2009 (11) TMI 989 - AT - Companies Law

Summary

Issues involved: Violation of securities laws, manipulation of trades, non-compliance with investigations, violation of code of conduct.

Violation of securities laws: The appellant, a registered stock broker, was found to have violated Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, and clauses of the code of conduct for stock brokers. The appellant failed to provide complete information during investigations, leading to a monetary penalty of Rs. 4 lakhs imposed under sections 15A(a), 15HA, and 15HB of the Securities and Exchange Board of India Act, 1992.

Manipulation of trades: The appellant executed trades on behalf of clients in a manner that artificially raised the price of a company's shares, from Rs. 10.70 to Rs. 166. The appellant traded for both buyers and sellers, contributing to the price rise by putting orders into the system at rates higher than prevailing market prices. The tribunal found that the appellant interfered with the price and order matching mechanism, violating section 15HA of the Act.

Non-compliance with investigations: The appellant failed to fully comply with summons and requests for information during investigations. Incomplete information provided hindered the investigations, constituting a violation of section 15A(a) of the Act. The tribunal emphasized the importance of market players cooperating with regulatory authorities for effective market regulation.

Violation of code of conduct: By not exercising due skill, care, and diligence while executing trades, the appellant interfered with the fair functioning of the stock market, breaching the code of conduct prescribed for stock brokers. The tribunal held the appellant accountable for violating the broker regulations.

Separate Judgment (Appeal no. 49 of 2009): In a similar case involving M/s. M. Bhiwani wala & Company, also a registered stock broker, identical manipulative trades were executed on behalf of buyers and sellers. The tribunal found that the appellant in this case also violated the code of conduct prescribed for stock brokers and manipulated the price and order matching mechanism of the Stock Exchange.

In conclusion, both appeals were dismissed, upholding the penalties imposed for violations of securities laws, manipulation of trades, non-compliance with investigations, and breach of the code of conduct.