TaxTMI 
TaxTMI 
2006 (6) TMI 517
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....d one Shri. Sourabh Bora (hereinafter referred to as 'KIL' and 'Bora' respectively) in manipulating the price of the shares of Snowcem India Limited (hereinafter called the "company"). It was also held that the appellant had failed to exercise due skill and care in this regard and that it had failed to collect margins from its clients while trading on their behalf and thereby violated the circulars issued by the Board. The facts giving rise to this appeal lie in a narrow compass and these may first be stated. 3. National Stock Exchange conducted an internal investigation in the scrip of the company and submitted its report to the Board wherein it had found that there was major spurt in the total traded volume in the shares of the company during the period from January, 1999 to August, 1999. On receipt of this report the Board ordered detailed investigations into the dealings in the scrip of the company. These investigations revealed that KIL and Bora were two predominant traders in the scrip of the company during the period of investigations and that they traded through the appellant as a broker. The investigations further revealed that KIL was trading wi....
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....non collection of the margin money was in violation of the mandatory directions issued by it through circulars dated November 18, 1993 to December 11, 1998. A detailed reply to the show cause notice was filed by the appellant denying the allegations. It emphatically denied the allegations that it had aided and abetted KIL and Bora in executing manipulative and fraudulent transactions. The stand taken by the appellant was that it acted as a broker for purchasing shares on behalf of these clients and that it was not aware whether the clients were indulging in circular or fictitious transactions. As regards the allegations regarding non-collection of margins, the appellant pleaded that while selling the scrips on behalf of its clients it had received in advance the securities to be sold with valid transfer documents and therefore it did not feel the necessity of collecting the margins. Reference was made to the circulars issued by the Board in this regard. 4. On a consideration of the reply filed by the appellant and the material collected by the enquiry officer the Board came to the conclusion that the appellant had entered into transactions for big quantities of shares for its clie....
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....ey so desire, collect such a margin from Financial Institutions, Mutual Funds and FII's. 5. Member brokers shall sell securities on behalf of client only on receipt of a minimum margin of 20 percent on the price of securities proposed to be sold, unless the member has received the securities to be sold with valid transfer documents to his satisfaction prior to such sale. Member may not, if they so desire, collect such a margin from Financial Institutions, Mutual Funds and FII's. Therefore, on December 11, 1998 the Board issued yet another circular dealing with margins and the relevant paragraph of this circular is reproduced hereunder for facility of reference: It shall be mandatory for member-brokers to collect margins from clients in all cases where the margin in respect of the client in the settlement, would work out to be more than ₹ 50,000/-. The margin so collected shall be kept separately in the client bank account and utilized for making payment to the clearing house for margin and settlement with respect to that client. 7. A conjoint reading of the aforesaid clauses of the two circulars would make it clear that brokers who buy securities on behalf of th....
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....The so called fictitious/ structured deals executed by the clients through the appellant as a broker have been referred to in detail in the show cause notice dated October 3, 2003. The relevant chart relied upon by the Board is reproduced hereunder for facility of reference. Order date Order Time Order No. B/S TM Name Client Total Vol. Price Trade No. 19990701 10:02:40 199907010007920 S Kasat KIL 25000 52 5538 19990701 10:06:45 199907010020801 B Indraprastha KIL 25000 52 5538 19990701 10:08:58 199907010027353 S Kasat KIL 25000 52 9430 19990701 10:10:19 199907010031406 B Indraprastha KIL 25000 52 9430 19990714 11:54:28 1999070140292012 S Kasat KIL 25000 59 170526 19990714 11:55:57 199907140294821 B Indraprastha KIL 25000 59 170526 19990714 11:56:43 199907140296410 S Kasat KIL 25000 59.3 172001 19990714 11:57:06 199907140297184 B Indraprastha KIL 25000 59.3 172001 199990707 14:10:43 1999907070445477 S Kasat KIL 25000 64.8 270605 199990707 14:11:06 1999907070445850 B Triveni KIL 25000 64.8 270605 199990707 14:11:33 1999907070446281 S Kasat KIL 10000 64.9 271872 199990707 14:13....
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....his is really a unique feature of the stock exchange where, unlike other moveable properties, securities are bought and sold between the unknowns through the exchange mechanism without the buyer or seller ever getting to meet. Therefore, it was not possible for the broker to know who the parties were. Merely because the appellant acted as a broker cannot lead us to the conclusion that it must have known about the nature of the transaction. There has to be some other material on the record to prove this fact. The Board could have examined someone from KIL to find out whether the appellant knew about the nature of the transactions but it did not do so. As a broker, the appellant would welcome any person who comes to buy or sell shares. The Board in the impugned order while drawing an inference that the appellant must have known about the nature of the transactions has observed that the appellant failed to enquire from its clients as to why they were wanting to sell the securities. We do not think that any broker would ask such a question from its clients when he is getting business nor is such a question relevant unless, of course, he suspects some wrong doing for which there has to ....