2006 (2) TMI 686 - AT - Companies Law

Successful Appeal Against Suspension Order for Circular Trading

Bharati Thakkar India Securities Pvt. Ltd. Versus Securities and Exchange Board of India

The appellant's challenge to the order suspending their registration for circular trading in shares was successful. The Securities and Exchange Board ... - Issues:Challenge to the order suspending the registration of the broker for circular trading in shares of a company.Detailed Analysis:The appeal challenged the order suspending the appellant's registration due to circular trading in shares of a company, as per Regulation 13(4) of the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. The investigations revealed that a significant volume of shares of the company was traded through circular trades among different groups of clients and brokers, including the appellant. The charge against the appellant was engaging in circular trading, leading to the artificial creation of volumes in the company's shares. The Board found that two other brokers were also involved in circular trades with the appellant, creating artificially inflated volumes in the shares. An enquiry officer absolved the other two brokers of the charges but found the appellant guilty of matching trades with them, resulting in artificial volume creation. The Board accepted the enquiry officer's recommendations and exonerated the other two brokers but suspended the appellant's registration, citing evidence of matching trades, same prices, and price appreciation in transactions, indicating artificial volume creation.The appellant's suspension was based on the observation that counter parties to the trades were consistently the same individuals, with orders placed at the same price and time, resulting in price appreciation. Additionally, a connection was noted between a broker and a client, suggesting lack of due diligence on the broker's part. The Board suspended the appellant's registration for 15 days based on these findings. However, the appeal argued that the findings were contradictory as the other two brokers were exonerated despite similar charges of circular trading. The appeal contended that the impugned order was passed without proper consideration or application of mind, highlighting the inconsistencies in the findings across the brokers involved. Ultimately, the appeal was allowed, and the order suspending the registration was set aside, with each party bearing their own costs.