimental to the interest of the investors.

e) Clearly, the ultimate objective behind the creation of a false market in these shares, was either to lure investors, or perhaps to legitimising the gains.

f) SEBI vide order dated September 29, 2005 in similar cases had already passed direction against Shyam Lal Sultania, member of CSE in the cases of Subh Laxmi Projects Ltd. and Amluckie Investment Co. Ltd. and against Ahilya Commercial Pvt. Ltd., member of CSE in the case of Subh Laxmi Projects Ltd; directing them not to buy, sell or deal in securities in any manner, either directly or indirectly, till further directions

3.2 In sum, it appears from the above analysis of the five companies, all of which are listed in CSE, that the brokers followed a common modus operandi of artificially inflating the price and creating false volumes through continuous self deals executed on the same terminal and cross deals amongst themselves thereby facilitating the process of legitimizing the gains. Besides the companies themselves recorded poor or lack lustre financial performance and did not bother to file up to date financial statements with CSE. Such acts by the brokers posed a serious risk to the stability and settlement system of the stock exchange besides raising the spectre that innocent investors might get drawn by the artificial trading volumes generated by these brokers and might in the process be beguiled into investing in the shares of these fundamentally weak companies at unjustifiable market prices, only to be left adrift.

The findings of the preliminary investigation as detailed above also established a prima facie case of violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 and Regulation 7 read with code of conduct as specified in Scheduled II of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. There was a reasonable ground to believe that the transactions in the above securities were being dealt in a manner detrimental to the investors and securities market. SEBI vide orders dated January 04, 2006 has initiated formal investigations into the affairs relating to buying, selling or dealing in shares of the abovementioned five companies.

0 AD INTERIM EX-PARTE ORDER

4.1 Meanwhile, in view of the aforesaid facts and circumstances, SEBI passed ad interim ex-parte order dated November 30, 2005 under Section 19 read with Section 11 (4) (a), 11(4)(b) and Section 11 (1) and 11 B of the SEBI Act to the effect that:

A) the following twelve stock brokers of CSE were directed not to buy, sell or deal in securities, in any manner, either directly or indirectly, till further directions in this regard:

Basant Periwal & Co.

Binoy Poddar

P K Agarwal & Co.

Pramod K Kothari

Purshottam Lal Kejdiwal

Santosh K Kejriwal Securities (P) Ltd.

Dinesh Kumar Lodha

Ashish Stock Broking

Sunil Kedia10.Murari Lal Goenka11.Shyam Lal Sultania12.Ahilya Commercial Pvt. Ltd.

B) In respect of Shyam Lal Sultania and Ahilya Commercial Pvt. Ltd., brokers of CSE (mentioned at Sr. No. 11 & 12 of para no. 4.1 A) against whom another order dated September 29, 2005 was passed whereby they were directed not to buy, sell or deal in securities in any manner, either directly or indirectly, both the orders would run concurrently, till further directions.

C) The trading in the shares of the following companies was suspended till further directions in this regard.

Nageshwar Investment Ltd.

Adinath Bio-labs Ltd.

Globe Stocks & Securities Ltd.

Goenka Business & Finance Ltd.

Coronet Industries Ltd.

5. 0 SUBMISSIONS OF THE ENTITIES PURSUANT TO THE AD INTERIM EX PARTE ORDER

Pursuant to the ad interim ex parte order passed on November 30, 2005 the above companies / brokers submitted their responses vide their various letters, which have been deliberated in subsequent part of the order:

6. PERSONAL HEARING

As requested by the entities and in adherence to the principles of natural justice, personal hearing was granted to Santosh K Kejriwal on April 7, 2006 and the other above entities / brokers on April 18, 2006. In the course of hearing all of them made oral submissions and as requested by them, they were given time to file their written submissions also.

7. 0 ORDER PERTAINING TO SANTOSH K KEJRIWAL

Pursuant to the personal hearing granted to Santosh K Kejriwal on April 7, 2006, an order no. WTM/GA/57 /ISD/4 /06 dated April 13, 2006 was passed directing that the restriction imposed in the ad interim ex parte order will operate with respect to the broker's dealings in CSE.

8. SUBMISSIONS BY COMPANIES / OTHER BROKERS

The gist of the submissions made by the companies / other brokers pursuant to the ad interim ex parte Order, during the personal hearing and in their written submissions can be broadly summarized as under:

8.1 Nageshwar Investment Ltd.

In its pre and post hearing written submissions dated December 13, 2005 and April 21, 2006, the entity has submitted as under:
The dealings between the share brokers and the client are totally and completely without the knowledge of the company. The company is not affected by the market fluctuation. The suspension of trading in the scrip of the company based on the acts of the brokers is invalid and illegal in the eyes of law. Six copies of the balance sheet and profit & loss a/c along with corporate governance report, notice and the report of the directors of the company for the year ended on 31-3-04 were filed with CSE vide letter dated 21-3-05. The company has filed the un-audited quarterly results with CSE vide company's letter dated 29-10-05. The details with regard to shareholding pattern are contained in corporate governance statement filed with the Stock Exchange and forming part of the annual reports. Therefore, inadvertent technical omission with regard to the non-filing of shareholding pattern is insignificant and immaterial. To the knowledge of the company, neither the promoters nor the directors have bought or sold the shares of the company. The company is not aware of any broker, who is dealing in the shares of the company and it has no connection whatsoever with any broker mentioned in the order.

During the course of hearing, the company stated that it has filed all the relevant financial statements with the CSE. The company submitted copies of the filings duly acknowledged by the exchange. The documents submitted by the company were forwarded to CSE for their comments. The exchange has vide their letter dated May 11, 2006 stated as under:
We could not locate the balance sheet for the financial year 2003-2004 from the records of the Exchange but considering the records of compliances regarding the submission of balance sheet in other two financial years, it is possible that the company might have submitted the balance sheet for the financial year 2003-04 but the same has been misplaced in our office. Regarding unaudited quarterly result for the year 2005-2006 (2nd quarter) was submitted to the Exchange on 21.11.2005 i.e. after submission of CSE's report on compliance to SEBI on 18.11.2005.

CSE also stated vide their letter dated May 11, 2006 that Nageshwar Investment Ltd. was suspended from trading due to violation of Listing Agreement of the Exchange with effect from 22.11.2005 and the suspension of trading was still continuing as on date.

8.2 Adinath Bio-Labs Ltd.

In its pre and post hearing written submissions dated December 16, 2005 and April 18, 2006, the entity has submitted as under:

The company has submitted with CSE the shareholding pattern in respect of 1st & 4th quarter for the year 2002-03, 1st & 2nd quarter for the year 2003-04 and 2nd quarter for the year 2004-05; un-audited quarterly result in respect of 2nd quarter for the year 2005-06.

The price of the shares of the company was Rs.87/- as per the official report and quotations as on 5-5-05 of CSE. The shares of the company were marked Ex-bonus from 11-05-05 in the Rolling Settlement No.200632B as would be revealed from C-Star News Flash on TWS Terminals on 11-05-05. As per the Official Report and Quotation of CSE dated 16-5-05, the price of the share started quoting Ex-bonus and opened at Rs.20.75, high Rs.20.80, low Rs.20.75 and closed at Rs.20.80. It therefore appears that effect of bonus shares on the price-ex-bonus has not been considered and ex-bonus rate has been co-related with cum-bonus rate resulting into mis-match of comparison between the price quotations and consequently an error in the said finding has taken place.

There has not been a single case of investor complaint or arbitration against the company.

During the course of hearing, the company stated that it has filed all the relevant financial statements with the CSE. The company submitted copies of the filings duly acknowledged by the exchange. The documents submitted by the company were forwarded to CSE for their comments. The exchange has vide their letter dated May 11, 2006 stated as under:
We could not locate the shareholding pattern for the financial year 2002-2003 (1st and 4th Qtr.), 2003-2004 (1st and 2nd Qtr.) and 2004-2005 (2nd Qtr) from the records of the Exchange. Further, unaudited quarterly result for the year 2005-2006 (2nd Qtr) also could not be located from the records of the Exchange. Considering the compliances on records, it may be possible that the same were received by the Exchange and not traceable now.

CSE also stated vide their letter dated May 11, 2006 that Adinath Bio-Labs Ltd. was suspended from trading due to violation of Listing Agreement of the Exchange with effect from 26.11.2005 and the suspension of trading was still continuing as on date.

8.3 Globe Stocks & Securities Ltd.

In its pre and post hearing written submissions dated December 20, 2005 and April 25, 2006, the entity has submitted as under:

After suffering for years of net losses, the company have come out with a net profit after tax, of Rs.44.74 lacs compared to previous year's net loss of Rs.8.58 lacs. The total income rose from Rs.23.16 lacs to Rs.87.20 lacs (i.e. an increase of 277%) while the company was able to contain the increase in expenditures (excluding non-financial charges) from Rs.26.32 lacs to Rs.33.49 lacs (i.e. an increase of merely 27%). In such circumstances, such movement of share price is quite natural, particularly when various indices related to securities have moved upward sharply.

The company has complied with Clause 35 and 41 of the listing agreement.

No trading in the scrip pertains to the company and none of its promoters/directors/officers is involved in the alleged manipulation or matched transactions.

The company has neither made any gain nor legitimized any such gain out of the alleged trading.

Market is well informed and the investors have free access to the company's financial data. No investor has complained of being lured and trapped.

During the course of hearing, the company stated that it has filed all the relevant financial statements with the CSE. The company submitted copies of the filings duly acknowledged by the exchange. The documents submitted by the company were forwarded to CSE for their comments. The exchange has vide their letter dated May 11, 2006 stated as under:
We could not locate the shareholding pattern for the financial years 2002-2003 (1st and 3rd Qtr.) and 2005-2006 (2nd Qtr) from the records of the Exchange. Further, unaudited quarterly results for the year 2002-2003 (1st, 2nd and 3rd Qtr.), 2003-2004 (3rd Qtr.), 2005-2006 (2nd Quarter) could also not be located from the records of the Exchange but considering the records of compliances by the company, it is possible that the company might have submitted the documents but the same had been misplaced in our office.

CSE also stated vide their letter dated May 11, 2006 that Globe Stocks & Securities Ltd. was suspended from trading due to violation of Listing Agreement of the Exchange with effect from 26.12.2005 and the suspension of trading was still continuing as on date.

8.4 Goenka Business & Finance Ltd.

In its pre and post hearing written submissions dated December 20, 2005 and April 25, 2006, the entity has submitted as under:

Neither the company nor any of its promoters/directors/officers had any role to play whatsoever in the alleged sharp fall in the price of the scrip of the company. The company had nothing to do with the modes of operation by any broker or investor.

The company has filed with CSE the Balance sheet, Share-holding pattern and unaudited quarterly results and has thus complied with the listing agreements.

In CSE, scant scrips are traded by many brokers. Investors approach to those brokers only with whom they are acquainted and who are used to

trade in a particular scrip for his clients. In such case, it seems to be natural as if the total volume is traded through 10% of active brokers.

1) Balance sheet for the year 2003-2004 was not received but the balance sheet for the financial year 2004-05 was received.

2) Shareholding pattern for the financial years 2002-2003 (1st to 4th Qtr.), 2003-2004 (1st to 4th Qtr.), 2004-2005 (1st to 4th Qtr.) and 2005-2006 (1st and 2nd Qtr.) were received.

3) Unaudited quarterly results for the financial years 2002-2003 (1st to 4th Qtr.), 2003-2004 (1st to 4th Qtr.), 2004-2005 (1st to 4th Qtr.) and 2005-2006 (1st and 2nd Qtr.) were received.

CSE also stated vide their letter dated May 11, 2006 that Goenka Business & Finance Ltd. was suspended from trading due to violation of Listing Agreement of the Exchange with effect from 22.11.2005 and the suspension of trading was still continuing as on date.

8.5 Coronet Industries Ltd.

In its pre and post hearing written submissions dated December 15, 2005 and May 04, 2006, the entity has submitted as under:

For the trading done by the brokers or any of the investors in its scrip, the company cannot be held liable and responsible. The company is not involved in any manner in the trading done by the brokers or investors in our scrip. The acts of the broker or investors cannot be equated with the acts of the company and no penal consequence can flow against the company therefrom.

Neither the company nor its promoters/directors/officers had any role to play whatsoever in the alleged significant rise in the price of the scrip of the company.

The company has not submitted the financial results and balance sheet because it had taken a 3 months extension for holding the AGM from ROC, Kolkata. As far as non-filing of the unaudited quarterly results of last 2 quarters are concerned, the company has admitted that it was negligence on its part.

During the course of hearing, the company stated that it has filed all the relevant financial statements with the CSE. The company submitted copies of the filings duly acknowledged by the exchange. The documents submitted by the company were forwarded to CSE for their comments. The exchange has vide their letter dated May 11, 2006 stated as under:
The Balance sheet for the financial year 2004-2005 of the company was received by the Exchange on 26th April, 2006. Regarding shareholding pattern for the financial year 2005-2006 (2nd Qtr) was received by the Exchange on 26th April, 2006. Unaudited quarterly result for the financial year 2005-2006 (1st and 2nd Qtr) were received on 26th April, 2006. All the aforesaid compliances were received by the Exchange after submission of compliance report by CSE to SEBI vide its letter dated 18.11.2005.

CSE also stated vide their letter dated May 11, 2006 that Coronet Industries Ltd. was suspended from trading due to violation of Listing Agreement of the Exchange with effect from 26.12.2005 and the suspension of trading was still continuing as on date.

8.6 Dinesh Kumar Lodha

In its pre and post hearing written submissions dated December 12, 2005, the broker has submitted as under:

The broker has not entered into any transaction with the intention of fraud or in a manner which is detrimental to the investors and that the entire transactions were done on behalf of its clients.

All the transactions were executed on the trading screen of the exchange in the open market at the then existing market band as per the instructions of the clients, putting the clients' code.

The broker has traded only in 51950 shares of the aforesaid company which is only 11.84% of the total volume traded in the market which is very insignificant considering the number of brokers participating in the trading at CSE.

While dealing in the shares of the aforesaid company, the broker's gain was restricted to the extent of reasonable brokerage. Further, the broker has never paid, offered or agreed to pay or offer directly any money or incentive to any person for dealing in the aforesaid security with the object of inflating, depressing, maintaining or causing fluctuations in the price of the security. However, during the period of investigation, general mood of the market was bullish.

During the course of hearing, the broker stated that they had executed trades on behalf of their clients. The broker also stated that he had entered the trades into the system and had no knowledge about the buying member. The broker further stated that since there were only few active brokers at CSE, the trades got executed with them.

8.7 Ashish Stock Broking

In its pre and post hearing written submissions dated December 14, 2005, the broker has submitted as under:

The percentage of volume of trade will always show high because there are only few active brokers in CSE.

No link/connection /nexus with the companies or its promoters/directors or counter party clients or the clients.

...During the course of hearing, the broker stated that they had executed trades on behalf of their clients. The broker also stated that he had entered the trades into the system and had no knowledge about the buying member. The broker further stated that since there were only few active brokers at CSE, the trades got executed with them.

8.8 Basant Periwal & Co.

In its pre and post hearing written submissions dated December 12, 2005, the broker has submitted as under:

The broker has not followed common modus operandi of artificially inflating the

price and creating false volumes through continuous self deals executed on the same terminal and cross deals amongst themselves.

The broker never solicits any business. When a client approaches the broker for buying or selling any security, the broker and the client enter into various stages of agreements as required by the rules and regulations which the broker has adhered to.

The transactions entered into on behalf of its client during the period stated in the SEBI order cover only 81 working days out of a total of 143 working days during which the average price increase was only 23 paise per working day, which is immaterial and insignificant especially when the general market mood was bullish.

All the transactions have been effected from placement of orders from the clients in the ordinary, normal and regular course of business in the screen based online trading system.

All the transactions have been done on behalf of the clients on their code at the rates mentioned by the clients.

When buyers and sellers are its clients it is but natural that buy and sale orders

are entered through its terminal. Such transactions are however few and the clients are not known to each other.

While dealing in the shares of the aforesaid company, its gain was restricted to the extent of reasonable brokerage. The broker has never paid, offered or agreed to pay or offer directly any money or incentive to any person for dealing in the aforesaid security with the object of inflating, depressing, maintaining or causing fluctuations in the price of the security nor have the broker encouraged sale or purchase of security with the objective of generating brokerage.

All the transactions made by the broker in the said scrip were delivery based and were settled through actual delivery and therefore it has never allowed the same client to place, buy and sale orders simultaneously to create artificial volumes.

Since there are few brokers who participate actively in trading, the trading could be within the said active brokers and therefore no active inference can be drawn.

The broker's dealing in the scrip have amounted to a mere 19.62 % and that at

the time of trading the name of the brokers or the other details are guarded secretly by the Stock Exchange.

8.9 Bsinoy Poddar

In its pre and post hearing written submissions dated December 12, 2005, the broker has submitted as under:

The broker carried out the orders of its clients in the best possible way. The broking firm had not made any financial gains out of the transactions other than the brokerage earned.

The allegation against the broker by SEBI of creating artificial volume is not correct. All the transactions made by the firm in Nageshwar Investment Ltd. were delivery based and were settled through actual delivery. The broker has never allowed the same client or even related clients to buy and sell order simultaneously to create artificial volume. The broker has not traded in the said scrip in self-account.

Regarding SEBI's allegation that there was a possibility that investors might be

lured to the said illiquid share and got trapped, it is stated that there is no such complaint against the share or the broking firm.

During the course of hearing, the broker further stated that since there were only few active brokers at CSE, the trades got executed with them. The broker also stated that he had entered the trades into the system and had no knowledge about the buying member. The broker also stated that they had executed trades on behalf of their clients.

8.10 P K Agarwal & Co.

In its pre and post hearing written submissions dated December 12, 2005, the broker has submitted as under:

The broker has not entered into any transaction with the intention of fraud or in a manner which is detrimental to the investors and that the entire transactions were done on behalf of its clients.

All the transactions were executed on the trading screen of the exchange in the open market at the then existing market band as per the instructions of the clients, putting the clients' code.

causing fluctuations in the price of the security. However, during the period of investigation, general mood of the market was bullish.

8.11 Pramod K Kothari

In its pre and post hearing written submissions dated December 15, 2005 and April 21, 2006, the broker has submitted as under:

Trades done by the broker in Adinath Bio-labs Ltd. were on behalf of the clients.

The broking firm's aim was to earn brokerage only and nothing else.

During the course of hearing, the broker stated that he has entered the trades into the system and had no knowledge about the buying member. The broker stated that they had executed trades on behalf of their clients. The broker further stated that since there were only few active brokers at CSE, the trades got executed with them.

8.12 Purshottam Lal Kejdiwal

In its pre and post hearing written submissions dated December 13, 2005, the broker has submitted as under:

The broking firm has not made any financial gain out of dealing in the share except normal profit/loss in the trading on terminal and has not entered any Sauda for outsiders.

The broking firm was never involved in any Fraudulent and Unfair Trade Practices since its membership.

The broking firm's intention was not to enter into any transaction or act in any manner detrimental to the interest of investors.

8.13 Sunil Kedia

In its pre and post hearing written submissions dated December 14, 2005, the broker has submitted as under:

The percentage of volume of trade will always show high because there are only few active brokers in CSE.

No link /connection /nexus with the companies or its promoters/directors or counter party clients or the clients.

8.14 Murari Lal Goenka

In its pre and post hearing written submissions dated December 10, 2005, the broker has submitted as under:

During the 100 days (24/6/2005 to 31/10/2005) of transaction by the broker in Coronet Industries Ltd., the price rise of the scrip was only 5.03% (Rs.258.20 to Rs.271.00). Thus, the broker has countered the charge of artificially inflating the price of the said scrip.

All trades were executed in respective codes of the client and not a single transaction has been done in 'self code'.

Since in many cases both buyers and sellers were our clients, it is natural that buy and sell orders were entered through our terminal and at times the difference between these transactions were negligible.

Each and every transaction resulted in actual delivery in demat form.

Guidelines issued by CSE regarding advance margin payment to it and payment schedule were followed. No delay / default on the part of the broking firm in respect of pay-in of securities and payments.

During the course of hearing, the broker stated that he had traded from the level of Rs. 258 and was not responsible for the price rise. The broker also stated that they had executed trades on behalf of their clients. The broker also stated that he had entered the trades into the system and had no knowledge about the buying member. The broker further stated that since there were only few active brokers at CSE, the trades got executed with them.

8.15 Shyam Lal Sultania

In its pre and post hearing written submissions dated December 13, 2005, the broker has submitted as under:

The broker has only carried out the instructions of its clients in the trading system of CSE at the market rate.

The broker has never allowed the same client or even related clients to place the buy and sell order simultaneously to create artificial volumes.

All the transactions made by the broking firm in the scrip of Nageshwar Investment Ltd. were delivery based and were settled through actual delivery.

Due to lack of number of active brokers of CSE, the trades are between the more active brokers who are contributing to the maximum volume.

8.16 Ahilya Commercial Pvt. Ltd.

In its pre and post hearing written submissions dated December 13, 2005, the broker has submitted as under:

The broker has already been suspended since 29th September, 2005 vide

Order No. WTM/GA/19/15A/9/05 dated 29th September, 2005 till further notice.

The broker has transacted a minimal quantity of 113950 shares from 4.4.2005 to 5.9.2005 in the scrip of Coronet Industries Ltd. More important to observe, will be the fact as appearing between 4.5.2005 to 13.5.2005 when their firm has been instrumental in transacting at significantly lower prices as compared to the closing prices thereby confirming that they had no pre-conceived idea of rigging up / manipulating the prices artificially.

The broker's active participation started at their client's request from 11.05.05 when the market price was Rs.250.00 and after that the increase in prices are hardly 9% approximately instead of alleged 69%.

The average turnover of the broker on all these dates was around 13% approximately. Hence, the alleged involvement of their firm in price manipulation is without any base.

Since the broker had both buyers and sellers for the same scrip on the same

day, it could not afford to refuse any transactions and had to execute them through the same terminals.

If the cross deals take place in trade terminal at the prevailing market price, then there is no illegality in executing the transactions.

There is no delay or default in pay-in or pay-out.

The broker never allowed any client or even related clients to place simultaneous buy and sell.

All the transactions in the said scrip were delivery based and were settled through actual delivery.

9. CONSIDERATION OF ISSUES AND PRIMA FACIE FINDINGS:

9.1 Having carefully considered the facts of the case, the responses received pursuant to the ad interim ex-parte orders, oral as well as written submissions made on behalf of the companies / brokers mentioned above, now I proceed to deal with the issues as under:

9.2 Companies :

The companies have poor financial track record and have reported price rise which is not supported by the fundamentals of the company. However, examination of the materials on record including the oral and written submissions of the companies reveals the following extenuating factors :

The companies Nageshwar Investment Ltd., Adinath Bio-labs Ltd., Globe Stocks & Securities Ltd., Goenka Business & Finance Ltd. and Coronet Industries Ltd. had produced copies of the filings of financial statements duly acknowledged by the Calcutta Stock Exchange which were sent to the exchange for confirmation. The exchange vide its letters dated May 11, 2006 and May 12, 2006 stated that :

The balance sheet of Nageshwar Investment Ltd. for the financial year 20032004 could not be located from the records of the Exchange.

The shareholding pattern for the financial year 2002-2003 (1st and 4th Qtr.), 2003-2004 (1st and 2nd Qtr.) and 2004-2005 (2nd Qtr) and the unaudited quarterly result for the year 2005-2006 (2nd Qtr) of Adinath Bio-Labs Ltd. could not be located from the records of the Exchange.

The shareholding pattern for the financial years 2002-2003 (1st and 3rd Qtr.) and 2005-2006 (2nd Qtr) and the unaudited quarterly results for the financial year 2002-2003 (1st, 2nd and 3rd Qtr.), 2003-2004 (3rd Qtr.), 2005-2006 (2nd Quarter) of Globe Stocks & Securities Ltd. could not be located from the records of the Exchange.

Regarding unaudited quarterly result of Nageshwar Investment Ltd. for the year 2005-2006 (2nd quarter) was submitted to the Exchange on 21.11.2005 i.e. after submission of CSE's report on compliance to SEBI on 18.11.2005.

Regarding Goenka Business and Finance Ltd., the Balance sheet for the year 2003-2004 was not received by the Exchange. But, the balance sheet for the financial year 2004-05, Shareholding pattern for the financial years 2002-2003 (1st to 4th Qtr.), 2003-2004 (1st to 4th Qtr.), 2004-2005 (1st to 4th Qtr.) and 20052006 (1st and 2nd Qtr.), Unaudited quarterly results for the financial years 20022003 (1st to 4th Qtr.), 2003-2004 (1st to 4th Qtr.), 2004-2005 (1st to 4th Qtr.) and 2005-2006 (1st and 2nd Qtr.) were received by the Exchange.

In case of Coronet Industries Ltd., the Balance sheet for the financial year 2004-2005, shareholding pattern for the financial year 2005-2006 (2nd Qtr), unaudited quarterly result for the financial year 2005-2006 (1st and 2nd Qtr) were received by the Exchange on 26th April 2006 i.e. after submission of

compliance report by CSE to SEBI vide its letter dated 18.11.2005.

The Exchange has further stated vide its letter dated May 11, 2006 that considering the records of compliances by the companies, it is possible that Nageshwar Investment Ltd., Adinath Bio-Labs Ltd. and Globe Stocks & Securities Ltd. might have submitted the documents but the same had been misplaced in the office of the Exchange. Considering the said written reply dated May 11, 2006, submitted by the exchange, I am inclined to give benefit of doubt to the above three companies in the matter of filings with CSE.

In case of Nageshwar Investment Ltd., I note that only a part of the relevant documents submitted by the company to the Exchange was after the due date. However, it appears from the letter dated May 11, 2006 of the Exchange that the company is generally compliant.

In case of Goenka Business and Finance Ltd., I note from the letter dated May 12, 2006 of the Exchange that only one of the relevant documents was not submitted by the company to the Exchange. However, it is noted from the said letter of the Exchange that the company has submitted all other relevant documents to the Exchange.

In respect of Coronet Industries Ltd., I note that the company has submitted the relevant documents to CSE after the due date.

...I also note that CSE has suspended trading in the shares of Nageshwar Investment Ltd., Adinath Bio-labs Ltd., Globe Stocks & Securities Ltd., Goenka Business & Finance Ltd. and Coronet Industries Ltd. for violation of Listing Agreement with the Exchange.

However, it is a matter of some concern that a first level regulator like the CSE did not maintain important records and documents properly. I also note that vide my order dated January 12, 2006, CSE had been directed to initiate suitable action for proper maintenance of records relating to listing requirements and was also advised to be more vigilant to avoid such occurrence in the future.

9.3 Brokers:

A. Dinesh Kumar Lodha

Taking into account the material on record including the oral and written submissions of the broker, I prima facie find that the broker has not brought out any fresh material to rebut the findings made in the ad interim ex parte order.

The broker could not give satisfactory reply to the queries raised during hearing as to how the broker's considerable percentage of transactions, as detailed under "Findings of Preliminary Investigations" in this order, were cross deals where either the buying and selling clients approached the broker and the broker had entered the transactions in his own terminal at the same price and quantity within a gap of a few seconds, or the broker had entered matching transactions with specific counterparty broker. Such matching of transactions prima facie shows prior understanding between the two parties. As such, the plea of innocence is not open to the broker.

The trades by the broker constituted a significant percentage of the volumes in the shares of the Adinath Bio-labs Ltd., at the exchange during the period when there was unusual price rise in the shares of the company which has poor financial track records.

The fact that 88.55% of the trades of the broker are matching transactions with only one broker, viz. Purshottam Lal Kejdiwal is prima facie evidence of prior understanding between the two parties.

It is therefore, prima facie not acceptable that the broker had acted in good faith and with due diligence. The registration granted by SEBI to a broker imposes responsibility upon the broker to act diligently and in accordance with applicable rules and regulations and sound market practices. A broker has also an obligation to carry out its business in a manner so that safety and integrity of the market may be maintained.

B. Ashish Stock Broking

Taking into account the material on record including the oral and written submissions of the broker, I prima facie conclude that the broker has not brought out any fresh material to rebut the findings made in the ad interim ex parte order.

The broker could not give satisfactory reply to the queries raised during hearing as to how the broker's considerable percentage of transactions, as detailed under "Findings of Preliminary Investigations" in this order, are cross deals where either the buying and selling clients approached the broker and the broker has entered the transactions in his own terminal at the same price and quantity within a gap of a few seconds, or the broker has entered matching transactions with specific counterparty broker. Such matching of transactions prima facie shows prior understanding between the two parties. As such, the plea of innocence is not open to the broker.

The trades by the broker constituted significant percentage of the volumes in the shares of Globe Stocks & Securities Ltd. and Goenka Business & Finance Ltd. at the exchange during the period when there was unusual price change in the shares of the companies which have poor financial track records.

It is observed that 98.92% and 100% of the trades of the broker in the scrips Globe Stocks & Securities Ltd. and Goenka Business & Finance Ltd. respectively are matching transactions with only one broker, viz. Sunil Kedia which is prima facie evidence of prior understanding between the two parties.

C. Basant Periwal & Co. Taking into account the material on record including the oral and written

submissions of the broker, I prima facie conclude that the broker has not brought out any fresh material to rebut the findings made in the ad interim ex pare order.

The broker could not give satisfactory reply to the queries raised during hearing as to how the broker's considerable percentage of transactions, as detailed under "Findings of Preliminary Investigation" in this order, are cross deals where either the buying and selling clients approached the broker and the broker has entered the transactions in his own terminal at the same price and quantity within a gap of a few seconds, or the broker has entered matching transactions with specific counterparty broker. Such matching of transactions prima facie shows prior understanding between the two parties. As such, the plea of innocence is not open to the broker.

The trades by the broker constituted a significant percentage of the volumes in the shares of the Nageshwar Investment Ltd., at the exchange during the period when there was unusual price rise in the shares of the company which has poor financial track records.

The fact that 7.05% of the trades of the broker have been matched in his own system while 5.94% and 54.02% are matching transactions with only two brokers, viz. Shyam Lal Sultania and P.K. Agarwal respectively is prima facie evidence of prior understanding of the broker with each of the other two parties. In this context it is appropriate to recall that Shyam Lal Sultania has already come to the adverse notice of SEBI for such practice in the earlier order dated January 12, 2006.

D. Binoy Poddar

The broker could not give satisfactory reply to the queries raised during hearing as to how the broker's considerable percentage of transactions, as detailed under "Findings of Preliminary Investigation" in this order, are cross deals where either the buying and selling clients approached the broker and the broker has entered the transactions in his own terminal at the same price and quantity within a gap of a few seconds, or the broker has entered matching transactions with specific counterparty broker. Such matching of transactions prima facie shows prior understanding between the two parties. As such, the plea of innocence is not open to the broker.

It is observed that 61.55% of the trades of the broker have been matched in his own system is prima facie evidence of prior understanding between the two parties. It, therefore, prima facie not acceptable that the broker had acted in good faith and with due diligence. The registration granted by SEBI to a broker imposes responsibility upon the broker to act diligently and in accordance with applicable rules and regulations and sound market practices. A broker has also an obligation to carry out its business in a manner so that safety and integrity of the market may be maintained.

E. P K Agarwal & Co.

The broker could not give satisfactory reply to the queries raised during hearing as to how the brokers considerable percentage of transactions, as detailed under "Findings of Preliminary Investigation" in this order, are cross deals where either the buying and selling clients approached the broker and the broker has entered the transactions in his own terminal at the same price and quantity within a gap of a few seconds, or the broker has entered matching transactions with specific counterparty broker. Such matching of transactions prima facie shows prior understanding between the two parties. As such, the plea of innocence is not open to the broker.

The fact that 9.07% of the trades of the broker have been matched in his own system while 86.25% are matching transactions with only one broker, viz. Basant Periwal is prima facie evidence of prior understanding between the two parties.

F. Pramod K Kothari, J.

The broker could not give satisfactory reply to the queries raised during hearing as to how the broker's considerable percentage of transactions, as detailed under "Findings of Preliminary Investigation" in this order, are cross deals where either the buying and selling clients approached the broker and the broker has entered the transactions in his own terminal at the same price and quantity within a gap of a few seconds, or the broker has entered matching transactions with specific counterparty broker. Such matching of transactions prima facie shows prior understanding between the two parties. As such, the plea of innocence is not open to the broker.

The trades by the broker constituted a significant percentage of the volumes in the shares of the Adinath Bio-labs Ltd., at the exchange during the period when there was unusual price variation in the shares of the company which has poor financial track records.

The fact that 43.35% of the trades of the broker have been matched in his own system while 48.40% are matching transactions with only one broker, viz. Santosh K. Kejriwal is prima facie evidence of prior understanding between the two parties.

I, therefore, prima facie find no extenuating factor to take a lenient view in the matter and I am of the considered view that the broker has not been diligent and careful while soliciting new clients and entering into such transactions and as such has prima facie violated the sacrosanct provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 and Regulation 7 read with code of conduct as specified in Scheduled II of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 G. Purshottam Lal Kejdiwal Taking into account the material on record including the oral and written submissions of the broker, I prima facie conclude that the broker has not brought out any fresh material to rebut the findings made in the ad-interim ex-parte order.

The broker could not give satisfactory reply to the queries raised during hearing as to how the broker's considerable percentage of transactions, as detailed under "Findings of Preliminary Investigation" in this order, are cross deals where either the buying and selling clients approached the broker and the broker has entered the transactions in his own terminal at the same price and quantity within a gap of a few seconds, or the broker has entered matching transactions with specific counterparty broker. Such matching of transactions prima facie shows prior understanding between the two parties. As such, the plea of innocence is not open to the broker.

The fact that 55.62% are matching transactions with only one broker, viz. Dinesh Kumar Lodha is prima facie evidence of prior understanding between the two parties.

H. Sunil Kedia Taking into account the material on record including the oral and written submissions of the broker, I prima facie conclude that the broker has not brought out any fresh material to rebut the findings made in the ad- interim ex-parte order.

The broker could not give satisfactory reply to the queries raised during hearing as to how the broker's considerable percentage of transactions, as detailed under "Findings of Preliminary Investigation" in this order, are cross deals where either the buying and selling clients approached the broker and the broker has entered the transactions in his own terminal at the same price and quantity within a gap of a few seconds, or the broker has entered matching transactions with specific counterparty broker. Such matching of transactions prima facie shows prior understanding between the two parties. As such, the plea of innocence is not open to the broker.

The trades by the broker constituted significant percentage of the volumes in the shares of Globe Stocks & Securities Ltd., at the exchange during the period when there was unusual price rise in the shares of the company which have poor financial track records.

It is observed that 98.45% and 100% of the trades of the broker in the scrips Globe Stocks & Securities Ltd. and Goenka Business & Finance Ltd. respectively are matching transactions with only one broker, viz. Ashish Stock Broking which is prima facie evidence of prior understanding between the two parties.

I. Murari Lal Goenka Taking into account the material on record including the oral and written submissions of the broker, I prima facie conclude that the broker has not brought out any fresh material to rebut the findings made in the ad-interim ex-parte order.

The broker stated that during the 100 days (24/6/2005 to 31/10/2005) of transaction by the broker in Coronet Industries Ltd., the price rise of the scrip is only 5.03% (Rs.258.20 to Rs.271.00). Thus, the broker has countered the charge of artificially inflating the price of the said scrip.

However, the broker could not give satisfactory reply to the queries raised during hearing as to how the broker's considerable percentage of transactions, as detailed under "Findings of Preliminary Investigations" in this order, are cross deals where either the buying and selling clients approached the broker and the broker had entered the transactions in his own terminal at the same price and quantity within a gap of a few seconds, or the broker has entered matching transactions with specific counterparty broker. Such matching of transactions prima facie shows prior understanding between the two parties. As such, the plea of innocence is not open to the broker.

The trades by the broker constituted a significant percentage of the volumes in the shares of the Coronet Industries Ltd., at the exchange during the period when there was unusual price rise in the shares of the company which has poor financial track records.

The fact that 87.79% of the trades of the broker have been matched in his own system while 9.53 % are matching transactions with only one broker, viz. Ahilya Commercial is prima facie evidence of prior understanding between the two parties. In this context it is appropriate to recall that Ahilya Commercial has already come to the adverse notice of SEBI for such practice in the earlier order dated January 12, 2006.

J. Shyam Lal Sultania Taking into account the material on record including the oral and written submissions of the broker, I prima facie conclude that the broker has not brought out any fresh material to rebut the findings made in the ad-interim ex-parte order.

The broker could not give satisfactory reply to the queries raised during hearing as to how the broker's considerable percentage of transactions, as detailed under "Findings of Preliminary Investigation" in this order, are cross deals where either the buying and selling clients approached the broker and the broker has entered the transactions in his own terminal at the same price and quantity within a gap of a few seconds, or the broker has entered matching transactions with specific counterparty broker. Such matching of transactions prima facie shows prior understanding between the two parties. As such, the plea of innocence is not open to the broker.

The fact that 19.27% of the trades of the broker have been matched in his own system while 9.31 % are matching transactions with only one broker, viz. Basant Periwal is prima facie evidence of prior understanding between the two parties.

It is, therefore, prima facie not acceptable that the broker had acted in good faith and with due diligence. The registration granted by SEBI to a broker imposes responsibility upon the broker to act diligently and in accordance with applicable rules and regulations and sound market practices. A broker has also an obligation to carry out its business in a manner so that safety and integrity of the market may be maintained. I have also noticed that the same broker was also suspended by SEBI earlier for the same kind of violation vide order no. WTM/GA/42/IVD/1/06 dated 12/1/06. Thus the violation observed above by the broker are repetitive in nature.

K. Ahilya Commercial Pvt. Ltd.

The broker stated that he had transacted in the scrip of Coronet Industries Ltd. at significantly lower prices as compared to the closing prices thereby confirming that they had no pre-conceived idea of rigging up / manipulating the prices artificially. The broker further stated that their active participation started at their client's request from 11.05.05 when the market price was Rs.250.00 and after that the increase in prices are hardly 9% approximately instead of alleged 69%.

However, the broker could not give satisfactory reply to the queries raised during hearing as to how the broker's considerable percentage of transactions, as detailed under "Findings of Preliminary Investigations" in this order, are cross deals where either the buying and selling clients approached the broker and the broker had entered the transactions in his own terminal at the same price and quantity within a gap of a few seconds, or the broker had entered matching transactions with specific counterparty broker. Such matching of transactions prima facie shows prior understanding between the two parties. As such, the plea of innocence is not open to the broker.

The fact that 82.04 % of the trades of the broker have been matched in his own system while 8.66 % are matching transactions with only one broker, viz. Murari Lal Goenka is prima facie evidence of prior understanding between the two parties.

It is, therefore, prima facie not acceptable that the broker had acted in good faith and with due diligence. The registration granted by SEBI to a broker imposes responsibility upon the broker to act diligently and in accordance with applicable rules and regulations and sound market practices. A broker has also an obligation to carry out its business in a manner so that safety and integrity of the market may be maintained. I have also noticed that the same broker was also suspended by SEBI earlier for the same kind of violation vide order no. WTM/GA/42/IVD/1/06 dated 12/01/06. Thus the violation observed above by the broker are repetitive in nature.

9.4 The facts brought out in the foregoing paragraphs from the analysis of the trade pattern and the oral and written submissions made by the brokers indicate that all the brokers engaged in a common modus operandi of either indulging in cross deals wherein the buying and selling brokers were same or indulging in matched transactions wherein most of the transactions were matched with a particular counterparty broker. The brokers could not give satisfactory reply about the same. The true character of these transactions needs to be investigated since these transactions appear to have been entered to create an artificial price variation or to create a false volume in the shares of the above companies. Such acts by the brokers pose a serious risk to the stability and settlement system of the stock exchange besides raising the spectre that innocent investors might get drawn by the artificial trading volumes generated by these brokers and might in the process be beguiled into investing in the shares of these fundamentally weak companies at unjustifiable market prices, only to be left adrift.

The observations of the preliminary investigation as detailed above brought out a reasonable ground to believe that the transactions in the above securities were being dealt in a manner detrimental to the investors and securities market and also established a prima facie case of violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 and Regulation 7 read with code of conduct as specified in Scheduled II of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. SEBI vide orders dated January 04, 2006 has initiated formal investigations into the affairs relating to buying, selling or dealing in shares of the abovementioned five companies.

ORDER 10.1 Thus, on the conspectus of the facts and the material attendant circumstances, I, in exercise of powers conferred upon me by virtue of Section 19 read with Section 11 (4)(a), 11(4)(b) and Section 11(1) and 11B of SEBI Act issue further directions as under, pending investigation that :

A) Taking into consideration of findings mentioned at paragraph 9.2 above, CSE's letter dated May 11, 2006 and May 12, 2006 and the suspension imposed on the trading in the shares of Nageshwar Investment Ltd., Adinath Bio-labs Ltd., Globe Stocks & Securities Ltd., Goenka Business & Finance Ltd., and Coronet Industries Ltd., since November 30, 2005 and already undergone by them, I am inclined to take a lenient view. In exercise of powers conferred in terms of Section 19 read with Section 11 and 11 B of SEBI Act, 1992, hereby direct that the proceedings against Nageshwar Investment Ltd., Adinath Bio-labs Ltd., Globe Stocks & Securities Ltd., Goenka Business & Finance Ltd., and Coronet Industries Ltd., shall stand terminated and I vacate the ad-interim order dated November 30, 2005.

B) The directions in relation to the five companies as referred above are without prejudice to the actions by CSE and also without prejudice to the outcome of findings in investigation.

C) Having regard to the ground realities prevailing in CSE wherein a few illiquid scrips are being traded amongst a set of brokers employing same unfair trade practices which is giving rise to artificial market and fancy values to the scrips of companies with hardly any fundamentals and which has become the very staple of the market in CSE with all its attendant deleterious effects, I am persuaded to prima facie conclude that there is no parallel between the brokers of other stock exchanges and a clutch of brokers operating in CSE with a palpable adverse impact and for the same reason, the treatment will have to be demonstratively deterrent. The ex-parte interim order dated November 30, 2005 so far as they relate to the brokers, viz. Basant Periwal & Co., Binoy Poddar, P K Agarwal & Co., Pramod K Kothari, Purshottam Lal Kejdiwal, Dinesh Kumar Lodha, Ashish Stock Broking, Sunil Kedia, Murari Lal Goenka, Shyam Lal Sultania and Ahilya Commercial Pvt. Ltd., shall remain in force till further orders which SEBI may pass on conclusion of the investigation proceedings referred hereinabove.

D) On going through CSE's letters dated May 11, 2006 and May 12, 2006, I feel that it is a matter of grave concern that a first level regulator has not taken adequate care in the maintenance of important records and documents filed with it. SEBI vide Order dated January 12, 2006, directed CSE to initiate suitable action for proper maintenance of records relating to listing requirements. I hereby, direct CSE to submit a compliance report to SEBI within 15 days on the measures they have taken in this regard.

10.2 These directions shall come into force with immediate effect.

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Securities Appellate Tribunal

In Re: Nageshwar Investment Ltd., ... vs Unknown on 31 May, 2006