TaxTMI 
TaxTMI 
2012 (9) TMI 1125
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....he certificate of registration of the appellant for a period of one month. The whole time member found the appellant guilty of violating the provisions of regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 and clauses A(1), (3), (4), (5) and B(6) of the Code of Conduct prescribed as specified in Schedule II under regulation 7 of the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 (for short the FUTP Regulations and the Brokers Regulations respectively). 2. The brief facts leading to the impugned order are the following. The Boardconducted investigation in the dealings in the shares of Kopran Limited (Kopran) for the period February 22, 2000 to February 29, 2000. During the period of investigation, the price of the scrip rose from ` 159 to ` 256.70 at NSE and from ` 152.50 to ` 260 at BSE. Investigations revealed that the Khandwala Group consisting of the appellant (KSL), Khandwala Finance Limited (KFL) and Jayantilal Khandwala and Sons Private Limited (JKS) was the major trader in the scrip of Kopran during the investigation....
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....re us. 3. Shri P.N. Modi, learned counsel for the appellant and Shri Shiraz Rustomjee,learned senior counsel for the respondent Board took us through the records of the case. 4. The first objection raised by the appellant in this case is that the appellant isdistinct from KFL which got merged with the appellant subsequent to the commission of the alleged wrong doing. It is submitted that KFL, the broker at the relevant time, was trading independently based on its commercial wisdom and the merger of the two entities in 2002 cannot be a basis for attributing the action of KSL to the appellant. The two entities got amalgamated as per a proper scheme of amalgamation approved by the Hon'ble High Court of Bombay and the terms and conditions specifically absolved the appellant of any acts or other proceedings of KFL other than those 'pending' at the time of amalgamation. It is contended that the liability arising out of the wrong doing committed prior to 2002 cannot be transferred to the successor company since the said liability is personal to the offender. The appellant's learned counsel laid emphasis on clause 14 (iii) and (iv) of the explanatory statement under section 393 of the Co....
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....nancy rights, franchisee rights, membership of any Stock Exchange and all other rights, title, interest or powers of every kind, nature and descriptions whatsoever shall under the provisions of Sections 391 and 394 of the Act and pursuant to the Orders of the Bombay High Court sanctioning this Scheme and without any further act or deed, but subject to the charges affecting the same as on the Effective Date be transferred and/or deemed to be transferred to and vested in KSL so as to become the property of KSL. (iii) With effect from commencement of the business as on the Appointed Date, alldebts, liabilities, duties and obligations of KFL shall pursuant to the Orders of the Bombay High Court under Section 391 and 394 and other applicable provisions of the Act and without any further act or deed be also transferred or be deemed to be transferred to and vest in and be assumed by KSL so as to become as from the Appointed Date the debts, liabilities, duties and obligations of KSL on the same terms and conditions as were applicable to KFL. (iv) If any suit, appeal or other legal proceedings of whatsoever nature by or againstKFL is pending, the same shall not abate or be discontinued ....
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....he matter of pending investigation and enquiry against Khandwala Finances Limited or any of its Directors or any other matter, shall be addressed to Khandwala Securities Limited and its Directors as the case may be and further that such correspondences and notices shall be received and acted upon by Khandwala Securities Limited and also further that all actions that may be taken against Khandwala Finances Limited shall be taken against Khandwala Securities Limited who shall not at any point of time raise any jurisdictional issue." 8. The above undertaking is part of the enquiry report filed by the designated officer.The undertaking is not denied or disputed by the appellant. It is in the normal course of events that an undertaking of this kind has been furnished by the appellant. When confronted with the undertaking the appellant's learned counsel attempted to interpret it in such a way as to relate only to the matters of "pending investigations". However, a close reading of the undertaking would reveal that it has two limbs, one relating to pending investigation and the other relating to prospective actions. The language of the undertaking is also such that both the possibilities....
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....so gone through the above said researchreport, a copy of which has been provided during the hearing of the case. The research report is dated February 23, 2000. Admittedly this date is very crucial in as much as substantial purchase of shares of Kopran was effected by the appellant on February 22, 2000 and February 23, 2000. The research report is prepared by KFL research. It is captioned "for private circulation only". This pre-supposes circulation among select target group. However, the facts of the case show that the report was made available on the web site of 'moneycontrol.com'. This fact is not disputed by the appellant. In the first page of the report the address of a contact person is given for reference purpose. It is interesting to note that the address is that of Dr. V.V.L.N. Shastri, Vice President, Khandwala Securities Ltd. The research report has been prepared by the entire Khandwala group for taking necessary decision concerning backup services to be provided to investors. The concluding portion of the report points to active involvement of the entire group and also the decision to provide investment banking and other services to be provided by KFL and its associate ....
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....form the clients over phone in case of cross deals or other factors which require statutory communication. However, the appellant's learned counsel would admit that it could not furnish any evidence regarding the communication with the clients because of the lapse of time and that should not lead to any adverse inference. In fact, he strongly questions the conclusion drawn by the designated officer in the enquiry report that benefit of doubt cannot be provided to the appellant in the absence of relevant evidence, which, according to the appellant, could not be provided because of lapse of time. With regard to the cross deals, it is argued that the buy and sell orders in the alleged cross deals were executed through two different terminals involving two different dealers and so the counter party was never known. While admitting the purchase of shares on the crucial dates, namely February 22, 2000 and February 23, 2000, it is argued that the appellant purchased shares at around ` 189, beyond which it had no role or responsibility and so manipulation cannot be attributed to the appellant. The appellant's trades were delivery based and not in the nature of square off trades. There was ....
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....idence to show that the clients were previously informed about the cross deals as laid down in the regulations. The learned senior counsel for the Board would make a pointed reference to the disciplinary action taken by NSE with regard to the alleged transactions. The reply furnished by the appellant before the disciplinary committee of NSE wherein the appellant admitted to the knowledge of the clients about the research report and the peculiar nature of transactions entered into by the appellant with its associates in the form of purchase on account for certain valued clients and subsequent sale through cross deals goes against the normal trading pattern of a broker. He relied strongly on the conduct of the parties and the communication from Nidhi Kanoi to establish that there was no communication with the clients about the counter party in the cross deals. It is submitted that the conduct of the appellant has been contrary to the normal functions of a broker and the end result has been of undue advantage to the appellant on account of the circumstances detailed in the impugned order. 14. We have considered the rival submissions. We have already held in paragraph 11 hereinabove t....
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....s kind the intention of the party has to be determined from the abnormal conduct witnessed during the period under consideration. In cases of market manipulation, admittedly, no direct evidence would be available. Mostly circumstantial evidence and conduct of parties determine the intention behind trades which are suspicious and abnormal. It is the bounden duty of a broker to protect the interest of its client and abide by the procedures which are laid down in the regulations. When cross deals take place necessary communication has to be given in advance to the clients with regard to the identity of the counter parties. In the present case the argument of the appellant is that no evidence for the communication with the clients could be produced because of the lapse of time and the communication was mostly over phone. The Board issued letters to three parties namely Nidhi Jain (presently Nidhi Kanoi), Bajaj Auto Ltd. and Amit Patel on July 20, 2004 with respect to the purchase of shares of Kopran by the above parties and whether they were aware of the sale of shares of Kopran by their associate companies and whether the appellant had taken permission from them or disclosed to them t....
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....is appeal and the order of the disciplinary committee has been accepted. The submission of the appellant that the said order of NSE was accepted for commercial reasons and the enquiry proceedings were initiated subsequent to the order of NSE may not be very relevant since the subject matter is the same wrong doing. The following observations of the committee throw sufficient light on the conduct of the appellant which reinforce the stand of the whole time member in the impugned order. "The trading member further submitted that for some valued clients, it has to buy shares on own account from the market, accumulate a particular quantity and then sell to the client at an average buy price; that it had used the same feature while dealing in the possible cross deals as pointed out in the show cause and that it not only executes transactions in the capacity of a dealer where it buys on own behalf from clients and then sells on own behalf to clients, but also executes transactions in the capacity of a broker wherein it only acts as an intermediary for the buying and the selling client. In its meeting dated December 10, 2004, the Bench then asked the trading member to submit a summary....