before the adjudicating officer securities and … · 2018. 8. 16. · d0513 galaxy broking limited...

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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

(ADJUDICATION ORDER NO.AD/JP/PT/ /2010) In the matter of Investigations in the scrip of M/s. Jindal Polyester Ltd.; In the matter of 1. Galaxy Broking Ltd. (SEBI Regn. No. INB010882739; PAN No.AABCG5457B) 2. Bharati Thakkar India Securities Pvt. Ltd. (SEBI Registration No.INB010996432; PAN No. AAACB6484C) 3. Pilot Credit Pvt. Ltd. (SEBI Regn.No.INB011184935; PAN No.AAACP6004C) 4. Adolf Pinto Share & Stock Broker (SEBI Regn. No.INB010001810; PAN No.AABPA9750G) 5. Ajmera Associates Pvt. Ltd. (SEBI Regn. No.INB011185833; PAN No. AADCA7062J) 6. Mansukh Stock Brokers Ltd. (Earlier- Uttam Financial Services Ltd.) (SEBI Regn. No.INB010985834;PAN No.AAACU1576G)

Members – BSE ____________________________________________________________________

1. This order will dispose of 06 adjudication proceedings pending against

the captioned brokers (noticees) who had allegedly entered into

circular trade among themselves in the scrip of M/s Jindal Polyster

Ltd. during the relevant period.

2. These adjudication proceedings were initiated by Securities and

Exchange Board of India (SEBI) vide order dated May 08, 2006

appointing Shri Amit Pradhan as Adjudicating Officer (AO) who

issued a common Show Cause Notice (SCN) dated August 21,2006

alleging the violation of SEBI (Prohibition of Fraudulent and Unfair

Trade Practices) Regulations, 2003 (PFUTP Regulations) and Code of

Conduct as prescribed in SEBI (Stock Brokers and Sub Brokers)

Regulations, 1992 (Brokers Regulations)

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While the proceedings were pending, due to administrative reasons,

the proceedings were transferred to me vide order date August 07,

2009 directing me to proceed in the matter from the stage which was

reached before such transfer or from any earlier stage, as I may deem

fit.

3. Having perused the SCN dated August 21, 2006 and

replies/submissions/available records of the proceedings, I was of

the opinion that the inquiry should be held in the matters and

accordingly, I vide notice dated December 14, 2009/ March 03,

2010 gave the noticees one more opportunity to make their

additional/written submission, if any. They all were given personnel

hearing on February 25/26, 2010 and March 17, 2010 (as the case

may be) wherein their submissions were recorded/taken on record.

As the charges/allegation against all these noticees are similar and

have culminated from the same set of transaction conducted in the

same scrip during the same period, I decided to pass a common order

to enable me to take a holistic view in the matter. Accordingly, I

proceed to mention some background of the matter, examine the

allegation/replies received and record my findings thereon in the

following paragraphs.

4. On the basis of a report received from the Bombay Stock Exchange

Ltd. (BSE), SEBI conducted investigation into the price rise of the

scrip of M/s. Jindal Polyester Ltd. (scrip/Jindal) from Rs.104/- as on

June 20, 2003 to Rs.358.15 as on November 28, 2003 (investigation

period).

5. On the basis of price-volume data, as mentioned in the report of BSE,

it was noted that the price of the scrip increased by 256% in 115

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trading days. Total trading volume during the investigation period

was 7,62,134 shares.

6. From the analysis of trade log, it was observed that mainly 10 brokers

(including the noticees herein) had traded in the scrip during the

investigation period. It was also observed that top 10 brokers (on the

basis of gross purchase and gross sale) were the same. It was also

observed that these top 10 brokers had reversed their almost entire

position in the scrip during the investigation period.

7. It is also observed that during October 07, 2003 to November 28,

2003, there was a sharp increase in the price of the scrip from

Rs.212.05 to Rs.370.00 i.e. price rose by 75% in 40 trading days. The

total trading volume during the said period was 6,87,850 shares and

top 10 brokers accounted for 89.11% of the total trading volume in

the scrip.

8. On analysing the trade log for the investigation period, it was alleged

that out of 10 brokers, a group of 09 brokers namely Galaxy Broking

Ltd. (Clg.No.D0513), Bharati Thakkar India Securities Pvt. Ltd.(Clg.

No.D0737), Pilot Credit Pvt. Ltd. (Clg. No.D0909), Adolf Pinto Share &

Stock Broker (Clg. No.D0013), Ajmera Associates Pvt. Ltd. (Clg.

No.D0911), Mansukh Stock Brokers Ltd. (earlier known as Uttam

Financial Services Ltd.)[Clg. No D0779], NCJ Share and Stock

Brokers (0519), M/s Systematix Shares & Stocks (I) Ltd. (earlier

Southern Share and Stocks Ltd.) (Clg. No.D0182) and Pramod Kumar

Jain Securities Pvt. Ltd. (Clg. No.D0552) had entered into circular

trades among themselves. Some of these brokers executed these

trades for clients and also in their proprietary accounts whereas

some executed the trades only for their clients.

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9. Before proceeding further in the matter, it is pertinent however to

mention here that certain brokers namely M/s. Systematix Shares &

Stocks (I) Ltd. and M/s. Pramod Kumar Jain Securities Pvt. Ltd.

had filed Consent Applications with SEBI in terms of SEBI Circular

No. EFD/ED/Cir-01/2007 dated April 20, 2007 and the matters

were settled. Further, NCJ Share & Stock Brokers Ltd. has filed its

Consent Application which is pending as on date. Therefore, it would

not be appropriate to record any finding with respect to these

brokers. However, in order to appreciate the facts of this case, their

reference in the whole scheme of things cannot be avoided and will

be, therefore, recorded wherever necessary. It is, however, being

made clear that no adverse inference can be drawn against these

brokers pursuant to their name being mentioned in this order.

10. I note that the concentration of these top 09 brokers on gross as well

as net basis which was annexed to the SCN dated August 21, 2006

and is being reproduced herein to show that the gross sale and gross

purchase of these 09 brokers including the noticees, during the

investigation period was same implying that all these brokers had

reversed their entire position in the scrip.

Table A Top 10 Members From Jun 20 2003 To Nov 28 2003 For scrip code= 500227 Sorted on Gross Purchase Qty Member code Member name Purchase qty. % ---------- ------------------------------ ----------- ------------------------ D0519 NCJ SHARE & STOCK BROKERS 102053 13.39 D0182 SOUTHERN SHARES (CHENNAI) 98967 12.98 D0513 GALAXY BROKING LIMITED 95698 12.55 D0737 BHARATI THAKKAR INDIA SEC 94137 12.35 D0909 PILOT CREDIT CAPITAL SECURIT 54390 7.13 D0013 ADOLF PINTO 46130 6.05 D0197 NETWORTH BROKING LTD 33130 4.34 D0235 BONANZA STOCKBROKERS P 33049 4.33 D0911 AJMERA ASSOCIATES P. LTD.- 27395 3.59

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Rest % ----------- ----------------------------- 121089 15.88 Total Purchase qty – 762134 TABLE - B Top 10 Members From Jun 20 2003 To Nov 28 2003 for scrip code 500227 sorted on Gross Sale Qty Member code Member name Sale qty % cont. D0519 NCJ SHARE & STOCK BROKERS 102053 13.39 D0182 SOUTHERN SHARES (CHENNAI) 99966 13.11 D0513 GALAXY BROKING LIMITED 95698 12.55 D0737 BHARATI THAKKAR INDIA SEC 94337 12.37 D0909 PILOT CREDIT CAPITAL - MU 56846 7.45 D0552 PRAMOD KUMAR JAIN SECURIT 54590 7.16 D0013 ADOLF PINTO 46330 6.07 D0911 AJMERA ASSOCIATES P. LTD. 27545 3.61 D0779 UTTAM FINANCIAL SERVICES 24420 3.20 D0197 NETWORTH BROKING LTD 14631 1.91 Rest % ----------- ----------------------------- 145718 19.12 Total Sale Qty- 762134

11. Further, the summary of the day-wise circular trades having 0 second

time difference, executed by the brokers was also annexed to the said

SCN (as Annexure – 2B) and for the sake of better understanding is

being Annexed as Annexure – 1(Total 05 pages) and is part of this

order.

12. It is also noted that during October 07, 2003 to November 28, 2003

total 725 buy orders and 761 sell orders resulted in 9919 circular

trades creating volume of 5,69,230 shares aggregating 82.75% of the

total trading volume of 6,87,854 shares during the said period.

Further, I note from the trading pattern that circular trading was

done in a group of 03-04 brokers in the manner A→B→C→D→A.

However, no reversal between two brokers/entities was observed and

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same numbers of shares were routed in a circular manner among the

group on daily basis so that the same number of shares could go

back to the original seller at the end of the day making the net

position of each broker as zero. Following tables will explain the

nature of tradings executed by the noticees brokers.

Table C Circular trading executed by the noticees during October 07, 2003 to November 28, 2003. Sl. No.

Member Code

Member Name Dealt for (client)

Buy qty

No. of trades

% Cont. to circular trades

Sell Qty

No. of trades

% Cont. to circular trades

1. D0519 NCJ share and Stock brokers Ltd.

Own A/c 98281 1773 17.27 97906 1770 17.21

Sunil K Purohit

95471 1798 16.78 95371

1753 16.76

2. D0182 Southern Shares and Stocks Ltd.

Chirag Pujara -

- 700

19 0.12

Chaitanya P Raote, 91898

1690 16.15 92558

1692 16.27

3. D0513 Galaxy Broking Ltd.

Ramesh Jain 725 19 0.13 - - - Sayed Mustafa 83701

1710 14.71 84151

1737 14.79

4. D0737 Bharati Thakkar India Securities Pvt. Ltd. Premprakas

h Tanvi 1000 27

0.18 1500 36

0.26 5. D0909 Pilot Credit

Capital Ltd. Dipak Vyas

53401 681

9.38 53336 687

9.37 Arun Suryavanshi 51670

786 9.08 51790

808 9.10

6. D0552 Pramod Kumar Jain Securities Pvt. Ltd. Madhusuda

n K Nair 2100 45 0.37 500 6 0.09

7. D0013 Adolf Pinto Own A/c 44005 678 7.73 44080 681 7.75 Vikas Naknavar, 23960

251 4.21 24270

289 4.27

8. D0911 Ajmera Associates Pvt. Ltd Sunil

Purohit 950 3

0.17 775 9

0.14 Own A/c 21870 458 3.84 22045 431 3.87 9.

D0779 Uttam Financial

Services Ltd. VK Soni - - 50 1 0.01 Total 56903

2 9919 100 56903

2 9919 100

Table D

Details of buy and sell orders entered by the brokers involved in the

circular trades are as follows:

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Sl. No.

Member Code

Member Name No of buy orders by the broker which resulted in circular trades

No of sell orders by the broker which resulted in circular trades

Total no. of buy orders by the broker during the period of circular trades

Total no. of sell orders by the broker during the period of circular trades


112 114 124 133


113 113 130 138

3. D0513 Galaxy Broking Ltd. 110 103 116 107

4. D0737 Bharati Thakkar India Securities Pvt. Ltd.

169 158 185 186

5. D0909 Pilot Credit Capital Ltd.

60 61 63 61

6. D0552 Pramod Kumar Jain Securities Pvt. Ltd.

67 61 72 67

7. D0013 Adolf Pinto 52 52 60 58 8. D0911 Ajmera Associates Pvt.

Ltd 32 31 37 35

9.

D0779 Uttam Financial Services Ltd.

31 32 54 58

Table E

The details of no. of days on which these brokers have traded during the

period of circular trades and during the whole period of investigation are

as follows:

Sl. No. Member

Code Member Name No of days on

which the broker executed circular trades

Total no. of days on which the broker traded during the period of investigation


40 47


40 45

3. D0513 Galaxy Broking Ltd. 40 44

4. D0737 Bharati Thakkar India Securities Pvt. Ltd.

38 41

5. D0909 Pilot Credit Capital Ltd. 30 33 6. D0552 Pramod Kumar Jain Securities

Pvt. Ltd. 32 32

7. D0013 Adolf Pinto 23 24 8. D0911 Ajmera Associates Pvt. Ltd 20 23

9.

D0779 Uttam Financial Services Ltd. 20 21

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Table F

Details of circular trades – Time difference between interim buy/sell orders

Sl. No

Time diff. in seconds

No of trades

Volume % cont. to total circular trades

1. 0 2553 138777 24.39 2. 1 3099 193293 33.97 3. 2 1275 85104 14.96 4. 3 842 44324 7.79 5. 4 534 28691 5.04 6. 5 321 16739 2.94 7. 6 272 13712 2.41 8. 7 183 8208 1.44 9. 8 181 9291 1.63

10. 9 93 4359 0.77 11 10 138 7805 1.37 12. 10-60 352 16323 2.87

Total 9843 566626 99.58

13. The above tables are self explanatory and give clear picture about the

nature of transaction which was executed by the brokers. Table F

shows that for almost all the circular trades, the buy and sell orders

were placed within a time difference of 0-60 seconds and in almost

82.75% of the trades the buy and sell orders were identical in respect

of rate, quantity apart from being placed at almost same time. It is

further observed that for 2553 trades, there was 0 second difference.

Similarly for 3099 trades, the time difference in putting buy and sell

order was 01 second. I further observed that for 89.09% of the

synchronized trades the time difference was less than 05 seconds.

From this trading pattern which has lasted for 40 trading days, it

cannot be presumed that the matching was merely a coincidence.

These circular trades contributed for almost 82.75% of total market

volume during the relevant period and have resulted in not only

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creation of artificial volume but must also have influenced the price

rise.

14. Now I shall deal with the submissions made by the noticees:

A. Galaxy Broking Ltd. (Galaxy):

i) Pursuant to the Show Cause Notice dated August 21,

2006, vide letter dated September 27, 2006 Galaxy filed a

detailed reply wherein while denying the charges it inter-alia

submitted that the trades undertaken by it were within the

price band of the day and also that the price can be

influenced due to host of the reasons. It stated that in an

automated blind system of the Exchange, identity of the

counter party is not known and all the trades were

transparent. It only executed the trades for brokerage strictly

as per the instructions of the clients with no proprietary

trades and it was impossible, impracticable and unfeasible for

a broker to detect and perceive the intentions and objectives

of the clients.

ii) Galaxy further submitted that its client’s transactions

alone cannot be said to have influenced the price and SEBI

must first establish with credible evidence, the manipulative

intentions of its client. Further, it stated that for the

transactions of client, it is the client who is responsible, not

the broker. It further stated that 12.55% quantity traded by it,

is insignificant percentage of the total market volume of the

scrip during the investigation period and therefore the trades

executed by it can in no way be attributed to the alleged

manipulation. It further stated that even if the trades were

circular in nature, Galaxy was neither aware of the counter

party broker nor their clients. It further stated that the buy

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and sell orders which have been entered within a time

difference of 0-60 seconds are absolutely normal, reasonable

and permissible.

iii) Galaxy further submitted that SEBI (Prohibition of

Fraudulent and Unfair Trade Practices) Regulations (PFUTP

Regulations) may be attracted only if the transactions were

made with the intention of artificially raising or depressing the

price of securities so as to induce other person to buy or sell

the securities and to that extent SEBI has failed to provide

any instance of any investor being trapped by buying or

selling the scrip. Galaxy can be held responsible only if any

harm has been caused to any investor and not merely on the

possibility of the same. As regards, the Code of Conduct, the

broker submitted that it had exercised due skill, care and

diligence and therefore, no violation of the Code of Conduct

can be attributed to it.

iv) While the proceedings were pending the broker filed a

Consent Application for settlement of these proceedings in

terms of SEBI Circular dated April 20, 2007 and accordingly

the proceedings were kept in abeyance. However, no

settlement could be reached and the proceedings were

reopened. As explained earlier, in the meanwhile, the

proceedings were transferred to me. Having examined the

material available on record, I was of the view that the inquiry

should be held in the matter and accordingly vide letter dated

December 14, 2009 gave another opportunity to the broker to

file additional submission. The broker vide letter dated

January 21, 2010 sought personal hearing and leave to file

additional submissions. The hearing fixed for February 25,

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2010 was rescheduled to March 17, 2010 on the request of

the broker. The hearing was attended by Miss. Vasanti

Nagda, the authorize representative of the broker on March

17, 2010 at Mumbai. During the personal hearing she

conceded that the trades in question were executed by the

broker but, there were no property trades and all the trades

were executed for clients. She further submitted that the

broker is not in the broking business since 2006 and therefore

lenient view may be taken in the matter.

v) As is already stated, during the relevant period, 82.75%

trades in Jindal were executed by these set of brokers

(including the noticees herein) either for clients or for

themselves. It would be pertinent to examine the trades of the

noticees. If I analyse all trades, the order would become too

bulky. Therefore, In my view, it would be sufficient to give

illustration of trading pattern for 3-4 days (From Annexure 1

and other Tables mentioned in the earlier part of this order) to

show the nature of trades executed by these set of brokers

including the noticee herein.

Illustration 1 On 24.10.2003, 1050 shares were circulated between the following members as under 0013 ( Adolf Pinto) Sells to 552 ( Pramod Kumar

Jain) 552 ( Pramod Kumar Jain)

Sells to 911 ( Ajmera Associates )

911 ( Ajmera Associates )

Sells to 182( Southern Shares )

182( Southern Shares )

Sells to 519 ( NCJ)

519 ( NCJ) Sells to 737 ( Bharti Thakker ) 737 ( Bharti Thakker ) Sells to 513 ( Galaxy)

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513 ( Galaxy) Sells to 909 ( Pilot) 909 ( Pilot) Sells to 779 ( Uttam) 779 ( Uttam) Sells to 0013 ( Adolf Pinto) Illustration 2 On 30.10.2003, 875 shares were circulated as under 182( Southern Shares )

Sells to 513 ( Galaxy)

513 ( Galaxy) Sells to 0013 ( Adolf Pinto) 0013 (Adolf Pinto) Sells to 552 ( Pramod Kumar

Jain) 552 ( Pramod Kumar Jain)

Sells to 779 ( Uttam)

779 ( Uttam) Sells to 737 ( Bharti Thakker ) 737 ( Bharti Thakker ) Sells to 519 ( NCJ) 519 ( NCJ) Sells to 182( Southern

Shares) Illustration 3 On 16.10.2003, 1675 shares were circulated as under 513 ( Galaxy) Sells to 182( Southern Shares

) 182( Southern Shares )

Sells to 519 ( NCJ)

519 ( NCJ) Sells to 513 ( Galaxy) Illustration 4 On 15.10.2003, 1425 shares were circulated as under: 182( Southern Shares )

Sells to 513 ( Galaxy)

513 ( Galaxy) Sells to 519 ( NCJ) 519 ( NCJ) Sells to ( 825 shares ) 182( Southern Shares

) 519 ( NCJ) Sells to ( 600 shares ) 737 ( Bharti Thakker ) 737 ( Bharti Thakker ) Sells to ( 600 shares ) 182( Southern Shares

)

vii) Galaxy was involved in circular trades as can be seen from

the above tables. It emerges from the analysis of the trade log

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that the member joined hands with the other fellow members

and executed trades to give an appearance of trading. 110 out

of 116 buy orders and 103 out of 107 sell orders executed by

Galaxy resulted in circular trades. Further the member

executed circular trades on 40 days out of 44 days that it had

traded during the period under investigation. The member

bought and sold 95698 shares of Jindal for its clients which

accounted for 16.27% of the Circular Trade and 12.55 % of the

total traded volume during the relevant period in the market.

Accordingly, considering that almost all the trades were conducted

for clients, in the absence of any other material suggesting the role of

the broker in the matter, I give benefit of doubt on account of

violations of PFUTP Regulations but hold the broker guilty for

violating Clauses A(1), (2), (3), (4) and 5) of Code of Conduct as

prescribed under Broker Regulation.

It is made clear that the provisions of the relevant regulations of

PFUTP Regulations and Brokers Regulations, which are found to have

been violated, are not being reproduced in this order for two reasons.

First, to ensure that the order should not become too bulky and

Second, the facts established are squarely covered and are fitting in

the necessary ingredients of the relevant regulations. These

observations are being recorded to be applied with respect to all the

noticees.

B. Bharati Thakkar India Securities Pvt. Ltd. (Bharti):

i) From the records it is observed that pursuant to SCN

dated August 21, 2006 the broker vide letter dated September

06, 2006 submitted its detailed reply wherein while denying the

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charges it interalia stated that the trades in question were

carried out on behalf of two of its clients namely Mr. Sayyed

Mustafa and Mr. Prem Prakash Thanvi. KYC norms were

followed meticulously and it had no doubts about the intentions

of the trades executed by the clients. Further, the volume of

transaction of these clients was not huge so as to arise any

suspicion. It further submitted that it only acted as a broker

and was not a party to the alleged manipulation of two clients.

ii) The broker further submitted that it had not gained any

disproportionate or unfair advantage and no loss has been

caused to any investor which is a necessary ingredient u/s 15J

of SEBI Act and therefore no penalty could be imposed on the

broker which has earned only Rs. 11,271.19 as brokerage. The

personnel hearing took place before then AO on March 15, 2007

wherein the representative of the broker while reiterating the

submission made vide reply dated September 06, 2006 sought

and was granted time till March 26, 2007 to file additional

submission. It was categorically stated and recorded during the

hearing that there was no proprietary trade and there was no

nexus with the clients. The additional submission were filed

vide letter dated March 26, 2007.

iii) While the proceedings were pending the broker filed a

Consent Application for settlement of these proceedings in

terms of SEBI Circular dated April 20, 2007 and accordingly

the proceedings were kept in abeyance. However, no settlement

could be reached and the proceedings were reopened. As

explained earlier, in the meanwhile, the proceedings were

transferred to me. Having examined the material available on

record, I was of the view that the inquiry should be held in the

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matter and accordingly vide letter dated December 14, 2009

gave another opportunity to the broker to file additional

submission. The broker vide letter dated December 30, 2009

while reiterating the submission made vide letter dated

September 06, 2006 sought personal hearing. In response to

the specific query raised in this regard in my letter dated

December 14, 2009, the Broker categorically submitted that

BSE had not imposed any penalty on the broker for the trades

in question.

iv) The personal hearing was granted to the broker on

February 25, 2010 at Mumbai which was attended by Mrs.

Bharti Dhiren Thakkar, the director of the broking entity and

Mr. Akram Khan. During the personal hearing when confronted,

the broker conceded that a penalty of Rs.25,000/- was imposed

by BSE by holding these trades as circular trades via

structured orders placed by the broker. The broker also

informed that the amount of penalty paid by it. The broker also

conceded that certain trades were conducted in the proprietary

accounts also as per the advice of the client Mr. Mustafa and it

earned a profit of Rs.900/- out of said proprietary trades. The

representative of the broker further submitted that the

mistakes were inadvertent, without any malafied intention and

promised to be more vigilant in future.

v) As regards the charge, having carefully considered the

material available on record and written as well as oral

submissions I note from Table- A & B that the gross purchase

and sell quantity of the broker between June 20-Novemebr 28,

2003 was 12.35% and 12.37% suggesting that almost all the

trades were squared off. I further note from Table-C that total

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contribution of the circular trades executed through the broker

was approximately 15% of the total circular trades executed

during the relevant period. Out of that, 14.79% was traded for

one client Shri Sayed Mustafa which is considerably high.

During the personal hearing before me on Feb 25, 2010 the

representative conceded of having executed proprietary trades

also on the advice of Shri Mustafa. This suggests that the

broker has not only failed to stop/monitor the trade of its client

but also bought shares on the advice of said client. This is a

sort of role reversal wherein a broker is acting on the advice of

its client.

From Table ‘D’ it is clearly established that out of 185 buy-

orders placed by the brokers, 169 orders resulted in circular

trades. Similarly, out of 186 sell orders, 158 orders resulted in

circular trades. From Table ‘E’ I note that out of 41 days of

trading, 38 days the broker has executed circular trades.

During this period, Bharti bought 94,137 shares and sold

94,330 shares mostly for its clients which are almost 12% of

the total volume in the market.

Nature of trades executed by the broker have already been

illustrated by way of 04 illustrations given in the matter of

Galaxy and are not being repeated but are relied upon herein

also. The last paragraph in Galaxy is also adopted herein.





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C. Pilot Credit Pvt. Ltd. (Pilot):

i) From the records it is observed that pursuant to SCN dated

August 21, 2006, the broker vide letter dated September 04,

2006 submitted the detailed reply and also enclosed a letter

dated September 20, 2005 submitted by it to SEBI during the

pendency of the investigation. The personal hearing was

conducted on October 03, 2006 before the then AO wherein the

representative while relying upon its aforesaid reply submitted

letter dated September 22, 2006 and sought time to file copy of

the client agreement and details of the trades of the said client.

They specifically stated that apart from the aforesaid, they have

no further submission. Vide letter October 04, 2006, they filed

the aforesaid documents.

ii) While the proceedings were pending, it filed Consent

Application with SEBI. However, no settlement could be arrived

at and proceedings were reopened. In the meanwhile the

proceedings were transferred to me. Having examined the


should be held in the matter and accordingly vide letter dated

December 14, 2009 gave another opportunity to the broker to

file additional submissions. The broker vide letter dated

December 31, 2009 submitted certain documents which were

filed by it during the consent proceedings. These documents

however, in the absence of any specific request in this regard,

cannot be taken on record in the present proceeding. Vide letter

dated December 31, 2009 the broker sought personal hearing.

Accordingly, the broker was granted personal hearing on

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February 25, 2010 at Mumbai which was attended by its

director Sh. Praful A Shah.

iii) During the course of personal hearing the representative

interalia submitted that the trades were executed in the year

2003 and it is difficult to recollect all the happenings, records

and clients after seven years for information. He further

submitted that no alerts were generated by the Exchange and it

is difficult for a broker to monitor and stop such trades. Broker

has also stated that the BSE has imposed a penalty of

Rs.25000/- for those trades.

iv) In order to not repeat the arguments (including last para)

and illustrations mentioned in the matter of Galaxy the same

are hereby relied upon and referred to. From the tables

mentioned in he earlier part of this order, it emerges that the

member joined hands with the other fellow members and

executed trades to give an appearance of trading. Out of 63, 60

buy orders put by the broker resulted in circular trades.

Similarly, out of 61 sell orders all 61 resulted in circular trades.

Further the member executed circular trades on 30 days out of

33 days that it had traded during the period under

investigation. The member bought 56096 and sold 56846

shares of Jindal for its clients which accounted for 7.45 % of

the total traded volume in the market.





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D. Adolf Pinto Share & Stock Broker (Adolf Pinto)

i) From the record, I note that pursuant to SCN dated

August 21, 2006 the broker vide its letter dated August 31,

2006 submitted its reply wherein while denying the alleged

circular trading in its proprietary account and creation of

volumes, it submitted that out of 47 days the broker had traded

mearly on 23 days in the scrip of Jindal which is highly active

B1 group scrip. Further, the volume of the broker was only 6%.

The matching was only a coincidence with no knowledge of the

opposite party as these transactions were only jobbing

transactions. It was further submitted that the broker has

already been penalized by BSE which has imposed a fine of Rs

25,000/- vide its letter dated April 15, 2005.

ii) Having examined the reply, vide letter dated February 26,

2007 the then Adjudicating Officer called upon the broker for

personal hearing on March 16, 2007. The broker vide its letter

dated February 27, 2007 resubmitted its reply dated August 21,

2006. From the record, I note that the hearing was conducted

on April 16, 2007 wherein Shri Adolf Pinto, Proprietor of the

broker appeared and submitted that he wished to rely upon the

submissions already made vide their letter dated February 27,

2007.

iii) Vide e-mail dated June 11, 2009, the broker informed the

then Adjudicating Officer that it had filed the Consent

Application with SEBI. As already recorded, in the meanwhile,

proceedings were transferred to me and were kept pending as

the Consent Application was pending. While the Consent

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proceedings were pending the broker vide its e-mail dated

January 28, 2010 to SEBI requested for withdrawal of the

consent application which was accepted by SEBI. Accordingly,

vide communication dated March 02, 2010 I was advised to

recommence the proceedings from the stage at which the same

was kept in abeyance.

iv) Having perused all the available documents I was of the opinion

that the Inquiry should be held in the matter and accordingly

vide letter dated March 03, 2010 the broker was advised to

submit additional written submission, if any and appear either

personally or through authorized representative, before the

undersigned on March 17, 2010 at Mumbai for personal

hearing. As I was to travel to Mumbai only for the purpose of

personal hearing, an official from my office at Delhi personally

called the proprietor of the broker Shri Adolf Pinto over is cell

(his cell no. was mentioned in the e-mail sent in June, 2009 to

the erstwhile AO informing filing of Consent Application by him)

informing that the personal hearing is being scheduled on

March 17, 2010, which was agreed by the broker. As requested

by him, all the back papers including the SCN and replies

available on record were forwarded to him through Registered

Post AD. He requested to forward those papers to his residential

address also (at 23, Atmaram Building, St. Francis Zavier Lane,

Tkauirdwar, Mumbai-400 002). I signed both the letters to be

sent to both the addresses ie. his office address at Dalal Street,

Mumbai and his address at Tkauirdwar, Mumbai. Both were

directed to be sent th. Regd. AD. It however seems that due to

some mistake on the part of the dispatch of my office, which I

must concede, the copy of the letter dated March 03, 2010 was

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sent only to his old address (Dalal Street), and not to his

residential address.

v) On the date of the hearing, when contacted over phone

from SEBI’s Mumbai office, he denied having received any

notice for the hearing on March 17, 2010. When confronted by

the concerned official from Delhi office who had been in contact

with Shri Pinto, he informed that he is not well. Shri Pinto was

then advised to make appearance through his representative.

Accordingly, at 2.30 p.m., Shri Vikas Bengani, authorized

representative appeared before me and submitted an authority

letter from Shri Adolf Pinto stating interalia as under :

“ 1. I do not recollect whether I have received the Show Cause Notice in the above matter as it might have sent three-four years back. I made all efforts to search Show Cause Notice but could not find it.

2 ………………….. 3. I had also appeared before Shri Amit Pradhan, the then Adjudicating Officer, and I was under the bonafide impression that the Adjudicating Proceedings were over. 4. However, when I came to know that the Adjudicating Proceedings were still continuing, I filled Consent Application but withdraw it subsequently. 5. Today I received phone call from your legal officer asking me whether I am attending the Hearing fixed for today. However I have not received any Notice of Hearing said to have been sent though Registered Post. Since I am not aware the content of the SCN, I hereby Authorize Sri Vikash Bengani to appear before you and make further submission in the said matter if so required. He is also authorize to take inspection of documents and please allow him to take a Xerox copy of documents which may required by me.”

vi) During the course of Personal Hearing the representative

inter alia submitted that Adolf Pinto is a proprietary broking

firm and is not in the broking business for approximately 04

years. He also stated that copy of the SCN dated August 21,

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2006 was not received by the noticee. Though I was conscious

of the fact that the copy of the original Show cause notice dated

August 21, 2006 was indeed received/available with the noticee

and he was just trying to delay the proceedings, which I shall

demonstrate in subsequent paragraphs, in the interest of

justice and to ensure that he should not raise this grievance in

future, as requested, copies of SCN and other letters exchanged

between AO and the noticee were again provided to the

representative. Further, on his request the noticee was granted

time till March 23, 2010 to file additional written submissions.

It was made clear and agreed by the representative that no

further opportunity of personal hearing and/ or for filing

written submission shall be granted.

vii) The noticee forwarded his written submissions dated

March 19, 2010 which was received on March 22, 2010. I was

surprised to note the contents of the same and therefore,

reproducing it hereinunder:

“ 1. My Authorized Representative Mr. Vikas Bengani has appeared

before your good self and made submission in the above matter on my behalf. He was also provided copies of certain documents including copy of Show Cause Notice (SCN) dated 21-08-2006 along with annexure thereto.

2. In the Annexure 2 to the SCN it is stated that the Investigation

in the scrip of Jindal Polysters Ltd was initiated on the basis of report received from BSE, however I have not been provided with a copy of the said BSE Report. I request you to provide the same to me.

3. I wish to humbly submit that my Authorized Representative Mr.

Vikas Bengani made specific request for providing the complete copy of the Investigation Report, he was provided only annexure 2 to the SCN which contains only certain selective finding of the Investigation in the Scrip of Jindal Polysters Ltd. I therefore once again request you to provide me complete copy of the Investigation Report to enable me to make my submissions on

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the alleged violation of the FUTP Regulations and Code of Conduct as applicable to Stock Brokers.

4. The Table given on the Page 2 and 3 to the Annexure 2 contains

some cuttings. I am not clear whether such cuttings are to be ignored or not by me.

5. I also find from the SCN that trade and order log for the

Investigation Period was analyzed to uncover any instance of manipulatative trades. It is further stated in the SCN that the Price Volume Date for the period was analyzed in conjunction with the corporate news and development reported during the period by the Jindal Polysters Ltd. I have not been provided any details of such analysis and hence I can not deal with the alleged finding made in the Investigation Report unless I am provided with the copies of Corporate News and Development reported during the period which were relied by the Investigation Authority while making the analysis of price volume data in conjunction with the corporate news and development reported during the Investigation Period. I therefore request you to provide me with all the material relied by the Investigation Department while making the analysis as stated in the SCN.

6. While going through the Trade and Order Log (Annexure 2 C) I

find that the trade and order logs do not contain the entire trading volume of the Investigation Period and only selective data have been picked up from the sources not disclosed in the said annexure.

7. Moreover in the Table under 1.2.4 (d) of the Annexure 2 at serial

number 7 under the heading dealt for (client), it is mentioned “Own A/c” whereas in annexure 2 C does not reveal that I have done any trade in my own account.

8. I deny that I had accounted for majority of market volume and

contributed to creation of artificial volume and price rise in the scrip of Jindal as alleged as the data provided to me does not reveal any such market manipulation as alleged.

9. The trades executed by me on behalf of my clients where at

prices which had already moved up and hence the charge of the price rise is not substantiated against me.”

viii) From the contents of these letters, I am forced to take

note of the conduct of the noticee and deal with the same. This

is a universally acceptable preposition that the principals of

natural justice have to be followed before condemning anybody.

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However, in my view this is also to be kept in mind that in guise

of principals of natural justice, the process of law should not be

allowed to be misused. The natural justice also demands that

the person who seeks justice must come with the clean hand.

However, the noticee has not approached the present

proceedings before me with clean hand which I will demonstrate

herein under.

ix) The records show that pursuant to SCN dated August 21,

2006, the noticee replied on merit vide its letter dated August

31, 2006, confirming that he indeed received show cause

notice. He wrote a letter dated February 27, 2007 to the then

adjudicating officer again confirming having received the notice.

He also appeared before the then Adjudicating Officer for

personal hearing on April 16, 2007. The record of the said

proceedings does not suggest that he had, at any point of time

stated that he had not received the SCN. He had also not

objected to the contents and correctness of the SCN or the data

mentioned therein. It would be pertinent to quote the question

and answer of the said proceedings as under:

“Q.1 Do you have anything different to say than what you have submitted in your written reply in the above proceedings.

Ans: We wish to rely on the submissions made vide our reply

dated 27.02.2007 for the purpose of this inquiry. Q.2 do you have anything further to submit. Ans. No.”

x) Record also shows that the noticee filed the Consent

Application with SEBI sometimes in June 2009. As per the

requirement of the Consent Circular dated April 20, 2007,

SEBI does not process an Application for Consent without

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there being annexed certain documents with it and SCN is one

of such mandatory document. In such a case it is not possible

that the noticee did not have the copy of the same. That

means that he was having the copy of the SCN in June 2009.

In such a case, how he can be allowed to state (vide his letter

dated March 17, 2010) that he does not recollect having

received the SCN ? If he did not receive the SCN, then why

and what for he filed Consent Application in June 2009 ?

What he wanted to settle vide his Consent Application

no.1376/2009 ? As already recorded, SCN is a mandatory

document to be attached with Consent Application and

without which, no consent application is processed. Therefore,

I hold that the SCN was indeed available with him, which he

filed with his Consent Application in June 2009. Still, for

delaying and frustrating the present proceedings, he is

pleading ignorance of having receive the SCN. His dilatory

tactics are exposed again from the fact that he applied for

Consent, proposed certain amount as settlement terms, which

were accepted. However, when he was advised to pay the

amount offered by him, he withdrew the Application. Though I

have no access to the Consent Application file, I am recording

these findings on the basis of the familiarity I have with

respect to the consent process being adopted by SEBI.

Therefore I hold that the noticee is lying on not receipt /non

availability of the SCN dated August 21, 2006 with him.

xi) From this, I conclude that the noticee is not serious on

contesting the case on merit and only adopting the dilatory

tactics to delay and frustrate the process of law. This

observation gets support from the fact that at no point of time

since the proceedings were initiated vide SCN dated August

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21, 2006, he had ever questioned the correctness or otherwise

of the data given in the SCN or sought copies of the

documents ( Investigation report of BSE,SEBI, details of

analysis done by SEBI , corporate news and development

report as referred to in the investigation report/show cause

notice, all material relied upon by the investigation

department etc.) or indicated any mistake in the data provided

by the SEBI, which it had done vide its reply dated March 21,

2010. Rather, it is on record, as reproduced above (supra),

during the personal hearing dated April 16, 2007 when the

then AO asked him as to whether he had anything further to

submit his answer was categorical “NO”. In such a case the

objections/doubts raised/ documents sought vide its letter

dated March 21, 2010 are nothing but a dilatory tactics. As a

matter of facts all the relied upon and relevant

documents/information in support of the charges were

furnished to the noticee vide show cause notice dated August

21, 2006 whereby the relevant extract of the investigation

report was also annexed which interalia contained the

analysis also. At no point of time the noticee ever questioned

the veracity of the data and therefore in my view he is estoped

from raising these issues at this belated stage. The notice

dated March 03, 2010 was issued by me in the interest of

justice and fair play in order to give the noticee one more

opportunity to make further/additional submission and he

can not be allowed at this stage to start all over again and ask

preliminary document. If these documents/information was

relevant he should have asked at the very first instance and

not after more than 3½ years from the date of SCN/his first

reply.

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xii) From the fact that he appeared before the erstwhile AO

and than filed a Consent Application in August 2009, which

can only be filed when the copy of show cause notice is

attached therein, it is impossible to agree with the contention

made vide letter dated March 17, 2010 that he had not

received the SCN.

xiii) In the foregoing paragraph I have demonstrated the

deplorable conduct of the broker, who, at every stage had tried

to frustrate the proceedings and now when I refused to allow

him to further delay the proceedings, he came out with an

ideas of raising basic and preliminary objections/doubts and

seeking new information which he should have done at the

very first instance in 2006. I note that there are so many

instances where Courts including Hon’ble SAT has taken a

strong view on these dilatory tactics and inappropriate

conduct of the parties before them. Taking guidance from the

same, I am of the view that this is high time that a strong

message be sent to the market and the entities like the noticee

herein that they will not be allowed to take the proceedings of

a market regulator lightly and also will not be allowed to play

mischief with the process of law. For these reasons, I am not

inclined to allow the noticee to abuse the process of law any

further and shall proceed with the matter on the basis of the

available records. It is, however, made clear that the conduct

of the noticee shall not influence my findings on the merit of

the case and also the imposition of penalty, if any, shall be

based only on the facts of this case.

xiv) As regards facts of the case, I note that the broker

bought 46,190 shares and sold 46,390 shares of Jindal on

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behalf of Shri Kenneth Adolf Pinto who is the son of Shri Adolf

Pinto. These trades constituted 6.05% of the total traded value

in the market and 8% of the total trades which were executed

in circular manner. In the scheme of the things as they appear

and already recorded in the context of Galaxy Broking Ltd.

even 6% trading by a proprietary broking concern in the name

of his son does not appear to be merely a coincidence and in

my view, in a considerable liquid scrip like Jindal (B1 group)

the concentration of 6% is significant. As the trading was done

in the account/name of his son, it was nothing but

proprietary trading. In such a case the matter becomes

serious and the trades executed by the broker which are part

of the 82.75% of the total circular trading volume of the total

89.11% of trading in the scrip which was executed by set of 9

brokers during a relevant period can safely be concluded to be

circular trades to create artificial volume effecting volume and

price of the scrip of Jindal.

xv) I further note from the 04 illustration given in the

matter of galaxy which are not repeated but being relied upon

herein. I note that the noticee was the part of the group of

brokers and executed circular trades in proprietary account.

52 out of 60 buy orders and 52 out of 58 sell orders resulted

in circular trade during the relevant period. Further the

member traded in circular trades on 23 days out of 24 days

that it had traded during the period under investigation. The

member bought 44005 and sold 44080 shares of Jindal during

October 7 to November 28, 2003 which accounted for 6.00 %

of the total traded volume in the market.

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In view of the aforesaid and adopting last para of Galaxy

(supra), I find that the broker has violated the provisions of

Regulation 4 (2) (a), (b),(e),(g) and (n) of PFUTP Regulations. Further

the broker has also failed to adhere to the Clauses A (1), (2), (3), (4)

and (5) of Code of Conduct as prescribed in Schedule II of SEBI

(Stock Brokers and Sub-Brokers) Regulations, 1992 and deserve

appropriate penalty for its misconduct.

E. Ajmera Associates Pvt. Ltd.

i) From the records it is observed that pursuant to the Show

Cause Notice dated August 21, 2006, the broker vide its letter

dated August 31, 2006 stated that it had already replied on the

charges vide its letter dated September 03, 2005, (without

enclosing the copy of the same which he might have forwarded

to Investigating Officer). The broker further stated that it had

no further clarifications to offer and reiterated that it had

transacted on behalf of its client only and acted as a mere

intermediary. The broker further informed that subsequent to

the letter from the then AO, it had stoped all business with the

particular client. There appears to be some communication gap

and therefore vide letter dated September 04, 2006 the broker

submitted to the AO that it was in the process of filing its reply.

Vide letter dated September 12, 2006 the broker filed detailed

reply wherein while denying the charges, it inter alia submitted

that it has acted only as a broker as per the instruction of the

client. The clients had mainly affected speculating transactions

and throughout the course of business the broker had no

complaint against the client. The synchronised trades, if any,

might have been between the clients and broker was not aware

about the same.

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ii) It further submitted that the nature of the transactions in

the scrip of Jindal did not trigger any doubt in its mind and the

same were executed for and on behalf of the client as per his

instructions. The price rise from June 2003 to August 2003

was sufficient to motivate a person in entering into the

transactions in the said scrip. While giving the details of the

transactions of its client, the broker denied that it entered into

the circular/synchronised trades and thereby violated any of

the provisions of circulars/regulation(s).

iii) A personal hearing took place before the then AO on

March 16, 2007, wherein while reiterating the submission dated

September 12, 2006, the broker sought and was granted time to

file additional submissions. Vide letter dated March 26, 2007

the broker submitted comparative turnover figure of the trades

conducted by the client of the broker.

iv) While the proceedings were pending, the broker filed

Consent Application with SEBI. However, no settlement could

be arrived at and proceedings were reopened. In the meanwhile

the proceedings were transferred to me. Having examined the


should be held in the matter and accordingly vide my letter

dated December 14, 2009 gave another opportunity to the

broker to file additional submissions. The broker vide letter

dated December 30, 2009 sought personal hearing. Shri

Ashish Ajmera, the representative of the broker appeared for

personal hearing before me on February 25, 2010 at Mumbai.

He inter alia submitted that the clients were day traders and

had sufficient credit balance in their accounts. They were

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introduced by the associates of the broker and the broker did

not have any doubt on their credentials. He further stated that

the clients had traded only 20 days during the investigation

period.

v) He further stated that broker did not have any

mechanism to know the counter party. The scrip was thinly

traded and therefore the chances for trades being matched were

more. The data provided by SEBI only contains the order which

were matched and not the order which were placed. SEBI has

not initiated any action against the clients and punishing the

broker. The trades executed through/by the broker constitute

only 4% of the total volume and deserve no penalty to the

broker. While referring the reply March 26, 2007 he stated

that the contribution of these clients vis-a-vis the total volume

was minuscule. He informed that BSE had only warned it for

these trades. He agreed to submit the details of all the actions

taken/pending by/with SEBI. However, did not do so till date.

vi) As is clear from the Tables A-F and illustration given in

the matter of Galaxy, which are not repeated but being relied

upon herein, the broker was involved in circular trades. It

emerges from the analysis of the trade log that the member

joined hands with the other fellow members and executed

trades to give an appearance of trading. 32 out of 35 buy order

and 31 out of 37 sell orders resulted in circular trades. Further

the member traded in circular trades on 20 days out of 23 days

that it had traded during the period under investigation. The

member bought 27395 and sold 27545 shares of JPL for its

clients which accounted for 4 % of the total traded volume in

the market. As 4% is not very significant volume and also that

the trades were executed for clients I give benefit of doubts to

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the broker on the charges under PFUTP Regulations but while

adopting observations recorded in last para of Galaxy (supra),

hold it guilty on its failure to comply with Clause A (1),(2),(3),(4)

and (5) of Code of Conduct for Brokers specified in Schedule II

under Regulation 7 of SEBI (Stock Brokers and Sub Brokers)

Regulations, 1992.

F. Mansukh Stock Brokers Ltd.

i) From the records it is observed that pursuant to the

Show Cause Notice dated August 21, 2006, the broker vide its

letter dated September 27, 2006 filed a detailed reply stating

interalia that the charges alleged by SEBI are based on

assumption and are without any basis. No mens-rea has been

alleged against the broker and Annexure-2 to the show cause

notice contains several statistical inaccuracy. If the trades have

happened among few entities the reason of that could be the

lack of generalised interest in the scrip, rather than circular

trading as alleged. The buy and sell quantity of the trade are

not the same. Its volume in JPL was only 3.09% of the total

volume of the scrip and such a small volume can not be

attributed to any sizable increase in the volume/price. It is

wrong on the part of the SEBI to club its volume with 08 other

brokers and arrive at a high figure. All the orders were executed

on the screen and it was impossible to know as to who is the

counter party. All the transactions were in the nature of

jobbing transactions and no delivery were given or taken in any

settlement. The broker had no relationship of any nature

whatsoever with other broker/clients. It traded only for 70

days in the whole period of 06 months. It had dealt in around

23595 shares during the said period.

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ii) I note from the records that during the personal hearing

before the then AO on October 16, 2006, the representative of

the broker while reiterating the submission made vide letter

dated September 27, 2006 interalia had raised doubts about

the correctness of Annexure 2C of show cause notice containing

order log. Subsequently the broker submitted additional

submissions vide letter dated November 04, 2006 by and large

reiterating the submissions already available on record.

iii) While the proceedings were pending, the broker filed

consent application with SEBI. However, no settlement could

be arrived at and proceedings were reopened. In the meanwhile

the proceedings were transferred to me. Having examined the


should be held in the matter and accordingly vide my letter

dated December 14, 2009, I gave another opportunity to the

broker to file additional submissions. The broker vide letter

dated December 19, 2009 sought personal hearing at Mumbai

and also informed the change of name from Uttam Financial

Services Ltd. to Mansukh Stock Brokers Ltd. On February 26,

2010, Mr. Prakash K Shah appeared for personal hearing at

Mumbai and reiterated the earlier submissions. While referring

the minutes of hearing dated October 16, 2006 he stated that

he is not pressing his submissions regarding correctness of

data provided. He further submitted that BSE had only warned

the broker for these trades as very few trades were executed.

The broker had carried out intra-day trading in almost 400

scrip and there was no reason to suspect that the trading in

Jindal was manipulative. He further stated that in Annexure-1

of the Show Cause Notice, which contains four Tables, the

name of the brokers is figuring in only one Table (in gross sale

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quantity) suggesting that broker was not involved in the alleged

synchronised/circular trades. The matching was only

coincidence and may be ignored.

iv) From the facts of the case and while referring to and

relying upon the illustrations given and observations made in

the last para in Galaxy (supra), I note that the broker was

indeed involved in circular trade. I however note that 31 out of

54 buy orders and 32 out of 58 sell orders resulted in circular

trades, which is low when compared with the trading pattern of

other brokers. Further, in broker’s name is figuring only in

Table-B (Gross sell) suggesting all trades were not squared off.

As the trades of broker were only 3% of the total volume,

without giving the clean chit, a benefit of doubt can be given to

it with respect to the violations of PFUTP Regulations. Probably,

due to this fact only, even BSE had not imposed any penalty

and had only warned the broker. Still, as the trades were

primarily done in its own account, I treat this a serious lapse of

Code of Conduct and hold broker guilty of violation of Clauses

A(1), (2), (3), (4) and (5) of Code of Conduct under Broker

Regulations.

15. Before proceeding further and examining as to whether the brokers

are liable to be penalized Under Section 15HA and/or 15HB, it would

be pertinent to deal with certain general contentions which were

raised by the noticees.

i) I agree with the brokers that the transactions of its client

alone could not have influenced the price. The trades of a

particular client of a broker could be minuscule if taken in

isolation. However, one person might be performing its role in

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the big scheme of the things wherein various client/ brokers

may be acting in collaboration while assigning a specific role to

a specific client/ broker, in order to avoid easy detection. The

system has been placed and is being improved from time to

time to minimize the misconduct. However, there are always

possibilities and scope to circumvent the process for individual

gains. As regards, the plea that the matching was due to

coincidence, considering the number and nature of matched

trades, I can only say that this was too much of a coincidence

wherein almost all trades matched in time, quantity and also in

price.

ii) I do not agree with the contention that SEBI need to prove

manipulative intention before holding somebody guilty.

Sometimes things speak for themselves which has happened in

the present case wherein in a considerable liquid scrip of Jindal

(B1 Group) a set of 09 brokers contributed almost 82.75% of

the total trading volume during the relevant period which was

circular in nature. I also do not agree that it is the client alone,

whose trades were manipulative in nature, was responsible for

the same and not the broker. Thought the degree/ extent of the

responsibility may differ, a broker being a market intermediary

cannot blame only the client and say that the trades were

conducted only for brokerage. This position, if accepted, may

lead to dangerous consequences wherein it will be free for all,

without any regulation and control. Broker being a SEBI

Registered Market intermediary, is subjected to various SEBI

Regulations and also the Code of Conduct prescribed for it and

has to abide by them in letter as well as in sprit to ensure that

trades in the market take place in a fair manner.

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iii) The coincidence, if any, could be once or twice. But, if

there is a series of such transactions conducted by some

specific brokers/clients within a specific time period, they are

bound to raise suspicion and the same has been done in this

case also and even BSE who is the first level regulator has

imposed penalties ranging from warning to Rs.25,000/- on the

brokers for these trades. As the same has been accepted by the

brokers, an inference is drawn that the brokers have accepted

the alleged misconduct.

iv) I also do not agree with the contention of the broker, that

it can be held responsible for the violation of the SEBI (PFUTP)

Regulation only if some harm has been caused to the investor

and not merely on the possibility of the same. SEBI as a

market regulator cannot afford to sit with folded hands and

wait for actual harm being caused. It is the duty of the SEBI to

prevent such harms and take action for any mis-conduct which

has potential for causing any harm to the market/ system.

v) As regards the contention that it was impossible,

impracticable and unfeasible for a broker to deduct and

perceive the intention of a client and putting a burden on SEBI

to first prove the intention of a client apart from referring to the

judgment of Hon’ble Supreme Court in the matter of Shri Ram

Mutual Fund, I wish to rely upon a recent judgement dated

March 22, 2010 of Hon’ble SAT in Appeal No.163/2009

(Galaxy Broking Ltd. VS SEBI) in the matter of same broker.

In the said Appeal also the broker had sought to take similar

plea of not knowing the intention of the client. Hon’ble SAT

having perused the trade and order logs has observed as under:

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“The appellant executed such trades not only on behalf of Rajesh Kantilal Shah but also on behalf of other clients as well. Reverse trades are fictitious and do not transfer the beneficial ownership in the traded scrip and they are meant only to increase the volumes on the screen of the exchange which generates investor interest. It is on account of such trades and increase in volumes that the lay investors get trapped. The charge levelled against the appellant, thus, stands established.”

vi) As regards, the contention that the trades were executed

for the clients, I would also like to cite another Judgment dated

September 18, 2003 in Appeal No.46/2002 by Hon’ble SAT in

the matter of Madhukar Seth VS SEBI wherein SAT has

observed:

“Before executing a series of transactions for his client, any prudent broker would have gone a bit far to ascertain the goings around ……..

……..The Appellant’s submission that he had taken client registration form, entered into agreement etc .by itself was not sufficient. Exercise of due diligence in ongoing transactions is a continuous process and it is not a one time measure to be adhered to while taking up the first transaction. The appellant’s submission that it was B’s dishonesty that created the problem did not absolve him of his failure to discharge his duties as a prudent broker……..””

In this case, which was standing on the similar footing as that of the

present case, the Hon’ble SAT noted that the nature of the series of

similar transactions and observed that if the Appellant could not see

any design or pattern in the transactions of its clients, the Appellant

certainly to be blamed for being indifferent and unconcerned and

held that the Appellant Broker had failed to exercise its due skill and

diligence. The SAT further observed that :

“it is true that the broker cannot act of his own against the instructions of its client but no one can compel him to be a party to manipulate the market. No doubt the broker is supposed to protect the interest of its client but he is also expected to protect the interest of the securities market in which he operates. It is his duty to ensure not to be a party

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to any market manipulation and that the market in which he operates is run on a healthy and non-manipulative basis.”

vii) From the aforesaid, it is also clear that it is not

necessary to prove that any investor really suffered the loss

because of the misconduct. It will be enough to take

disciplinary action against an entity if the violation is

established. One more recent judgement of SAT is also very

pertinent in this regard. The facts in Appeal No.188/2009-

M/s. Pilot Credit Pvt. Ltd. VS SEBI were almost similar to

that of the present case wherein SAT has agreed with the

finding of AO that broker had manipulated the scrip and

indulged in circular trading.

viii) I further note that none of the brokers have disputed

trades alleged to have been conducted by them. Though only

the trade and order logs having 0 second time difference were

annexed to the SCN, except Adolf Pinto, whose objections I

have refused to take on records at this belated stage and

Mansukh, who has subsequently not pressed these objections,

none of the other noticee has raised any serious doubt on the

correctness of the findings with respect to other alleged trades

having time difference of 1-60 seconds. Therefore, I take that

they have accepted that the trades in question were executed

by them. In view of the above, I find these transactions were

instrumental in creating artificial volume and manipulating the

price.

17. Having recorded the above findings now I shall deal with the

provisions of Section 15HA, 15HB and 15J to examine as to whether

the violation established above fall within the purview of these

sections and if so what penalty, if any, should be imposed on the

noticees for their misconduct.

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18. Section 15 HA and 15HB of the SEBI Act, 1992, read as under:

15HA

“Penalty for fraudulent and unfair trade practices.

If any person indulges in fraudulent and unfair trade practices relating

to securities, he shall be liable to a penalty of twenty-five crore rupees

or three times the amount of profits made out of such practices,

whichever is higher.”

As can be seen from the above, I have held Adolf Pinto to have violated

the provisions of PFUTP Regulations and thus for the reasons

recorded with respect to his role (supra) he is liable for suitable

penalty under Section 15HA.

15HB

“Penalty for contravention where no separate penalty has been

provided”

Whoever fails to comply with any provisions this Act, the rules or the

regulations made or directions issued by the board there under for

which no separate penalty has been provided, shall be liable to a

penalty which may extend to one crore rupees. “

I have found and held all the noticees to have violated the Code of

Conduct as prescribed for the broker and therefore, they are all liable for

appropriate penalty under Section 15HB.

19. As regards quantum of penalty, the factors laid down Under Section

15J of SEBI Act have to be given due regard, which are as under:

(i) the amount of disproportionate gain or unfair advantage, wherever

quantifiable, made as a result of default,

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(ii) the amount of loss caused to an investor or group of investors as a

result of the default and

(iii) the repetitive nature of default.

20. From the nature of the violations proved against the noticee(s) it is

difficult to quantify the exact amount of disproportionate gains or

unfair advantage gained by the noticees and the consequent losses

suffered by the investors. I have noted that the investigation

report/SCN also does not dwell on the extent of specific gains made by

the noticees. I have, however, observed from the SEBI website

(www.sebi.gov.in) that all these noticees have been found to be on the

wrong side of the law quite frequently and various disciplinary actions

have been taken/pending against them. Some of the violations which

have been found against them have been similar to that of the present

case and therefore, it can be held that the default established in the

present order was repetitive in nature and needs to factor in

quantifying the amount of penalty.

21. For deciding the amount of penalty to be imposed, I also look into as to

how seriously SEBI has taken these violations. In this regard, I note

that the proceedings against Pramod Kumar Jain Securities Pvt.

Limited who had 7.13% contribution in the circular trades (for clients),

SEBI has settled the matter in Rs.2.5 lacs under settlement scheme.

Further, the proceedings against Southern Share and Stock Ltd.,

having 13% contribution (for clients) were settled at Rs.5.00 Lacs. As

the factor of stigma/reputational loss must have been taken into

account by SEBI in settling these matters, I am of the view that the

penalty has to be commensurate with the settlement terms accepted by

SEBI, taking into account the stigma being attached with the

imposition of penalty.

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22. Considering the facts and circumstances of the case and the material

available on record, my observations recorded with respect to respective

brokers and the violations established against them (supra), I, in

exercise of the power under Section 15 I of SEBI Act, impose following

Penalties against the noticees as under:-

Sl.No. Name of the Broker Circular Trade-% of total market volume

Trading for Proprietary/Clients

Violation -15HA and/OR 15HB

Penalty (Rs. In lac)

1. Galaxy Broking Ltd. 12.55 Client 15HB 2.00 2. Bharti Thakkar India

Securities Ltd. 12.00 Client 15HB 1.75

3. Pilot Credit Pvt. Ltd. 7.45 Client 15HB 1.50 4. Adolf Pinto Share &

Stock Broker 6.00 Proprietary 15HA &

15HB 4.00

5. Ajmera Associates Pvt. Ltd.

4.00 Clients 15HB 0.75

6. Mansukh Stock Brokers Ltd.

3.00 Proprietary 15HB 1.00

23. The noticee(s) shall pay the said amount of penalty by way of demand draft

in favour of “SEBI - Penalties Remittable to Government of India”, payable

at Mumbai, within 45 days of receipt of this order. The said demand draft

should be forwarded to Ms. Anita Kenkare, General Manager (Investigation

Department), at SEBI’s Head Office at Plot No. C-4A, G-Block, Bandra-

Kurla Complex, Mumbai-400051.

24. In terms of Rule 6 of SEBI (Procedure for Holding Inquiry and Imposing

Penalties by Adjudicating Officer) Rules, 1995 copies of this order are

sent to the noticees and also to the Securities and Exchange Board of

India.

Date: March 31, 2010

Place: New Delhi sd/

PRAVEEN TRIVEDI Adjudicating Officer

before the adjudicating officer securities and … · 2018. 8. 16. · d0513 galaxy broking limited...

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