Brushman Sebi Order

7/31/2019 Brushman Sebi Order

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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. VSS/AO- 75/2009]

__________________________________________________

UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF

INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR

HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING

OFFICER) RULES, 1995

In respect of

Sunil Giridharilal Raheja

(PAN.AAEPR4712N)

FACTS OF THE CASE IN BRIEF

1. Securities and Exchange Board of India (hereinafter referred to asSEBI) conducted investigation into the trading done by Mr. Sunil

Giridharilal Raheja, Mrs. Simran Raheja and Mr. Swaminathan

Subramani (hereinafter collectively referred to as Group) from

January 1, 2008 to May 5, 2008 (hereinafter referred to as

Investigation Period) in the following scrips:

a) Visesh Infotecnics Ltd.

b) Sanra Software Ltd.

c) Jumbo Bag Ltd.

d) Cerebra Integrated Technologies Ltd.

e) Brushman India Ltd.

f) Tricom India Ltd.

g) Glory poly Films Ltd.


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h) Rainbow Foundations Ltd.

i) GV Films Ltd.

j) Yogi Sung-Won India Ltd.

k) Kaashyap Radiant Systems Ltd.

l) International Hometex Ltd.

2. It was alleged that Mr. Sunil Giridharilal Raheja (hereinafter referred

to as Noticee) along with Mrs. Simran Raheja and Mr.

Swaminathan Subramani had indulged in self/synchronized trading

which led to creation of artificial volumes in the aforesaid scrips and

was designed to create a false market leading to significant price

movement in the aforesaid scrips and, hence, violated the provisions

of regulations 4 (2) (a), (b) and (g) of SEBI (Prohibition of Fraudulent

and Unfair Trade Practices Relating to Securities Markets)

Regulations, 2003 (hereinafter referred to as PFUTP).

3. The aforesaid alleged violations, if established, make the Noticee

liable for monetary penalty under section 15HA of Securities and

Exchange Board of India Act, 1992 (hereinafter referred to as SEBI

Act).

APPOINTMENT OF ADJUDICATING OFFICER

4. The undersigned was appointed as Adjudicating Officer vide order

dated November 24, 2008 under section 15 I of SEBI Act read with

rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties

by Adjudicating Officer) Rules, 1995 (hereinafter referred to as

Rules) to inquire into and adjudge the alleged violations of

provisions of PFUTP.


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SHOW CAUSE NOTICE, HEARING AND REPLY

5. Show Cause Notice No. EAD-5/VSS/RS/152410/2009 dated January

30, 2009 (hereinafter referred to as SCN) was issued to the

Noticee under rule 4(1) of the Rules to show cause as to why an

inquiry should not be held against the Noticee and penalty be not

imposed on the Noticee under section 15HA of SEBI Act for the

alleged violation specified in the said SCN.

6. The Noticee vide letter dated February 09, 2009 replied to the SCN

stating, inter alia, the following :

I am having Trading accounts with the brokers as mentioned in your aboveletter.

With regard to the Trading System I was doing such type of Transactions withthe only SOLE purpose of maintaining the Credit/Debit balances with the

respective Brokers with whom I am having accounts. To ensure that I receive

the shares at the same rates I used to put the sale and buy orders

simultaneously at the same rate and same time to the respective brokers with

whom I had to maintain the Credit balance. Sir, I declare your good selves there is not intention to manipulate the price by

creating an artificial market. Even though Mrs. Simran is wife of myselves she has got her own individuality

and own decisions,participates in Stock Market on her own and we both not to

be considered as group at all. Also wife using her husband's phone iscommon.

This had happened only due to Ignorance and not knowing the facts that yourgood self will object the same. I sincerely apologize the same and humbly

plead your good selves to excuse and bear with me for the same.

7. In the interest of natural justice and in order to conduct an inquiry as

per rule 4 (3) of the Rules, the Noticee was granted an opportunity of

personal hearing on April 13, 2009 at SEBI, Southern Regional

Office, Chennai vide notice dated March 2, 2009.Mr. N. Rajkumar,Authorized Representative, appeared on behalf of the Noticee

(hereinafter referred to as AR). During the hearing, the AR

reiterated the submissions made vide letter dated February 09, 2009.

The Noticee vide letter dated April 13, 2009 made further

submissions stating, inter-alia, the following:


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A synchronized trade is a transaction wherein the buy and sell orderquantities are identical, and are put through at exactly the same time on

the trading platform. One of the guiding principles in proving

synchronized trading, as per the SEBI Regulations, is the exactness of

the price and quantity of the 'buy' and 'sell' orders and the closeness in

time at which they are placed.

The Securities Appellate Tribunal had clarified that synchronizedtrading is per se not illegal unless the intent to manipulate the price by

creating an artificial market is proven.

For the market manipulation stated in Regulation 4 (of FUTPRegulations) if one is to be charged it is absolutely necessary to prove

that the person had acted intentionally," SAT had said in the Nirmal

Bang case.

In the Videocon case, the Tribunal examined the extent of evidencerequired to establish the charge of market manipulation and observed:

"... in the absence of reasonably good evidence to support, charge of

market manipulation, which is a very serious one, cannot stick on the

Appellant company, merely on surmises and conjectures."

I wish to state that none of the transactions done by me falls neither inSynchronized trading nor Circular trading, as it has failed to fulfil the

entire criteria as defined by the applicable Acts in force from time to

time.

Trading Mantra: High Volume Low Margin is the concept of mytrading. I do trade regularly for my living. Whatever trade done, I hadno intention of misleading the market and I have a Depository

Partcipant Account for receiving delivery in demat form from my

broker thereby establishing that I have no intention of denying the

transfer of beneficial ownership. There is no rule which states that the

market price of a share should be so many times of its earnings. The

prices are subject to market demand and supply. Trading a mere 10%

of the shares does not mean that I have the intention to operate only as

a device to inflate, depress or cause fluctuations in the price of such

security for wrongful gain or avoidance of loss.

The trading system is as such that the trades will result in delivery inT+2 days for delivery based and netting basis for intra day trading. As

a trader when the share price comes down when I purchased at a high

price, any trader/investor for that matter will try to average it or exit

from that particular share. Mere "netting" does not result in violation 4

(2)@)(g) of PFUTP Regulations.


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However, I agree that the transactions have been done only due to thefact that that I was not in a position to honour my payments in time and

availed the extra time limit granted by the broker, as I was facing

severe financial crunch.

For all companies which appear in your letter, the said shares tradedby me does not exceed even half a percent of its paid up capital or

outstanding capital of the company.

The price of the said shares have not been substantially increased ordecreased.

CONSIDERATION OF ISSUES AND FINDINGS

8. The issues that arise for consideration in the present case are :

a) Whether the Noticee had violated regulations 4 (2) (a), (b)

and (g) of PFUTP?

b) Does the violation, if any, on the part of the Noticee attract

monetary penalty under section 15 HA of SEBI Act?

c) If so, what would be the monetary penalty that can be

imposed taking into consideration the factors mentioned in

section 15J of SEBI Act?

9. Before moving forward, it will be appropriate to refer to the relevant

provisions of PFUTP, which reads as under:

4. Prohibition of manipulative, fraudulent and unfair trade practices

(2) Dealing in securities shall be deemed to be a fraudulent or an unfair

trade practice if it involves fraud and may include all or any of the

following, namely: -

(a) indulging in an act which creates false or misleading

appearance of trading in the securities market;

(b)dealing in a security not intended to effect transfer of

beneficial ownership but intended to operate only as a device

to inflate, depress or cause fluctuations in the price of such

security for wrongful gain or avoidance of loss;

(c) .


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(d).

(e) .

(f) .

(g)entering into a transaction in securities without intention of

performing it or without intention of change of ownership of

such security.

10. Upon careful perusal of the documents available on record including

the basis of allegations made, submissions of the Noticee, etc., I find

the following:

a) Mrs. Simran Raheja is the wife of the Noticee, which has been

admitted by the Noticee. Mr. Swaminathan Subramani shared

a common contact mobile number, viz. 9884482935 with the

Noticee. The Noticee, during the hearing, submitted that he

does not know Mr. Swaminathan Subramani. He also

submitted that he, his wife and Mr. Subramani were

introduced by one Mr. Amit who, by mistake, had written the

same contact number for all of them in the KYC forms and

hence, they should not be considered as a group. However,

the material available on record reveals that Mr. Swaminathan

Subramani and the Noticee were introduced by the same

person, both of them dealt in the same scrips with the same

set of brokers during the same period and, above all, in the

same pattern. All these cannot be said to be mere

coincidence. The claim of the Noticee that he does not know

Mr. Swaminathan Subramani does not appear to be true.

Hence, the contention of the Noticee in this regard is devoid of

merit.

b) The examination of the trade-order log, details of which were

provided to the Noticee as Annexure to the SCN, reveals that

the Group had indulged in self trades in all 12 scrips through


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different/same brokers creating artificial volumes to the extent

of 43,57,157 shares. The summary of the trades executed by

the Group is given below:

ScripName

Self Trade(Volume)

VolumeTraded bythe Group

TotalVolume inthe Scrip

Self Tradeas a % oftotalvolume

Self Tradeas a % ofTradingdone by theGroup

ViseshInfotecnicsLtd

1,285,919 4,465,928 14,820,246 8.68% 28.79%

SanraSoftwareLtd

189,032 793,366 1,748,837 10.81% 23.83%

Jumbo Bag

Ltd

33676 152822 9,385,783 0.36% 22.04%

CerebraIntegratedTechnologies Ltd

328,122 2,097,574 3,043,853 10.78% 15.64%

BrushmanIndia Ltd.

4000 30792 3,885,780 0.10% 12.99%

TricomIndia Ltd

314,654 3,405,987 7,047,927 4.46% 9.24%

Glory polyFilms Ltd.

214,580 2,503,938 8,846,033 2.43% 8.57%

RainbowFoundations Ltd

25,026 365,913 797,612 3.14% 6.84%

GV FilmsLtd

1,887,620 33,991,639 306,776,071 0.62% 5.55%

Yogi Sung-Won IndiaLtd

4500 234573 919,272 0.49% 1.92%

KaashyapRadiantSystemsLtd

69822 26668441 333,350,848 0.02% 0.26%

International HometexLtd

206 603628 4,510,517 0.00% 0.03%

Total 4,357,157 75,314,601 695,132,779 0.63% 5.79%

c) The Group had created substantial artificial volumes in these

scrips by indulging into self trades/synchronized trades.


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d) For instance, in 5 scrips, viz. Visesh Infotecnics Ltd., Sanra

Software Ltd., Jumbo Bag Ltd., Cerebra Integrated Technologies

Ltd. And Brushman India Ltd., the percentage of self trades was

more than 10% of the volume traded by the group as seen from

the aforesaid table. Similarly, in respect of 4 scrips, viz., Tricom

India Ltd., Glory Poly Films Ltd., Rainbow Foundations Ltd. and

GV Films Ltd., the percentage of self trades was between 5 and

10%. In respect of 1 scrip, viz., Yogi Sunwon India Ltd., the

percentage was more than 1% and in respect of 2 scrips, viz.,

Kaashyap Radiant Systems Ltd. and International Hometex Ltd.

the percentage was less than 1.

e) The Noticee had traded in all the 12 scrips during the

investigation period.

f) In several instances, the Noticee himself was the buyer as well as

the seller in all the 12 scrips. In other words, the Noticee was

present on both the legs of the transactions. This pattern of

trading is known as self trading.

g) The Noticee had indulged in such self trades through 12 brokers

and created an aggregate volume of 42,16,542 shares in all the

12 scrips. The details of the self trades done by the Noticee are

given below:

Scrip Name Wash

Volume

Volume

traded byEntiy in the

Scrip

Total

Volume inthe Scrip

% of

WashTrades to

Total

Volume

in the

Scrip

% of

WashTrades to

Volume

traded by

the Entity

in the

Scrip

Visesh

Infotecnics Ltd

1,246,788 3,404,145 14,820,246 8.41 36.63


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Sanra Software

Ltd

148,294 556,423 1,748,837 8.48 26.65

Jumbo Bag Ltd 33,676 152,822 9,385,783 0.36 22.04

Cerebra

Integrated

Technologies

Ltd

319,072 1,521,704 3,043,853 10.48 20.97

Brushman India

Ltd.

4,000 30,792 3,885,780 0.1 12.99

Tricom India Ltd 298,839 2,610,779 7,047,927 4.24 11.45

Glory poly Films

Ltd.

186,299 1,836,855 8,846,033 2.11 10.14

Rainbow

Foundations Ltd

24,026 272,707 797,612 3.01 8.81

GV Films Ltd 1,881,020 25,793,931 306,776,071 0.61 7.29

Yogi Sung-Won

India Ltd

4,500 234,573 919,272 0.49 1.92

Kaashyap

Radiant Systems

Ltd

69,822 26,668,441 333,350,848 0.02 0.26

International

Hometex Ltd

206 603,628 4,510,517 0.01 0.03

Total 4,216,602 63,686,800 695,132,779 0.61 6.62

h) The trading pattern of the Noticee in the scrip of M/s Visesh

Infotecnics Ltd. reveals that he had indulged in 31 self trades

which were executed through one broker, viz. Dawnay Day AVSecurities P. Ltd. The Noticee used the same client code for

both the legs of, i.e. buy and sell, transaction. By this, he created

a volume of 9,78,842 shares (6.6% of the market volume). The

details of the same are given below:

Trade Date Buy ClientCode

Sell ClientCode

Trade Rate Trade Qty

18-Jan-08 SR021 SR021 33.45 2393621-Jan-08 SR021 SR021 30.80 36653

1-Feb-08 SR021 SR021 22.05 230613

5-Feb-08 SR021 SR021 24.25 325

7-Feb-08 SR021 SR021 24.56 5224

8-Feb-08 SR021 SR021 22.96 6447

11-Feb-08 SR021 SR021 23.01 7095

18-Feb-08 SR021 SR021 23.81 21263


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19-Feb-08 SR021 SR021 23.91 21666

20-Feb-08 SR021 SR021 23.41 16353

21-Feb-08 SR021 SR021 23.71 18675

22-Feb-08 SR021 SR021 23.70 19450

3-Mar-08 SR021 SR021 24.90 23979

4-Mar-08 SR021 SR021 23.95 13318

5-Mar-08 SR021 SR021 22.29 4719

11-Mar-08 SR021 SR021 21.50 49200

19-Mar-08 SR021 SR021 19.90 48136

24-Mar-08 SR021 SR021 17.91 32630

26-Mar-08 SR021 SR021 18.39 4199

27-Mar-08 SR021 SR021 19.24 27290

3-Apr-08 SR021 SR021 17.25 59760

4-Apr-08 SR021 SR021 16.74 57992

8-Apr-08 SR021 SR021 16.90 16201

9-Apr-08 SR021 SR021 17.07 29400

10-Apr-08 SR021 SR021 18.02 42910

15-Apr-08 SR021 SR021 17.60 3920016-Apr-08 SR021 SR021 18.00 9517

17-Apr-08 SR021 SR021 19.32 83464

21-Apr-08 SR021 SR021 21.52 14174

23-Apr-08 SR021 SR021 19.90 9053

25-Apr-08 SR021 SR021 19.95 6000

Total 978842

i) The Noticee had carried out self trades at prices varying

considerably from the previous trades and thereby established

new price in the scrip. The LTP variation of trades by the Noticee

in 5 scrips, viz. Cerebra Integrated Technologies Ltd., Glory poly

Films Ltd., Jumbo Bag Ltd., Sanra Software Ltd. and Tricom

India Ltd., is shown in the table given below:

S. No. Scrip LTP Variation

1. Cerebra Integrated Technologies Ltd. -8.08% to 9.60%

2. Glory poly Films Ltd. -4.99% to 10.78%

3. Sanra Software Ltd. -5.49% to 10.03%

4. Tricom India Ltd. -5.16% to 9.72%

5. Jumbo Bag Ltd. -2.76% to 1.67%


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j) Since the Noticee executed these self trades in such a manner

where the quantity, price and the time of execution are almost

same, they can also be classified as synchronized trading.

k) The Noticee has indulged in synchronized trading in 26

transactions with Mrs. Simran Raheja, his wife, in the various

scrips creating an artificial volume of 94,118 shares. The details

of timing, volume and price are given below:

Date Security Buy ID BOEntryTime

BOVolume

BOPrice

Sell ID SOEntrytime

SOVolume

SOPrice

1/4/2008 531675 B_692_S1IK002 10:08:09 5000 151.50 B_3085_S756 10:08:01 5000 151.50

1/4/2008 531675 B_692_S1IK002 12:16:13 5000 147.50 B_673_QMXH1 12:16:10 5000 147.50

3/3/2008 532857 B_291_56KS23 15:24:09 717 105.50 B_692_S1IK002 15:24:34 717 105.50

3/4/2008 531312 B_3085_S756 15:18:37 5000 48.40 B_692_S1IK002 15:18:21 5000 48.40

4/4/2008 532857 B_692_S1IK002 13:20:23 1000 67.00 B_3085_S756 13:20:01 1000 67.00

4/4/2008 532857 B_692_S1IK002 15:22:32 4500 67.00 B_3085_S756 15:22:22 4500 67.00

5/2/2008 532411 B_3085_S756 11:27:32 5000 24.35 B_3063_U17410 11:27:26 5000 24.35

7/3/2008 532857 B_692_S1IK002 13:50:02 2000 102.40 B_3055_401S095 13:49:58 2000 102.40

7/4/2008 531675 B_3118_33000042 10:33:00 1000 143.80 B_3085_S756 10:32:52 1000 143.80

7/4/2008 532857 B_3118_33000042 10:46:02 2500 64.50 B_673_QMXH1 10:45:55 2500 64.50

8/4/2008 531675 B_3118_33000042 10:37:54 100 140.90 B_3085_S756 10:37:48 100 140.90

8/4/2008 531675 B_673_QMXH1 14:12:00 10000 141.00 B_3085_S757 14:11:31 10000 141.00

9/4/2008 523277 B_3085_S756 12:49:23 3000 5.47 B_3118_33000042 12:49:10 3000 5.47

9/4/2008 523277 B_3085_S756 13:05:07 2500 5.47 B_3118_33000042 13:04:35 2500 5.47

12/3/2008 532413 B_692_S1IK002 11:36:10 1000 35.00 B_3085_S756 11:36:03 1000 35.00

14/02/2008 532413 B_3118_33000042 15:09:22 2000 29.40 B_673_QMXH1 15:09:13 2000 29.40

16/04/2008 532413 B_3085_S756 11:24:47 1000 33.35 B_3118_33000042 11:24:42 1000 33.35

17/01/2008 532411 B_3055_401S095 15:00:09 20000 34.00 B_692_S1IK002 14:59:51 20000 34.00

17/04/2008 531675 B_692_S1IK002 10:10:15 1 142.45 B_3055_401S095 10:09:49 1 142.45

17/04/2008 531675 B_3085_S756 12:15:55 5000 138.50 B_3118_33000042 12:15:54 5000 138.50

23/04/2008 531675 B_673_QMXH1 11:26:41 3500 148.00 B_692_S1IK002 11:26:52 3500 148.00

23/04/2008 532413 B_3085_S756 15:06:46 8000 36.85 B_3118_33000042 15:05:53 8000 36.85


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27/03/2008 531312 B_3085_S756 10:37:27 500 38.00 B_692_S1IK002 10:37:49 500 38.00

28/01/2008 532413 B_692_S1IK002 15:06:13 100 29.75 B_3085_S756 15:05:46 100 29.75

28/03/2008 531675 B_692_S1IK002 10:34:45 4000 148.90 B_3085_S756 10:34:16 4000 148.90

29/04/2008 532857 B_692_S1IK002 15:12:14 1700 65.00 B_3085_S756 15:12:07 1700 65.00

11. In this regard, it would be pertinent to refer to the observations and

decisions of the Honble SAT in the following matters where the

entities were involved in self trades and synchronized trades.

(a) In the matter of Ask Holdings Pvt. Ltd. vs. SEBI, Honble SAT has

held ..The buyer and the seller were the appellants themselves and

these trades were executed primarily with a view to artificially increasethe trading volumes in the scrip of the Company. Artificial increase in

the volumes of scrip has the adverse effect on the innocent investors of

the market who get induced to buy the shares because they seldom have

knowledge about the scrip and follow the herd mentality while trading.

The adjudicating officer was, therefore, right in holding that the

appellants had violated the provisions of Regulation 4 of the Securities

& Exchange Board of India (Prohibition of Fraudulent & Unfair Trade

Practices relating to Securities Market) Regulations, 1995. The

allegations are rather serious and the appellants by indulging in

artificial trades had polluted the stock market. The penalty of Rs. 10

lakh imposed appears to be reasonable in the circumstances of the

present case and it does not call for any interference in appeal.

(b) The Honble SAT, in Ketan Parekh Vs. Securities & Exchange Board

of India (Appeal No. 2 of 2004), observed that, A synchronized

transaction even on the trading screen between genuine parties who

intend to transfer beneficial interest in the trading stock and who

undertake the transaction only for that purpose and not for rigging the

market is not illegal and cannot violate the regulations. As already


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observed synchronisation or a negotiated deal ipso facto is not illegal.

A synchronised transaction will, however, be illegal or violative of the

Regulations if it is executed with a view to manipulate the market or if it

results in circular trading or is dubious in nature and is executed with a

view to avoid regulatory detection or does not involve change of

beneficial ownership or is executed to create false volumes resulting in

upsetting the market equilibrium. Any transaction executed with the

intention to defeat the market mechanism whether negotiated or not

would be illegal. Whether a transaction has been executed with the

intention to manipulate the market or defeat its mechanism will depend

upon the intention of the parties which could be inferred from the

attending circumstances because direct evidence in such cases may not

be available. The nature of the transaction executed, the frequency with

which such transactions are undertaken, the value of the transactions,

whether they involve circular trading and whether there is real change

of beneficial ownership, the conditions then prevailing in the market are

some of the factors which go to show the intention of the parties. This

list of factors, in the very nature of things, cannot be exhaustive. Any

one factor may or may not be decisive and it is from the cumulative

effect of these that an inference will have to be drawn.

(c) In the case of Ashok K Chaudhary v SEBI, Appeal No 69 of 2008,

dated November 5, 2008, the Honble SAT observed that such

large number of reverse trades cannot take place through the

mechanism of the system. These have obviously been manipulated.

Moreover, reverse trades are fictitious trades meant to increase

volumes on the screen of the trading system as there is no change of

beneficial ownership in the traded shares.

(d) The Honble SAT, in Nirmal Bang Securities Pvt. Ltd Vs Chairman,

SEBI, Appeal no. 54-57/2002, dated October 31, 2003 observed


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as follows: - BEB has been charged for synchronized deals with First

Global. I have examined the data provided by the parties on this issue. I

find many transactions between BEB and FGSB. There are many

instances of such transactions. I find the scrip; quantity and price for

these orders had been synchronized by the counter party brokers. Such

transactions undoubtedly create an artificial market to mislead the

genuine investors. Synchronized trading is violative of all prudential

and transparent norms of trading in securities. Synchronized trading on

a large scale can create false volumes. The argument that the parties

had no means of knowing whether any entity controlled by the client is

simultaneously entering any contra order elsewhere for the reason that

in the online trading system, confidentiality of counter parties is

ensured, is untenable. It was submitted by the Appellants that it was not

possible for the broker to know who the counter party broker is and that

trades were not synchronized but it was only a coincidence in some

cases. Theoretically this is OK. But when parties decide to synchronize

the transaction the story is different. There are many transactions

giving an impression that these were all synchronized, otherwise there

was no possibility of such perfect matching of quantity price etc. As theRespondent rightly stated it is too much of a coincidence over too long

a period in too many transactions when both parties to the transaction

had entered buy and sell orders for the same quantity of shares almost

simultaneously.

12. The method and the manner in which the trades were executed are

the most important factors to be considered in these circumstances.

The motive, thereafter, automatically falls in line. Trades like cross

deals and synchronized trades are executed on the trading screen of

a stock exchange and with proper delivery versus payment system.

Clearly in almost all the deals, the orders are placed so as to ensure

a matching of the buy and the sell quantity and the buy and the sell


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price with the counter party. The buy and the sell orders are placed at

almost the same time between the counter brokers, with a difference

of a few seconds to few minutes. This proximity in the inputting of

orders at the same price and for the same quantity, results in getting

them matched, such that there is almost perfect matching in all the

trades, with all the three parameters, viz., quantity, price and most

importantly, the time required to conclude the trades, which to a large

extent indicates synchronization in the logging in of the orders, albeit

executed on the screen of the stock exchange.

13. This is what has transpired in the present case. The only difference is

that in most of the instances the Noticee himself was the buyer and

seller. A large number of self trades got matched regularly. The

phenomenal regularity with which the Noticee had indulged in such

self trades, leads one to conclude, that these transactions were

effectively meant to manipulate the market. It is my considered belief

that frequency of such trades ensured consistent matching of the

orders purely for the purpose of projection of the volumes of the

scrips in a way that was not the market determined volumes but with

a sinister motive to induce other persons to invest in the said scrips

which lacked basic fundamentals.

14. In case an entity is alleged to have manipulated the market or

distorted the market equilibrium in terms of the PFUTP and their acts

are corroborated up to a certain extent by the investigation findings,

then the underlying intention of the said entity is brought out.

Furthermore, price manipulation does not only involve the

manipulation in the prices of the scrip but also includes building up of

volumes. This is evident from the finding that the Noticee had

indulged in self trades and created an artificial volume of 42,16,542

shares in the said scrips.


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15. The Noticee had also indulged in synchronized trading with his wife

creating an artificial volume of 94,118 shares. The price and volume

of all the transactions were exactly same. Moreover, the time

difference between the placement of orders was few seconds.

16. The fact is that had the aforesaid discussed trades been executed in

the normal course of business, the possibility of such perfect

matching would not have been possible. The buy and sell prices of

one entity were close to the buy/sell rates of the other entity in all the

settlements, such that the trades of these entities were always

matched. The transactions as pointed out in the table/s earlier and

spread over a period of time are definitely done with some inbuilt

component of intent involved. Greater the number of such

self/synchronized trades, the larger is the chances of trades not

being genuine in nature, which is bound to affect the market

equilibrium. A trade can be executed on the screen and still be

manipulative in nature. Considering the number of such trades, it is

clear that there has been a gross mis-use of the screen based

trading system. It is also to be stated that intention is inherent in all

cases of synchronized trading involving large scale price

manipulation and the same was also brought out in the earlier cited

case of Nirmal Bang Securities (P) Ltd. vs SEBI by the Honble SAT

whereby it was observed that Intention is reflected from the action of

the Appellant. Choosing selective time slots does not appear to be an

involuntary action. Hence, the contention of the Noticee, whereby the

Noticee had referred to the order in respect of Nirmal Bang Securities

(P) Ltd. is devoid of merit.

17. I have considered the submissions of the Noticee countering the

allegations leveled against him. One of the main submissions of the

Noticee was that he indulged in the transactions merely for


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maintaining margins with his respective brokers. In my view, the

Noticee through the said artificial trades interfered with the market

equilibrium and thereby affected the manipulation of price and

volume of the said scrips. Even assuming, without agreeing to the

claim of the Noticee, that these trades were executed for margin

purposes, in my view, nobody can be allowed to create artificial

volume and thereby manipulate the prices in the securities market

which have potential to induce the innocent investor in buying and

selling particular scrip. The trades executed herein by the Noticee

were admittedly not the real trades as there was no intention to

change the beneficial ownership. When the trades were inherently

non genuine, I do not feel that it is necessary to prove that investors

had, in fact got induced and bought and/ or sold on the basis of these

trades. Similar views were expressed by the Honble SAT in its order

dated 14.7.2006 in Ketan Parekh Vs. SEBI wherein it had observed

that When a person takes part in or enters into transactions in securities

with the intention to artificially raise or depress the price he thereby

automatically induces the innocent investors in the market to buy /sell their

stocks. The buyer or the seller is invariably influenced by the price of the

stocks and if that is being manipulated the person doing so is necessarily

influencing the decision of the buyer / seller thereby inducing him to buy or

sell depending upon how the market has been manipulated. We are

therefore of the view that inducement to any person to buy or sell securities

is the necessary consequence of manipulation and flows therefrom. In other

words, if the factum of manipulation is established it will necessarily follow

that the investors in the market had been induced to buy or sell and that no

further proof in this regard is required. The market, as already observed, is

so wide spread that it may not be humanly possible for the Board to track

the persons who were actually induced to buy or sell securities as a result of

manipulation and law can never impose on the Board a burden which is


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impossible to be discharged. This, in our view, clearly flows from the plain

language of Regulation 4(a) of the Regulations.

18. I have also considered the submission of the Noticee with regard to

his trading volume vis-a-vis paid up capital of the respective

companies. Though the trading volume of the Noticee as compared

to the paid up capital of the respective companies may be low, the

trading volume as compared to the market volume is substantially

high. The trading pattern also indicates the manipulative intent of the

Noticee. Therefore, his submission in this regard is not acceptable.

19. I have also noted the submission of the Noticee made vide letter

dated April 13, 2009 that the allegations were made on the basis of

mere surmises and conjectures and perused the case law of

videocon relied upon by him in this regard. I am of the view that the

material available on record and my findings stated in the above

paragraphs clearly show the inbuilt intension of the Noticee to

manipulate the trading in the said scrips by creating artificial volumes

attracting innocent investors to invest in those scrips. The trading

pattern, details of transactions, etc., detailed above also make it clear

that sufficient evidence is available to establish the allegation against

the Noticee. Hence, I do not find any merit in the submission of the

Noticee in this regard.

20. Regulation 4(2)(a) of PFUTP, inter alia, prohibits a person from

indulging in an act which creates false or misleading appearance of

trading in the securities market. Regulation 4(2)(b) of PFUTP, inter

alia, prohibits dealings in a security intended to operate as a device

to inflate, depress or cause fluctuations in the price of such security

for wrongful gains. Regulation 4(2)(g) of PFUTP prohibits a person

from entering into a transaction in securities without intention of


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performing it or without intention of change of ownership of such

security. As detailed above, the acts of the Noticee clearly created

false and misleading appearance in all the 12 scrips and also that he

did not act in a bonafide manner. The facts of the case highlight the

Noticees involvement, by executing continuous self trades in a

substantial manner, in the manipulation of price/volume of all the

scrips which led to creation of artificial volumes and misleading

appearance of trading in the said shares. As the Noticee acted as

both the buyer and the seller, there does not appear to be any

genuine trading interest in the scrips.

21. In order to establish the fraudulent nature of trades indulged in by the

Noticee, reference may also be made to the definition of fraud laid

down in regulation 2 (1) (c) of the PFUTP, which reads as follows:

"2 (1)(c) "fraud" includes any act, expression, omission or

concealment committed whether in a deceitful manner or not by a

person or by any other person with his connivance or by his agent

to deal in securities,whether or not there is any wrongful gain or

avoidance of any loss,

22. Generally, self trades/ synchronized trades are the instruments/tools

employed by some unscrupulous elements in the securities market to

manipulate the market and deceive the general/genuine investors in

the market place. The pattern of trading, behaviour of the entities,

apparent irregularities and the available trading data, etc., prove

manipulation which always depends on inferences drawn on a mass

of factual detail. When all of these are considered together, they can

emerge as ingredients to prove the manipulative scheme designed

and executed by such manipulators with intent to tamper with free

market forces.


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23. In view of foregoing, I find that the submissions of the Noticee are not

tenable and consequently, hold that the charges leveled against the

Noticee are proved and that the allegation of violation of provisions of

regulations 4 (2) (a), (b) and (g) of PFUTP by the Noticee stands

established.

24. The Honble Supreme Court of India in the matter of SEBI Vs. Shri

Ram Mutual Fund[2006] 68 SCL 216(SC) held that In our considered

opinion, penalty is attracted as soon as the contravention of the statutory

obligation as contemplated by the Act and the Regulations is established

and hence the intention of the parties committing such violation becomes

wholly irrelevant.

25. Thus, the aforesaid violation by the Noticee make him liable for

penalty under Section 15HA of SEBI Act, 1992 which read as follows:

Penalty for fraudulent and unfair trade practices15HA. 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.

26. While determining the quantum of penalty under section 15HA, it is

important to consider the factors stipulated in section 15J of SEBI

Act, which reads as under:-

15JFactors to be taken into account by the adjudicating officerWhile adjudging quantum of penalty under section 15-I, the

adjudicating officer shall have due regard to the following factors,

namely:-

(a) the amount of disproportionate gain or unfair advantage,

wherever quantifiable, made as a result of the default;

(b) the amount of loss caused to an investor or group of

investors as a result of the default;

(c) the repetitive nature of the default.


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27. It is difficult, in cases of such nature, to quantify exactly the

disproportionate gains or unfair advantage enjoyed by an entity and

the consequent losses suffered by the investors. I have noted that

the investigation report also does not dwell on the extent of specific

gains made by the Noticee. Suffice to state that keeping in mind the

practices indulged in by the Noticee, gains per se were made by the

Noticee in that he traded in various scrips in a manner meant to

create artificial volumes and liquidity which is an important criterion,

apart from price, capable of misleading the investors while making an

investment decision. In fact, liquidity/volumes in particular scrip raise

the issue of demand in the securities market. The greater the

liquidity, the higher is the investors attraction towards investing in

that scrip. Hence, anyone could have been carried away by the

unusual fluctuations in the volumes and been induced into investing

in the said scrip. Besides, this kind of activity seriously affects the

normal price discovery mechanism of the securities market. People

who indulge in manipulative, fraudulent and deceptive transactions,

or abet the carrying out of such transactions which are fraudulent and

deceptive, should be suitably penalized for the said acts of omissions

and commissions. Considering the continuous effort of the Noticee in

this aspect where the self trades/synchronized trades were carried

out over a period of time and that too in as many as 12 scrips, it can

safely be surmised that the nature of default was also repetitive.

ORDER

28. After taking into consideration all the facts and circumstances of the

case, I impose a penalty of Rs.8,00,000/- (Rupees Eight Lakh only)

under section 15HA of SEBI Act on the Noticee which will be

commensurate with the violation/s committed by him.


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29. The Noticee 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 Mr.S. Ramann, Officer on

Special Duty, Integrated Surveillance Department, Securities and

Exchange Board of India, SEBI Bhavan, Plot No.C4-A, G Block,

Bandra Kurla Complex, Bandra (East), Mumbai400 051.

30. In terms of rule 6 of the Rules, copies of this order are sent to the

Noticee and also to the Securities and Exchange Board of India.

Date: May 11, 2009 V.S.SUNDARESANPlace: Mumbai ADJUDICATING OFFICER

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