2012 (7) TMI 1054 - AT - Companies Law

Summary

Issues involved: Violation of regulations related to securities trading and stock broker conduct, delay in conducting inquiry proceedings.

Violation of Securities Regulations:
The appeal was filed against the order holding the appellant guilty of violating regulations u/s 4(b) and (d) of the FUTP Regulations and clauses A(2) and (3) of the Code of Conduct for stock brokers. The appellant was alleged to have traded in a manner that deflated the price of a company's scrip and created artificial demand. The appellant denied the allegations, but the whole time member found them guilty of executing synchronized trades on behalf of clients, leading to the suspension of their registration as a stock broker for two weeks.

Defense and Findings:
The appellant's defense included that the trades were spread over a period of three months, executed at prevailing market prices, and did not manipulate prices. The whole time member, however, disregarded these arguments, concluding that the trades were synchronized to match counterparties. The nexus between the appellant's clients and Ketan Parekh entities was not proven, leading to the dismissal of that charge. The charge of violating FUTP Regulations was deemed not proven based on the facts presented.

Violation of Stock Broker Code of Conduct:
The appellant was also found guilty of violating clauses A(2) and (3) of the Code of Conduct for stock brokers, as they failed to allow orders to match in the system for a thinly traded scrip, interfering with market mechanisms. However, the appellate tribunal found that the charge of violating clause A(3) failed, as there was no evidence of manipulative, fraudulent, or deceptive transactions.

Delay in Proceedings:
The tribunal highlighted the inordinate delay in completing the proceedings, which took twelve years from the start of the investigation in 2001 to the order in 2012. Emphasizing the need for expeditious disposal of such cases to protect investor interests and maintain market integrity, the tribunal set aside the impugned order and allowed the appeal.

Conclusion:
The appeal succeeded due to the lack of evidence supporting the charges of violating securities regulations and the Code of Conduct for stock brokers. The delay in conducting inquiry proceedings was criticized, emphasizing the importance of timely resolution in cases of market manipulation.