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BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
(ADJUDICATION ORDER NO.AD/JP/PT/ /2010) In the matter of Investigations in the scrip of M/s. Jindal Polyester Ltd.; In the matter of 1. Galaxy Broking Ltd. (SEBI Regn. No. INB010882739; PAN No.AABCG5457B) 2. Bharati Thakkar India Securities Pvt. Ltd. (SEBI Registration No.INB010996432; PAN No. AAACB6484C) 3. Pilot Credit Pvt. Ltd. (SEBI Regn.No.INB011184935; PAN No.AAACP6004C) 4. Adolf Pinto Share & Stock Broker (SEBI Regn. No.INB010001810; PAN No.AABPA9750G) 5. Ajmera Associates Pvt. Ltd. (SEBI Regn. No.INB011185833; PAN No. AADCA7062J) 6. Mansukh Stock Brokers Ltd. (Earlier- Uttam Financial Services Ltd.) (SEBI Regn. No.INB010985834;PAN No.AAACU1576G)
Members – BSE ____________________________________________________________________
1. This order will dispose of 06 adjudication proceedings pending against
the captioned brokers (noticees) who had allegedly entered into
circular trade among themselves in the scrip of M/s Jindal Polyster
Ltd. during the relevant period.
2. These adjudication proceedings were initiated by Securities and
Exchange Board of India (SEBI) vide order dated May 08, 2006
appointing Shri Amit Pradhan as Adjudicating Officer (AO) who
issued a common Show Cause Notice (SCN) dated August 21,2006
alleging the violation of SEBI (Prohibition of Fraudulent and Unfair
Trade Practices) Regulations, 2003 (PFUTP Regulations) and Code of
Conduct as prescribed in SEBI (Stock Brokers and Sub Brokers)
Regulations, 1992 (Brokers Regulations)
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While the proceedings were pending, due to administrative reasons,
the proceedings were transferred to me vide order date August 07,
2009 directing me to proceed in the matter from the stage which was
reached before such transfer or from any earlier stage, as I may deem
fit.
3. Having perused the SCN dated August 21, 2006 and
replies/submissions/available records of the proceedings, I was of
the opinion that the inquiry should be held in the matters and
accordingly, I vide notice dated December 14, 2009/ March 03,
2010 gave the noticees one more opportunity to make their
additional/written submission, if any. They all were given personnel
hearing on February 25/26, 2010 and March 17, 2010 (as the case
may be) wherein their submissions were recorded/taken on record.
As the charges/allegation against all these noticees are similar and
have culminated from the same set of transaction conducted in the
same scrip during the same period, I decided to pass a common order
to enable me to take a holistic view in the matter. Accordingly, I
proceed to mention some background of the matter, examine the
allegation/replies received and record my findings thereon in the
following paragraphs.
4. On the basis of a report received from the Bombay Stock Exchange
Ltd. (BSE), SEBI conducted investigation into the price rise of the
scrip of M/s. Jindal Polyester Ltd. (scrip/Jindal) from Rs.104/- as on
June 20, 2003 to Rs.358.15 as on November 28, 2003 (investigation
period).
5. On the basis of price-volume data, as mentioned in the report of BSE,
it was noted that the price of the scrip increased by 256% in 115
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trading days. Total trading volume during the investigation period
was 7,62,134 shares.
6. From the analysis of trade log, it was observed that mainly 10 brokers
(including the noticees herein) had traded in the scrip during the
investigation period. It was also observed that top 10 brokers (on the
basis of gross purchase and gross sale) were the same. It was also
observed that these top 10 brokers had reversed their almost entire
position in the scrip during the investigation period.
7. It is also observed that during October 07, 2003 to November 28,
2003, there was a sharp increase in the price of the scrip from
Rs.212.05 to Rs.370.00 i.e. price rose by 75% in 40 trading days. The
total trading volume during the said period was 6,87,850 shares and
top 10 brokers accounted for 89.11% of the total trading volume in
the scrip.
8. On analysing the trade log for the investigation period, it was alleged
that out of 10 brokers, a group of 09 brokers namely Galaxy Broking
Ltd. (Clg.No.D0513), Bharati Thakkar India Securities Pvt. Ltd.(Clg.
No.D0737), Pilot Credit Pvt. Ltd. (Clg. No.D0909), Adolf Pinto Share &
Stock Broker (Clg. No.D0013), Ajmera Associates Pvt. Ltd. (Clg.
No.D0911), Mansukh Stock Brokers Ltd. (earlier known as Uttam
Financial Services Ltd.)[Clg. No D0779], NCJ Share and Stock
Brokers (0519), M/s Systematix Shares & Stocks (I) Ltd. (earlier
Southern Share and Stocks Ltd.) (Clg. No.D0182) and Pramod Kumar
Jain Securities Pvt. Ltd. (Clg. No.D0552) had entered into circular
trades among themselves. Some of these brokers executed these
trades for clients and also in their proprietary accounts whereas
some executed the trades only for their clients.
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9. Before proceeding further in the matter, it is pertinent however to
mention here that certain brokers namely M/s. Systematix Shares &
Stocks (I) Ltd. and M/s. Pramod Kumar Jain Securities Pvt. Ltd.
had filed Consent Applications with SEBI in terms of SEBI Circular
No. EFD/ED/Cir-01/2007 dated April 20, 2007 and the matters
were settled. Further, NCJ Share & Stock Brokers Ltd. has filed its
Consent Application which is pending as on date. Therefore, it would
not be appropriate to record any finding with respect to these
brokers. However, in order to appreciate the facts of this case, their
reference in the whole scheme of things cannot be avoided and will
be, therefore, recorded wherever necessary. It is, however, being
made clear that no adverse inference can be drawn against these
brokers pursuant to their name being mentioned in this order.
10. I note that the concentration of these top 09 brokers on gross as well
as net basis which was annexed to the SCN dated August 21, 2006
and is being reproduced herein to show that the gross sale and gross
purchase of these 09 brokers including the noticees, during the
investigation period was same implying that all these brokers had
reversed their entire position in the scrip.
Table A Top 10 Members From Jun 20 2003 To Nov 28 2003 For scrip code= 500227 Sorted on Gross Purchase Qty Member code Member name Purchase qty. % ---------- ------------------------------ ----------- ------------------------ D0519 NCJ SHARE & STOCK BROKERS 102053 13.39 D0182 SOUTHERN SHARES (CHENNAI) 98967 12.98 D0513 GALAXY BROKING LIMITED 95698 12.55 D0737 BHARATI THAKKAR INDIA SEC 94137 12.35 D0909 PILOT CREDIT CAPITAL SECURIT 54390 7.13 D0013 ADOLF PINTO 46130 6.05 D0197 NETWORTH BROKING LTD 33130 4.34 D0235 BONANZA STOCKBROKERS P 33049 4.33 D0911 AJMERA ASSOCIATES P. LTD.- 27395 3.59
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Rest % ----------- ----------------------------- 121089 15.88 Total Purchase qty – 762134 TABLE - B Top 10 Members From Jun 20 2003 To Nov 28 2003 for scrip code 500227 sorted on Gross Sale Qty Member code Member name Sale qty % cont. D0519 NCJ SHARE & STOCK BROKERS 102053 13.39 D0182 SOUTHERN SHARES (CHENNAI) 99966 13.11 D0513 GALAXY BROKING LIMITED 95698 12.55 D0737 BHARATI THAKKAR INDIA SEC 94337 12.37 D0909 PILOT CREDIT CAPITAL - MU 56846 7.45 D0552 PRAMOD KUMAR JAIN SECURIT 54590 7.16 D0013 ADOLF PINTO 46330 6.07 D0911 AJMERA ASSOCIATES P. LTD. 27545 3.61 D0779 UTTAM FINANCIAL SERVICES 24420 3.20 D0197 NETWORTH BROKING LTD 14631 1.91 Rest % ----------- ----------------------------- 145718 19.12 Total Sale Qty- 762134
11. Further, the summary of the day-wise circular trades having 0 second
time difference, executed by the brokers was also annexed to the said
SCN (as Annexure – 2B) and for the sake of better understanding is
being Annexed as Annexure – 1(Total 05 pages) and is part of this
order.
12. It is also noted that during October 07, 2003 to November 28, 2003
total 725 buy orders and 761 sell orders resulted in 9919 circular
trades creating volume of 5,69,230 shares aggregating 82.75% of the
total trading volume of 6,87,854 shares during the said period.
Further, I note from the trading pattern that circular trading was
done in a group of 03-04 brokers in the manner A→B→C→D→A.
However, no reversal between two brokers/entities was observed and
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same numbers of shares were routed in a circular manner among the
group on daily basis so that the same number of shares could go
back to the original seller at the end of the day making the net
position of each broker as zero. Following tables will explain the
nature of tradings executed by the noticees brokers.
Table C Circular trading executed by the noticees during October 07, 2003 to November 28, 2003. Sl. No.
Member Code
Member Name Dealt for (client)
Buy qty
No. of trades
% Cont. to circular trades
Sell Qty
No. of trades
% Cont. to circular trades
1. D0519 NCJ share and Stock brokers Ltd.
Own A/c 98281 1773 17.27 97906 1770 17.21
Sunil K Purohit
95471 1798 16.78 95371
1753 16.76
2. D0182 Southern Shares and Stocks Ltd.
Chirag Pujara -
- 700
19 0.12
Chaitanya P Raote, 91898
1690 16.15 92558
1692 16.27
3. D0513 Galaxy Broking Ltd.
Ramesh Jain 725 19 0.13 - - - Sayed Mustafa 83701
1710 14.71 84151
1737 14.79
4. D0737 Bharati Thakkar India Securities Pvt. Ltd. Premprakas
h Tanvi 1000 27
0.18 1500 36
0.26 5. D0909 Pilot Credit
Capital Ltd. Dipak Vyas
53401 681
9.38 53336 687
9.37 Arun Suryavanshi 51670
786 9.08 51790
808 9.10
6. D0552 Pramod Kumar Jain Securities Pvt. Ltd. Madhusuda
n K Nair 2100 45 0.37 500 6 0.09
7. D0013 Adolf Pinto Own A/c 44005 678 7.73 44080 681 7.75 Vikas Naknavar, 23960
251 4.21 24270
289 4.27
8. D0911 Ajmera Associates Pvt. Ltd Sunil
Purohit 950 3
0.17 775 9
0.14 Own A/c 21870 458 3.84 22045 431 3.87 9.
D0779 Uttam Financial
Services Ltd. VK Soni - - 50 1 0.01 Total 56903
2 9919 100 56903
2 9919 100
Table D
Details of buy and sell orders entered by the brokers involved in the
circular trades are as follows:
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Sl. No.
Member Code
Member Name No of buy orders by the broker which resulted in circular trades
No of sell orders by the broker which resulted in circular trades
Total no. of buy orders by the broker during the period of circular trades
Total no. of sell orders by the broker during the period of circular trades
1. D0519 NCJ share and Stock brokers Ltd.
112 114 124 133
2. D0182 Southern Shares and Stocks Ltd.
113 113 130 138
3. D0513 Galaxy Broking Ltd. 110 103 116 107
4. D0737 Bharati Thakkar India Securities Pvt. Ltd.
169 158 185 186
5. D0909 Pilot Credit Capital Ltd.
60 61 63 61
6. D0552 Pramod Kumar Jain Securities Pvt. Ltd.
67 61 72 67
7. D0013 Adolf Pinto 52 52 60 58 8. D0911 Ajmera Associates Pvt.
Ltd 32 31 37 35
9.
D0779 Uttam Financial Services Ltd.
31 32 54 58
Table E
The details of no. of days on which these brokers have traded during the
period of circular trades and during the whole period of investigation are
as follows:
Sl. No. Member
Code Member Name No of days on
which the broker executed circular trades
Total no. of days on which the broker traded during the period of investigation
1. D0519 NCJ share and Stock brokers Ltd.
40 47
2. D0182 Southern Shares and Stocks Ltd.
40 45
3. D0513 Galaxy Broking Ltd. 40 44
4. D0737 Bharati Thakkar India Securities Pvt. Ltd.
38 41
5. D0909 Pilot Credit Capital Ltd. 30 33 6. D0552 Pramod Kumar Jain Securities
Pvt. Ltd. 32 32
7. D0013 Adolf Pinto 23 24 8. D0911 Ajmera Associates Pvt. Ltd 20 23
9.
D0779 Uttam Financial Services Ltd. 20 21
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Table F
Details of circular trades – Time difference between interim buy/sell orders
Sl. No
Time diff. in seconds
No of trades
Volume % cont. to total circular trades
1. 0 2553 138777 24.39 2. 1 3099 193293 33.97 3. 2 1275 85104 14.96 4. 3 842 44324 7.79 5. 4 534 28691 5.04 6. 5 321 16739 2.94 7. 6 272 13712 2.41 8. 7 183 8208 1.44 9. 8 181 9291 1.63
10. 9 93 4359 0.77 11 10 138 7805 1.37 12. 10-60 352 16323 2.87
Total 9843 566626 99.58
13. The above tables are self explanatory and give clear picture about the
nature of transaction which was executed by the brokers. Table F
shows that for almost all the circular trades, the buy and sell orders
were placed within a time difference of 0-60 seconds and in almost
82.75% of the trades the buy and sell orders were identical in respect
of rate, quantity apart from being placed at almost same time. It is
further observed that for 2553 trades, there was 0 second difference.
Similarly for 3099 trades, the time difference in putting buy and sell
order was 01 second. I further observed that for 89.09% of the
synchronized trades the time difference was less than 05 seconds.
From this trading pattern which has lasted for 40 trading days, it
cannot be presumed that the matching was merely a coincidence.
These circular trades contributed for almost 82.75% of total market
volume during the relevant period and have resulted in not only
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creation of artificial volume but must also have influenced the price
rise.
14. Now I shall deal with the submissions made by the noticees:
A. Galaxy Broking Ltd. (Galaxy):
i) Pursuant to the Show Cause Notice dated August 21,
2006, vide letter dated September 27, 2006 Galaxy filed a
detailed reply wherein while denying the charges it inter-alia
submitted that the trades undertaken by it were within the
price band of the day and also that the price can be
influenced due to host of the reasons. It stated that in an
automated blind system of the Exchange, identity of the
counter party is not known and all the trades were
transparent. It only executed the trades for brokerage strictly
as per the instructions of the clients with no proprietary
trades and it was impossible, impracticable and unfeasible for
a broker to detect and perceive the intentions and objectives
of the clients.
ii) Galaxy further submitted that its client’s transactions
alone cannot be said to have influenced the price and SEBI
must first establish with credible evidence, the manipulative
intentions of its client. Further, it stated that for the
transactions of client, it is the client who is responsible, not
the broker. It further stated that 12.55% quantity traded by it,
is insignificant percentage of the total market volume of the
scrip during the investigation period and therefore the trades
executed by it can in no way be attributed to the alleged
manipulation. It further stated that even if the trades were
circular in nature, Galaxy was neither aware of the counter
party broker nor their clients. It further stated that the buy
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and sell orders which have been entered within a time
difference of 0-60 seconds are absolutely normal, reasonable
and permissible.
iii) Galaxy further submitted that SEBI (Prohibition of
Fraudulent and Unfair Trade Practices) Regulations (PFUTP
Regulations) may be attracted only if the transactions were
made with the intention of artificially raising or depressing the
price of securities so as to induce other person to buy or sell
the securities and to that extent SEBI has failed to provide
any instance of any investor being trapped by buying or
selling the scrip. Galaxy can be held responsible only if any
harm has been caused to any investor and not merely on the
possibility of the same. As regards, the Code of Conduct, the
broker submitted that it had exercised due skill, care and
diligence and therefore, no violation of the Code of Conduct
can be attributed to it.
iv) While the proceedings were pending the broker filed a
Consent Application for settlement of these proceedings in
terms of SEBI Circular dated April 20, 2007 and accordingly
the proceedings were kept in abeyance. However, no
settlement could be reached and the proceedings were
reopened. As explained earlier, in the meanwhile, the
proceedings were transferred to me. Having examined the
material available on record, I was of the view that the inquiry
should be held in the matter and accordingly vide letter dated
December 14, 2009 gave another opportunity to the broker to
file additional submission. The broker vide letter dated
January 21, 2010 sought personal hearing and leave to file
additional submissions. The hearing fixed for February 25,
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2010 was rescheduled to March 17, 2010 on the request of
the broker. The hearing was attended by Miss. Vasanti
Nagda, the authorize representative of the broker on March
17, 2010 at Mumbai. During the personal hearing she
conceded that the trades in question were executed by the
broker but, there were no property trades and all the trades
were executed for clients. She further submitted that the
broker is not in the broking business since 2006 and therefore
lenient view may be taken in the matter.
v) As is already stated, during the relevant period, 82.75%
trades in Jindal were executed by these set of brokers
(including the noticees herein) either for clients or for
themselves. It would be pertinent to examine the trades of the
noticees. If I analyse all trades, the order would become too
bulky. Therefore, In my view, it would be sufficient to give
illustration of trading pattern for 3-4 days (From Annexure 1
and other Tables mentioned in the earlier part of this order) to
show the nature of trades executed by these set of brokers
including the noticee herein.
Illustration 1 On 24.10.2003, 1050 shares were circulated between the following members as under 0013 ( Adolf Pinto) Sells to 552 ( Pramod Kumar
Jain) 552 ( Pramod Kumar Jain)
Sells to 911 ( Ajmera Associates )
911 ( Ajmera Associates )
Sells to 182( Southern Shares )
182( Southern Shares )
Sells to 519 ( NCJ)
519 ( NCJ) Sells to 737 ( Bharti Thakker ) 737 ( Bharti Thakker ) Sells to 513 ( Galaxy)
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513 ( Galaxy) Sells to 909 ( Pilot) 909 ( Pilot) Sells to 779 ( Uttam) 779 ( Uttam) Sells to 0013 ( Adolf Pinto) Illustration 2 On 30.10.2003, 875 shares were circulated as under 182( Southern Shares )
Sells to 513 ( Galaxy)
513 ( Galaxy) Sells to 0013 ( Adolf Pinto) 0013 (Adolf Pinto) Sells to 552 ( Pramod Kumar
Jain) 552 ( Pramod Kumar Jain)
Sells to 779 ( Uttam)
779 ( Uttam) Sells to 737 ( Bharti Thakker ) 737 ( Bharti Thakker ) Sells to 519 ( NCJ) 519 ( NCJ) Sells to 182( Southern
Shares) Illustration 3 On 16.10.2003, 1675 shares were circulated as under 513 ( Galaxy) Sells to 182( Southern Shares
) 182( Southern Shares )
Sells to 519 ( NCJ)
519 ( NCJ) Sells to 513 ( Galaxy) Illustration 4 On 15.10.2003, 1425 shares were circulated as under: 182( Southern Shares )
Sells to 513 ( Galaxy)
513 ( Galaxy) Sells to 519 ( NCJ) 519 ( NCJ) Sells to ( 825 shares ) 182( Southern Shares
) 519 ( NCJ) Sells to ( 600 shares ) 737 ( Bharti Thakker ) 737 ( Bharti Thakker ) Sells to ( 600 shares ) 182( Southern Shares
)
vii) Galaxy was involved in circular trades as can be seen from
the above tables. It emerges from the analysis of the trade log
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that the member joined hands with the other fellow members
and executed trades to give an appearance of trading. 110 out
of 116 buy orders and 103 out of 107 sell orders executed by
Galaxy resulted in circular trades. Further the member
executed circular trades on 40 days out of 44 days that it had
traded during the period under investigation. The member
bought and sold 95698 shares of Jindal for its clients which
accounted for 16.27% of the Circular Trade and 12.55 % of the
total traded volume during the relevant period in the market.
Accordingly, considering that almost all the trades were conducted
for clients, in the absence of any other material suggesting the role of
the broker in the matter, I give benefit of doubt on account of
violations of PFUTP Regulations but hold the broker guilty for
violating Clauses A(1), (2), (3), (4) and 5) of Code of Conduct as
prescribed under Broker Regulation.
It is made clear that the provisions of the relevant regulations of
PFUTP Regulations and Brokers Regulations, which are found to have
been violated, are not being reproduced in this order for two reasons.
First, to ensure that the order should not become too bulky and
Second, the facts established are squarely covered and are fitting in
the necessary ingredients of the relevant regulations. These
observations are being recorded to be applied with respect to all the
noticees.
B. Bharati Thakkar India Securities Pvt. Ltd. (Bharti):
i) From the records it is observed that pursuant to SCN
dated August 21, 2006 the broker vide letter dated September
06, 2006 submitted its detailed reply wherein while denying the
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charges it interalia stated that the trades in question were
carried out on behalf of two of its clients namely Mr. Sayyed
Mustafa and Mr. Prem Prakash Thanvi. KYC norms were
followed meticulously and it had no doubts about the intentions
of the trades executed by the clients. Further, the volume of
transaction of these clients was not huge so as to arise any
suspicion. It further submitted that it only acted as a broker
and was not a party to the alleged manipulation of two clients.
ii) The broker further submitted that it had not gained any
disproportionate or unfair advantage and no loss has been
caused to any investor which is a necessary ingredient u/s 15J
of SEBI Act and therefore no penalty could be imposed on the
broker which has earned only Rs. 11,271.19 as brokerage. The
personnel hearing took place before then AO on March 15, 2007
wherein the representative of the broker while reiterating the
submission made vide reply dated September 06, 2006 sought
and was granted time till March 26, 2007 to file additional
submission. It was categorically stated and recorded during the
hearing that there was no proprietary trade and there was no
nexus with the clients. The additional submission were filed
vide letter dated March 26, 2007.
iii) While the proceedings were pending the broker filed a
Consent Application for settlement of these proceedings in
terms of SEBI Circular dated April 20, 2007 and accordingly
the proceedings were kept in abeyance. However, no settlement
could be reached and the proceedings were reopened. As
explained earlier, in the meanwhile, the proceedings were
transferred to me. Having examined the material available on
record, I was of the view that the inquiry should be held in the
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matter and accordingly vide letter dated December 14, 2009
gave another opportunity to the broker to file additional
submission. The broker vide letter dated December 30, 2009
while reiterating the submission made vide letter dated
September 06, 2006 sought personal hearing. In response to
the specific query raised in this regard in my letter dated
December 14, 2009, the Broker categorically submitted that
BSE had not imposed any penalty on the broker for the trades
in question.
iv) The personal hearing was granted to the broker on
February 25, 2010 at Mumbai which was attended by Mrs.
Bharti Dhiren Thakkar, the director of the broking entity and
Mr. Akram Khan. During the personal hearing when confronted,
the broker conceded that a penalty of Rs.25,000/- was imposed
by BSE by holding these trades as circular trades via
structured orders placed by the broker. The broker also
informed that the amount of penalty paid by it. The broker also
conceded that certain trades were conducted in the proprietary
accounts also as per the advice of the client Mr. Mustafa and it
earned a profit of Rs.900/- out of said proprietary trades. The
representative of the broker further submitted that the
mistakes were inadvertent, without any malafied intention and
promised to be more vigilant in future.
v) As regards the charge, having carefully considered the
material available on record and written as well as oral
submissions I note from Table- A & B that the gross purchase
and sell quantity of the broker between June 20-Novemebr 28,
2003 was 12.35% and 12.37% suggesting that almost all the
trades were squared off. I further note from Table-C that total
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contribution of the circular trades executed through the broker
was approximately 15% of the total circular trades executed
during the relevant period. Out of that, 14.79% was traded for
one client Shri Sayed Mustafa which is considerably high.
During the personal hearing before me on Feb 25, 2010 the
representative conceded of having executed proprietary trades
also on the advice of Shri Mustafa. This suggests that the
broker has not only failed to stop/monitor the trade of its client
but also bought shares on the advice of said client. This is a
sort of role reversal wherein a broker is acting on the advice of
its client.
From Table ‘D’ it is clearly established that out of 185 buy-
orders placed by the brokers, 169 orders resulted in circular
trades. Similarly, out of 186 sell orders, 158 orders resulted in
circular trades. From Table ‘E’ I note that out of 41 days of
trading, 38 days the broker has executed circular trades.
During this period, Bharti bought 94,137 shares and sold
94,330 shares mostly for its clients which are almost 12% of
the total volume in the market.
Nature of trades executed by the broker have already been
illustrated by way of 04 illustrations given in the matter of
Galaxy and are not being repeated but are relied upon herein
also. The last paragraph in Galaxy is also adopted herein.
Accordingly, considering that almost all the trades were conducted
for clients, in the absence of any other material suggesting the role of
the broker in the matter, I give benefit of doubt on account of
violations of PFUTP Regulations but hold the broker guilty for
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violating Clauses A(1), (2), (3), (4) and 5) of Code of Conduct as
prescribed under Broker Regulation.
C. Pilot Credit Pvt. Ltd. (Pilot):
i) From the records it is observed that pursuant to SCN dated
August 21, 2006, the broker vide letter dated September 04,
2006 submitted the detailed reply and also enclosed a letter
dated September 20, 2005 submitted by it to SEBI during the
pendency of the investigation. The personal hearing was
conducted on October 03, 2006 before the then AO wherein the
representative while relying upon its aforesaid reply submitted
letter dated September 22, 2006 and sought time to file copy of
the client agreement and details of the trades of the said client.
They specifically stated that apart from the aforesaid, they have
no further submission. Vide letter October 04, 2006, they filed
the aforesaid documents.
ii) While the proceedings were pending, it filed Consent
Application with SEBI. However, no settlement could be arrived
at and proceedings were reopened. In the meanwhile the
proceedings were transferred to me. Having examined the
material available on record, I was of the view that the inquiry
should be held in the matter and accordingly vide letter dated
December 14, 2009 gave another opportunity to the broker to
file additional submissions. The broker vide letter dated
December 31, 2009 submitted certain documents which were
filed by it during the consent proceedings. These documents
however, in the absence of any specific request in this regard,
cannot be taken on record in the present proceeding. Vide letter
dated December 31, 2009 the broker sought personal hearing.
Accordingly, the broker was granted personal hearing on
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February 25, 2010 at Mumbai which was attended by its
director Sh. Praful A Shah.
iii) During the course of personal hearing the representative
interalia submitted that the trades were executed in the year
2003 and it is difficult to recollect all the happenings, records
and clients after seven years for information. He further
submitted that no alerts were generated by the Exchange and it
is difficult for a broker to monitor and stop such trades. Broker
has also stated that the BSE has imposed a penalty of
Rs.25000/- for those trades.
iv) In order to not repeat the arguments (including last para)
and illustrations mentioned in the matter of Galaxy the same
are hereby relied upon and referred to. From the tables
mentioned in he earlier part of this order, it emerges that the
member joined hands with the other fellow members and
executed trades to give an appearance of trading. Out of 63, 60
buy orders put by the broker resulted in circular trades.
Similarly, out of 61 sell orders all 61 resulted in circular trades.
Further the member executed circular trades on 30 days out of
33 days that it had traded during the period under
investigation. The member bought 56096 and sold 56846
shares of Jindal for its clients which accounted for 7.45 % of
the total traded volume in the market.
Accordingly, considering that almost all the trades were conducted
for clients, in the absence of any other material suggesting the role of
the broker in the matter, I give benefit of doubt on account of
violations of PFUTP Regulations but hold the broker guilty for
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violating Clauses A(1), (2), (3), (4) and 5) of Code of Conduct as
prescribed under Broker Regulation.
D. Adolf Pinto Share & Stock Broker (Adolf Pinto)
i) From the record, I note that pursuant to SCN dated
August 21, 2006 the broker vide its letter dated August 31,
2006 submitted its reply wherein while denying the alleged
circular trading in its proprietary account and creation of
volumes, it submitted that out of 47 days the broker had traded
mearly on 23 days in the scrip of Jindal which is highly active
B1 group scrip. Further, the volume of the broker was only 6%.
The matching was only a coincidence with no knowledge of the
opposite party as these transactions were only jobbing
transactions. It was further submitted that the broker has
already been penalized by BSE which has imposed a fine of Rs
25,000/- vide its letter dated April 15, 2005.
ii) Having examined the reply, vide letter dated February 26,
2007 the then Adjudicating Officer called upon the broker for
personal hearing on March 16, 2007. The broker vide its letter
dated February 27, 2007 resubmitted its reply dated August 21,
2006. From the record, I note that the hearing was conducted
on April 16, 2007 wherein Shri Adolf Pinto, Proprietor of the
broker appeared and submitted that he wished to rely upon the
submissions already made vide their letter dated February 27,
2007.
iii) Vide e-mail dated June 11, 2009, the broker informed the
then Adjudicating Officer that it had filed the Consent
Application with SEBI. As already recorded, in the meanwhile,
proceedings were transferred to me and were kept pending as
the Consent Application was pending. While the Consent
Page 20 of 41
proceedings were pending the broker vide its e-mail dated
January 28, 2010 to SEBI requested for withdrawal of the
consent application which was accepted by SEBI. Accordingly,
vide communication dated March 02, 2010 I was advised to
recommence the proceedings from the stage at which the same
was kept in abeyance.
iv) Having perused all the available documents I was of the opinion
that the Inquiry should be held in the matter and accordingly
vide letter dated March 03, 2010 the broker was advised to
submit additional written submission, if any and appear either
personally or through authorized representative, before the
undersigned on March 17, 2010 at Mumbai for personal
hearing. As I was to travel to Mumbai only for the purpose of
personal hearing, an official from my office at Delhi personally
called the proprietor of the broker Shri Adolf Pinto over is cell
(his cell no. was mentioned in the e-mail sent in June, 2009 to
the erstwhile AO informing filing of Consent Application by him)
informing that the personal hearing is being scheduled on
March 17, 2010, which was agreed by the broker. As requested
by him, all the back papers including the SCN and replies
available on record were forwarded to him through Registered
Post AD. He requested to forward those papers to his residential
address also (at 23, Atmaram Building, St. Francis Zavier Lane,
Tkauirdwar, Mumbai-400 002). I signed both the letters to be
sent to both the addresses ie. his office address at Dalal Street,
Mumbai and his address at Tkauirdwar, Mumbai. Both were
directed to be sent th. Regd. AD. It however seems that due to
some mistake on the part of the dispatch of my office, which I
must concede, the copy of the letter dated March 03, 2010 was
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sent only to his old address (Dalal Street), and not to his
residential address.
v) On the date of the hearing, when contacted over phone
from SEBI’s Mumbai office, he denied having received any
notice for the hearing on March 17, 2010. When confronted by
the concerned official from Delhi office who had been in contact
with Shri Pinto, he informed that he is not well. Shri Pinto was
then advised to make appearance through his representative.
Accordingly, at 2.30 p.m., Shri Vikas Bengani, authorized
representative appeared before me and submitted an authority
letter from Shri Adolf Pinto stating interalia as under :
“ 1. I do not recollect whether I have received the Show Cause Notice in the above matter as it might have sent three-four years back. I made all efforts to search Show Cause Notice but could not find it.
2 ………………….. 3. I had also appeared before Shri Amit Pradhan, the then Adjudicating Officer, and I was under the bonafide impression that the Adjudicating Proceedings were over. 4. However, when I came to know that the Adjudicating Proceedings were still continuing, I filled Consent Application but withdraw it subsequently. 5. Today I received phone call from your legal officer asking me whether I am attending the Hearing fixed for today. However I have not received any Notice of Hearing said to have been sent though Registered Post. Since I am not aware the content of the SCN, I hereby Authorize Sri Vikash Bengani to appear before you and make further submission in the said matter if so required. He is also authorize to take inspection of documents and please allow him to take a Xerox copy of documents which may required by me.”
vi) During the course of Personal Hearing the representative
inter alia submitted that Adolf Pinto is a proprietary broking
firm and is not in the broking business for approximately 04
years. He also stated that copy of the SCN dated August 21,
Page 22 of 41
2006 was not received by the noticee. Though I was conscious
of the fact that the copy of the original Show cause notice dated
August 21, 2006 was indeed received/available with the noticee
and he was just trying to delay the proceedings, which I shall
demonstrate in subsequent paragraphs, in the interest of
justice and to ensure that he should not raise this grievance in
future, as requested, copies of SCN and other letters exchanged
between AO and the noticee were again provided to the
representative. Further, on his request the noticee was granted
time till March 23, 2010 to file additional written submissions.
It was made clear and agreed by the representative that no
further opportunity of personal hearing and/ or for filing
written submission shall be granted.
vii) The noticee forwarded his written submissions dated
March 19, 2010 which was received on March 22, 2010. I was
surprised to note the contents of the same and therefore,
reproducing it hereinunder:
“ 1. My Authorized Representative Mr. Vikas Bengani has appeared
before your good self and made submission in the above matter on my behalf. He was also provided copies of certain documents including copy of Show Cause Notice (SCN) dated 21-08-2006 along with annexure thereto.
2. In the Annexure 2 to the SCN it is stated that the Investigation
in the scrip of Jindal Polysters Ltd was initiated on the basis of report received from BSE, however I have not been provided with a copy of the said BSE Report. I request you to provide the same to me.
3. I wish to humbly submit that my Authorized Representative Mr.
Vikas Bengani made specific request for providing the complete copy of the Investigation Report, he was provided only annexure 2 to the SCN which contains only certain selective finding of the Investigation in the Scrip of Jindal Polysters Ltd. I therefore once again request you to provide me complete copy of the Investigation Report to enable me to make my submissions on
Page 23 of 41
the alleged violation of the FUTP Regulations and Code of Conduct as applicable to Stock Brokers.
4. The Table given on the Page 2 and 3 to the Annexure 2 contains
some cuttings. I am not clear whether such cuttings are to be ignored or not by me.
5. I also find from the SCN that trade and order log for the
Investigation Period was analyzed to uncover any instance of manipulatative trades. It is further stated in the SCN that the Price Volume Date for the period was analyzed in conjunction with the corporate news and development reported during the period by the Jindal Polysters Ltd. I have not been provided any details of such analysis and hence I can not deal with the alleged finding made in the Investigation Report unless I am provided with the copies of Corporate News and Development reported during the period which were relied by the Investigation Authority while making the analysis of price volume data in conjunction with the corporate news and development reported during the Investigation Period. I therefore request you to provide me with all the material relied by the Investigation Department while making the analysis as stated in the SCN.
6. While going through the Trade and Order Log (Annexure 2 C) I
find that the trade and order logs do not contain the entire trading volume of the Investigation Period and only selective data have been picked up from the sources not disclosed in the said annexure.
7. Moreover in the Table under 1.2.4 (d) of the Annexure 2 at serial
number 7 under the heading dealt for (client), it is mentioned “Own A/c” whereas in annexure 2 C does not reveal that I have done any trade in my own account.
8. I deny that I had accounted for majority of market volume and
contributed to creation of artificial volume and price rise in the scrip of Jindal as alleged as the data provided to me does not reveal any such market manipulation as alleged.
9. The trades executed by me on behalf of my clients where at
prices which had already moved up and hence the charge of the price rise is not substantiated against me.”
viii) From the contents of these letters, I am forced to take
note of the conduct of the noticee and deal with the same. This
is a universally acceptable preposition that the principals of
natural justice have to be followed before condemning anybody.
Page 24 of 41
However, in my view this is also to be kept in mind that in guise
of principals of natural justice, the process of law should not be
allowed to be misused. The natural justice also demands that
the person who seeks justice must come with the clean hand.
However, the noticee has not approached the present
proceedings before me with clean hand which I will demonstrate
herein under.
ix) The records show that pursuant to SCN dated August 21,
2006, the noticee replied on merit vide its letter dated August
31, 2006, confirming that he indeed received show cause
notice. He wrote a letter dated February 27, 2007 to the then
adjudicating officer again confirming having received the notice.
He also appeared before the then Adjudicating Officer for
personal hearing on April 16, 2007. The record of the said
proceedings does not suggest that he had, at any point of time
stated that he had not received the SCN. He had also not
objected to the contents and correctness of the SCN or the data
mentioned therein. It would be pertinent to quote the question
and answer of the said proceedings as under:
“Q.1 Do you have anything different to say than what you have submitted in your written reply in the above proceedings.
Ans: We wish to rely on the submissions made vide our reply
dated 27.02.2007 for the purpose of this inquiry. Q.2 do you have anything further to submit. Ans. No.”
x) Record also shows that the noticee filed the Consent
Application with SEBI sometimes in June 2009. As per the
requirement of the Consent Circular dated April 20, 2007,
SEBI does not process an Application for Consent without
Page 25 of 41
there being annexed certain documents with it and SCN is one
of such mandatory document. In such a case it is not possible
that the noticee did not have the copy of the same. That
means that he was having the copy of the SCN in June 2009.
In such a case, how he can be allowed to state (vide his letter
dated March 17, 2010) that he does not recollect having
received the SCN ? If he did not receive the SCN, then why
and what for he filed Consent Application in June 2009 ?
What he wanted to settle vide his Consent Application
no.1376/2009 ? As already recorded, SCN is a mandatory
document to be attached with Consent Application and
without which, no consent application is processed. Therefore,
I hold that the SCN was indeed available with him, which he
filed with his Consent Application in June 2009. Still, for
delaying and frustrating the present proceedings, he is
pleading ignorance of having receive the SCN. His dilatory
tactics are exposed again from the fact that he applied for
Consent, proposed certain amount as settlement terms, which
were accepted. However, when he was advised to pay the
amount offered by him, he withdrew the Application. Though I
have no access to the Consent Application file, I am recording
these findings on the basis of the familiarity I have with
respect to the consent process being adopted by SEBI.
Therefore I hold that the noticee is lying on not receipt /non
availability of the SCN dated August 21, 2006 with him.
xi) From this, I conclude that the noticee is not serious on
contesting the case on merit and only adopting the dilatory
tactics to delay and frustrate the process of law. This
observation gets support from the fact that at no point of time
since the proceedings were initiated vide SCN dated August
Page 26 of 41
21, 2006, he had ever questioned the correctness or otherwise
of the data given in the SCN or sought copies of the
documents ( Investigation report of BSE,SEBI, details of
analysis done by SEBI , corporate news and development
report as referred to in the investigation report/show cause
notice, all material relied upon by the investigation
department etc.) or indicated any mistake in the data provided
by the SEBI, which it had done vide its reply dated March 21,
2010. Rather, it is on record, as reproduced above (supra),
during the personal hearing dated April 16, 2007 when the
then AO asked him as to whether he had anything further to
submit his answer was categorical “NO”. In such a case the
objections/doubts raised/ documents sought vide its letter
dated March 21, 2010 are nothing but a dilatory tactics. As a
matter of facts all the relied upon and relevant
documents/information in support of the charges were
furnished to the noticee vide show cause notice dated August
21, 2006 whereby the relevant extract of the investigation
report was also annexed which interalia contained the
analysis also. At no point of time the noticee ever questioned
the veracity of the data and therefore in my view he is estoped
from raising these issues at this belated stage. The notice
dated March 03, 2010 was issued by me in the interest of
justice and fair play in order to give the noticee one more
opportunity to make further/additional submission and he
can not be allowed at this stage to start all over again and ask
preliminary document. If these documents/information was
relevant he should have asked at the very first instance and
not after more than 3½ years from the date of SCN/his first
reply.
Page 27 of 41
xii) From the fact that he appeared before the erstwhile AO
and than filed a Consent Application in August 2009, which
can only be filed when the copy of show cause notice is
attached therein, it is impossible to agree with the contention
made vide letter dated March 17, 2010 that he had not
received the SCN.
xiii) In the foregoing paragraph I have demonstrated the
deplorable conduct of the broker, who, at every stage had tried
to frustrate the proceedings and now when I refused to allow
him to further delay the proceedings, he came out with an
ideas of raising basic and preliminary objections/doubts and
seeking new information which he should have done at the
very first instance in 2006. I note that there are so many
instances where Courts including Hon’ble SAT has taken a
strong view on these dilatory tactics and inappropriate
conduct of the parties before them. Taking guidance from the
same, I am of the view that this is high time that a strong
message be sent to the market and the entities like the noticee
herein that they will not be allowed to take the proceedings of
a market regulator lightly and also will not be allowed to play
mischief with the process of law. For these reasons, I am not
inclined to allow the noticee to abuse the process of law any
further and shall proceed with the matter on the basis of the
available records. It is, however, made clear that the conduct
of the noticee shall not influence my findings on the merit of
the case and also the imposition of penalty, if any, shall be
based only on the facts of this case.
xiv) As regards facts of the case, I note that the broker
bought 46,190 shares and sold 46,390 shares of Jindal on
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behalf of Shri Kenneth Adolf Pinto who is the son of Shri Adolf
Pinto. These trades constituted 6.05% of the total traded value
in the market and 8% of the total trades which were executed
in circular manner. In the scheme of the things as they appear
and already recorded in the context of Galaxy Broking Ltd.
even 6% trading by a proprietary broking concern in the name
of his son does not appear to be merely a coincidence and in
my view, in a considerable liquid scrip like Jindal (B1 group)
the concentration of 6% is significant. As the trading was done
in the account/name of his son, it was nothing but
proprietary trading. In such a case the matter becomes
serious and the trades executed by the broker which are part
of the 82.75% of the total circular trading volume of the total
89.11% of trading in the scrip which was executed by set of 9
brokers during a relevant period can safely be concluded to be
circular trades to create artificial volume effecting volume and
price of the scrip of Jindal.
xv) I further note from the 04 illustration given in the
matter of galaxy which are not repeated but being relied upon
herein. I note that the noticee was the part of the group of
brokers and executed circular trades in proprietary account.
52 out of 60 buy orders and 52 out of 58 sell orders resulted
in circular trade during the relevant period. Further the
member traded in circular trades on 23 days out of 24 days
that it had traded during the period under investigation. The
member bought 44005 and sold 44080 shares of Jindal during
October 7 to November 28, 2003 which accounted for 6.00 %
of the total traded volume in the market.
Page 29 of 41
In view of the aforesaid and adopting last para of Galaxy
(supra), I find that the broker has violated the provisions of
Regulation 4 (2) (a), (b),(e),(g) and (n) of PFUTP Regulations. Further
the broker has also failed to adhere to the Clauses A (1), (2), (3), (4)
and (5) of Code of Conduct as prescribed in Schedule II of SEBI
(Stock Brokers and Sub-Brokers) Regulations, 1992 and deserve
appropriate penalty for its misconduct.
E. Ajmera Associates Pvt. Ltd.
i) From the records it is observed that pursuant to the Show
Cause Notice dated August 21, 2006, the broker vide its letter
dated August 31, 2006 stated that it had already replied on the
charges vide its letter dated September 03, 2005, (without
enclosing the copy of the same which he might have forwarded
to Investigating Officer). The broker further stated that it had
no further clarifications to offer and reiterated that it had
transacted on behalf of its client only and acted as a mere
intermediary. The broker further informed that subsequent to
the letter from the then AO, it had stoped all business with the
particular client. There appears to be some communication gap
and therefore vide letter dated September 04, 2006 the broker
submitted to the AO that it was in the process of filing its reply.
Vide letter dated September 12, 2006 the broker filed detailed
reply wherein while denying the charges, it inter alia submitted
that it has acted only as a broker as per the instruction of the
client. The clients had mainly affected speculating transactions
and throughout the course of business the broker had no
complaint against the client. The synchronised trades, if any,
might have been between the clients and broker was not aware
about the same.
Page 30 of 41
ii) It further submitted that the nature of the transactions in
the scrip of Jindal did not trigger any doubt in its mind and the
same were executed for and on behalf of the client as per his
instructions. The price rise from June 2003 to August 2003
was sufficient to motivate a person in entering into the
transactions in the said scrip. While giving the details of the
transactions of its client, the broker denied that it entered into
the circular/synchronised trades and thereby violated any of
the provisions of circulars/regulation(s).
iii) A personal hearing took place before the then AO on
March 16, 2007, wherein while reiterating the submission dated
September 12, 2006, the broker sought and was granted time to
file additional submissions. Vide letter dated March 26, 2007
the broker submitted comparative turnover figure of the trades
conducted by the client of the broker.
iv) While the proceedings were pending, the broker filed
Consent Application with SEBI. However, no settlement could
be arrived at and proceedings were reopened. In the meanwhile
the proceedings were transferred to me. Having examined the
material available on record, I was of the view that the inquiry
should be held in the matter and accordingly vide my letter
dated December 14, 2009 gave another opportunity to the
broker to file additional submissions. The broker vide letter
dated December 30, 2009 sought personal hearing. Shri
Ashish Ajmera, the representative of the broker appeared for
personal hearing before me on February 25, 2010 at Mumbai.
He inter alia submitted that the clients were day traders and
had sufficient credit balance in their accounts. They were
Page 31 of 41
introduced by the associates of the broker and the broker did
not have any doubt on their credentials. He further stated that
the clients had traded only 20 days during the investigation
period.
v) He further stated that broker did not have any
mechanism to know the counter party. The scrip was thinly
traded and therefore the chances for trades being matched were
more. The data provided by SEBI only contains the order which
were matched and not the order which were placed. SEBI has
not initiated any action against the clients and punishing the
broker. The trades executed through/by the broker constitute
only 4% of the total volume and deserve no penalty to the
broker. While referring the reply March 26, 2007 he stated
that the contribution of these clients vis-a-vis the total volume
was minuscule. He informed that BSE had only warned it for
these trades. He agreed to submit the details of all the actions
taken/pending by/with SEBI. However, did not do so till date.
vi) As is clear from the Tables A-F and illustration given in
the matter of Galaxy, which are not repeated but being relied
upon herein, the broker was involved in circular trades. It
emerges from the analysis of the trade log that the member
joined hands with the other fellow members and executed
trades to give an appearance of trading. 32 out of 35 buy order
and 31 out of 37 sell orders resulted in circular trades. Further
the member traded in circular trades on 20 days out of 23 days
that it had traded during the period under investigation. The
member bought 27395 and sold 27545 shares of JPL for its
clients which accounted for 4 % of the total traded volume in
the market. As 4% is not very significant volume and also that
the trades were executed for clients I give benefit of doubts to
Page 32 of 41
the broker on the charges under PFUTP Regulations but while
adopting observations recorded in last para of Galaxy (supra),
hold it guilty on its failure to comply with Clause A (1),(2),(3),(4)
and (5) of Code of Conduct for Brokers specified in Schedule II
under Regulation 7 of SEBI (Stock Brokers and Sub Brokers)
Regulations, 1992.
F. Mansukh Stock Brokers Ltd.
i) From the records it is observed that pursuant to the
Show Cause Notice dated August 21, 2006, the broker vide its
letter dated September 27, 2006 filed a detailed reply stating
interalia that the charges alleged by SEBI are based on
assumption and are without any basis. No mens-rea has been
alleged against the broker and Annexure-2 to the show cause
notice contains several statistical inaccuracy. If the trades have
happened among few entities the reason of that could be the
lack of generalised interest in the scrip, rather than circular
trading as alleged. The buy and sell quantity of the trade are
not the same. Its volume in JPL was only 3.09% of the total
volume of the scrip and such a small volume can not be
attributed to any sizable increase in the volume/price. It is
wrong on the part of the SEBI to club its volume with 08 other
brokers and arrive at a high figure. All the orders were executed
on the screen and it was impossible to know as to who is the
counter party. All the transactions were in the nature of
jobbing transactions and no delivery were given or taken in any
settlement. The broker had no relationship of any nature
whatsoever with other broker/clients. It traded only for 70
days in the whole period of 06 months. It had dealt in around
23595 shares during the said period.
Page 33 of 41
ii) I note from the records that during the personal hearing
before the then AO on October 16, 2006, the representative of
the broker while reiterating the submission made vide letter
dated September 27, 2006 interalia had raised doubts about
the correctness of Annexure 2C of show cause notice containing
order log. Subsequently the broker submitted additional
submissions vide letter dated November 04, 2006 by and large
reiterating the submissions already available on record.
iii) While the proceedings were pending, the broker filed
consent application with SEBI. However, no settlement could
be arrived at and proceedings were reopened. In the meanwhile
the proceedings were transferred to me. Having examined the
material available on record, I was of the view that the inquiry
should be held in the matter and accordingly vide my letter
dated December 14, 2009, I gave another opportunity to the
broker to file additional submissions. The broker vide letter
dated December 19, 2009 sought personal hearing at Mumbai
and also informed the change of name from Uttam Financial
Services Ltd. to Mansukh Stock Brokers Ltd. On February 26,
2010, Mr. Prakash K Shah appeared for personal hearing at
Mumbai and reiterated the earlier submissions. While referring
the minutes of hearing dated October 16, 2006 he stated that
he is not pressing his submissions regarding correctness of
data provided. He further submitted that BSE had only warned
the broker for these trades as very few trades were executed.
The broker had carried out intra-day trading in almost 400
scrip and there was no reason to suspect that the trading in
Jindal was manipulative. He further stated that in Annexure-1
of the Show Cause Notice, which contains four Tables, the
name of the brokers is figuring in only one Table (in gross sale
Page 34 of 41
quantity) suggesting that broker was not involved in the alleged
synchronised/circular trades. The matching was only
coincidence and may be ignored.
iv) From the facts of the case and while referring to and
relying upon the illustrations given and observations made in
the last para in Galaxy (supra), I note that the broker was
indeed involved in circular trade. I however note that 31 out of
54 buy orders and 32 out of 58 sell orders resulted in circular
trades, which is low when compared with the trading pattern of
other brokers. Further, in broker’s name is figuring only in
Table-B (Gross sell) suggesting all trades were not squared off.
As the trades of broker were only 3% of the total volume,
without giving the clean chit, a benefit of doubt can be given to
it with respect to the violations of PFUTP Regulations. Probably,
due to this fact only, even BSE had not imposed any penalty
and had only warned the broker. Still, as the trades were
primarily done in its own account, I treat this a serious lapse of
Code of Conduct and hold broker guilty of violation of Clauses
A(1), (2), (3), (4) and (5) of Code of Conduct under Broker
Regulations.
15. Before proceeding further and examining as to whether the brokers
are liable to be penalized Under Section 15HA and/or 15HB, it would
be pertinent to deal with certain general contentions which were
raised by the noticees.
i) I agree with the brokers that the transactions of its client
alone could not have influenced the price. The trades of a
particular client of a broker could be minuscule if taken in
isolation. However, one person might be performing its role in
Page 35 of 41
the big scheme of the things wherein various client/ brokers
may be acting in collaboration while assigning a specific role to
a specific client/ broker, in order to avoid easy detection. The
system has been placed and is being improved from time to
time to minimize the misconduct. However, there are always
possibilities and scope to circumvent the process for individual
gains. As regards, the plea that the matching was due to
coincidence, considering the number and nature of matched
trades, I can only say that this was too much of a coincidence
wherein almost all trades matched in time, quantity and also in
price.
ii) I do not agree with the contention that SEBI need to prove
manipulative intention before holding somebody guilty.
Sometimes things speak for themselves which has happened in
the present case wherein in a considerable liquid scrip of Jindal
(B1 Group) a set of 09 brokers contributed almost 82.75% of
the total trading volume during the relevant period which was
circular in nature. I also do not agree that it is the client alone,
whose trades were manipulative in nature, was responsible for
the same and not the broker. Thought the degree/ extent of the
responsibility may differ, a broker being a market intermediary
cannot blame only the client and say that the trades were
conducted only for brokerage. This position, if accepted, may
lead to dangerous consequences wherein it will be free for all,
without any regulation and control. Broker being a SEBI
Registered Market intermediary, is subjected to various SEBI
Regulations and also the Code of Conduct prescribed for it and
has to abide by them in letter as well as in sprit to ensure that
trades in the market take place in a fair manner.
Page 36 of 41
iii) The coincidence, if any, could be once or twice. But, if
there is a series of such transactions conducted by some
specific brokers/clients within a specific time period, they are
bound to raise suspicion and the same has been done in this
case also and even BSE who is the first level regulator has
imposed penalties ranging from warning to Rs.25,000/- on the
brokers for these trades. As the same has been accepted by the
brokers, an inference is drawn that the brokers have accepted
the alleged misconduct.
iv) I also do not agree with the contention of the broker, that
it can be held responsible for the violation of the SEBI (PFUTP)
Regulation only if some harm has been caused to the investor
and not merely on the possibility of the same. SEBI as a
market regulator cannot afford to sit with folded hands and
wait for actual harm being caused. It is the duty of the SEBI to
prevent such harms and take action for any mis-conduct which
has potential for causing any harm to the market/ system.
v) As regards the contention that it was impossible,
impracticable and unfeasible for a broker to deduct and
perceive the intention of a client and putting a burden on SEBI
to first prove the intention of a client apart from referring to the
judgment of Hon’ble Supreme Court in the matter of Shri Ram
Mutual Fund, I wish to rely upon a recent judgement dated
March 22, 2010 of Hon’ble SAT in Appeal No.163/2009
(Galaxy Broking Ltd. VS SEBI) in the matter of same broker.
In the said Appeal also the broker had sought to take similar
plea of not knowing the intention of the client. Hon’ble SAT
having perused the trade and order logs has observed as under:
Page 37 of 41
“The appellant executed such trades not only on behalf of Rajesh Kantilal Shah but also on behalf of other clients as well. Reverse trades are fictitious and do not transfer the beneficial ownership in the traded scrip and they are meant only to increase the volumes on the screen of the exchange which generates investor interest. It is on account of such trades and increase in volumes that the lay investors get trapped. The charge levelled against the appellant, thus, stands established.”
vi) As regards, the contention that the trades were executed
for the clients, I would also like to cite another Judgment dated
September 18, 2003 in Appeal No.46/2002 by Hon’ble SAT in
the matter of Madhukar Seth VS SEBI wherein SAT has
observed:
“Before executing a series of transactions for his client, any prudent broker would have gone a bit far to ascertain the goings around ……..
……..The Appellant’s submission that he had taken client registration form, entered into agreement etc .by itself was not sufficient. Exercise of due diligence in ongoing transactions is a continuous process and it is not a one time measure to be adhered to while taking up the first transaction. The appellant’s submission that it was B’s dishonesty that created the problem did not absolve him of his failure to discharge his duties as a prudent broker……..””
In this case, which was standing on the similar footing as that of the
present case, the Hon’ble SAT noted that the nature of the series of
similar transactions and observed that if the Appellant could not see
any design or pattern in the transactions of its clients, the Appellant
certainly to be blamed for being indifferent and unconcerned and
held that the Appellant Broker had failed to exercise its due skill and
diligence. The SAT further observed that :
“it is true that the broker cannot act of his own against the instructions of its client but no one can compel him to be a party to manipulate the market. No doubt the broker is supposed to protect the interest of its client but he is also expected to protect the interest of the securities market in which he operates. It is his duty to ensure not to be a party
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to any market manipulation and that the market in which he operates is run on a healthy and non-manipulative basis.”
vii) From the aforesaid, it is also clear that it is not
necessary to prove that any investor really suffered the loss
because of the misconduct. It will be enough to take
disciplinary action against an entity if the violation is
established. One more recent judgement of SAT is also very
pertinent in this regard. The facts in Appeal No.188/2009-
M/s. Pilot Credit Pvt. Ltd. VS SEBI were almost similar to
that of the present case wherein SAT has agreed with the
finding of AO that broker had manipulated the scrip and
indulged in circular trading.
viii) I further note that none of the brokers have disputed
trades alleged to have been conducted by them. Though only
the trade and order logs having 0 second time difference were
annexed to the SCN, except Adolf Pinto, whose objections I
have refused to take on records at this belated stage and
Mansukh, who has subsequently not pressed these objections,
none of the other noticee has raised any serious doubt on the
correctness of the findings with respect to other alleged trades
having time difference of 1-60 seconds. Therefore, I take that
they have accepted that the trades in question were executed
by them. In view of the above, I find these transactions were
instrumental in creating artificial volume and manipulating the
price.
17. Having recorded the above findings now I shall deal with the
provisions of Section 15HA, 15HB and 15J to examine as to whether
the violation established above fall within the purview of these
sections and if so what penalty, if any, should be imposed on the
noticees for their misconduct.
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18. Section 15 HA and 15HB of the SEBI Act, 1992, read as under:
15HA
“Penalty for fraudulent and unfair trade practices.
If any person indulges in fraudulent and unfair trade practices relating
to securities, he shall be liable to a penalty of twenty-five crore rupees
or three times the amount of profits made out of such practices,
whichever is higher.”
As can be seen from the above, I have held Adolf Pinto to have violated
the provisions of PFUTP Regulations and thus for the reasons
recorded with respect to his role (supra) he is liable for suitable
penalty under Section 15HA.
15HB
“Penalty for contravention where no separate penalty has been
provided”
Whoever fails to comply with any provisions this Act, the rules or the
regulations made or directions issued by the board there under for
which no separate penalty has been provided, shall be liable to a
penalty which may extend to one crore rupees. “
I have found and held all the noticees to have violated the Code of
Conduct as prescribed for the broker and therefore, they are all liable for
appropriate penalty under Section 15HB.
19. As regards quantum of penalty, the factors laid down Under Section
15J of SEBI Act have to be given due regard, which are as under:
(i) the amount of disproportionate gain or unfair advantage, wherever
quantifiable, made as a result of default,
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(ii) the amount of loss caused to an investor or group of investors as a
result of the default and
(iii) the repetitive nature of default.
20. From the nature of the violations proved against the noticee(s) it is
difficult to quantify the exact amount of disproportionate gains or
unfair advantage gained by the noticees and the consequent losses
suffered by the investors. I have noted that the investigation
report/SCN also does not dwell on the extent of specific gains made by
the noticees. I have, however, observed from the SEBI website
(www.sebi.gov.in) that all these noticees have been found to be on the
wrong side of the law quite frequently and various disciplinary actions
have been taken/pending against them. Some of the violations which
have been found against them have been similar to that of the present
case and therefore, it can be held that the default established in the
present order was repetitive in nature and needs to factor in
quantifying the amount of penalty.
21. For deciding the amount of penalty to be imposed, I also look into as to
how seriously SEBI has taken these violations. In this regard, I note
that the proceedings against Pramod Kumar Jain Securities Pvt.
Limited who had 7.13% contribution in the circular trades (for clients),
SEBI has settled the matter in Rs.2.5 lacs under settlement scheme.
Further, the proceedings against Southern Share and Stock Ltd.,
having 13% contribution (for clients) were settled at Rs.5.00 Lacs. As
the factor of stigma/reputational loss must have been taken into
account by SEBI in settling these matters, I am of the view that the
penalty has to be commensurate with the settlement terms accepted by
SEBI, taking into account the stigma being attached with the
imposition of penalty.
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22. Considering the facts and circumstances of the case and the material
available on record, my observations recorded with respect to respective
brokers and the violations established against them (supra), I, in
exercise of the power under Section 15 I of SEBI Act, impose following
Penalties against the noticees as under:-
Sl.No. Name of the Broker Circular Trade-% of total market volume
Trading for Proprietary/Clients
Violation -15HA and/OR 15HB
Penalty (Rs. In lac)
1. Galaxy Broking Ltd. 12.55 Client 15HB 2.00 2. Bharti Thakkar India
Securities Ltd. 12.00 Client 15HB 1.75
3. Pilot Credit Pvt. Ltd. 7.45 Client 15HB 1.50 4. Adolf Pinto Share &
Stock Broker 6.00 Proprietary 15HA &
15HB 4.00
5. Ajmera Associates Pvt. Ltd.
4.00 Clients 15HB 0.75
6. Mansukh Stock Brokers Ltd.
3.00 Proprietary 15HB 1.00
23. The noticee(s) shall pay the said amount of penalty by way of demand draft
in favour of “SEBI - Penalties Remittable to Government of India”, payable
at Mumbai, within 45 days of receipt of this order. The said demand draft
should be forwarded to Ms. Anita Kenkare, General Manager (Investigation
Department), at SEBI’s Head Office at Plot No. C-4A, G-Block, Bandra-
Kurla Complex, Mumbai-400051.
24. In terms of Rule 6 of SEBI (Procedure for Holding Inquiry and Imposing
Penalties by Adjudicating Officer) Rules, 1995 copies of this order are
sent to the noticees and also to the Securities and Exchange Board of
India.
Date: March 31, 2010
Place: New Delhi sd/
PRAVEEN TRIVEDI Adjudicating Officer