TaxTMI 
TaxTMI 
2003 (10) TMI 676
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....rch, 2001". In the context of "apprehensions of possible attempts by certain entities to distort the true market discovery and manipulate the securities market" SEBI carried out a preliminary investigation to find out the role of various entities including the Appellants. According to SEBI these preliminary investigations revealed that the Appellants had indulged in large trading transactions in the scrips of some companies (stated in the impugned order) and "these transactions prima facie appeared, inter alia, to have been carried out to artificially depress the prices" of the scrips of the said companies. In that context on 18-4-2001 SEBI passed an ex parte order debarring the Appellants from undertaking any fresh business as stock brokers and sub-brokers till further order. A post decisional hearing was given to the Appellants on 30-4-2001 and thereafter an interim order confirming the ex parte order was passed on 4-6-2001. On the same day an Enquiry Officer was appointed. The Enquiry Officer issued a show-cause notice to the Appellants on 10-9-2001. He also issued a second show-cause notice to them on 25-1-2002. The Enquiry Officer submitted his report on 22-5-2002. The Enquiry....
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....Indulging in large trading transactions in the selective scrips with a view to depress artificially the prices of these securities between mid February and mid March in a concerted manner. The trading by BSL in Global Tele, HFCL, Reliance and Satyam were considered significant sales for the depression in the share prices. 2. The Respondent, in the light of the findings of the Enquiry Officer issued a show cause notice to the Appellants on 30-5-2002. They responded to the same by filing replies. They made oral submissions and filed written submissions also. The Respondent adjudicated matter and came to the conclusion that the Appellants "have indulged in large trading trans- actions with a view to depress the market artificially in a concerted manner, (indulged) in short sales, synchronised trading, trading in particular time slots when the share prices registered substantial fall, routing of large transactions through unregistered sub-brokers". In the light of the said finding, the Respondent held the Appellants guilty of violating the Code of Conduct specified in Schedule II of the Stock Broker Regulations and regulations 4(a) to (d) of FUTP Regulations and ordered cancellation....
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....EBI to show how these safeguards were not observed, that carrying on transactions without flouting any of the regulations and by adhering to the safeguards cannot be viewed as a violation of SEBI requirements in position. 4. Learned Senior Counsel referred to the list of dates and events furnished in the written submission of the Appellants and submitted that in 1999-2000 there was an unprecedented boom in the information technology communication and entertainment stock (ICE Stocks) all over the world, that this resulted in buoyancy in the price of ICE stocks, that the prices of these stocks rose inter alia on NASDAQ as well as on the Stock Exchanges in India, that during this period the prices of these ICE stocks touched all time higher figures. He submitted that share of companies whose prices, the Appellants are accused of artificially depressing, had also risen as part of the unprecedented boom in prices during the period. Learned Senior Counsel stated that during the period March 2000-2001 the upward trend in the prices of the ICE stock witnessed a global meltdown and the prices of these shares fell rapidly during this period, that NASDAQ registered a fall of over 60% durin....
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....se. He stated that the show-cause notice dated 30th May, 2002 was issued to all the Appellants including Bama. Bama replied to the aforesaid notice vide its letter dated 12th June, 2002. This reply was delivered to SEBI on 12th June, 2002. Bama did not seek any personal hearing in the matter. Accordingly Bama did not appear before the Chairman, SEBI at the hearing afforded by the Chairman, SEBI and availed by the other Appellants. Consequently, as far as Bama is concerned, the order in the show-cause notice was required to be passed not later than 11th July, 2002 in view of the said Regulation 29(3). The impugned order is however dated 30th July, 2002. Therefore, as far as Bama is concerned the impugned order has been passed in violation of the said Regulation 29(3). The provisions of Regulation 29(3) being mandatory the failure to comply with the same will vitiate any order passed in violation thereof. In view of the aforesaid, the impugned order is vitiated at least qua Bama. In the impugned order, the Respondent has come to the conclusion that all the Appellants were acting in concert to artificially depress the price in certain scrips. In this regard, the findings against the A....
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....iary holding a certificate of registration under section 12 of the Act : Provided that no such certificate shall be suspended or cancelled unless the procedure specified in the regulation applicable to such intermediary is complied with." It is apparent that though regulation 13 empowers SEBI to initiate action for suspension or cancellation of registration of an intermediary, which would include a stock broker/sub-broker, it does not provide for the situations in which the registration may be suspended or cancelled. The situation under which the registration of a stock broker/sub-broker may be suspended or cancelled by SEBI are prescribed in Regulation 26 of the Stock Broker Regulations. Therefore, of necessity, in deciding whether the registration of a Broker/Sub-Broker can be suspended or cancelled in a given situation, aid must be taken of the provisions of the said Regulation 26. In this regard, it be noted that the FUTP Regulations, were made in 1995 whereas the Stock Broker Regulations, were made in 1992 i.e., prior to the notification of FUTP Regulations, which shows that while framing the FUTP Regulations the law-makers were aware and in any event deemed to be awa....
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....gistrars to an issue, share transfer agents, under-writers, foreign institutional investors, etc., that for each of the intermediaries separate Regulations have been framed by the Legislature. It is significant that each of these Regulations which apply to the different intermediaries, contain provisions such as Chapter VI of the Stock Broker Regulations, providing for eventualities/situation in which the registration of the intermediary can be suspended or cancelled. An examination of the different Regulations in respect of the different intermediaries will show that the Legislature has consciously provided for specific situations in which the registration of a particular intermediary may be cancelled or suspended. These provisions are intermediary-specific and offence-specific. It is apparent that while prescribing the situations/eventualities in which the registration of an intermediary may be cancelled or suspended, the Legislature has taken into consideration the functions of the intermediary, the likelihood, ability and possibility of the intermediary committing a particular violation, the consequences on the intermediary, etc. For example, whereas Regulation 26 of the Stock ....
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....cent to 40 per cent during this period that in consonance with the Intentional trends, Indian share prices also fell and the Sensex registered a fall of around 28 per cent during this period. Various Indian Companies had overseas listings. The ADR's of various Indian IT companies like Infosys Wipro, Satyam (Relevant stocks) etc. also fell in line with the fall of Global prices, Factors particular to Indian markets were failure of the Calcutta Stock Exchange, Madhavpura Bank Scam; financial problems of Ketan Parekh; large selling by FIIs; large selling by Indian Institutions; issues of Corporate Governance in specific stocks; Gujarat Earthquake; fears of economic slowdown; downward revision of weightage to India in the MSCI Emerging markets index; the UTI debacle; the sudden withdrawal of funds from the ALBM segment etc. as reported by SEBI and Newspapers. If SEBI does not admit the above factors responsible then it has to prove its version. It cannot go by surmises and conjunctures. One fact alone establishes that the depression in the share prices of the concerned scrips was not an artificial one but was a real one. The prices of shares continued a downward spiral even after....
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....t who are the persons who traded in the balance 97.15 per cent that it is not stated as to whether 2.85 per cent was purchase or sale, that SEBI has not stated as to whether the appellants were doing proprietary transactions or for clients. All the stocks listed above have a huge market capitalization and substantial holdings by the FIIs and Indian Financial Institutions and are highly liquid and actively traded scrips. FIIs and Indian Institutions like UTI have come to play a very important role in the Indian Capital market and market movements to a large extent are determined by the buying and selling pattern of the FIIs & Indian Institutions. FII volumes are 5 per cent- 10 per cent of the total volumes and account for 35 per cent to 40 per cent of the total delivery volumes at the exchange. FIIs had cumulative sales of Rs. 1,344 crores on February 28, 2001, March 1, 2001 and March 2, 2001. Any attempt to depress the prices of the said shares "artificially" would result in an immediate buying from the various FIIs and FIs. SEBI over the years has put in a number of safeguards in terms of limits on individual scrips a broker can carry, global limits across scrips on individual ....
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....erson, which in fact depressed the price of the scrip. SEBI cannot hold a person guilty of violating Regulation 4(a) on the basis of the net sales of the person either at the end of the day or at the end of the settlement. In the instant case, this is exactly what SEBI has done. SEBI has impugned all the net sales of the appellants and concluded that these net sales led to an artificial depression in prices of the concerned scrips. This approach of SEBI is absurd for the reason that if net sales are to be the criteria for holding a person guilty of market manipulation, a person who short sells a large quantity of shares which actually results in the artificial depress- sion of price of the scrip but covers up these sales by purchasing the same after the price has fallen and creates a small purchase position, will not be guilty of artificial depression of prices. On the other hand, a person who has been holding a huge quantity of shares of a particular scrip for a long period of time finds that the market is falling and decides to sell the whole lot of shares thereby creating a net sale position for himself, will be held guilty of artificially depressing prices. The relevant finding....
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....The scrip-wise analysis of the same is given below : Global Telesystems Settlement Number Date From Date To Opening price High Price Closing Price Net Position % of net of BSE Net Position % of net of BSE Rs. Rs. Rs. Nirmal Bang Bang Equity 1046 5-2-01 9-2-01 670 696 630 +70,406 +8.2% +2,612 +0.3% 1047 12-2-01 16-2-01 632 655 609 +28,449 +3.2% +3,415 +0.4% 1048 19-2-01 23-2-01 615 624 439 -40,052 -4.6% +2,210 +0.3% 1049 26-2-01 2-3-01 443 454 312 -3,50,315 -17.9% -181,503 -9.2% 1050 5-3-01 9-3-01 306 312 225 +254,782 +14.1% +167,786 +9.3% 1051 12-3-01 16-3-01 210 241 206 +17,870 +1.3% +1,571 +0.1% The settlement-wise positions given above are admittedly net posi- tions for the settlement without taking into account the opening positions. Hence the finding of SEBI, that the purchase position of 70,406 shares in S.No. 1046 was reduced to 28,449 shares in S.No. 1047 is incorrect. In fact, these were....
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....on of mind. On the basis that the net sales of NBS of 3,50,315 shares in S.No. 1049 represents 17.9 per cent of the net at BSE and the price fell by Rs. 127, from Rs. 439 to Rs. 312 in that settlement, the net sales of NBS accounted for a fall of only Rs. 22.74. Similar figures for BEB would account for a fall of Rs. 11.88. All the sales of NBS and BEB were pursuant to limit orders. This fact can be ascertained from the Order Book. In other words, NBS and BEB specified the price at which they were offering to sell the shares to willing buyers. The limit prices were within +/- -0.5 per cent of the prevailing market prices. The significance of a limit order is that if a person is desirous of artificially depressing the price, his natural and most obvious action would be to either make huge sales without any limit or more likely to offer large number of shares for sale at a price much lower than the prevailing market price. This is not the case in respect of even a single sale transaction of either NBS or BEB. Both the Enquiry Officer and Chairman have conveniently completely ignored this aspect of the matter. Not a single sale transaction of NBS or BEB were executed at the lower c....
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....sp; Bang Equity 1044 22-1-01 26-1-01 1,241 1,300 1,269 -46,225 -5.0% +59,390 6.4% 1045 29-1-01 2-2-01 1,250 1,264 1,027 -16,257 -0.7% +3,935 0.2% 1046 5-2-01 9-2-01 1,000 1,039 965 +16,375 +1.0% +57,764 3.7% 1047 12-2-01 16-2-01 950 1,019 909 -20,173 -1.9% -53,442 -5.0% 1048 19-2-01 23-2-01 910 923 743 +69,761 +6.7% +78,220 +7.5% 1049 26-2-01 2-3-01 740 752 605 +16,852 +0.7% -86,055 -3.5% 1050 5-3-01 9-3-01 585 625 326 +18,015 +0.5% +5,556 +0.2% 1051 12-3-01 16-3-01 301 322 214 +22,820 +0.6% +27,724 +0.7% Significantly, the Enquiry Officer has not found NBS and BEB guilty of artificially depressing the price of this scrip. Despite this, the respondent has concluded that NBS and BEB depressed the price of this scrip by acting in concert. From the above table, it is clear that in 3 of the settlements, the net positions of NBS and BEB were exactly the opposite. In 4 settlements, NBS and BEB had net purchase position. In ....
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....of the clients, which were effected on the instructions of the clients. SEBI has not bothered to distinguish between client sales and proprietary sales and has treated them or par. This action is clearly untenable. This is more so in view of the fact that SEBI has nowhere alleged that the appellants were acting in concert with their clients nor that these client trades were actually proprietary trades of the appellant. In the case of BEB, all the sales were on behalf of clients. Infosys Technologies Statement Number Date From Date To Opening price High Price Closing Price Net Position % of net BSE Net Position % net of BSE Rs. Rs. Rs. Nirmal Bang Bang Equity 1046 5-2-01 9-2-01 6,777 6,777 6,406 +1,796 +1.0% +341 +0.2% 1047 12-2-01 16-2-01 6,380 6,537 6,254 +7,139 +4.8% +270 +0.2% 1048 19-2-01 23-2-01 6,260 6,343 5,598 -2,687 -1.0% +220 +0.1% 1049 26-2-01 2-3-01 5,730 6,330 4,940 -18,600 -6.4% +1,011 +0.3% Statement Number Date From Date To....
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....he net sale of others was 2,78,589. In S.No. 1051, while the combined net sales of NBS and BEB were 42,175 shares, the net sale of others was 2,91,261. In total, while NBS and BEB sold 73,005 shares in 4 settlements on the BSE, a total of 11,07,888 were sold by other market participants. If the figures of NSE are taken into account, the percentage net sale of NBS and BEB would be miniscule. Hence it is clear that NBS and BEB were net sellers only to a small extent and the major net sales were by other market participants. The submissions regarding limit orders, non-distinguishing of client and proprietary trades and the absence any sales at the lower circuit filter levels reiterated. Satyam Computers Statement Number Date From Date To Opening price High Price Closing Price Net Position % of net BSE Net Position % net of BSE Rs. Rs. Rs. Nirmal Bang Bang Equity 1043 15-01-01 19-01-01 386 421 418 -70,086 -2.2% +17,147 +0.5% 1044 22-01-01 26-01-01 424 430 414 +2,41,352 +9.2% -56,404 -2.2% 1045 29-01-01 02-02-....
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.... bring down the prices as they were both net sellers in these settlements. The Respondent completely overlooked the fact that in S.No. 1051, the price of the scrip closed at a figure higher than the closing price in S.No. 1050. The Respondent has surmised that the net purchases in S.Nos. 1047 and 1050 were to cover the net sales of the previous settlements. He has conveniently ignored the fact that the net sales in S.Nos. 1046 and 1051 were against previous purchases. The particulars of the net sales of NBS and BEB vis-a-vis the net sales by other market participants are that S.No. Our Sales Sales by other market participants 1046 -2,24,803 -37,89,536 1047 + -30,49,830 1048 -1,17,590 -20,72,410 1049 -3,44,378 -38,55,354 1050 + -29,92,775 1051 -1,15,053 -48,11,884 DSQ Software Statement Number Date From Date To Opening price High Price Closing Price Net Position % of net BSE Net Position % net of BSE Rs. Rs. Rs. Nirmal Bang Bang Equity 1046 05-2-01 09-2-01 410 446 418 +321,012 +57.2% +....
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.... most important factor, which was required to be considered by SEBI. The approach of SEBI for reaching conclusions on the basis of unwinding of previous purchases de hors the effect of the transactions on the price of the scrip is misconceived and erroneous. The reasons for adopting this approach are obvious, as will be evident from the following that even if the finding of the Enquiry Officer and the Respondent that NBS unwound previous purchases in S.No. 1047 is to be accepted, it is significant that the price of the scrip has risen during this settlement as compared to the previous one. This shows that the purported unwinding of previous purchases did not cause any depression in the price of the scrip. In S.Nos. 1049, 1050 and 1051, the price of the scrip registered a substantial fall despite NBS being a net purchaser in each of these settlements. Instead of appreciating this fact, both the Enquiry Officer and the Respondent have stated that the net purchases in these settlements have to be seen against the background of unwinding previous purchases. The whole approach of SEBI is flawed. The Enquiry Officer and the Respondent have both failed to appreciate that out of the six....
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....g in this scrip, the main findings are against BEB. As far as NBS is concerned, the only finding of the Enquiry Officer as well as the Respondent is that to the extent that NBS and BEB were simultaneously selling in S.Nos. 1048 and 1049, they could not be said to be acting in concert. As against BEB, the Enquiry Officer has come to the conclusion that "it can be reasonably concluded that the purchases in S. No. 1050 when the closing price was Rs. 115 could be with a view to cover the earlier short sales and/or taking advantage of the fall in prices after hammering down the prices." The Respondent has merely substituted the words "could be" with the word "was". Both the Enquiry Officer and the Respondent have not given any reasons in support of the finding of "hammering down the prices" by BEB. As such, it is clear that the Enquiry Officer and the Respondent have both proceeded on the presumption that BEB hammered down the price of the scrip without coming to any independent reasoned conclusion in that regard. An examination of the above tables will clearly show that the transactions of NBS and BEB did not cause any depression in the price of the scrip. In fact, these transaction....
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....ecessary that every time the finding on correlation between the transactions and the fall should be given. It is to be kept in mind that the whole enquiry is with regard to depression in share prices caused artificially by the member" (Page 36 of the Impugned Order). "In cases of this nature when there is a series of transactions over a period of time, it cannot be determined with mathematical accuracy the extent of the fall vis-a-vis the members trade. What is to be seen is the overall trading behaviour of the member. The proportion of his sales to the exchange net sales should be taken into account. I am of the view that we should see as to what is the contribution of the member to the demand as a whole in the market whether the purchases are on account of covering of previous short sales" (Page 46 of the Impugned Order). The submissions regarding limit orders, non-distinguishing of client and proprietary trades and the absence of any sales at the lower circuit filter levels reiterated. Wipro Statement Number Date From Date To Opening price High Price Closing Price Net Position % of net BSE Net Position % net of BSE &n....
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.... 2,413 (55) (15,068) (19,282) Zee Telefilms 1,64,460 27,194 (64,563) (1,17,316) 61,164 On the basis of the aforesaid data, the Respondent and the EO concluded that Bama was a consistent net seller in the above scrips on the above dates. The above figures were supplied by Bama to the EO on the basis of the data contained in the first show cause notice. The net positions on each day have been computed after considering the open- ing purchase/sale positions and do not represent the net positions only for that day. This being so, it is apparent that Bama was not a net seller as alleged but was a net purchaser on several days. For e.g. On 23rd February, 2001, Bama was a net purchaser in Satyam and Wipro; on 1st March, 2001, Bama was a net purchaser in Silver- line; and on 2nd March, 2001, Bama was a net purchaser in HFCL, Silverline and Zee Telefilms. It is obvious that both the EO and the Respondent have erred while analyzing the data and have overlooked the aforesaid facts. It is submitted that the entire approach of the EO and the Respon- dent, of judging Bama on the basis of net sales is misconceived and erroneous. All the findings rend....
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....ention of holding Bama guilty irrespective of the facts of the case. Sales in Select Time Slots The particulars of the transactions in respect of which the Respondent has found Bama guilty of causing a fall in the prices of the scrip by selling in specified time slots are as that: Scrip Date Time from Time to Minutes Quantity % of market Fall in price % fall in price Global Telesystems 23-Feb-01 15:04 15:14 0:10 85,655 11.68% (18.65) -4.08% Global Telesystems 2-Mar-01 12:33 12:41 0:08 49,315 9.74% (12.90) -3.91% Satyam 1-Mar-01 14:13 14:33 0:20 1,55,744 5.01% (17.65) -5.26% Satyam 2-Mar-01 10:57 11:05 0:08 62,714 3.97% (12.20) -4.10% Satyam 2-Mar-01 13:17 13:53 0.36 63,979 2.56% (12.85) -4.57% SSI 2-Mar-01 13:41 13:54 0:13 9,955 14.79% (28.00) -2.70% SSI 2-Mar-01 12:32 13:01 0:29 19,450 11.13% (71.00) -6.48% Wipro 1-Mar-01 13:33 13:41 0:08 9,026 15.46% (15,00) -0.60% Zee Telefilms 23-Feb-01 12:26 12:35 0:09 76,279 2.....
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....n to the reader that Bama was only a seller and not a purchaser of these shares within these time slots. The Enquiry Report does not contain any information with regard to the other sellers, if any, the quantity and the price at which such sellers also sold the shares of the very same scrip during the very same time slots during which Bama is alleged to have caused a fall in the price of the scrips. The Enquiry Report does not take into account the market sentiments as well as the other factors which could have lead to either a general fall in the prices of the scrips or a fall in the prices of the scrip in this particular segment of the market which is reflected by segment-wise indices popularly known as BSE Index or Mindex. The Enquiry Report also does not take into account the fact whether there was any mens rea or motive on the part of Bama in allegedly causing a fall in the prices of the scrips which would have been easily ascertainable or determined if Bama had purchased the shares of the very same scrips soon after having allegedly caused a fall in the prices thereof. The Enquiry Report also overlooks another extermely significant fact, namely, that whereas Bama did sell the....
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.... 200102231345924 50,000 444.00 15:07:33 15:08:06 200102231311249 1000 442.00 15:08:39 15:08:39 200102231275361 100 441.23 15:08:49 15:08:49 200102231356040 50 442.00 15:09:30 15:09:30 200102231359429 50 443.00 15:10:11 15:10:11 200102231359738 50 443.90 15:10:38 15:10:38 200102231368207 50 441.25 15:11:59 15:11:59 Buy Sell Order Total qty Average rate Start time End time Total qty Average rate Start time End time 200102231369114 100 441.00 15:12:12 15:12:12 200102231356834 5 440.00 15:12:54 15:12:54 200102231376357 50 439.00 15:13:50 ....
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....nbsp; The price of the scrip was already falling when Bama sold 50,000 shares. By this time, the price of the scrip had already fallen by about Rs. 10. After the sale of 50,000 shares by Bama, the price of the scrip remained almost unchanged. In the 4 minutes after the sale of 50,000 shares, the price had moved only by about Rs. 2.39 i.e., 0.74%. The sales and purchases were uniformly spread out throughout this time slot. (iii )1st March '01 Satyam Computers Time : 14:13 to 14:33 Price fell by Rs. 17.65 from Rs. 333 to 315 Buy Sell Order Total qty Average rate Start time End time Total qty Average rate Start time End time 200103011239131 50 332.50 14:15:42 14:15:42 200103010794985 50 332.50 14:15:44 14:15:44 200103011184900 200 332.50 14:15:44 14:15:44 200103011241115 150 331.50 14:16:05 14:16:05 200103011246832 ....
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....03011308362 50 322.80 14:29:24 14:29:24 200103011308736 600 322.50 14:29:27 14:29:27 200103011310444 1000 322.60 14:29:43 14:29:43 200103011312279 5000 321.05 14:29:58 14:29:58 200103010583294 100 320.00 14:30:14 14:30:14 200103011315834 100 319.00 14:30:31 14:30:31 200103011319104 96006 317.75 14:31:02 14:31:59 After one of the largest sale transactions of 77,961 shares, there was no change at all in the price of the scrip. After the other large sale transaction of 96,006 shares, there was virtually no change in the price of the scrip. The sale of these shares was at the average rate of Rs. 317.75. Two minutes thereafter, the price of the scrip was Rs. 315. During the periods when the price of the scrip registered the latest fall of Rs. 4, Bama was a continuous purchaser (Bama had insignificant sales pr....
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....:03:52 11:03:52 200103020394248 100 287.80 11:04:07 11:04:07 200103020397663 100 287.00 11:04:40 11:04:40 200103020397592 15623 287.02 11:04:40 11:04:51 200103020398480 300 286.10 11:04:56 11:04:56 200103020399354 1000 286.00 11:04:58 11:04:58 Apart from sales, there were also purchases made by Bama during this time slot, which was uniformly spread out throughout the time slot. After the first two sales transactions, the price of the scrip actually rose. Between the period from 11:01:43 to 11:02:25, Bama was a continuous purchaser, inspite of which the price of the scrip fell. After the largest sale transaction of 45,026 shares in the period from 11:03:19 to 11:03:26, the price of the scrip rose. After the sale of 15,623 shares by Bama, the price fell by less than a rupee. This shows that this sale had no impact on the price of the scrip. During the period ....
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....p; 200103020987307 50 276.20 13:30:10 13:30:10 200103021000571 200 274.50 13:33:52 13:33:52 200103020996365 200 274.35 13:34:25 13:34:25 200103021005619 5,000 274.99 13:35:06 13:35:07 200103021015912 1,000 274.89 13:37:51 13:37:51 200103021036928 500 276.00 13:43:32 13:43:32 200103021035966 500 275.05 13:44:20 13:44:20 200103021042941 20 275.50 13:45:23 13:45:23 200103021044099 1,000 275.75 13:45:35 13:45:35 200103021060951 2,500 273.64 13:50:30 13:50:31 200103021063019 5,000 272.53 13:51:07 13:51:07 200103020747051 20 271.00 13:51:27 13:51:27 ....
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.... 200103020852567 5 1048.10 12:53:45 12:53:45 200103020856801 10 1050.00 12:55:19 12:55:19 200103020859198 10 1040.00 12:57:50 12:57:50 Apart from the sales, there were also purchases made by Bama during this time slot, which was uniformly spread out throughout the time slot. By the time Bama's first sale transaction took place, the price of the scrip had already fallen by Rs. 30. This fall can therefore never be attributed to Bama. It also shows that the price was already falling before Bama executed its first sale trans-action in this time slot. The sales of Bama did not have any signi- ficant effect on the price of the scrip. After Bama sold 10,000 shares at 12:41:18 at the average rate of Rs. 1070, after 4 minutes the price of the scrip was about Rs. 1065. Similarly, after Bama sold 9,000 shares at 12:47:48 at the average rate of Rs. 1062, after almost 8 minutes the price of the scrip was about Rs. 1050. The percentage fall comes to 0.93% and 1.13% respectively, which is insignificant. This is without tak....
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....ificantly, these purchases were of very small quantities - 100 shares and 2 shares. After the sale of just 2 shares, the price of the scrip fell by almost Rs. 15. This clearly establishes that the price of the scrip was falling due to market sentiments and not due to the transactions of Bama. In the period between Bama's first purchase and first sale, the price of the scrip had already fallen by Rs. 19. This was before even Bama executed a single sale transaction. This shows that the price of the scrip was already falling. Even if the traded price of the scrip is taken at Rs. 2,500, a fall in price of Rs. 15 is only 0.6%, which is totally insignificant. Coupled with the fact that this scrip was extre- mely liquid and traded in large volumes, the fall in price by Rs. 15 was not at all unusual. ( ix)1st March '01 Zee Telefilms Time: 12:53 to 13:56 Price fall by Rs. 8.95 Buy Sell Order Total Qty Average rate Start time End time Total Qty Average rate Start time End time 200103010953046 500 173.25 12:53:51 12:53:51 ....
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.... 200103011103164 500 167.50 13:39:39 13:39:39 200103011108332 200 167.00 13:41:34 13:41:34 200103011124772 100 167.00 13:48:00 13:48:00 200103011128094 50 166.00 13:51:47 13:51:47 200103011136077 2500 166.21 13:52:00 13:52:00 Buy Sell Order Total Qty Average rate Start time End time Total Qty Average rate Start time End time 200103010446964 500 165.00 13:53:55 13:53:55 200103010224307 1000 165.00 13:53:55 13:53:55 200103011082701 100 165.10 13:53:55 13:53:55 200103011141482 99000 16.05 13:52:00 13:52:00 200103011116349 500 165.00 13:53:57 13:53:57 &n....
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....e End time Total Qty Average rate Start time End time 200102230700811 100 224.00 12:29:46 12:29:46 200102230705467 1000 222.50 12:31:10 12:31:10 200102230707239 2000 222.90 12:31:39 12:31:39 200102230708358 200 222.45 12:31:56 12:31:56 Neither of the two sale transactions had any impact whatsoever on the price of the scrip. Even after the sale of 99,000 shares, the price of the scrip remained unchanged. In fact, the price of the scrip feel steadily during the period when Bama was purchasing the shares. This shows that the transactions on Bama had no impact on the price. Significantly, after Bama's relatively large purchase of 10,915 shares, the price of the scrip fell marginally by Rs. 120. This again shows that Bama's transactions did not affect the price of the scrip and that the price was ruled by market sentiments. During the period that Bama traded in the shares of this scrip, the price fell by only Rs. 3.75 out of the fall of Rs. 8.....
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....hases made by Bama during this time slot. The transactions were uniformly spread out throughout the time slot. The price of the scrip continuously fell irrespective of whether Bama purchased or sold shares. Even after Bama purchased shares, the price continued to fall. In fact, despite Bama's relatively large purchase transaction of 1,00,000 shares, the price of the scrip fell. The sales of Bama had no real impact on the price of the scrip. After the sale of 40,538 shares, the price fell by only Rs. 0.21. Similarly, after the sale of 87,680 shares, the price fell by only Rs. 0.41 and after the sale of 35,599 shares, the price fell by only Rs. 0.15. Significantly, after the sale of 10,000 shares, the price rose by Rs. 0.29. The above facts clearly shows that the transactions of Bama did not affect the price of the scrip and that the price was ruled by market sentiments. The speed with which the transactions were executed indicate the tremendous depth and liquidity of the scrip and that the trades were between willing buyers and sellers at price discovered through the screen based trading mechanism. 5.7 Concerted action by BAMA and BSPL - Both, the Enquiry Officer and the Responde....
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....issions of the net sales methodology and the impact price are reiterated. It is submitted that both the Enquiry Officer and the Respondent have ignored relevant facts and matters while arriving at their respective conclusions of guilt. They have based their conclusions entirely on extraneous considerations. Both, the Enquiry Officer and the Respondent have not bothered to analyse the trading pattern of either Bama or BSPL on 1st and 2nd March, 2001 to ascertain whether they in fact acted in concert. Both, the Enquiry Officer and the Respondent have conveniently ignored the fact that both Bama and BSPL had also purchased shares of these scrips on the aforesaid dates. In the case of Satyam Computers, they failed to appreciate that the net sales of BSPL were negligible and therefore insignificant for the purpose of concluding that BSPL was acting in concert with Bama. Once again, it is submitted that the Enquiry Officer and the Respondent have ignored relevant facts and have based their conclusions on baseless and unwarranted assumptions, surmises and conjectures. The Respondent has simply copied the findings of the Enquiry Officer and reproduced the same in the impugned order. ....
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....n if it is assumed without admitting that the trades were synchronized, the trades do not violate the aforesaid Regulations 4(c) and 4(d) inter alia, for the reasons that : Regulation 4(c) prohibits acts and which result in reflection of prices of securities based on transactions that are not genuine trade transactions. It is not the case of SEBI that the purportedly synchronized trades were not at market prices or that these trades had an impact on the market prices of the said scrips. This being so, it is not the case of SEBI nor has it been established by SEBI that these trades resulted in a reflection of the prices of the said scrips, which are not related to market prices. In view of the aforesaid these trades did not violate Regulation 4(c). Regulation 4(d) prohibits transactions in securities not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuation in the market prices of securities. Significantly it is not the case of SEBI nor is there any finding that these purportedly synchronized trades were intended to operate as a device to depress or cause fluctuation in the market price of the said sc....
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....limits cannot even be booked on the screen. Such an order, if placed, will be rejected outright. Neither the EO nor the Respondent have made any efforts to examine and place on record material, which would indicate that the alleged synchronized transactions were at prices unrelated to the market. The finding of the EO and the Respondent that the quantum of the transactions i.e., Rs. 50 crores per month, should have aroused the suspicion of BEB is also baseless. Each of the scrips listed by the Enquiry Officer have large trading volumes and all trades have been carried out on the screen based trading mechanism in a transparent manner at the prevailing market price. The total volume of transactions of Nirmal Bang group at that time was about Rs. 90,000 crores per annum. Hence, the volume of transactions on behalf of Shankar Sharma was too insignificant to arouse suspicion. 5.9 Relationship with Palombe Securities and Finance Ltd. - The EO found that the trading terminals of NBS, BEB and BSPL were installed at the office of Palombe. He further found that the activities of Palombe were analogous to the activities of a sub-broker in the securities market. On this basis, he concluded ....
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.... cannot be said to have caused any prejudice to the investors because in respect of the trades executed by Palombe on behalf of its own clients, it was not Palombe but the Appellant who had issued the contract notes. Another charge made by the EO and echoed by the Respondent is that it was not shown by the Appellants that Palombe was a person whom brokerage could be shared in terms of the proviso to Bye-Law 218(a) or that Palombe was not a disqualified person for sharing brokerage in terms of the proviso to Bye-Law 218(a). This charge is ex facie baseless and misconceived and from Bye-Law 218 it is abundantly clear that the appellants were entitled to share brokerage with Palombe, even if Palombe was purportedly a sub-broker. For the sake of convenience, Bye-Laws 218(a) and (b ) are reproduced below: A member may share brokerage with remisier, authorized clerk or employee in his own exclusive employment. He may similarly share brokerage with any other person introducing a constituent provided such person: (a)Is not one with whom members are forbidden to do business under the rules, bye laws and regulations of the exchange. (b)Is not a remisier, authorized clerk or emplo....
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....ssued sales/purchase confirmation notes in respect of one of its clients viz: M/s. Indore Composite Pvt. Ltd. As far as (b) is concerned, it has already been dealt with above and shown that the finding is baseless and erroneous. As far as (a), (c) and (d ) are concerned, the charges/findings are of too trivial a nature to warrant any punishment. With specific reference to (a), it is to be noted that NBS had 56 registered sub-broker and Bama had 35 registered sub-brokers. Bama and NBS were not aware that these three persons were acting as sub-brokers and in fact these 3 persons had executed client registration forms. Moreover, there was nothing to prevent NBS and Bama from registering these 3 parties as their sub-brokers - this would have been granted for the asking. Also, there was nothing to gain for NBS and Bama by not registering them as sub-brokers. With specific reference to (c), first and foremost the majority of short sales were by sub-brokers and only a small percentage were by direct clients of NBS and BEB. It is obvious that a broker cannot supervise every transaction of his sub-broker. Secondly, the quantity and volume of the trades are insignificant as compared to th....
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.... slot, the time slot is 12.26 to 12.35 and not 12.26 to 12.32", the Appellants submitted that the Respondent is now acknowledging errors in the impugned order, and thereby the Respondent has clearly acknowledged non-application of mind. The Respondent is also now changing the purchase and sale quantities to press the charge. With reference to the written submission on specific instances listed in the order, the Appellants have submitted that the Respondent suggests that the Appellants have selectively picked up certain scrips and analysed the trading pattern of Bama only in those scrips. This is a mischievous and mala fide suggestion since it is the Respondent who had picked up those scrips to make allegations of artificial price depression against Bama. It was in response to these charges that the Appellants submitted an exhaustive explanation and analysis on scripwise basis clearly establishing that their transactions did not artificially depress the price of the scrips. It is apparent that SEBI is now relying on the findings of the Enquiry Officer and not those of the Chairman, SEBI. This is obviously because the Respondent has now realised that in the impugned order, the Cha....
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.... however strong the language in which they are couched may be, and the same applies to undue influence and coercion." (vi) A.N. Parasuraman v. State of Tamil Nadu AIR 1990 SC 40 (cited in the context of interpretation of regulations 25 and 26 of Stock Broker Regulations). It is well established that determination of legislative policy and formulation of rule of conduct are essential legislative functions which cannot be delegated. What is permissible is to leave to the delegated authority the task of implementing the object of the Act, after the Legislature lays down adequate guidelines for the exercise of power, uncanalised, unlimited and arbitrary power cannot be exercised by the delegatee. (vii) State of Kerala v. M.K. Krishnan Nair AIR 1978 SC 747. There is ample authority for the proposition that where two constructions are possible, that one which leads to unconstitutionality must be avoided and the other which tends to take provision constitutional should be adopted, even if straining of language is necessary. (viii) British Airways Plc. v. Union of India AIR 2002 SC 391 (on harmonious construction) It is a cardinal principle of construction of a statute....
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....Senior Counsel referred to the ad interim order passed by SEBI on 18-4-2001. He submitted that the Appellants in the context of the said ad interim order had submitted written submissions, describing them as "the Bang Entities". There is no denial that the Appellants are Nirmal Bang companies. He referred to para 10 of the said written submissions and stated that the Appellants have extracted therein the charges which they were required to answer. He referred to the first show-cause notice dated 4-6-2001 and submitted that the facts stated therein were not contested by the Appellants, that only the inference drawn is in dispute. He also referred to the 2nd show-cause notice dated 25-1-2002 and the material furnished therein in support of the charge of short sales, synchronised trading etc. He submitted that the Appellant had indulged in short sales even after banning the short sale on 7-3-2001. He referred to the data and submitted that there is evidence of synchronised transactions, the timing is incredible, that the transactions were effected not once but several times, that there is remarkable coincidence. He submitted that the scope of the order is confined to the scope of thos....
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....he market equilibrium. It was contended that there are no means of knowing whether any entity controlled by the client is simultaneously entering any contra order elsewhere since in the online trading system, confidentiality of counter parties is ensured and it is not possible for the broker to know who the counter party broker is. Enquiry Officer has found that it is too much of a coincidence over too long a period in too many transactions where both the parties to the transaction (BEB on behalf of Shri Shankar Sharma and FGSB on behalf of Vriddhi) had entered buy and sell orders for the same quantity of shares almost simultaneously. The total amount of such transaction during the period January to March of 2001 was Rs. 200 crores. In most of the instances, the gap between the order placement and its matching is too narrow and the complete order quantities got matched. In view of the close proximity of the order time punched by both the parties in the system, these transactions between BEB and FGSB can be termed as sysnchronized transactions. Both the parties to the transactions had entered buy and sell orders for the same quantity of shares almost simultaneously. There is no tran....
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.... crores during 2000-2001 at the rate of 50 per cent brokerage on the trading done by various clients introduced by Palombe. This translates into a business of approximately Rs. 2,800 crores by Bang Entities for clients introduced by Palombe. This constitute a very important percentage. The trading terminals of BEB, "BSL" and "NBS" (i.e., 3 out of the 4 Bang Entities) are installed at the office of Palombe. Its main business is jobbing and investment on own account and introducing clients to other brokers and sub-brokers and earning sub-brokers thereon. Palombe does jobbing and investments on NSE through Bama and BSL and on the BSE through BSL and NBS. It also trades through consortium and on the DSE through CSL. Two of the Bang Entities had committed a clear breach of the SEBI circular dated 22nd October, 2001 by having their trading terminals in Palombe's office and allowing Palombe to execute trades on the said terminals. Palombe has introduced various clients such a Shankar Sharma, CSL and other clients who are front entities for the Ketan Parekh Group to the Bang Entities. For the trades done by these clients Palombe received sub-brokerage fees from Bang Entities. In the ....
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....nt are in breach of SEBI Circular. It is found that NBS and BEB violated Circular dated 7th March, 2001 on short sales to the extent of Rs. 2.31 crores and Rs. 3.05 crores respectively. Manipulative trading by each of the Bang Entities 8.4 Trading by Bama Securities Ltd. - Bama has indulged in large trading transactions and has created significant net sales in key scrips that either form part of stock indices or were momentum scrips including the scrip of Global Tele, HFCL, Infosys and Satyam with a view to depress artificially the prices of these securities between mid February and mid March in a concerted manner. Most of these sales were on proprietary account and on behalf of Bang Securities. The Enquiry Officer has analysed the details of the trading pattern of Bama in the individual scrips and has come to the conclusion that the trading in the scrip of Global Tele in Settlement No. 8, HFCL in Settlement No. 11. Satyam in Settlement No. 11 are significant. Bama has built significant sale position in several scrips on specific dates i.e., February 23, March 1st and 2nd of 2001. Bama took these positions essentially on its own account and on behalf of its proprietary sub-br....
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....the trading behaviour. The net sales methodology gives the trading behaviour of the member during the relevant period (settlement/day/time slot). The Enquiry Officer in the Enquiry Report has come to the conclusion that such sales had resulted in artificially depressing the prices of the shares. Sales in concert with Bang Securities Bama has built up position in several scrips in concert with BSPL to manipulate the shares prices. Net sales position in Global Tele, HFCL, Infosys, Reliance, Satyam Computers, HLL, Wipro, Zee Tele, HCL Tech., DSQ Software, Aptech, etc. were taken by the Bama on 1st and 2nd March, on own account and for Bang Securities. It may be noted that BSPL is a sub-broker of NSB and BEB. Enquiry Officer has found that to the extent of the trading in Infosys, and Reliance on 1st March and Satyam Computers on 2nd March, BSPL, and Bama Securities were acting in concert with each other to artificially depress the share price. The section of Enquiry Report (page 92) referred by the appellant pertains to analysis of trading pattern of Bama in certain scrips including Infosys, Satyam, etc. for the dates 22nd, 23rd, 28th February, 1st and 2nd March, 2001. The findin....
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....54 0.13 9955 14.79% (28) SSI 2-3-01 12.32 13.01 0.29 19450 11.13% (71) WIPRO 1-3-01 13.33 13.41 0.08 9026 15.46% (15) Zee Tele 23-2-01 12.26 12.32 0.09 76279 2.33% (8.35) Zee Tele 1-3-01 12.53 13.56 1.03 129478 6.52% (8.95) Zee Tele 2-3-01 12.00 12.22 0.22 116932 7.04% (11.65) Enquiry Officer has observed that the purchases in some other counters in this regard are not relevant as the issue being examined is whether the member was selling in the particular scrip during the specified time slot when the prices of these scrips had fallen. Further, it is not known whether such purchases made during the time slot when the price had fallen were preceded by the short sales, in which case, it would be taking advantage of the fall in prices after hammering down the price earlier. It is not correct to say that there is deliberate attempt to withhold the information regarding purchases of Bama during the time slot. The purchases and sales by Bama during the time slot were considered to arrive at net sales figure. The data pertaining to purchases made....
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....spectively. The Appellant has argued that after every sale transaction, the price of the scrip, has almost remained same. This interpretation of the Appellant is not correct. The data given by him pertain to his transaction only and merely shows that his next trade (purchase) was executed at 15:14:23 which was after 15 seconds. The Appellant has argued that order of 50,000 shares and 20,000 shares that trade in 33 seconds and 8 seconds respectively is indicated of the depth and liquidity of the scrip. The appellant should consider change in price which resulted in execution of 50,000 shares to ascertain impact of his trades. The next trade of Bama was purchases of 1,000 shares at Rs. 442 which is Rs. 2 below then the average rate at which trade of 50,000 shares were executive. This clearly shows the correlation between sale by Bama and the movement in share prices. (ii) Global Telesystems-2nd March Scrip Time band Short Sell (Qty.) % of market sell Diff in the op-cl price % of fall in price Global Tele 12:33-12:41 49,315 9.74 (12.90) (3.91) The Appellant purchased 700 shares and sold 50,015 shares during the time slot when t....
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.... during the periods when the price of the scrip registered the largest fall of Rs. 4 Bama was a continuous purchasers, that the Appellant has merely given the quantum of fall without giving the time period he is referring to and is an argument without basis. The Appellant has argued that when the price fell from Rs. 333 to Rs. 325, Bama was a net buyer to the extent of 125 shares. According to the Appellants' data, when the scrip price fell from Rs. 333 to Rs. 325, Bama was a net seller of 77,336 shares and not a net buyer of 125 shares. It may be noted that the Bang Entities have not disputed SEBI's data at any time. The Appellant has argued that execution of 77,961 shares in several seconds is indicative of depth and liquidity of the scrip. The depth in the market at a point of time depends on, inter alia, supply and demand in the market. It should be noted that it took 57 seconds for execution of 96,006 shares. (iv) Satyam Computers - 2nd March, 2001 Scrip Time band Short Sell (Qty.) % of market. sell Diff in the op-cl price % of fall in price Satyam Comp. 10:57-11:05 62714 3.97 (12.20) (4.10) The Appellant has argued tha....
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....g the time slot was Rs. 71. It was denied that neither the sales and purchases were uniformly placed nor the quantum of sale and purchases were uniform during the time slot, that there was co-relation between the transaction of Bama and the movement in the price of the scrip. (vii) SSI - 2nd March, 2001 Scrip Time band Short Sell (Qty.) % of market sell Diff in the op-cl price % of fall in price Softsoln. 13:41-13:54 9,955 14.79 (28.00) (2.70) During the relevant time slot, Bama had purchased 50 shares and sold 10,005 shares. Net sales of Bama during the said time slot was around 14.8% of the market sell and the price drop during the same period was Rs. 28. The time slot pertains to 13.41 to 13.54 when the price dropped from Rs. 1033 to 1,005. The rise in the scrip to Rs. 1016 at about 1357 shows that earlier price fall was artificial and it is because of the sale by Bama. Wipro - 1st March, 2001 Scrip Time band Short Sell (Qty.) % of short sale to market sell Diff in the op-cl price during the band % of fall in price Wipro 13:33-13:41 9,026 15.46 (15.00) (0.60) During the rel....
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....he Appellant that after the sale of 99,000 shares the price of the scrip remain unchanged. According to the Respondent from data provided by Appellant, it can be seen that order subsequent to sale of 99,000 shares that got executed was purchase of 200 shares at a lower price. From the order number it can be inferred that order placed for purchase of 60 shares was much earlier than the order placed for sale of 99,000 shares. Zee Telefilms - 2nd March, 2001 Scrip Time band Short Sell (Qty.) % of short sale to market sell Diff in the op-cl price % of fall in price Zeetele 12:00-12:22 1,16,932 7.04 (11.65) (7.77) It was submitted by the Respondent that during the relevant time slot, Bama had purchased 1,06,450 shares and sold 2,23,382 shares.The price drop during the time slot was Rs. 11.65 the Respondent denied the Appellants' version that transactions were uniformly placed during the time slot. The Respondent submitted that the time gap between the sale of 87,680 shares and purchase of 1,00,000 shares in 00:01:08 hours and hence inferring about the impact of the purchase transaction of 1,00,000 shares is not correct. It may be....
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....t % Net 1043 15-1-01 19-1-01 728 739 734 150,109 1,42,285 7,824 0.7% 1044 22-1-01 26-1-01 740 787 732 1,21,242 1,22,304 -1,062 -0.1% 1045 29-1-01 2-2-01 706 748 673 1,21,197 1,32,075 -10,878 -1.1% 1046 5-2-01 9-2-01 670 696 630 64,426 61,814 2,612 0.3% 1047 12-2-01 16-2-01 632 655 609 1,19,571 1,16,156 3,415 0.4% 1048 19-2-01 23-2-01 615 624 439 1,13,458 1,11,248 2,210 0.3% 1049 26-2-01 2-3-01 443 454 313 1,76,397 3,57,900 -181,503 -9.2% 1050 5-3-01 9-3-01 306 312 226 2,54,078 86,292 167,786 9.3% 1051 12-3-01 16-3-01 210 241 206 57,310 55,739 1,571 0.1% [[ Dates Open High Close Buy Sales Net Market Sales % of Market 19-2-01 615 624 604.3 55,138 7,540 47,598 56,86,710 0.1% 20-2-01 605 608.75 582.75 5,235 3,155 2,080 39,13,980 0.1% 21-2-01 582 582 557.45 10,080 10,155 -75 36,18,289 0.3% 22-2-01....
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.... -7.2% 1044 22-1-01 26-1-01 1241 1300 1269 125221 65,831 59,390 6.4% 1045 29-1-01 2-2-01 1250 1265 1027 185,845 181,910 3,935 0.2% 1046 5-2-01 9-2-01 1000 1039 965 421,926 364,162 57,764 3.7% 1047 12-2-01 16-2-01 950 1019 910 150,764 204,206 -53,442 -5.0% 1048 19-2-01 23-2-01 910 923 743 251,746 172,926 78,820 7.5% 1049 26-2-01 2-3-01 740 759 604 243,291 329,346 -86,055 -3.5% 1050 5-3-01 9-3-01 585 625 327 123,647 118,091 5,556 0.2% 1051 12-3-01 16-3-01 301 322 214 111,383 83,659 27,724 0.7% [ Dates Open High Low Close Buy Sales Net Market Sales % Market 19-2-01 910 923 836.75 895.65 105192 58739 46453 9229266 0.6% 20-2-01 892 903 865 869.2 78592 8020 70572 6522195 0.1% 21-2-01 868 868 814 836.15 20491 29123 -8632 5302421 0.5% 22-2-01 832 850.9 773.05 826.7 32757 29767 2990 6908481 0....
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....iously built large purchase position in S.No. 1049 could have contributed to the fall in the prices of the scrips. His sales on 23-2-2001, 26-2-2001, 27-2-2001 and 1 3 2001 were also taken into account for this purpose. Infosys Date Date Open Hi Close BEB Sett No. From To Buy Sell Net % Net 1043 15-1-01 19-1-01 5860 6800 6779 39,961 36,738 3,223 0.7% 1044 22-1-01 26-1-01 6950 6988 6778 23,650 18,723 4,927 2.9% 1045 29-1-01 2-2-01 6610 6924 6860 8,148 18,933 -10,785 -7.2% 1046 05-2-01 9-2-01 6777 6777 6406 17,866 17,525 341 0.2% 1047 12-2-01 16-2-01 6380 6537 6254 10,657 10,387 270 0.2% 1048 19-2-01 23-2-01 6260 6343 5598 8,344 8,124 220 0.1% 1049 26-2-01 2-3-01 5730 6330 4940 18,883 17,872 1,011 0.3% 1050 5-3-01 9-3-01 4700 5315 4817 9,292 10,517 -1,225 -0.4% 1051 12-3-01 16-3-01 4738 4990 4694 6,364 6,526 -16....
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....ficant seller, when the prices have fallen, across settlement Nos. 1047 to 1051. BEB had net sales of 82,550 shares in S.No. 1048 and had taken advantage of the fall in prices and resorted to purchases in subsequent settlements Nos. 1049 and 1050. Considering, the opening position, BEB has reduced its pur- chase position in S.No. 1048 and had in subsequent settlements viz., S.Nos. 1049 and 1050, BEB has taken advantage of price fall and increased the purchase position which was subsequently in S.No. 1051 was reduced. Enquiry Officer has observed that BEB had net sales of 138885, 79317 and 285297 on 23rd February, 1st March, and 2nd March of 2001 respectively when the scrip price displayed a fall of Rs. 20, 34 and Rs. 50 respectively. DSQ Software Date Date Open Hi Close BEB Sett No. From To Buy Sell Net % Net 1043 15-1-01 19-1-01 373 418 405 1,92,515 1,92,875 -360 -0.1% 1044 22-1-01 26-1-01 415 444 429 43,180 40,441 2,739 0.5% 1045 29-1-01 2-2-01 407 450 415 93,286 93,226 60 0.0% ....
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....54 921,929 733,219 188,710 6.0% 1046 5-2-01 9-2-01 252 260 231 232,586 383,094 -150,508 -5.3% 1047 12-2-01 16-2-01 229 247 231 221,970 77,630 144,340 4.5% 1048 19-2-01 23-2-01 234 241 210 490,560 673,340 -182,780 -2.0% 1049 26-2-01 2-3-01 215 215 136 175,786 257,806 -82,020 -1.7% 1050 5-3-01 9-3-01 125 147 117 505,318 461,118 44,200 0.4% 1051 12-3-01 16-3-01 120 157 144 227,241 259,087 -31,846 -0.4% Dates Open High Close Buy Sales Net Market Sales % of Market 19-2-2001 234 234.5 229.4 89925 26900 63025 11557626 0.2% 20-2-2001 230 235 232.4 124795 18870 105925 10932968 0.2% 21-2-2001 231 238.65 236.75 216500 258000 -41500 22796031 1.1% 22-2-2001 235.25 240.9 235.25 19805 277395 -257590 16315587 1.7% 23-2-2001 231.7 233.85 210.3 39535 92175 -52640 16369630 0.6% Sett No. 48 490560 ....
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.... are on account of covering the previous short sales. NBS acting with concert with BEB in effecting large sale transaction in the scrips of Global Tele, HFCL, Infosys, Satyam, DSQ, Zee Tele Films. Global Tele Systems Date Date Open Hi Close BEB NBS Sett No. From To Buy Sell Net %Net Buy Sell Net %Net 1048 19-2-01 23-2-01 615 624 439 113,458 111,248 2,210 0.3% 540,929 580,981 -40,052 -4.6% 1049 26-2-01 2-3-01 443 454 313 176,397 357,900 -181,503 -9.2% 508,790 859,105 -350,105 -17.9% 1050 5-3-01 9-3-01 306 312 226 254,078 86,292 167,786 9.3% 529,984 275,202 254,782 14.1% 1051 12-3-01 16-3-01 210 241 206 57,310 55,739 1,571 0.1% 234,815 216,945 17,870 1.3% Enquiry Officer has observed that NSB and BEB have simultaneously created net sales in settlement 1049 constituting 17.9 per cent and 9.2 per cent of net at the Exchange and to this extent both the....
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....bsp; Sell Net %Net 1047 12-2-01 16-2-01 6380 6537 6254 10,657 10,387 270 0.2% 62,139 55,000 7,139 4.8% 1048 19-2-01 23-2-01 6260 6343 5598 8,344 8,124 220 0.1% 78,468 81,155 -2,687 -1.0% 1049 26-2-01 2-3-01 5730 6330 4940 18,883 17,872 1,011 0.3% 148,760&....
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....ent Nos. 1048 and 1051, both BEB and NBS were net sellers and to this extent they can be said to be acting in concert to bring down the prices. DSQ Software Date Date Open Hi Close BEB NBS Sett No. From To Buy Sell Net %Net Buy Sell Net %Net 1045 29-1-01 2-2-01 407 450 415 93,286 93,226 60 0.0% 754,105 789,005 -34,900 -5.3% 1046 5-2-01 9-2-01 409 446 418 54,784 54,379 405 0.1% 724,383 403,371 321,012 57.2% 1047 12-2-01 16-2-01 415 463 423 78,367 81,725 -3,358 -0.5% 468,678 468,263 415 0.1% 1048 19-2-01 23-2-01 424 433 369 114,081 114,687 -606 -0.1% 479,278 493,576 -14,298 -3.1% 1049 26-2-01 2-3-01 375 398 304 105,340 105,055 285 0.0% 693,198 560,898 132,300 19.8% 1050 5-3-01 9-3-01 300 318 212 76,090 66,835 9,255 0.3% 379,339 364,144 15,195 0.6% 1051 12-3-01 16-3-01 19....
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....ad fallen has contributed to the fall. The prices at which these shares were sold are also in the vicinity of the lowest circuit filter. BEB has executed transactions on behalf of Shri Shankar Sharma, Director, First Global Stock Broking Pvt. Ltd., member BSE and NSE which are of dubious nature with a view to manipulate the market and avoid detection. This matter has already been discussed in the preceding pages and, therefore, not repeated here. BEB has dealt with Palombe, an unregistered sub-broker which amounts to lack of due diligence, exercise of due skill and care expected of a registered broker as per the code of conduct applicable to the brokers. This matter has already been discussed in the preceding pages and, therefore, not repeated here. BEB has indulged in short sales between 8th March, 2001 and 31st March, 2001 to the extent of Rs. 3.05 crores in violation of SEBI Circular No. SMD/RPD/Policy/CIR-13/2001 dated 7th March, 2001. This matter has already been discussed in the preceding pages and, therefore, not repeated here. 8.6 Trading by Bang Securities P. Ltd. (BSPL), Sub-broker - BSPL is a registered sub-broker of NBS and BEB. BSPL has indulged in large tr....
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....4,782 14.1% 1051 12-03-01 16-03-01 210 241 206 234,815 216,945 17,870 1.3% Date Op. Hi Cl. NBS Buy Sell Net 26-02-01 443 454 416 61020 449020 -388000 27-02-01 420 427 363 93850 199395 -105545 28-02-01 360 410 404 69945 62901 7044 1-03-01 410 430 372 52932 107328 -54396 2-03-01 372 377 313 323035 83426 239609 Enquiry Officer has observed that NBS had net sales of 3,50,315 shares, which constituted 17.9% of net of exchange. Enquiry Officer has come to the conclusion that subsequent purchases in settlement Nos. 1050 and 1051 could be with a view to cover the earlier short sales in view of the large net sales undertaken by the member in the immediately preceding settlements. In Settlement No. 1049, covering the period between 26th February and 2nd March, as evident from the table above, NBS was a net seller in 3 out of 5 days. Earlier, NBS has reduced it net purchase from S. No. 1046 at 70,406 to 28,449 in S. No. 1047 and in S. No. 104....
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.... 22,820 0.6% Enquiry Officer has come to the conclusion that the purchase in Sett.1048 could be with a view to cover the short sales in the earlier settlements. (c) Infosys Date Date Op Hi Cl BEB Sett No. From To Buy Sell Net %Net 1043 15-01-01 19-01-01 5860 6800 6779 171,478 189,504 -18,026 -3.7% 1044 22-01-01 26-01-01 6950 6988 6778 49,999 72,602 -22,603 -13.4% Date Date Op Hi Cl BEB Sett No. From To Buy Sell Net %Net 1045 29-01-01 02-02-01 6610 6924 6860 69,638 57,158 12,480 8.3% 1046 05-02-01 09-02-01 6777 6777 6406 61,642 59,846 1,796 1.0% 1047 12-02-01 16-02-01 6380 6537 6254 62,139 55,000 7,139 4.8% 1048 19-02-01 23-02-01 6260 6343 5598 78,468 81,155 -2,687 -1.0% ....
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....tlements of 1049 and also with a view to cover its earlier sales. The trading pattern of the member is typical of a short seller who sells shares without possessing the same with a view that the prices will come down in future so that the short sales can be covered by purchasing at lower prices. Such sales are speculative but when seen together with other similar trades and trades of other Bang Entities and taking into account the other facts and circumstances including the fact that the said trades did bring about a fall in the price, the said trades have been shown to be manipulative. (d) DSQ Software Date Date Op Hi Cl BEB Sett No. From To Buy Sell Net %Net 1043 15-01-01 19-01-01 373 418 405 3,94,348 4,07,273 -12,925 -2.3% 1044 22-01-01 26-01-01 415 444 429 3,96,955 3,98,850 -1,895 -0.4% 1045 29-01-01 02-02-01 407 450 415 7,54,105 7,89,005 -34,900 -5.3% 1046 05-02-01 09-02-01 409 446 418 7,24,383 4,03,371 321,012 57.2% 1047 12-02-01 16-02-01 ....
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....ng mid February and mid March. NBS has dealt with the following un-registered sub-brokers. Such acts of dealing with unregistered sub-brokers is in violation of the Code of Conduct prescribed under the Stock Brokers Regulations. (a)Moneygrowth Investment & Cons. Pvt. Ltd. (b)Arihant Stocks Ltd. Bombay Stock Exchange had imposed a fine of Rs. 74,000 under its bye-laws which was paid by NBS. Enquiry Officer has observed that NBS had not exercised due skill and care as required under the Code of Conduct while dealing with the unregistered sub-broker. The fine paid by NBS amounts to tacit admission of having dealt with an unregistered sub-broker. Chairman has agreed with findings of Enquiry Officer that NBS has dealt with Money Growth and Arihant Stock who are not registered sub-brokers. NBS has indulged in short sales between 8th March, 2001 and 31st March 2001 to the extent of Rs. 2.31 crores in violation of SEBI Circular No. SMD/RPD/Policy/CIR-13/2001 dated 7th March, 2001. Market Manipulation: In the matter of Carole L. Haynes it has been held that 'Market manipulation refers generally to practices such as wash sales, matched orders or rigged prices that are....
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....dmission, manipulative intent may be inferred from circumstantial evidence." Scienter as an element of violation has also been discussed in Sterlite Industries India Ltd. v. SEBI [2001] 34 SCL 485 (SAT - Mum.) it was held that Scienter is an element of violation of section 17(a)(1) of the Securities Act and sections 10(b) and 15(c) of the Exchange Act - the Supreme Court had defined Scienter as "a mental state embracing intent to deceive manipulative or defraud" "recklessness is sufficient to satisfy the Scienter requirement". If there are a series of transactions which involve fraudulent/deceit and there are certain circumstances so strong such as repeated transactions involving 4 to 5 common entities, select dates/select time slots/transactions without intent of delivery/totally synchronised trades-the finger of guilt must point out to them totally. An inference must be drawn by the circumstances and proving of mens rea is not required. SEBI stands by its earlier arguments on non requirement of mens rea to be proved. Lifting the Corporate Veil The Respondent repeated and reiterates all that is stated in respect of 'lifting the corporate veil' in the Enquiry Officers Repo....
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....ter). No guidelines are required for deciding the punishment except looking to the gravity of the offence. All we are concerned with its cancellation or suspension. Gravity and the quantum of punishment may be corrected by the higher court. Where there is a complete code no other guidelines can be referred to. One cannot restrict the power under a complete code and go to the brokers regulation. SEBI is required to exercise its power to suspend or cancel the Regis- tration of an intermediary by taking into account all the relevant facts and circumstances, exigencies of the situation and the objects sought to be achieved. The ratios of the following case law were cited support the above contention Kathi Raning Rawat v. State of Saurashtra AIR 1952 SC 123 Paras 7 & 8 at page 126. Niemla Textile Finishing Mills Ltd. v. 2nd Punjab Tribunal AIR 1957 SC 329 Paras 16 & 19 at Pages 335 & 336. Digyadarsan Rajendra Ramdassji Varu v. State of AP AIR 1970 SC 181 Paras 6 & 7 at Pages 186 & 187. M. Chhagganlal v. Greater Bombay Municipality AIR 1980 SC 2009 (sic) para 15 at page 2022. R.R. Verma v. Union of India AIR 1980 SC 1461 Para 4 at page 1463. Without prejudice to t....
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....uted. In the circumstances and applying the above principles all the charges as against the Bang Entities can be said to have been proved. Mens rea The enquiry proceedings being in the nature of adjudicatory proceedings are civil proceedings and not criminal proceedings. Mens rea is not required to be proved before a person can be held guilty of price manipulation or carrying on fraudulent trade practices. Since the SEBI Act and the FUTP Regulations and the Broker Regulations are Regulatory enactments mens rea is not required to be proved when a penalty is imposed under an enactment for breach of a civil obligation in adjudicatory proceedings. The rule that mens rea is required to be proved before a penalty can be imposed is not attracted (Director of Enforcement v. MCTM Corpn. (P.) Ltd. AIR 1996 SC 1100). Assuming without admitting that mens rea is required to be proved before any charge under the FUTP regulation, can be said to have been proved that proof of manipulative intent has to be inferred from circumstantial evidence such as evidence from price movement, trading activity etc. as has been clearly established by SEBI. The manipulative intent has further been shown ....
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....02 and the common impugned Order was passed on 30th July, 2002 i.e., within 30 days of the oral/personal hearing and therefore the order is passed within the prescribed time limit under section 29(3) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. It is the Appellants contention that since Bama Securities did not ask/seek for any personal hearing the Order as against Bama is passed in violation of Regulation 29(3) and consequentially if the impugned order is vitiated qua Bama on account of a violation of the aid Regulation 29(3) the impugned order cannot survive qua the other Entities. The central charge against the Appellants is that they acted in concert in depressing the price of various scrips and thereby indulged in market manipulation. In view of the same common proceedings were taken against the Appellants. It is not disputed that Bama is part of the Bang Group. From the very beginning the Appellants were insisting on separate proceeding with in an attempt to demolish the charge of concerted action. The impugned order clearly found that the Appellants were acting in concert in depressing the prices of various securities. Unless the hearing in the matter ....
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....red to in the order taken together by each one or more of the Bang Entities acting alone or in concert with each other and/or others conclusively proves the charge that the Bang Entities have indulged in market manipulation. Tribunal's Findings : 9. The impugned order is in relation to the conduct of the Appellants with reference to their trading activities in certain scrips during the mid February to mid March 2001. 10. Index movements of stock exchanges showed excessive volatility especially during mid February to mid March, 2001. SEBI carried out preliminary investigation to find out the cause of the same. The Appellants were also among some of the brokers/sub-brokers subjected to the investigation. SEBI's preliminary investigation is stated to have revealed that the Appellants (Bang Entities) had indulged in large trading transactions in the scrips of Global Telesystems, HFCL, Zee Telefilms, Wipro, Satyam Computers, Infosys Technologies, Silverline Indus- tries, Reliance Industries, LIC Housing, HCL Technologies etc. Based on a prima facie view that these transactions were carried out by the Appellants to artificially depress the prices of the said securities, SEBI pas....
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.... of the factual information. We will examine the same at the relevant context when we proceed further in the matter. 13. The Appellants had claimed that theirs is a "discount broking house", i.e., they merely act as brokers for their various clients and transact in securities on their behalf without giving them any advice as to what securities to buy or sell. In other words, the Appellants simply execute the orders for the sale or purchase of securities placed with them by their clients without influencing or contributing to the investment decisions of the client in any manner. This version remains unrebutted by SEBI. 14. On a perusal of the said charges it is noticed that indulging in large trading transactions in selective scrips with a view to depress artificially the prices of the select scrips between mid February to mid March 2001, is a common charge against all the Appellants. They are stated to have acted in a concerted manner for accomplishing the objective of depress- ing the share prices. The Enquiry Officer has linked the charges to violation of two Regulations i.e., Stock Brokers Regulations and FUTP Regulations. Stock Broker Regulations has been stated to be vio....
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....sactions in securities, with the intention of artificially raising or depressing the prices of securities, and thereby inducing the sale or purchase of securities by any person; (b)indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market; (c)indulge in any act, which results in reflection of prices of securities based on transactions that are not genuine trade transactions; (d)enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress, or cause fluctuations in the market price of securities;" The expression "fraud" has been defined in regulation 2(1)( c) of the FUTP Regulations as follows : "(c)'Fraud' includes any of the following acts committed by a party to a contractor with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract :- (1)the suggestion, as to a fact, of that which is not true, by one who does not believe it to be true; (2)the active concealment of a fact by one having knowledge or belief....
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....e person under investigation. In terms of regulation 10 the concerned investigating officer is required to submit the investigation report to the Board Regulations 11, 12 and 13 deal with the follow up action. "11. Power of the Board to issue directions.-The Board may, after consideration of the report referred to in regulation 10, and after giving a reasonable opportunity of hearing to the person concerned, issue directions for ensuring due compliance with the provisions of the Act, rules and regulations made thereunder, for the purposes specified in regulation 12. 12. Purpose of directions.-The purposes for which directions under regulation 11 may be issued are the following namely : (a)directing the person concerned not to deal in securities in any particular manner; (b)requiring the person concerned to call upon any of its officers, other employees or representatives to refrain from dealing in securities in any particular manner; (c)prohibiting the person concerned from disposing of any of the securities acquired in contravention of these regulations; (d)directing the person concerned to dispose of any such securities acquired in contra....
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....tifice or device used by one or more persons to deceive and trick another, who is ignorant of the true facts, to the prejudice and damage of the party imposed upon'. On a careful perusal of the regulation it is clear as Shri Sundaram pointed out that element of deceit is an underlying factor in the transaction. A genuine transaction by itself cannot attract the regulation though such a transaction had resulted in market price variation. Regulation 4(a) attracts only if the transaction is made with an intention of artificially raising or depressing the prices of securities so as to induce any other person to sell or purchase the securities. The participation need not necessarily be direct, it can be indirect as well. Prohibition in regulation 4(d) is on entering into transactions for a purchase or sale of any securities not intended to effect transfer of beneficial ownership but intended only as a device to distort the market price of securities. In other words the regulation covers speculative trading. Under regulation 4(d) it is not necessary that the action should result in inducing others to purchase or sell the securities as in the case of regulation 4(a). It has to be noted....
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.... the Hon'ble Supreme Court in Gulabchand's case (supra). This Tribunal is not suggesting for a moment that to proceed against a person under regulation 4(a) and 4(d), the charge must be proved beyond reasonable doubt. The nature of evidence required for the purpose was considered by this Tribunal in Sterlite Industries India Ltd.'s case (supra). In the Sterlite Industries India Ltd.'s case (supra) also the charge was manipulation of the market and the direction issued was also identical, but for the tenure of the prohibition. In the said case also Appellant Sterlite was represented by Shri Sundaram and the respondent SEBI by Shri Dada. The views expressed by this Tribunal in the said case are squarely applicable to the present case also. It was held in the said case: "Shri Dada had argued about the degree of evidence required in an adjudication like the one, in contradistinction to the nature of evidence required in criminal proceedings in a court of law, that in an inquiry like the instant one it is the "preponderance of probability" that is to be taken into consideration and not to go by "proof beyond doubt" as required in criminal proceeding." In this context it is to be n....
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.... on the basis of some evidence i.e. evidential material which with some degree of definiteness points to the guilt of the delinquent in respect of the charge against him. Suspicion cannot be allowed to take the place of proof even in domestic inquiries. As pointed out by this Court in Union of India v. H.C. Goel AIR 1964 SC 364, the principle that in punishing the guilty scrupulous care must be taken to see that the innocent are not punished, applies as much to regular criminal trials as to disciplinary inquiries held under the statutory rules." (p. 370) [Emphasis supplied]. In the context of a disciplinary action against an advocate, the Hon'ble Court had held that "disciplinary authority empowered to conduct the inquiry and to inflict the punishment on behalf of the body, in forming an opinion must be guided by the doctrine of benefit and is under an obligation to record a finding of guilt only upon being satisfied beyond reasonable doubt. It would be impermissible to reach a conclusion on the basis of preponderance of evidence or on the basis of surmise conjuncture or suspicion. It will also be essential to consider the dimension regarding mens rea. This proposition is hardly....
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....the Hon'ble Supreme Court cited above, it is seen that the evidence produced by the respondents is not sufficient to hold the charge against the Appellant. From the case law referred to above it is clear that in the absence of reasonably strong evidence (though not beyond reasonable doubt), even in a civil proceeding, a person cannot be held guilty and awarded punishment. Mere surmise, conjucture or suspicion cannot sustain the holding of guilt. I have very carefully examined the impugned order and find that the conclusion drawn by the respondents holding the Appellant guilty of indulging in market manipulation in contravention of regulation 4(a) and 4(d) of the 1995 Regulations is not substantiated by sufficient evidence. 23. The Appellants had submitted that the impugned order has been made in violation of the provisions of regulation 29(3) of the Stock Broker Regulations, in asmuch as it was passed beyond the thirty days' time prescribed in the Regulation and therefore, the order is bad and cannot be sustained. According to the Appellants the show-cause notice was issued to the Appellants including Bama on 30-5-2002. Bama replied to the show-cause notice on 12-6-2002, Bama di....
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....r as it deems fit." 25. The fact of appointing the Enquiry Officer on 4-6-2001 and the Enquiry Officer submitting his report to SEBI on 22-5-2002 is not disputed. On receipt of the enquiry report, SEBI issued a show-cause notice to the Appellants on 30-5-2002. Noticees replied to the show-cause notice. Except Bama others requested for a personal hearing. They were given personal hearing on 1-7-2002. But Bama, though replied to the show-cause notice vide its letter dated 12-6-2002, filed on the same day with SEBI did not seek any personal hearing and did not appear for personal hearing on 1-7-2002 with other Appellants. The order was passed on 30 7 2002. These facts remain undisputed. Now the question is in the light of the provisions of regulation 29(3) and the facts stated above, whether the impugned order is vitiated qua Bama and others. In my view the answer to the question is in the negative for the reason that the impugned order is a combined order against the 4 Bang Entities stated therein and issuance of such an order was possible only after completing the compos- ite enquiry initiated by the Respondent. It is seen that the enquiry was initiated against them in the light ....
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....ction 4(3) of SEBI Act, 1992 read with regulation 29(3) of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 read with Regulation 13 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 do hereby order cancellation of Registration of M/s. Nirmal Bang Securities Ltd. (NBS) M/s. Bang Equity Broking Pvt. Ltd. (BEB), Bama Securities Ltd., (BSL) - all stock brokers registered with SEBI and Bang Securities P. Ltd. (BS), sub-broker registered with SEBI with immediate effect." 27. Section 4(3) referred to by the Chairman, empowers Chairman, SEBI to exercise all the powers of the Board, except those reserved for the Boards as determined by the Regulation. Regulation 29(3) as discussed earlier is the power vested in the Board to issue orders to Stock Brokers/Sub-Brokers, if considered necessary. Regulation 13 of the FUTP regulation is the one under which the cancellation of the certificate of registration has been ordered. 28. Regulation 13 of the FUTP Regulations is on "suspension or cancellation of registration. According to the said section, "the Board may, in the circumstances specified in regulation 11 and without prej....
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....ecified period; or (b)cancellation of registration. 26. Suspension, cancellation of registration.-(1) A penalty of suspension of registration of a stock-broker may be imposed if:- (i)the sock-broker violates the provisions of the Act, rules and regulations; (ii)the stock-broker does not follow the code of conduct annexed at Schedule II; (iii)the stock broker- (a)fails to furnish any information related to his transactions in securities as required by the Board; (b)furnishes wrong or false information; (c)does not submit periodical returns as required by the Board; (d)does not co-operate in any enquiry conducted by the Board; (iv)the stock-broker fails to resolve the complaints of the investors or fails to give a satisfactory reply to the Board in this behalf; (v)the stock-broker indulges in manipulating or price rigging or cornering activities in the market; (vi)the stock-broker is guilty of misconduct or improper or unbusiness like or unprofessional conduct; (vii)the financial position of the stock broker deteriorates to such an extent that the Board is of the opinion tha....
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....ations, different penalties have been prescribed in Regulation 26 - that market manipulation entails suspension of registration, fraud entails cancellation of registration, that different punishments of suspension and cancellation have obviously been provided for, on the basis of the seriousness of the charge/violation. Referring to the expression 'intermediary' used in Regulation 13. Shri Dwarkadas stated that Stock Brokers and Sub-brokers are not the only market intermediaries, and there are several market intermediaries (referred to in section 12 of the SEBI Act) and their activities are regulated by separate set of Regulations notified by SEBI, that an examination of these Regulations will show that SEBI had consciously provided for specific situations in which the registration of a particular intermediary may be cancelled or suspended, that these provisions are intermediary centric and offence specific, that it is apparent that while prescribing the situations/eventualities in which the registration of an intermediary may be suspended or cancelled, the functions of the intermediary committing a particular violation, the consequences on the intermediary etc. have been taken int....
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....s provided in the regulation itself, that it is a self contained regulation and that SEBI's power to impose penalties and directions under the said regulation is not subject to the provisions of any other regulations. Learned senior counsel referred to regulation 13 of the FUTP Regulations and submitted that SEBI is empowered to suspend or cancel the certificate of registration of the concerned intermediary and with a view to avoid repetition, the Regulation has made a cross reference to the procedure to be followed as specified in the regulations applicable to different intermediaries, before suspending or cancelling the certificate of registration granted to them in terms of section 12 of the SEBI Act. He submitted that deciding punishment is based on the gravity of the offence and that decision is always left to the authorities imposing the penalty, that no guidelines as such are required for deciding the quantum of punishment/nature of punishment, as provided in the law. According to the Learned Senior Counsel, since FUTP Regulations by itself is a complete code, no other guidelines need be referred to, and one cannot restrict the power under FUTP Regulations and go to the Stoc....
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....on of an intermediary registered with it flows from section 12(3) of the SEBI Act. In terms of the said section "the Board may, by order suspend or cancel a certificate of registration in such manner as may be determined by the regulations. Provided that no order under this sub-section shall be made unless the person concerned has been given a reasonable opportunity of being heard." In this context it is to be noted that the power to suspend or cancel the certificate of registration is vested in SEBI as may be determined by the regulations. The only rider is that before issuing the order, SEBI has to give the concerned intermediary a reasonable opportunity of being heard - i.e. a requirement comply with the rules of natural justice. 33. FUTP Regulations, in my view is a self contained Regulation. It's objective is to prohibit fraudulent and unfair trade practices relating to securities market. It's scope and reach are not restricted only to Stock Brokers and Sub-brokers. Any person indulging in Fraudulent and Unfair Trade Practices relating to Securities Market is amenable to the provisions of the FUTP Regulations. But the power to suspend or cancel the certificate of registrati....
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....es in the market. One of the grounds for cancellation provided in regulation 26(2) is if "the Stock Broker is guilty of fraud, or if convicted of a criminal offence." 37. On a careful perusal of the FUTP Regulations, I find that its scope is much wider than regulation 26 that it is not confined to manipu-lating or price rigging or cornering activities. It could be seen from the scheme of the FUTP Regulations that it deals with "Fraudulent and Unfair Trade Practices". All the unfair trade practices need a not necessarily be fraudulent trade practices though all the fraudu- lent trade practice could be unfair trade practices. In this context it is to be noted that the FUTP Regulations has recognised this distin-ction as could be seen from Regulation itself. Regulation 3 pro- hibits persons buying or selling or otherwise dealing in securities in a fraudulent manner. Expression "fraudulent" has been defi- ned in regulation 2(c). The said definition has been set out in the earlier part of this order. Regulation (4) is on Prohibition against market manipulation. The Appellants in the instant case have been charged for violating the said Regulation (4). Regulation (5) is on prohibition....
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.... am of the view that SEBI is empowered to award the penalty of suspension or cancellation of the certificate of registration granted to the Appellants on establishing violation of the FUTP Regulations. Whether in a particular case suspension or cancellation is warranted would depend upon the offence for which the penalty is being imposed. 40. Having come to the conclusion that the impugned order is not time barred and that SEBI is competent under regulation 13 of the FUTP Regulations to award penalty of cancellation of the certificate of registra-tion of Stock Brokers/Sub-Brokers now let us examine as to whether the charges levelled against the Appellants have been established. The Res- pondent in its order has enumerated the findings of the Enquiry Officer based on which the Respondent had issued the show-cause notice to the Appellants. Entitywise charges have been stated in the order. For reference purpose I have grouped the charges in some cases. Some of these charges were subsequently dropped. In this order, at the appropriate context I have referred to the same. 41. There is a common charge against all the 4 Appellants that they had indulged in large trading transactions....
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....artificially in a concerted manner", short sales, synchronized trading, trading in particular time slots when the share prices registered substantial fall, routing of large transactions through unregistered sub-brokers and guilty of violating the Code of Conduct specified in Schedule II of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 and Regulation 4(a) to (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 1995. 44. I agree with the Appellants' submission that if the Enquiry Officer's findings alleging violation of regulation 4 of the FUTP Regulations on the ground that the Appellants had intentionally brought down the market, to establish the charge the Respondents have to bring on record requisite evidence to show : (i)that the Appellants' transactions resulted in a fall in price of shares; (ii)that such fall in price was artificial; (iii)that the intention behind effecting such transactions was to manipulate the prices; (iv)that they thereby induced the sale or purchase of securities by any person. Market manipulation being a serious charge, the consequences that would visit the manipulation on proving the charge is qu....
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....sactions carried out by the Appellants with reference to the total transactions in each of the select securities is very small so as to have any material impact on the price of the scrips. This is supported from the information furnished by the Appellants (which SEBI has not disputed) in respect of the equity capital and market capitalisation of the concerned scrips together with the average traded volume in the select stocks. As per the said information furnished by them volume of trade effected by the Appellants as per cent of the total volume traded on the exchange was - Global Tele - 2.85%, HFCL - 2.55%, DSQ 3.13%, Zee Tele - 3.89%, Wipro - 2.74%, Satyam - 3.45%, MTNL - 4.74%, SBI - 3.89%, Infosys - 4.33%, Sterlite - 3.16%. It is noted that SEBI has in its order stated that "index movements of stock exchanges showed excessive volatility especially during mid February to mid March, 2001." But it is not even the case of SEBI that there was any conspiracy or complicity between the Appellants and any other brokers to deliberately bring down prices. I have also perused the transactions effected by the Appellants, as revealed in the material before me and the price movement. But I do....
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....ing irregular or undesirable. But if it is established that the motive behind such transaction is to artificially depress the market then it is a market manipulation prohibited by the FUTP Regulations. There are two aspects which need be noted in this regard - i.e., whether the traded volume was large enough to have an impact on the market and (2) whether large transactions that could affect the market was effected with the motive of manipulating the market. In this context I would like to state that not only artificially depressing the market is a manipulation, but artificially raising the market is also a manipulation. The crucial factor in deciding whether their trading was to manipulate the market, is the underlying intention of the Stock Broker. The test of evidence need not be the litmus test. Intention cannot be established that easily in such cases. But there should be some reasonable and convincing evidence to prove the motive. "Belief" however, benign and genuine, cannot be a substitute for evidence. I have already discussed the case of evidence required to prove the charge of manipulation in the case of Videocon International Ltd. (supra). The relevant extract from the s....
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....s in the year 2001. Certainly SEBI must have examined the role of the said so called unregistered sub-brokers. According to rule 2(d) of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (Broker Rules) "Sub-broker" means any person not being a member of a Stock Exchange who acts on behalf of a stock broker as an agent or otherwise or assisting the investors in buying, selling or dealing in securities through such "stock brokers". In terms of rule 3 "No stock broker or sub-broker shall buy sell or deal in securities unless he holds a certificate granted by the Board under the Regulations". Procedure for registration is provided in regulation 12 of the Stock Broker Regulations as follows : "Procedure for registration.-(1) The Board on being satisfied that the sub-broker is eligible shall grant a certificate in 'Form E' to the sub-broker and send an intimation to that effect to the stock exchange or stock exchanges, as the case may be. (2) The Board may grant a certificate of registration to the applicant subject to the terms and conditions as stated in rule 5." 49. In this context it is to be noted that SEBI is empowered under section 24 of the SEBI Act to file crim....
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....d 7-3-2001. Till 7-3-2001 there was no prohibition on short selling provided it was not meant to manipulate the market. But SEBI banned short sale with effect from 8 3 2001. This circular was issued as a risk management measure in the context of the then prevailing market condition. Such prohibition was put in position at that time to protect the interests of the investors and the securities market. So violation of the direction banning short sales is a very serious matter. The fact that NBS and BEB had indulged in short sale after 8-3-2001 is born out of records NBS & BEB indulged in short sales between 8-3-2001 and 31-3-2001 to the extent of Rs. 2.31 crores and 3.05 crores. The Respondent has clearly established the charge. The Appellants have only explained the circumstances under which they had short sold the securities. I am not convinced by the explanation. Since the charge has been established, there is no escape from the consequences that should visit the Appellants for flouting the SEBI's direction in its letter dated 7-3-2001. 51. The charge of selling two lakh shares of Global Tele when share prices registered fall, levelled against BEB has been given up. 52. BEB h....
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....5) Global Tele 2-3-01 12.33 12.41 0.08 49315 9.74% (12.9) Satyam 1-3-01 14.13 14.33 0.20 155744 5.01% (17.65) Satyam 2-3-01 10.57 11.05 0.08 62714 3.97% (12.2) Satyam 2-3-01 13.17 13.53 0.36 63979 2.56% (12.85) SSI 2-3-01 13.41 13.54 0.13 9955 14.79% (28) SSI 2-3-01 12.32 13.01 0.29 19450 11.13% (71) WIPRO 1-3-01 13.33 13.41 0.08 9026 15.46% (15) Zee Tele 23-2-01 12.26 12.32 0.09 76279 2.33% (8.35) Zee Tele 1-3-01 12.53 13.56 1.03 129478 6.52% (8.95) Zee Tele 2-3-01 12.00 12.22 0.22 116932 7.04% (11.65) 54. I have considered the explanation given by the Appellants. But I am not convinced by the same. In my view the Respondent has established its case. These transactions in my view had certainly contributed to the price fall. The Appellant BEB, by the very nature of the transaction cannot absolve itself of the involvement in the transaction. Intention is reflected from the action of the Appellant. Choosing selective time slots does no....
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....e exchanges, on those days, it is difficult to believe that such a small percentage of trade with reference to huge volume traded on the stock exchanges would have resulted in such crash in price. SEBI has not even suggested in their order as to whether others were also involved, and if so there was any nexus between them and the Appellants, whether the price fall was as a result of larger conspiracy and if so who are the other players. The impugned order is silent about other players who could have contributed to the crash of the market. Perhaps a composite investigation and a consolidated order with reference to the market upheaval witnessed during the relevant period would have been more rewarding than bringing out truncated orders. It is not the number of orders that is relevant. It is the stuff of the order that matters. In any case since the Respondent has failed to prove with reasonably convincing evidence the charge of artificially depressing the market the said charge cannot be sustained. Once the said charge itself fails, the question as to whether Bang Entities acted in concert or not becomes academic. The charge of dealing with unregistered sub-brokers by NBS & BEB also....