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TMI Blog2015 (8) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, 1992 (Stock-Brokers Regulations for short). 2. A Show Cause Notice (SCN) was issued to Appellant by Respondent vide its letter dated May 31, 2010; wherein findings of investigation, considered relevant for purpose of proceedings, and allegations were mentioned. 3. Facts of the case against Appellant, in brief, are as given below:- * Promoters of Gemstone Investment Limited (GIL or company for short) reduced their shareholding in company, which was accompanied by unusual increase in price of companies scrip during IP (August 28, 2006 to August 21, 2008). * Appellant, trading on behalf of its six clients during Investigation Period (IP) - who were part of larger group of entities herein called Narendra Ganatra Group (NG Group), - had highest concentration in purchase and sale in scrip of the company during IP. * Entities of NG Group traded in scrip of GIL on BSE - under different client codes and also engaged in off-market deals in scrip of GIL, - price and volume of GIL scrip by entering into synchronized, circular and reversal trades. * One of the NG Group entity was Devendra A Vadhaiya, who was also terminal operator and person-in-charge of branch office of Appellant l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her observations of Ld. AO from impugned order it is seen that six clients of Appellant, namely, Prem Parekh, Mala Hemanth Seth, Kishore Chauhan, Hemanth Seth, Bhavesh P Pabari and Ankit Sanchaniya are related and connected to each other and are part of a larger group which has another 11 members, namely Bharat Thakker, Narendra Ganatra, Manish Joshi, Rajesh Bhanushali, Vinayak Bhanage, Bhupesh Rathod, Janak Vyas, Devendra A. Vadhaiya, Jayesh Kuwadia, Ashish Ganatra and Nimesh Ganatra and these 11 persons along with earlier named 6 persons from part of Narendra Ganatra Group (NG Group), who are related and connected to each other. Now these Narendra Ganatra Group 17 entities have connived with each other and with another 10 persons; namely Premchand K Shah, Sharman P Shah, Nihal P Shah, Sharman Appliances Pvt. Ltd., Mradula V Shah, Sushila P Shah, Vijay Kumar N Shah, Shreya V Shah, Bindi Shah, Vanechand Vora; who are Chairman and Managing Director, Director / Promoter, related to Director / Promoter (GIL Group), in such a manner that entities of NG Group were executing reversal / circular trades in GIL scrip and manipulating volume, as well as price, of GIL scrip, while entities of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Vadhaiya's terminal from where orders for buy/sell of six clients of Appellant originated. 12. Mr. V.M. Singh, Ld. Counsel for Appellant vehemently argued that it was Appellant's dealer, who was part of NG Group and was placing orders for trade in GIL scrip for six clients of Appellant and these trades may be manipulative in nature but there is no evidence to implicate Appellant, for deeds for his dealer for such manipulative trades. 13. Ld. Counsel for Appellant bought out case law for imputing vicarious liability to Appellant for acts / deeds of his employee. In this context Appeal Suit No. 10 of 2002 between N. Sridhar vs. Maruthi Jayaraman & Anr., decided by Hon'ble High Court at Madras was cited. In this case Jayaraman, an employee of M/s. M.R.F. Ltd., in course of employment, stole 350 shares lodged for transfer, prepared false transfer deed and presented shares for sale and realized Rs. 4,01,500/- as sale proceeds. 14. The trial court concluded that on appreciation of oral and documentary evidence, original share holder is entitled to claim suit amount from Jayaraman and not from his employer. 15. Dissatisfied with this judgment, original share holder preferred appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haiya executed trades for six clients of Appellant, which were reversal / circular / synchronized, yet Appellant failed to notice the acts of its employee. It is also admitted that Appellant and all members of stock exchange (Members of Stock Exchanges) are required to scrutinize all trades as per their algorithms on daily basis to find any suspicious activity / trade in their work-stations, yet Appellant did not notice any such activity of its employee, proves beyond doubt that Appellant was negligent in its functioning, to say the least and must be held responsible for all acts of his dealer / employee. 19. As per Ld. AO order, main finding to hold Appellant for violative of regulation 4(1), 4(2)(a) and 4(2)(e) of PFUTP Regulations are: Trades were executed by Appellant (from Devendra Vadhaiya terminal in Appellant Andheri office) and Appellant purchased 71,62,146 of GIL (constituting 28.5% of total volume during IP) for its 6 clients and sold 68,40,013 shares (constituting 28.5% of total market volume during IP) for these six clients. These 6 clients were related / connected with each other and with the larger group (NG Group), which included Devendra Vadhaiya, and sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese kinds of trades, generate interest of gullible investors in the scrip, being so traded. These kinds of manipulative trades also affect normal price discovery mechanism in securities market. Considering these factors penalty of Rs. 6,00,000/- has been imposed on Appellant under 15HA of SEBI Act for violation of relevant provisions of PFUTP Regulations and Rs. 2,00,000/- under Section 15HB of SEBI Act for violation of relevant provisions of Stock-Brokers Regulations. 22. Considering various aspects of the present case, after perusal of case records and hearing Ld. Counsel for Appellant and Respondent, it is seen that Appellant executed more than 25% of trades in the scrip, both on buy and sell side during IP (for almost 2 years), for its six clients, namely Prem Parekh, Mala Hemanth Seth, Kishore Chauhan, Hemanth Seth, Bhavesh P Pabari and Ankit Sanchaniya - who are related / connected to one another and are part of larger NG Group - which consists of 17 entities, including six clients of Appellant - and carried out synchronized , reversal and circular trading for its 6 clients, with a view to manipulate volumes in the GIL scrip - thereby manipulate price also by placing orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the said 6 clients as also Devendra Vadhaiya have been found guilty of indulging in synchronised, circular and reversal trades and varying penalties have been imposed upon them. Counsel for SEBI stated before us, that all except one of them have paid the penalty imposed against them. Argument of Appellant based on various decisions to the effect that penalty cannot be imposed upon an employer for the offences, if any, committed by an employee, that too based on preponderance of probabilities cannot be accepted in the present case, because Rule 260 framed by the Bombay Stock Exchange specifically provides that a member shall be fully responsible for all the acts and omissions of his partnership firm and of his partners, attorneys, agents, remisiers, authorised clerks and employees. Since synchronised, circular and reversal trades took place from the Andheri Branch of Appellant, in terms of Rule 260 of Bombay Stock Exchange Rules, Appellant would be liable for penalty. In such a case, yardstick applicable to criminal proceedings cannot be applied and since fraudulent transactions took place from the terminal of the Appellant in the ordinary course of business and since fraud bet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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