9911796707
TMI Blog2017 (5) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, 1995 ('PFUTP Regulations 1995' for short) read with Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ('PFUTP Regulations 2003' for short) and certain clauses relating to the Code of Conduct under Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 ('Stock Brokers Regulations' for short). 2. The facts relating to the matter are as follows: a) SEBI conducted investigation on trading in the shares of M/s. Shree Rama Multi-Tech Ltd., ('SRMTL' for short) for the period June 2000 to September 2000. This investigation revealed that M/s. Khandwala Finance Limited alongwith M/s. Jayantilal Khandwala & Sons Pvt. Ltd. and a few clients had indulged in cross deals and synchronised trading and placed buy and sell orders far away from the last traded prices thereby creating artificial volumes in the shares of SRMTL. During this period Khandwala Finance Limited was a member of NSE while M/s. Jayantilal Khandwala & Sons Pvt. Ltd. was a broker in the Bombay Stock Exchange ('BSE' for short). With effect from April 1, 2002 Khandwala Finance Ltd. merged with the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re given by SRMTL during the investigation period. iii) The clients of the appellant placed repeated buy orders at higher price than the prevailing market price sweeping the pending sale orders. iv) The clients of the appellant, through the appellant, were involved in offloading large quantities of shares of UTI at an artificially raised price in a synchronised manner with a premeditated understanding. The appellant and its connected entity M/s. Jayantilal Khandwala & Sons Pvt. Ltd. acting in concert adopted similar trading pattern at NSE and BSE respectively, for the common clients for buying the shares and offloading the same to UTI. v) The appellant allowed one of its clients to trade in large quantities without collecting the dues and thereby exposed itself to huge risk. vi) The appellant allowed some of its clients to trade before signing the broker client agreement. 3. Before we proceed further the relevant regulations are reproduced for ease of reference: "PFUTP REGULATIONS, 1995 Prohibition against market manipulation. 4. No person shall - (a) effect, take part in, or enter into, either directly or indirectly, transactions in securities, with the intention of artif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars from the date of the enquiry report. As such on the grounds of natural justice the impugned order deserved to be quashed and set aside. iii) The impugned order mentions 204 instances of cross deals. However, these data were not provided to the appellant despite asking for it. iv) Further, citing the SEBI communication to all stock exchanges dated September 14, 1999 clarifying its earlier circulars issued in 1997, 1998 and 1999 regarding negotiated deals and cross deals, it was argued that cross deals are not bad in law. To quote from the said circular "All negotiated deals (including cross deals) shall not be permitted in the manner prescribed in circulars mentioned above (i.e. earlier circulars referred to) and all such deals shall be executed only on the screens of the exchanges in the price and order matching mechanism of the exchanges just like any other normal trade." Accordingly, unlike in the past where negotiated deals and cross deals were allowed outside the exchange trading platform after September 14, 1999 such deals also have to be executed through the exchange trading platform. As such even if cross deals were entered into by the appellant there was no violation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no LTP; there was no objection raised by either NSE or SEBI at that time; the trading screen shows only "the best 5 orders" and therefore even if a far away price is placed in the system it will not be shown on the screen and since the orders never fructified and neither the price nor the volume were impacted no market manipulation charge is maintainable. x) On allowing certain clients to trade even before signing the member client agreement the senior counsel argued that it was a technical lapse happened due to misplacing of these documents by the clients and may be condoned. Further for the same over sight/lapse through an adjudication proceedings SEBI had imposed a penalty of Rs. 50,000/- on October 29, 2004 which has already been paid by appellant, though in similar cases vide orders dated 13.1.2006 on Liquid Investments and Financial Investment Services (India) Pvt. Ltd. and 30.12.2005 on Tower Capital and Securities Pvt. Ltd. relating to non-signing of broker-client agreements prior to the initial date of trading only a warning was given by SEBI. xi) No undue exposure was made by the appellant because one of his clients paid up part of her obligation after a few days sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006230073164 6000 BAL B 50000 63.00 67.95 05/07/2000 11:06:24 200007050311016 6000 CLI B 50000 56.90 63.1 05/09/2000 14:58:58 200009050799874 6000 CLI B 50000 69.00 79.05 08/08/2000 13:09:47 200008080565080 6764* 6153 S 30000 73.80 68 13/09/2000 14:53:03 200009130915792 8155** 4611 S 30000 92.75 80 11/09/2000 11:04:22 200009110352669 6000 CLI S 25000 96.00 89 11/09/2000 11:04:38 200009110353702 6000 CLI S 25000 95.90 89 12/09/2000 13:39:57 200009120667729 6000 CLI S 25000 94.40 92 18/09/2000 11:16:02 200009180332810 6000 CLI S 25000 89.10 80 B = Buy ; S = Sell *6764 Sunidhi Cons. The role explained in following paragraphs **8155 is not appearing in the top traded TM's list compared to KFL 8. Though as argued by the learned senior counsel for the appellant in some of the instances the price differential between the order price and the last traded price may not be substantial, the examples cited in the above table indicate substantial variation. Further, even if the order prices are within the range of the circuit filters and not necessarily visible on the trading screen, as argued, no rationale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The authorised representative of the appellant had admitted before the investigating officer of SEBI that "there was a buyer for 200000 shares of SRMTL at a higher price than the price expected by two of our clients". Accordingly, the appellant entered into a sell order of Rs. 2.05 lakhs at the same rate of Rs. 82.50 at 12:58:16 one second before the UTI order for buying 2 lakh shares was placed by their broker on 15.9.2000. The charge is against the appellant in executing the trade in a synchronised fashion and the charge is not against the UTI or broker who placed a normal order in the market. As such taking against UTI or its broker does not arise. 10. Counsel for the respondent relied on the following orders to further support their contentions of manipulation in trading and action taken by SEBI in respect of the entities in the present appeal. SEBI order dated 6.6.2008 in respect of SRMTL and its directors for violation of PFUTP Regulations and restrained them from dealing in securities market for 5 years. The appellant herein acted as the lead manager to the public issue of SRMTL. Jayantilal Khandwala & Sons Pvt. Ltd. was suspended for a period of one month vide SEBI order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acing high quantity orders repeatedly at prices far away from the market prices constituted violation of PFUTP Regulations cannot be faulted. Above inference is further fortified by the fact that there were synchronised trading of large quantities. We also note that the enquiry officer had recommended suspension of the licence of the appellant for a period of 2 years while the WTM of SEBI has ordered suspension of certificate for a period of only one month. 13. Counsel for the appellant sought to distinguish the decision of this Tribunal in the case of Magnum Equity Broking Ltd.(supra) on ground that in that case the clients indulged in synchronised trades and were related entities where as in the present case no such relationship is established or even alleged. Similarly, it is contended that the decision of the Apex Court in case of Kishore R. Ajmera (supra) has no relevance to the present case as that order deals with synchronised and structured deals while the dispute in the present case relates mainly on cross deals which are not illegal perse. We do not agree with these contentions as the basic thrust of the order in Mangnum is that the broker is also liable for the PFUTP vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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