before the adjudicating officer4/20/2010 page 1 of 39 before the adjudicating officer securities and...

Adjudication Order in respect of ANS Pvt Ltd in the matter of investigation pertaining to scrip of Gujarat Hotels and others.

4/20/2010 of 39

BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. NB/AO - 23 /2010]

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

M/s ANS Private Limited

(Formerly Ajay Natwarlal Securities Private Limited)

PAN – AACCA4841J

In the matter of Gujarat Hotels Limited, Jindal Hotels Limited, Scooters India Limited,

Relaxo Footwears Limited, Tulsyan NEC Limited, Archies Limited, Karur K.C.P.

Packaging Limited, Vadilal Industries Limited, Jagatjit Industries Limited, Ahlcon

Parenterals Limited, Linc Pens & Plastics Limited, Machino Plastics Limited, JJ

Exporters Limited, Hindustan Tin Works Limited, Vamshi Rubber Limited, Hind

Industries Ltd and Artson Engg. Limited

FACTS OF THE CASE IN BRIEF

1. The Securities and Exchange Board of India (hereinafter referred to as “SEBI”) conducted

an investigation into the trading in the scrips of Gujarat Hotels Ltd, Jindal Hotels Ltd,

Scooters India Ltd, Relaxo Footwears Ltd, Tulsyan NEC Ltd, Archies Ltd, Karur K.C.P

Packaging Ltd, Vadilal Industries Ltd, Jagatjit Industries Ltd, Ahlcon Parenterals Ltd, Linc

Pens & Plastics Ltd, Machino Plastics Ltd, JJ Exporters Ltd, Hindustan Tin Works Ltd,

Vamshi Rubber Ltd, Hind Industries Ltd and Artson Engg. Ltd (hereinafter referred to as

“identified scrips”) during the period June 2007 to September 2007 (hereinafter referred

to as “period under reference” or “investigation period”). These scrips for

investigations were selected based on the alerts generated by Integrated Market


4/20/2010 of 39

Surveillance System of SEBI for unusual sharp uptrend in volume and price of the identified

scrips in a short time ranging from 1 to 30 days during June 2007 to September 2007.

2. Trade logs and order logs of the identified scrips were analyzed for the period under

reference and an attempt for price manipulation along with synchronized deals and trade

reversals was observed amongst some of the members/clients during the investigation

period. The Investigation Report (hereinafter referred to as „IR‟) observed that a group of

clients and a few stock brokers traded significantly in the scrip during the investigation

period. M/s ANS Private Limited (Formerly Ajay Natwarlal Securities Private Limited)

(hereinafter referred to as “the Noticee”) forms part of a group that seem to have

synchronized their orders for creating alleged false volumes and while offloading ensured

that their sell orders are not matched with the buy order of entities connected with them

during the period under reference. The IR alleged that during the said period, the Noticee

as a part of interconnected group placed large orders, only a very small part of which were

actually executed, leading to creation of false market.

3. It was alleged that the Noticee had entered into synchronized trades and trade reversals

and had thereby indulged in the price manipulation and creation of false market in the

identified scrips by way of order book manipulation and thus violated the provisions of

regulations 3 (b), (c), (d), 4 (1), 4 (2) (a), (b), (e), (g), (n) and (p) of SEBI (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003

(hereinafter referred to as “PFUTP Regulations”) and regulation 7 of the SEBI (Stock

Brokers & Sub-brokers) Regulations, 1992 (hereinafter referred to as “Brokers

Regulations”) and clauses A (1), (3) & (4) and B (2) of the Code of Conduct for Stock

Brokers specified under Schedule II of Brokers Regulations, read with corresponding

provisions of SEBI (Intermediaries) Regulations, 2008 (hereinafter referred to as “Code of

Conduct”) and therefore was liable for monetary penalty under Section 15HA and 15HB of

Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “SEBI Act”).

APPOINTMENT OF ADJUDICATING OFFICER


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4. I was appointed as the Adjudicating Officer vide order dated February 20, 2009 under

Section 15 I of the SEBI Act, read with Rule 3 of Securities and Exchange Board of India

(Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995

(hereinafter referred to as “Adjudication Rules”) to inquire into and adjudge under

Section 15HA and 15HB of the SEBI Act, the violations of regulations 3 (b), (c), (d), 4 (1), 4

(2) (a), (b), (e), (g), (n) and (p) of PFUTP Regulations and regulation 7 of the Brokers

Regulations and clauses A (1), (3) & (4) and B (2) of the Code of Conduct, alleged to have

been committed by the Noticee.

SHOW CAUSE NOTICE, HEARING & REPLY

5. A Show Cause Notice (hereinafter referred to as „SCN‟) dated November 24, 2009 was

served on the Noticee under rule 4 (1) of the Adjudication Rules, seeking reply of the

Noticee as to why an inquiry should not be held and penalty not imposed on the Noticee

under sections 15HA of the SEBI Act for the alleged violations specified in the SCN. In the

interest of natural justice and in order to conduct an inquiry in terms of rule 4 (3) of the

Adjudication Rules, the Noticee was granted an opportunity of personal hearing at the

Ahmedabad Regional Office of SEBI. The Noticee also asked for details of order logs which

were furnished to it vide email dated January 29, 2010. The dates of replies received from

the Noticee and the date of hearing are as under:

Noticee Date(s) of Reply Date of Hearing Represented by

ANS December 7, 2009

December 30,

2009

February 4, 2010

January 27, 2010 Mr. Jayesh Sheth, MD;

Mr. Ajay Sheth, WTD;

Mr. Satish Nedungadi, GM;

and

Mr. Pankaj Tank, CS


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6. The SCN alleged that the Noticee, trading for its interconnected clients, viz. Krunal Finvest

(Nilesh Natavarlal Seth), Nisharg Trading Co (Jayesh Natavarlal Sheth), Jeet Securities

(Kashmira Bhavesh Kumar Sheth), Amay Finance (Komal Ajay Sheth) and Disha Finlease

(Kajal Jayesh) (hereinafter referred to as “identified entities”) had executed several

synchronized trades and trade reversals in the scrip of Gujarat Hotels Ltd, Jindal Hotels

Ltd, Scooters India Ltd, Relaxo Footwears Ltd, Tulsyan NEC Ltd, Archies Ltd, Vadilal

Industries Ltd, Ahlcon Parenterals Ltd, Linc Pens & Plastics Ltd, Machino Plastics Ltd, JJ

Exporters Ltd and Vamshi Rubber Ltd and had indulged in the creation of artificial volume

and price rise in the said scrips.

7. The SCN alleged that the clients of the Noticee viz. Krunal Finvest (Nilesh Natavarlal),

Disha Finlease (Kajal Jayesh Natavarlal), Nisharg Trading Co (Jayesh Natavarlal Sheth),

Jeet Securities (Kashmira Bhavesh Kumar Sheth), and Amay Finance (Komal Ajay Sheth)

are connected to each other as family members and have a common telephone number

and address. Moreover, Shri Jayesh Natavarlal Sheth is also found to be the Managing

Director of the Noticee. It was further observed from the KYC form that Bhayani

Investments was also acting in concert with the Ajay Natvarlal Family as though he is a

client from Mumbai but was trading through the same terminal in Gujarat as of Krunal

Finvest (Nilesh Natavarlal) and Disha Finlease (Kajal Jayesh Natavarlal).

8. The SCN alleged that the Noticee, along with other identified entities, had created large

volumes in the identified scrips by placing large orders on behalf of the identified entities,

which also resulted in buying pressure and price rise. Further, a very small ratio of the total

order put into the system was actually traded. The order book concentrations of the Noticee

alongwith other identified entities, in the identified scrips indicating the trading methodology

is tabulated as under:

Scrip Name Concentration Large

Buy

Actual

Buy / Concentration

Large Sell

Order /

Actual

Sell /


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Buy Order

(%)

Large Buy

Order (%)

Order /

their total

buy order

(%)

Their total

Buy order

(%)

Sell Order

(%)

Large Sell

Order (%)

their total

sell order

(%)

Their

total Sell

order (%)

Ahlcon 84.95 95.00 99.45 3.75 61.09 88.85 99.18 11.16

Archies 64.87 77.80 99.46 6.90 37.01 63.36 99.98 26.22

Artson 64.94 80.26 99.64 8.31 20.58 32.85 99.26 29.29

Gujarat

Hotels 76.30 84.80 98.31 3.92 54.75 81.28 99.20 14.37

Hind

Industries 75.13 87.38 99.07 3.88 43.07 66.00 98.81 15.98

Hind Tin

Works 59.54 72.84 99.71 1.39 3.48 6.14 99.29 41.11

Jagatjit

Industries 75.08 86.88 99.86 5.75 33.03 60.86 99.30 35.35

Jindal

Hotel 85.78 92.06 99.66 3.65 51.59 73.47 99.76 18.05

JJ Exporter 3.77 5.29 96.32 48.31 2.07 5.22 98.40 100

Karur Kcp

Pk 78.34 88.63 98.24 5.51 47.68 70.86 99.64 24.44

Linc Pen 45.27 57.34 99.46 11.56 17.59 26.01 99.58 41.73

Machino

Plastics 73.65 86.03 99.09 4.63 39.84 61.86 99.61 19.09

Scooters

India 42.18 49.22 99.06 7.82 19.21 25.21 99.59 21.43

Tulsyan 89.28 97.45 98.82 3.55 64.01 88.68 97.92 12.97

Vadilal

Industries 48.74 67.23 97.30 9.68 16.22 30.01 98.64 51.71

Vamshi

Rubber 70.81 85.68 99.36 6.00 33.33 57.90 99.95 34.76


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9. Based on the above table, it was alleged that several large orders were entered by the

Noticee on behalf of the identified entities. It was also observed that the concentration of

large buy-orders was also very high. It was however noted that most of the identified

entities had actually bought very small part of the order quantity ranging from 1.39% to

48.31%.

10. Further, the concentration of orders by the identified entities was found to be large when

compared to the total market volume traded, as is further demonstrated in the following

tables –

A: Order Book Activity by Identified Entities in the identified scrips

Scrip Name

Activity

period (in

days)

Average Daily Market Buy Order Volume (Lakh shares) Market

buy-order

concentrat

ion during

period of

activity

% Large

Buy order

to total buy

orders of

clients

% Actual trade to

total buy order of

identified entities

one month

before

activity

During

period of

activity

% rise

increase

during the

period

One

month

after the

activity

% decrease

after the

period

(A) (B) (C) (D)=(C-B)/B (E) (F)=(C-E)/C (G) (H) (J)

Archies 13 0.732 3.038 315.03 0.649 78.64 67.76 99.46 8.15

Gujrat

Hotels 18 0.179 7.183 3912.85 0.322 95.52 79.75 98.49 4.67

Hindustan

Tin Works 4 0.338 9.4 2681.07 1.093 88.37 59.54 99.71 1.39

Hind

Industries 10 0.204 5.377 2535.78 0.489 90.91 79.49 98.55 5.48

Jagatjit

Industries 2 0.497 9.394 1790.14 3.93 58.16 75.08 99.86 5.75

Jindal 6 0.177 26.926 15112.43 0.392 98.54 88.37 99.59 4.04

JJ

Exporters 2 0.266 1.306 390.98 0.356 72.74 20.71 97.13 59.78

Karur 2 0.459 17.269 3662.31 0.873 94.94 84.99 97.10 7.48

Linc 24 0.336 2.129 533.63 1.329 37.58 60.71 99.57 20.01

Machino 6 0.23 11.714 4993.04 0.926 92.09 76.11 98.72 5.82

Relaxo 5 0.371 27.085 7200.54 0.735 97.29 88.64 98.79 3.78

Scooters

India 7 0.28 19.219 6763.93 0.692 96.40 76.58 99.35 7.69

Tulsyan

Nec 3 0.293 29.416 9939.59 1.835 93.76 89.32 98.82 3.58


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Vadilal 3 0.468 5.751 1128.85 0.802 86.05 49.72 97.36 11.47

Vamshi 5 0.273 6.876 2418.68 0.307 95.54 71.57 99.37 7.00

Ahlcon 2 0.651 19.863 2951.15 0.852 95.71 85.56 99.45 4.44

Artson 6 1.412 23.025 1530.67 3.639 84.20 64.94 99.64 8.31

B: Trading domination of identified entities in the identified scrips

Scrip Name No. of

Days

Total Traded

Volume of the scrip

(Lakh shares)

Actual trade Qty of

identified entities

(Lakh shares)

% Actual Trade Qty of entities

to total Trade Qty during

investigation period

Archies 13 933075 523556 56.11

Gujrat Hotels 18 2518301 1644687 65.31

Hindustan Tin Works 4 367371 36144 9.84

Hind Industries 10 1270580 666547 52.46

Jagatjit Industries 2 544573 221090 40.60

Jindal 6 3459004 2377689 68.74

JJ Exporters 2 81668 20326 24.89

Karur 2 756634 534571 70.65

Linc 24 1974553 1115427 56.49

Machino 6 2048244 1194308 58.31

Relaxo 5 2081502 1354684 65.08

Scooters India 7 3296975 2135895 64.78

Tulsyan Nec 3 1333020 923462 69.28

Vadilal 3 627835 197374 31.44

Vamshi 5 674763 329135 48.78

Ahlcon 2 765191 450347 58.85

Artson 6 1259285 428372 34.02

11. Based on the data as represented in the table above, it was noted that –

The Noticee, alongwith the other identified entities, had dominated the trading activity,

having around 30% to 70% of market volume traded in most of the scrips under

observation (last column of Table B)

Contribution to total buy orders thereby revealing the Noticee‟s domination in buying

interest along with that of other identities entities or order book concentration thereof

range from 50% to 89 % in most of the scrips (Table A, column G).


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More than 90% of the Noticee‟s buy orders were in form of large orders i.e. order

quantity greater than twice the average buy order size (Table A, column H)

As against a range found for other clients in respect of trading volume to orders quantity

of 62-70%, for the Noticee, alongwith other identified entities, this ratio falls to as low as

10% (Table A, column J), raising doubts about motives of order placement.

12. The aforesaid SCN also mentioned that whenever the Noticee undertook the subject

transactions on behalf of the identified entities, there was a significant increase in the price

and volumes of the scrip but immediately after the transactions / their exit, the share price /

trading volume fell. This impact was noticed on various days during the period under

reference in the identified scrips. For instance, the trading activity in one of the identified

scrips, viz. Gujarat Hotels Ltd, has been tabulated below:

Date Time of activity of

broker Ajay

Natavarlal (Total

Duration – hr : min)

Price movement

(Rs)/ Volume

during their

activity (no. of

shares)

Time, before or after the

activity of broker Ajay

Natavarlal

Price movement

(Rs)/volume before or

after their activity (no. of

shares)

23/7/2007 14:15:38 hrs to

15:30:00 hrs / 1 hr 15

min

Rose from 53.20 to

65.55 / 54,545

9:55 hrs 14:15:37 hrs / 4

hr 20 min

Rose from 53.10 to 54.55 /

4,385 shares

24/7/2007 9:55:00 hrs to

11:10:02 hrs / 1 hr 15

min

Rose from 62 to

75.50 / 3,39,381

11:10:03 hrs to 15:30 hrs /

6 hr 20 min

Declined from 70.80 to

67.90 / 41,444

13/8/2007 13:12:00 hrs to

13:18:01 hrs / 6 min

Rose from 58.05 to

64.80 / 7,086

9:55 hrs to 13:11:59 hrs / 3

hr 17 min

Moved between 55 to

59.30 / 2,177

31/8/2007 14:30 hrs to 15:30 hrs

/ 1 hr 0 min

Price rose from

69.30 to the high of

81.75 / 2,56,947

9:55 hrs to 14:29:59 hrs / 4

hr 34 min

Moved between Rs 68.25

to 72.00 / 69,295

3/9/2007 10:09:08 hrs to 15:30

hrs / 5 hr 20 min

Price rose from

76.30 to the high of

Rs 86.45 / 3,34,154

9:55 hrs to 10:09:07 hrs /

14 min

Fell from the high of 80 to

76.50 / 18,795


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13. It was further noted that the trades in the identified scrips undertaken by the Noticee on

behalf of the identified entities, were synchronised with those put by the clients of Shree

Parasram Holdings Private Limited, such that most of the buy and sell orders were entered

within a short span of time (less than 1 minute) and further reversal has also been

observed within 5 minutes of the trades between the same. The details of such

synchronized trades were provided as an appendix issued along with the SCN.

14. The SCN also alleged that the contract note issued by the Noticee were not genuine and

were not as per the format specified by the exchange, thereby charging the Noticee with

violation of provisions of regulation (p) of PFUTP Regulations read with A(5), B(2) of code

of conduct contained in Brokers Regulations.

15. The SCN thus in toto alleged that the Noticee by acting in concert with identified entities /

other brokers to create false market in the identified scrips, has led to manipulative,

fraudulent and unfair trade practices in these identified scrips during the period under

reference and has thus violated the provisions of regulations 3 (b), (c), (d), 4 (1), 4 (2) (a),

(b), (e), (g), (n) and (p) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices

relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP

Regulations”) and regulation 7 of the SEBI (Stock Brokers & Sub-brokers) Regulations,

1992 (hereinafter referred to as “Brokers Regulations”) read with clauses A (1), (3) & (4)

and B (2) of the Code of Conduct for Stock Brokers specified under Schedule II of Brokers

Regulations, read with corresponding provisions of SEBI (Intermediaries) Regulations,

2008 (hereinafter referred to as “Code of Conduct”).

16. The Noticee, vide the reply letters mentioned at para 5 above, inter alia, submitted the

following:

a. In this regard, it is also pertinent to note that BSE vide its various notices in October and November

2007 had show-caused us for creating buying pressure in Vamshi Rubber, Vadilal Industries,

Scooters India, Jindal Hotel, Relaxo Footwear and Gujarat Hotel (Copies of notices enclosed

herewith) as I(a) to I(f). Thereafter we had compounded the matter with BSE by paying Rs. 25000/-


4/20/2010 of 39

(for, Vamshi Rubber), Rs. 10,000/- (for Vadilal Industries), Rs. 10,000/- (for Scooters India), Rs.

10,000 (for Jindal Hotel), NIL (for Relaxo Footwear) and Rs. 10,000/- (for Gujarat Hotel). BSE’s

various letters imposing the aforesaid penalties on us are also enclosed herewith as II (a) to II (f).

We had then assured BSE that the intention was not to create buying pressure but was the result of

some fast-paced trading by over-zealous traders and a similar trading pattern would not be

repeated. We state that such a trading pattern has not since been repeated.

b. We state that since BSE did not think it a fit case either for warning us or transferring the identified

scrips to trade to trade group, we had no reason to believe any irregularity.

c. We submit that we have traded under the instructions of our registered clients believing that their

trades were genuine and were not involved in any other way nor were aware if any such

interconnection exists.

d. With reference to para 3.1, we submit that our clients, Krunal Finvest (Nilesh N Sheth) and Disha

Finlease (Kajal Jayesh Sheth) are proprietary concerns belonging to same family members as also

observed by SEBI. Jeet Securities (Kashmira Bhavesh Kumar Sheth) is situated in the same

premise but different office. Nisharg Trading Co. (Jayesh Natwarlal Sheth) and Amay Finance

(Komal Ajay Sheth) are also proprietary concerns belonging to same family members as also

observed by SEBI.

e. Therefore there is nothing unusual about the fact that Krunal Finvest ( Nilesh N Sheth) and Disha

Finlease (Kajal Jayesh Sheth) on one hand and Nisharg Trading Co. (Jayesh Natwarlal Sheth), and

Amay Finance (Komal Ajay Sheth] on other shared common telephone and same office address as

such arrangement is common between family members. This, however, does not make them liable

to presumption of any collusion. Assumption of “intent” on the basis of sharing the same office/

telephone is a flaw and nullity in law.

f. We also find nothing unusual in the fact that our Managing Director, Mr. Jayesh Sheth and his

family members have trading account with us. This is a normal practice and there is no prohibition

in law prohibiting such client registrations.


4/20/2010 of 39

g. We deny that Bhayani Investments is also acting in concert with identified clients. As far as

Bhayani Investments is concerned, it is an independent client of our company and is known to be

trading with us on its own.

h. The table itself shows that our buy percentage has varied between the range of 3.82 to 35.95 for

varied scrips during the period of activity. Similarly our sell percentage has varied between the

range of 6.48 to 35.95 for varied scrips during the period of activity. However. we state that all the

above statistics have been devised from your table which seems to have been incorrectly

computed. We have reconstructed the actual table as hereunder. You are requested to refer to the

same for your perusal and understanding to have a clear picture of the facts. We repeat, reiterate

and confirm that we have only executed trades and entered orders under the instructions from our

clients believing the same to be genuine. We give limits to identified clients based on their margin

availability and at no point of time we motivated clients to place orders in a specific way. We

therefore deny having created any significant concentration in any identified scrip.

i. We state that your allegation that we have driven major volumes in all the identified scrips for the

period from June 2007 to September 2007 is baseless and unsubstantiated. However, not all the

identified clients have traded in all the identified scrips for the aforesaid period. We give hereunder

a scrip-wise client-wise dealings that have taken place for the reference period.

Archies Ltd Period Under Reference

Client

Code

Client Name Bought Qty

(Client Sell)

Sold Qty

(Client Buy)

Exchange Vol. Buy % Sell % Remarks

A1238 Nisharg Trading Co 11166 11166 1912600 0.58 0.58

A1240 Krunal Finvest 0 0 1912600 0.00 0.00

Not Traded in

This Scrip

A1482 Disha Finlease 176641 176641 1912600 9.24 9.24

A1483 Jeet Securities 0 0 1912600 0.00 0.00

Not Traded in

This Scrip

A1484 Amey Finance 0 0 1912600 0.00 0.00

Not Traded in

This Scrip

NB005 Bhayani Investment 89758 89758 1912600 4.69 4.69


4/20/2010 of 39

Gujarat Hotels

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



A1240 Krunal Finvest 635349 632140 2879700 22.06

21.95

A1482 Disha Finlease 142640 142640 2879700 4.95 4.95


Not Traded in

This Scrip

A1484 Amey Finance 0 0 2879700 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

Hindustan Tin

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



Not Traded in

This Scrip

A1240 Krunal Finvest 18072 18072 1776300 1.02 1.02

A1482 Disha Finlease 0 0 1776300 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

A1484 Amey Finance 0 0 1776300 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip


4/20/2010 of 39

Hind Ind

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



A1240 Krunal Finvest 245502 245502 1985272 12.37 12.37

A1482 Disha Finlease 22623 22623 1985272 1.14 1.14


A1484 Amey Finance 0 0 1985272 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

Jagjit Ind

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



Not Traded in

This Scrip

A1240 Krunal Finvest 0 0 6340600 0.00 0.00

Not Traded in

This Scrip

A1482 Disha Finlease 111479 111479 6340600 1.76 1.76


Not Traded in

This Scrip

A1484 Amey Finance 0 0 6340600 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip


4/20/2010 of 39

Jindal Hotels

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



A1240 Krunal Finvest 1129304 1123354 4074600 27.72 27.57

A1482 Disha Finlease 0 0 4074600 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

A1484 Amey Finance 0 0 4074600 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

JJ Exports

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



Not Traded in

This Scrip

A1240 Krunal Finvest 10163 10163 691200 1.47 1.47

A1482 Disha Finlease 0 0 691200 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

A1484 Amey Finance 0 0 691200 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip


4/20/2010 of 39

Karur K C P

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



Not Traded in

This Scrip

A1240 Krunal Finvest 0 0 2981800 0.00 0.00

Not Traded in

This Scrip

A1482 Disha Finlease 0 0 2981800 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

A1484 Amey Finance 0 0 2981800 0.00 0.00

Not Traded in

This Scrip


Linc Pen

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



A1240 Krunal Finvest 375847 375847 2658100 14.14 14.14

A1482 Disha Finlease 0 0 2658100 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

A1484 Amey Finance 0 0 2658100 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip


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Machino Plast

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



A1240 Krunal Finvest 513999 513999 3109400 16.53 16.53

A1482 Disha Finlease 0 0 3109400 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

A1484 Amey Finance 0 0 3109400 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

Relaxo Footwear

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



A1240 Krunal Finvest 613502 613502 3191100 19.23 19.23

A1482 Disha Finlease 0 0 3191100 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

A1484 Amey Finance 0 0 3191100 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip


4/20/2010 of 39

Scooters India

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



Not Traded in

This Scrip

A1240 Krunal Finvest 727354 727354 4225800 17.21 17.21

A1482 Disha Finlease 0 0 4225800 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

A1484 Amey Finance 0 0 4225800 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

Tulsyan NEC

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



A1240 Krunal Finvest 0 0 3378700 0.00 0.00

Not Traded in

This Scrip

A1482 Disha Finlease 93884 93884 3378700 2.78 2.78


A1484 Amey Finance 0 0 3378700 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip


4/20/2010 of 39

Vadilal

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



Not Traded in

This Scrip

A1240 Krunal Finvest 0 0 3513200 0.00 0.00

Not Traded in

This Scrip

A1482 Disha Finlease 0 0 3513200 0.00 0.00

Not Traded in

This Scrip


A1484 Amey Finance 0 0 3513200 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

Vamshi

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



Not Traded in

This Scrip

A1240 Krunal Finvest 167818 167118 1600300 10.49 10.44

A1482 Disha Finlease 0 0 1600300 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

A1484 Amey Finance 0 0 1600300 0.00 0.00 Not Traded in


4/20/2010 of 39

This Scrip


Not Traded in

This Scrip

Ahlcon

Client

Code


(Client Sell)

Sold Qty

(Client Buy)



Not Traded in

This Scrip

A1240 Krunal Finvest 0 0 2453600 0.00 0.00

Not Traded in

This Scrip

A1482 Disha Finlease 201101 201101 2453600 8.20 8.20


Not Traded in

This Scrip

A1484 Amey Finance 0 0 2453600 0.00 0.00

Not Traded in

This Scrip


Not Traded in

This Scrip

Artson

Client

Code


(Client Sell)

Sold Qty

(Client Buy)


A1238 Nisharg Trading Co 0 0

8663165

0.00 0.00 Not Traded in This Scrip

A1240 Krunal Finvest 376894 376894

8663165

4.35

4.35

A1482

Disha Finlease

0 0 1794045 0.00 0.00 Not Traded in This Scrip

A1483 Jeet Securities 0 0 1794045 0.00 0.00 Not Traded in This Scrip


4/20/2010 of 39

j. It is clear from the aforesaid tables that the identified clients have dealt in identified scrips in an

intermittent and irregular manner. Such kind of trading can never bring about a sustained spurt in

volumes and prices of identified scrips, as alleged or otherwise. The very trading pattern apparent

in the aforesaid tables belies the allegation that identified clients were responsible for price and

volume rise through sustained trading.

k. It is further submitted that it is impossible, impracticable and unfeasible for us as brokers to detect

and perceive the intentions and objectives of clients. We further submit that all the trades were

executed as per the instructions of the clients and we have not done any proprietary trades in the

shares.

l. On the buy side the concentration ranges from 3.77% to 89.28%. On the sell side, the concentration

ranges from 2.07% to 88.68%. You have merely indicated the levels of our order book

concentrations without in any way explaining what the permissible level of concentration is or

should be.

m. With reference to para 3.5 and 3.6, we only placed orders as instructed by our clients. It is earnestly

submitted that placing of orders and subsequent deletion, if any, and placing of large orders, if any,

by client by itself cannot be termed as being done with an intention to influence and manipulate the

price of any scrip as alleged. It is further submitted that it is impossible, impracticable and

unfeasible for a broker to detect and perceive the intentions of a client.

n. It is submitted that the investigation officer has erred in coming to a finding that we were placing

“large quantities of orders” on behalf of our clients. It is submitted that “large quantity” of order is a

relative term. In our case, it is submitted that our client used to place orders for the quantities that

he wished to purchase/ sell. Therefore, there was nothing unusual for us, in receiving such orders.

Orders placed by us cannot have any worthwhile impact on the market compared to floating stock

of the Company. Further, the clients have been trading through us for a long time, and in normal

A1484 Amey Finance 0 0 1794045 0.00 0.00 Not Traded in This Scrip

NB005 Bhayani Investment 0 0 1794045 0.00 0.00 Not Traded in This Scrip


4/20/2010 of 39

course of trading through us, used to place orders in bulk. Also, our clients have never defaulted in

meeting pay in obligations

o. Further, the investigation officer has failed to appreciate that placing orders by clients and deleting

them is permissible under law and is a normal market practice and there is nothing unusual about it.

Our clients were placing the said orders on successive dates since the client did not get the fill

quantity of shares for which such orders had been placed. Therefore, on the successive dates the

clients used to place orders for the scrip. The investigation officer has erred in not recognizing the

established practice that investors in the market, place orders in the market, based on host of

factors which inter alia include position of the company, future prospects of the company in

particular and sector in general, nature of demand and supply. Therefore, we found nothing sinister

in placement of “large orders” by the said clients through us, as the demand for more shares was

apparently guided by the client’s investment objectives and perception about the future prospects of

the scrip, which in our view was in sync with market situation prevalent at that point of time.

p. It is also alleged that whenever we undertook transactions for identified clients there was significant

increase in price and volume and whenever the identified clients exited the market, there was a

marked decline in the trading volumes. You have in a table laid out at para 3.6 given an example of

how Gujarat Hotel’s prices have surged up and come down in response to our trading activity in the

said scrip. You seem to be ascribing to us the act of creating price rise and thereafter exiting at

higher price. The fact is that our clients have continuously traded at small price differential which is

evidenced vide Annexure IV, the log of trading activity undertaken by our clients in Gujarat Hotel.

Your attention is invited to the highlighted portion of Annexure IV. It may be observed that there is

therefore no offloading at high price. The price rise and decline in Gujarat Hotels does not indicate

trading in collusion between the identified clients or otherwise. In some of the identified scrips, our

clients have input buy orders a little over the market price in order to cajole liquidity in the said

scrips. Such an act is perfectly justified as a buying strategy. There is nothing unlawful about it.

q. It is alleged that there has been trading activity by our clients which resulted in volume and price

spurts. We state that the table herein below depicts some specific instances of identified scrips

experiencing price and volume spurts before any of our clients started trading them. The SCN has

miserably failed to address these issues.


4/20/2010 of 39

r. It is alleged that all the trades undertaken by our clients have got matched against clients of Shree

Parasram Holdings Pvt. Ltd. As an example, you have drawn up table depicting how trades in

Gujarat Hotels Ltd. have got matched between our clients A 1240 (Krunal Finvest) and A 1482

(Disha Finlease) and B1NB – Neelam Bansal (client of Shree Parasram Holdings Pvt. Ltd.). In this

regard, we also refer you to Annexure II of your notice, where in the last column you have indicated

the percentage of matched trades to total market volume. In one case it is as low as 0.62%. Once

again in this regard there is no defined or laid-down percentage ceiling.

s. Matching of trades is a function of market liquidity. If there are two major players entering contrarian

orders in the market, it may well happen that orders are only getting matched between them.

However the intention may not be synchronized trades. Since we have entered the orders for our

Scrip Name Date(s) Volume (No. of

Shares)

Price Movement (In

Rs.)

Percentage

Rise Increase During

The Day %

Archies 30/05/2007

04/06/2007

06/06/2007

161800

133100

49800

130 to 139.80

130.25 to 144.00

139.05 to 145.7

7.5

10.55

4.78

Hindustan Tin Works 19/07/2007

20/07/2007

23/07/2007

20400

25800

10700

31.32 to 42.00

30.64 to 42.00

35.11 to 40.90

34.09

37.07

16.49

J.J. Exports 08/08/2007

23/08/2007

51500

48400

47.8 to 49.35

47.00 to 50.00

3.24

6.38

Vadilal Industries 08/06/2007

11/06/2007

100400

136700

37.16 to 47.00

41.70 to 50.85

26.48

20.33

Ahlcon Parenterals 28/06/2007

29/06/2007

132600

117100

62.00 to 68.25

68.15 to 72.40

10.08

6.23

Artson 16/08/2007

23/08/2007

130907

140695

42.40 to 45.80

45.00 to 48.65

8.00

8.11

Jagatjit Industries 27/06/2007

29/06/2007

58900

37500

71.15 to 78.00

73.30 to 75.00

9.62

2.31

Vamshi Rubber 01/08/2007 41000 13.65 to 17.00 24.54


4/20/2010 of 39

clients, we are unable to comment on the status of such matched trades. As brokers, we have only

executed orders received from the clients. While inputting an order on behalf of a client, it is

impossible for a broker to predict the intent behind the order. Subsequent to BSE’s notice in this

matter we had taken up this issue of synchronized trades with the identified clients. We were then

informed by the identified clients that they had no familiarity either with Shree Parasram Holdings or

its clients.

t. We are hereunder giving you certain comparisons of matched trades and number of shares with our

total number of traded shares and number of trades for certain dates.

Date

Total Volume Details

Matched Details of

Identified Scrip

% Percentage of

Matched Details to

Volume details

No. of

Shares

No. of

Trades

No. of

Shares

No. of

Trades

No. of

Shares

No. of

Trades

13-07-2007 2870603 23720 10000 03 0.34 0.012

12-07-2007 2703534 22640 9949 04 0.36 0.04

10-07-2007 1793513 21057 15193 05 0.84 0.02

17-07-2007 1750176 13025 9375 04 0.54 0.03

20-07-2007 2205543 12449 19067 04 0.86 0.03

26-07-2007 3249542 23234 10000 03 0.31 0.01

07-08-2007 1787820 17507 15024 05 0.84 0.02

08-08-2007 1680610 9104 48450 04 2.88 0.04

14-08-2007 2222724 12062 10259 04 0.46 0.03

03-09-2007 2426230 11963 12000 03 0.49 0.02

10-09-2007 3759224 21649 19999 05 0.53 0.02

u. From the above table it is clear such matched trades and shares are a minuscule part of our total

traded volume. This means that such trades have happened in the course of trading without any

purposeful intention. Taking it as a non-purposeful incident, this entire episode deserves to be

dismissed so as to save mental harassment to an honest market player


4/20/2010 of 39

v. We deny that we have indulged in or facilitated the creation of artificial volume and price and

executed several structured trades, self trades and circular trades. Further, when we enter order in

the automated trading mechanism of Stock Exchanges, the order can be picked up by anyone. The

trading mechanism is so fast that the orders get converted into trades in a fraction of second. In the

automated price and order matching mechanism of the trading system, it is impossible for a stock-

broker to know the counter party of his trade.

w. We believe that buy and sell orders, which have been input is absolutely normal, reasonable and

permissible.

x. In Para 3.11, you have posited that we have printed Contract Notes on new letter head bearing the

new name of the company, whereas the trades were executed prior to the change of name. You

have gone on to hold that the Contract Notes are therefore not genuine and in the format specified

by the Exchange. To this, we contend that Contract Notes are electronically transmitted to the

identified clients and therefore the Contract Notes are preserved with us in soft form. When you

wanted to peruse the Contract Notes issued to the identified clients, we took the print out on the

letterheads which carried the new name of the company. However at the bottom of the new name

we have also mentioned our old name. We are now enclosing sample printouts of the Contract Note

log as Annexure VI, in the exchange – prescribed formats, pertaining to the trades done by the

identified clients in identified scrips. We could not have had a motive behind printing out the

Contract Notes on new stationery bearing new name of the company, except for the fact that since

name-change, we have phased out all old stationery bearing old name of the company.

y. With reference to para no – 5 we deny that we have violated provisions of Rule 3 and 4 of PFUTP

Regulations of SEBI and Code of Conduct of Stock Brokers. Further, in view of the fact that we

have not indulged in the alleged violations, we are not liable to penalty provisions under Section 15

HA of SEBI Act 1992.

z. We would like to bring the following additional facts to the notice of Adjudicating Officer in order to

shore up our innocence.

aa. All the identified entities are regular clients doing heavy-weight trading in all the listed scrips. Some

of the other scrips in which they traded for the period under reference are as under:


4/20/2010 of 39

Client Name & Code Names of some scrips other than identified

scrips in which clients have traded

(i). Bhayani Investment NB 005

Bata India, Vishal Retail, Aban Off-shore, Andhra

Bank, Ballarpur Industries, Bharat Forge, Cairn

India, Idea Cellular, Jindal Stainless, MTNL, etc.

(ii). Amay Finance A 1484 ABB Ltd., ACC, India Bulls, Renuka Sugar,

Reliance Communications, Wockhardt, Relintra,

etc.

(iii). Jeet Securities A 1483 ABB Ltd., Alok Industries, Bank of Baroda, Century

Textiles, Cipla Ltd., Dr. Reddy’s Lab, HCL Techno,

HDFC Bank, Infosys Technologies, Jet Airway etc.

(iv). Disha Finlease A 1482 Bharat Forge, ACC, Bank of India, Gujarat

Petronet, ICICI Bank, Idea Cellular, IFCI Ltd., PFC,

Gujarat Alkali, Tata Communication. Voltas Ltd.

etc.

(v). Nisharg Trading Co. (A 1238) ABB Ltd., Axis Bank, Bank of Baroda, HCC,

Infosys, Harrison Malayalam, Gulf Oil, Hexaware,

Divis Lab, Balaji Tele, Hitachi Home, HMT, IDFC

etc

.

(vi). Krunal Finvest (A 1240) Crompton Greaves Chennai Petro, Cipla Ltd.,

Financial Technologies, Federal Bank, I-Flex,

Indian Bank, Yes Bank, Voltas Ltd. etc.

bb. It is therefore evident that all the scrips mentioned are liquid and heavily traded scrips. Our point is

that the identified clients are not in the wont of trading illiquid scrips. Our experience with the

identified clients is that they take up for trading any scrip in which they sense a profit potential.

17. The Noticee, after the personal hearing, made certain additional submissions, stating, inter

alia, the following –


4/20/2010 of 39

a. There is nothing on record to prove that the said identified entities are acting in concert

or are in fact the same master entity.

b. Common address and telephone number need not necessarily imply a common intent

among entities.

c. Mere biological relationship should not entice assumption of entities acting in concert.

d. The order to trade ratio has nowhere reached even near 10 % as per the data reworked

by the Noticee.

e. The matched trades and shares are a minuscule part of our traded volume. This means

that such trades have happened in the course of trading without any purposeful

intention.

f. Orders were deleted by clients with bonafide intention to realign themselves with

dynamic market conditions, in order to place fresh orders with revised quantities at

revised prices.

CONSIDERATION OF ISSUES AND FINDINGS

18. On careful examination of the SCN and the documents available on record, it was found

that the Noticee has traded in all the seventeen scrips on behalf of the identified entities.

19. It is seen that the clients of the Noticee, viz. Krunal Finvest (Nilesh Natavarlal), Disha

Finlease (Kajal Jayesh Natavarlal), Nisharg Trading Co (Jayesh Natavarlal Sheth), Jeet

Securities (Kashmira Bhavesh Kumar Sheth), and Amay Finance (Komal Ajay Sheth) are

connected to each other as they have common telephone numbers and / or addresses. Out

of these, Shri Jayesh Natavarlal Sheth is also the Managing Director of ANSPL. Further, all

these clients are related to each other as family members. It is further noted from the KYC

form that Bhayani Investments is also acting in concert with the Ajay Natvarlal Family as

though he is a client from Mumbai but is trading through the same terminal in Gujarat as of


4/20/2010 of 39

Krunal Finvest (Nilesh Natavarlal) and Disha Finlease (Kajal Jayesh Natavarlal). It is

alleged that the Noticee has acted in concert with its clients /other brokers to create false

market in the identified scrips which led to manipulative, fraudulent and unfair trade

practices by you in these scrips during the period under reference. It is also alleged that it

had created false market in the identified scrips by way of order book manipulation through

putting large orders, only a part of which was actually executed. It is therefore alleged that

the Noticee alongwith identified entities has violated regulations 3 (b), (c), (d), 4 (1), 4 (2)

(a), (b), (e), (g), (n), (p) of PFUTP Regulations and regulation 7 read with clauses A (1), (3)

& (4) and B (2) of the Code of Conduct of the Brokers Regulations.

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

a) Whether the Noticee has violated regulations 3 (b), (c), (d), 4 (1), 4 (2) (a), (b),

(e), (g), (n) of PFUTP Regulations in relation of the identified scrips?

b) Whether the Noticee has violated Regulation 7 read with Clause – A (1) to (4) of

Code of Conduct for the brokers in terms of the Brokers regulations??

c) Whether the Noticee has violated Regulation 4(p) of PFUTP Regulations read

with Regulation 7 read with Clause A(5) and Clause B(2) of Code of Conduct for

the brokers in terms of the Brokers regulations?

d) Does the violation, if any, on the part of the Noticee attract monetary penalty

under sections 15 HA and 15 HB of SEBI Act?

e) If so, what would be the monetary penalty that can be imposed taking into

consideration the factors mentioned in section 15J of SEBI Act?

21. Before moving forward, it will be appropriate to refer to the relevant provisions of PFUTP

which reads as under:


4/20/2010 of 39

“3. Prohibition of certain dealings in securities

No person shall directly or indirectly –

(a) ……;

(b) use or employ, in connection with issue, purchase or sale of any security listed or

proposed to be listed in a recognized stock exchange, any manipulative or deceptive

device or contrivance in contravention of the provisions of the Act or the rules or the

regulations made there under;

(c) employ any device, scheme or artifice to defraud in connection with dealing in or

issue of securities which are listed or proposed to be listed on a recognized stock

exchange;

(d) engage in any act, practice, course of business which operates or would operate as

fraud or deceit upon any person in connection with any dealing in or issue of securities

which are listed or proposed to be listed on a recognized stock exchange in contravention

of the provisions of the Act or the rules and the regulations made there under.”

“4. Prohibition of manipulative, fraudulent and unfair trade practices

(1) Without prejudice to the provisions of regulation3, no person shall indulge in a

fraudulent or an unfair trade practice in securities

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

security for wrongful gain or avoidance of loss;

(c) …;

(d) …;


4/20/2010 of 39

(e) any act or omission amounting to manipulation of the price of a security;

(f) …;

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

intention of change of ownership of such security;

(h) …;

(i) …;

(j) …;

(k) …;

(l) …;

(m) …;

(n) circular transactions in respect of a security entered into between

intermediaries in order to increase commission to provide a false appearance

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

price of such security;

(o) …;

(p) an intermediary predating or otherwise falsifying records such as contract

notes.;

(q) …;

(r) ….”

Relevant Provisions of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992

“Stock-Brokers to abide by Code of Conduct.

7. The stock-broker holding a certificate shall at all times abide by the Code of Conduct as

specified at Schedule II.”

Code of Conduct for Stock Brokers under Schedule II of Brokers Regulations

A. GENERAL


4/20/2010 of 39

(1) INTEGRITY: A stock-broker, shall maintain high standards of integrity, promptitude and

fairness in the conduct of all his business.

(2) EXERCISE OF DUE SKILL AND CARE: A stock-broker, shall act with due skill, care

and diligence in the conduct of all his business.

(3) MANIPULATION: A stock-broker shall not indulge in manipulative, fraudulent or

deceptive transactions or schemes or spread rumours with a view to distorting market

equilibrium or making personal gains.

(4) MALPRACTICES: A stock-broker shall not create false market either singly or in concert

with others or indulge in any act detrimental to the investors interest or which leads to

interference with the fair and smooth functioning of the market. A stock-broker shall not

involve himself in excessive speculative business in the market beyond reasonable levels

not commensurate with his financial soundness.

(5) COMPLIANCE WITH STATUTORY REQUIREMENTS: A stock-broker shall abide by all

the provisions of the Act and the rules, regulations issued by the Government, the Board

and the stock exchange from time to time as may be applicable to him.”

B. DUTY TO THE INVESTOR

(1) …

(2) ISSUE OF CONTRACT NOTE: A stock-broker shall issue without delay to his client 58

[or client of the sub-broker, as the case may be] a contract note for all transactions in the

form specified by the stock exchange.

(3) ……

(4) ……

(5) ……

(6) ……

(7)……

(7A) ……

(8) ………”


4/20/2010 of 39

22. I have carefully gone through the IR and the submissions made by the Noticee and other

documents available on record. I have noted that the Noticee has not done any

transactions from its proprietary account and there is no charge on this count in the SCN.

The Charge in the SCN is against the Noticee as a broker executing synchronised trades/

self trades etc of its clients who were interconnected to the Noticee as well as to each

other. I noted that the Noticee has not denied the interconnections between its clients as

alleged in the SCN and has merely stated that “Assumption of intent on the basis of sharing

the same office/ telephone is a flaw and nullity in law”. In this regard, after a careful

examination of the IR, I have observed that the allegation is an inference drawn based not

only upon the fact that the identified entities share a common telephone number and

address but also on the unusual trading and order placement pattern as observed amongst

the identified entities during the period under reference. It is, therefore, pertinent to note

that the Noticee‟s claim that such an arrangement does not make the Noticee and the

identified entities liable to presumption of any collusion, is inconvincible.

23. I have also noted the submissions made by the Noticee to the effect that there is nothing on

record to prove that the said identified entities are acting in concert and that mere biological

relationship and common address and telephone number need not necessarily imply a

common intent among entities. In this regard, I have to state that cases of alleged collusion

between entities is a product of various inter-connected factors, which if viewed in isolation,

may not indicate much and therefore in order to crystallize such cases, all connecting

factors have to be holistically viewed so as to arrive at a meaningful conclusion. In the

instant matter, such interconnected factors are the fact that the identified entities are

related with each other, they shared common contact details and most importantly they

indulged in synchronized trades amongst each other and amongst few clients of other

broker during the period under reference. These factors can not be ignored and hence

when viewed in conjunction, supports the belief that the said entities were acting in

connivance. The Noticee‟s arguments do not enable me to take a view contrary to what has

been alleged.


4/20/2010 of 39

24. In regard to the Noticee‟s submissions that concentration for the buy and sell trades

executed on behalf of its clients has varied between 3.82%-35.95% and 6.48%-35.95%

respectively during the period under reference, I would like to refer to point no. 3.3 of the

SCN which clearly states “you on behalf of your identified clients had a large and significant

concentration in all the identified scrips, except for Hindustan Tin Works and JJ Exporters,

during the period under reference.” Taking these two scrips out of the set of consideration,

the buy and sell order concentration for the trades executed by the Noticee on behalf of its

clients has been found to range between 15.85-35.95% and 12.82-35.95% respectively.

This allegation gets compounded when seen alongwith the large order concentration

against the total orders placed by the Noticee and abysmally low percentage of actual

executed orders.

25. Further, the Noticee has stated that the table as shown in the SCN is incorrectly computed.

I have noted that the table as given under point no. 3.2 of the SCN shows the buy and sell

percentage of the trades executed by the broker on behalf of all its clients and not just the

identified clients. The Noticee‟s claim that all the trades were genuine and there was no

attempt to indulge in price and order book manipulation does not seem to stand the test of

veracity if I take into consideration the interconnection shared by the identified entities and

the volume of synchronized trades executed amongst them, the details of which have

already been provided in the SCN.

26. While I agree with the Noticee that not all the identified entities have traded in all the

identified scrips, which is also evident from the data given by the Noticee, I have noted that

the allegation in SCN is against the Noticee alongwith all the identified entities as a group,

for manipulating the price and volume of the identified scrips. The SCN has thus charged

Noticee alongwith the specific identified clients who have traded in particular identified

scrips. I do not see any irregularity in the SCN on this front. Further I have noted that all

the identified scrips are either in the B1 group, B2 group or S group which are

characterized by having relatively lesser liquidity. These scrips were picked up for detailed


4/20/2010 of 39

examination by SEBI based upon the sudden spurt in price and volume experienced by

these scrips.

27. A broker is expected to maintain high standards of integrity and exercise due skill and care

while trading in the stock market. The entities were connected to the Noticee (brokers) as

well as to each other, Noticee has been executing trades of its clients in scrips which were

not highly liquid, there were significant percentage of the synchronized trades, reversal of

trades amongst interconnected entities (connected to the broker also), putting up large

order and canceling the same etc make it difficult for me to believe the Noticee‟s

contention that it was impossible, impracticable and unfeasible for him to detect and

perceive the intentions and objectives of its clients.

28. In response to the reply of the Noticee to point 3.5 and 3.6 of the SCN, the noticee in its

submissions dated February 2010 has inter-alia stated that after receiving the order log

from SEBI, it has examined the same at length and has found that almost all deletions have

taken place at a substantial time gaps. This means that orders were deleted by clients with

bonafide intention to realign themselves with dynamic market conditions to place fresh

orders with revised quantities at revised prices. In this regard, upon careful perusal of the

order log data furnished by the Noticee, I have noted that there are number of instances

where deletion have happened in less than a minute and therefore I do not agree with the

Noticee‟s contention that almost all deletions have taken place at a substantial time gap .

The placement of orders without the intention of executing the same, affects the normal

price discovery mechanism of the securities market. Such manipulative, fraudulent and

deceptive trading leads to defrauding of the investors at large who get attracted to the

scrips trying to gain out of the increased liquidity in the said scrip.

29. Further, it is also alleged that a very small ratio of the total order put into the system was

actually traded. In this regard, the Noticee has submitted the data of actual orders deleted

with different quantity (referred as unfilled orders) and orders deleted with the same

quantity. It is Noticee‟s contention that unfilled orders are deleted in order to place orders at


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revised prices with revised quantities. The Noticee has thus come to the conclusion that

order to trade ratio has nowhere reached even near to 10%. In this respect, I have noted

that the Noticee has not compared orders placed with the trades actually executed, hence

the arguments extended based on the data, does not appear convincing enough. Further, I

have noted that the SCN does not question the addition and deletion of orders by the

clients, per-se. The percentage of large orders placed and subsequently only a minimal

percentage of them actually getting executed, adds weight to the allegation that the orders

were placed with an intention to manipulate the market and create false volume rather than

gaining the beneficial ownership of the traded scrips.

30. The Noticee has also stated that the clients were placing buy orders a little over the market

price in order to cajole liquidity in the said scrips, to which I would like to restate that all the

identified scrips are either in the B1 group, B2 group or S group which are characterized by

having relatively lesser liquidity. The trades of the identified clients in these scrips had

resulted into a sudden spurt in the price and volume of these scrips ranging between 5.36 –

51.57% and 430.88 – 16342% respectively in a very short span of 1-30 days, which is one

of the reasons why these scrips have been picked up for further investigation by SEBI.

31. The Noticee has contended that SCN has miserably failed to address the issues that

identified scrips had also experienced price and volume spurts before any of its clients

started trading them. I have noticed that while detailing out the price spurts experienced by

the identified scrips in the period falling outside the period under reference, the Noticee has

conveniently failed to take into consideration the trading pattern observed between the

identified entities during the period under reference, which clearly indicates several

instances where the time difference between buy and sell orders was less than a minute.

Logically speaking, no unknown persons can trade continuously with each other by placing

orders in such pattern. This indicates that the identified entities were acting in connivance

with each other. While I agree with the Noticee that the price rise in isolation cannot be

taken as an indicator of an attempt to create false market, however a price rise which is


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accompanied with synchronized trades and reversal of trades amongst entities connected

to each other can definitely be classified as a manipulative and unfair trade practice.

32. As mentioned by the Noticee in its reply, there have been instances when the percentage

of matched trades to the total market volume has been as low as 0.62, which is acceptable.

However, it is equally true that at the same time there have been cases where this

percentage has reached to as high as 60.15%. Moreover, such high percentages when

considered in conjunction with the time difference in the placement of the buy and sell

orders by the identified clients clearly establishes the indulgence of the Noticee and its

identified clients, in market manipulation and creation of false volumes.

33. The Noticee has mentioned that subsequent to BSE‟s notice, it had taken up the issue of

synchronized trades with the identified clients and was informed that the clients had no

familiarity either with Shree Parasram Holdings or its clients. However, this does not

absolve the Noticee from its responsibility as a broker to maintain high standards of

integrity and exercise due skill and care while trading in the stock market. As regards the

allegation contained in para 3.7 of the SCN, I do not find Noticee refuting the details given

therein. The Noticee has however submitted certain data which is difficult to comprehend.

The table given by the Noticee does not indicate which identified scrip or which client,

whose trades has been referred to, etc. In fact, the table does not seem to make any point

altogether.

34. A logical deduction from the above facts suggests that one of the plausible reasons for the

Noticee to allow its clients to enter into such synchronized trades could be to gain through

the brokerage that would be charged for such transactions.

35. There are no direct evidences to support the intention of Noticee alongwith identified

entities to manipulate the market, however circumstances / instances etc enumerated

above are sufficient to infer the intention of the Noticee and the identified entities as alleged

in the SCN. Further, it is difficult to believe that several of these trades (synchronised/ self/


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reversal of trades) in such scrips amongst the identified entities and with clients of other

broker are mere coincidence. The synchronization of trades tempers with price discovery

mechanism of SE and also hampers transparency. These trades abet creation of artificial

volumes and false market. The Noticee has thus abetted creation of artificial volume in the

identified scrips during the investigation period on behalf of the identified entities thereby

leading to a false appearance of trading in the identified scrips as also as causing

fluctuations in the price of the scrip of the company.

36. Hence, in light of the facts of the case as enumerated above and materials available on

record, I am convinced that the Noticee has violated the provisions of regulations 3 (b), (c),

(d), 4 (1), 4 (2) (a), (b), (e), (g) and (n) of PFUTP Regulations, 2003.

37. Moreover, by indulging in synchronised trades and order book manipulation on behalf of its

clients as stated above, the Noticee has also failed to maintain integrity and has exercised

his skills for personal benefits while trading in stock market. Thus, the Noticee has also

violated the provisions of regulation 7 read with Clauses A (1), (3) and (4) of the Code of

Conduct prescribed in Brokers Regulations.

38. As regards the allegation contained in 3.11 of SCN i.e. Noticee had submitted contract

notes which were not genuine and were not as per the format specified by exchanges and

has thus has violated the provisions of regulation (p) of PFUTP Regulations read with A(5),

B(2) of code of conduct contained in Brokers Regulations, I have noted from the

submission made by the Noticee that the noticee transmits the contract notes to its clients

electronically. In the instant case, the print outs of contract notes were taken on the new

letterhead only for the purpose of perusal by SEBI. Moreover, the new letter head mentions

the old name at the bottom of the new name. Thus taking print outs of contract notes on the

new letterhead, does not appear to me an attempt to falsify records for manipulation

purpose, as alleged in the SCN. I therefore dispose off the charge of violation of regulation

4(2) (p) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices), Regulations , 2003


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and regulation 7 of the Brokers Regulations read with Clause A(5) and clauses B(2) of the

Code of Conduct prescribed in Brokers Regulations, against the Noticee.

39. The next issue for consideration is as to what would be the monetary penalty that can be

imposed on the Noticee under Section 15HA and 15HB of the SEBI Act, 1992 for violation

of the provisions of Regulation 3 (b), (c), (d), 4 (1), 4 (2) (a), (b), (e), (g) and (n) of SEBI

(Prohibition of Fraudulent and Unfair Trade Practices), Regulations , 2003 and regulation 7

of the Brokers Regulations read with clauses A (1), (3) & (4) of the Code of Conduct

prescribed in Brokers Regulations.

40. The provisions of section 15HA and 15HB of SEBI Act,1992 as prevailing at the relevant

time are reproduced hereunder :

"Penalty for fraudulent and unfair trade practices

15HA 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."

Penalty for contravention where no separate penalty has been provided.

“15HB. Whoever fails to comply with any provision of this Act, the rules or the

regulations made or directions issued by the Board thereunder for which no separate

penalty has been provided, shall be liable to a penalty which may extend to one crore

rupees.”

41. Further, while imposing monetary penalty it is important to consider the factors stipulated in

section 15J of SEBI Act, which reads as under:

“15J - Factors to be taken into account by the adjudicating officer

While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have

due regard to the following factors, namely:-


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(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.”

42. It is difficult in cases of such nature, to quantify exactly the disproportionate gains or unfair

advantage enjoyed by the Noticee for each of the trades executed by it and the consequent

losses suffered by the investors. Even though the monetary loss to the investors cannot be

computed, any manipulation in the volume of the stocks caused by vested interest always

erodes investor confidence in the market so that investors find themselves at the receiving

end of market manipulators. However, it is pertinent to note that the Noticee for identified

clients engaged in the alleged transactions over a period of time, hence the Noticee has

defaulted repeatedly. It is also noted that Noticee is the broker, i.e., an intermediary who is

expected to behave in a responsible manner. Considering the volumes traded by the

Noticee over a period and the fact that Noticee is a registered intermediary, I am of the

view that the Noticee shall be subject to the monetary penalty. However for arriving at the

quantum of monetary penalty, I have given due weightage to the submissions made by the

Noticee before the Investigating authority which inter-alia reflect the preventive steps taken

by the Noticee in this regard. The submissions of Noticee stated “earlier we did not had

mechanisms and systems in place to check to illiquid scrips” and “we do not allow any

order of more than 5000 shares in illiquid scrip”. Further, as regards steps taken to identify

and report suspicious transactions, the noticee submitted that “parameters have now been

defined to track deals that appear abnormal”:

43. From the forgoing paragraphs, it is thus established that the Noticee has violated regulation

3 (b), (c), (d), 4 (1), 4 (2) (a), (b), (e), (g) and (n) of SEBI (Prohibition of Fraudulent and

Unfair Trade Practices), Regulations, 2003 and regulation 7 of the Brokers Regulations and

clauses A (1), (3) & (4) of the Code of Conduct.


4/20/2010 of 39

ORDER

44. After taking into consideration all the facts and circumstances of the case and also

submissions of the Noticee, I impose a penalty of Rs. 3,00,000 /- (Rupees Three Lakhs

only) under section 15HA and Rs. 2,00,000 /- (Rupees Two Lakhs only) under section

15HB on the Noticee which will be commensurate with the violations committed by it.

45. The penalty shall be paid by way of demand draft drawn 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 shall be forwarded to Division Chief, Investigation

Department, ID-3, Securities and Exchange Board of India, Plot No. C4-A, „G‟ Block,

Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.

46. In terms of the provisions of Rule 6 of the SEBI (Procedure for Holding Inquiry and

Imposing Penalties by Adjudicating Officer) Rules 1995, copies of this order are sent to the

Noticee and also to Securities and Exchange Board of India.

Date: April 20, 2010 Neelam Bhardwaj

Place: Mumbai Adjudicating Officer

before the adjudicating officer4/20/2010 page 1 of 39 before the adjudicating officer securities and...

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