AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2003 (10) TMI 676
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....t 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 Offi....
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....ns 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 of the Appellants' registrat....
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....uards 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% during this period, that even in I....
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....ow-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 Appellants are therefore n....
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....cate 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 aware of the pre-exiting S....
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....n 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 Broker Regula....
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.... 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 15th March, 2001 upto ....
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..... 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 ₹ 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 brokers, high/low circuit filters for each stock on any trading day etc. 5.3. Requisite intention not established - Before a person can be held guilty of violating Regulation 4(a) of the FUTP Regulations, it must be establishe....
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....tant 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 findings of the Chairman, SEBI in this regard are that "the findings are given in the context of market fall therefore there is no need to give a finding for every instance that it resulted in a fall. The co-relation between the price ....
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.... 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 separate purchases made in two different settlements. NBS & BEB purchased shares in Settlement No. 1046. But price fell from ₹ 670 to ₹ 630. Same is the position in Settl. No. 1047. In Settl. No. 1048 NBS was selling but price was falling, but BEB was purchasing but still price fell. The data shows that the price movement was independent of the fact that whether the appellants were purchasing or selling S. No. 1048 while NBS had....
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....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 circuit filter rate and SEBI has not produced a single such instance. The Chairman has further ignored the fact that the price of the scrip fell from ₹ 670 to ₹ 609 i.e., by ₹ 61, inspite of NBS and BEB being net purchasers in S.No. 1046 and S.No. 1047. The Chairman further ignored the fact that by the end of S.No. 1048 (from S.No. 1046), the price of the scrip had fallen by ₹ 231 to ₹ 439 when NBS had a net purchase of 58,803 shares and BEB had a net purchase of 8,237 shares. In other wor....
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....14 +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 fact, BEB has net purchase position in 6 out of 8 settlements. NBS and BEB have common net sales position only in one settlement i.e., S. No. 1047. This fact clearly established that NBS and BEB were not at all acting in concert to depress the price of the scrip. Admittedly, in settlement 1047, the entire net sales of NBS were against delivery and the entire net sales of BEB were against previous purchases. In S. No. 1047, the price of the scrip fell by ₹ 41. Accordingly the fall that can be attributed to NBS and BEB is 6.9 per cent of ₹ 41 i.e., ₹ 2.83, which is insignificant. In S.No. 1049, while BEB was a net seller, NBS was a net purchaser. This clearly shows that the appellants had no intention of depressing th....
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....-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 Opening price High Price Closing Price Net Position % of net BSE Net Position % net of BSE Rs. Rs. Rs. Nirmal Bang Bang Equity 1050 5-3-01 9-3-01 4,700 5,315 4,817 -9,549 -3.3% -1,225 -0.4% 1051 12-3-01 16-3-01 4,738 4,990 4,694 -42,013 -12.6% -162 -0.0% The net sales of 18,600 shares of NBS in S.No. 1049 were fully delivered. In S.No. 1049, the price of the scrip fell from ₹ 5,598 to ₹ 4,940 i.e., by ₹ 658. On this basis, the net sales of 6.4% of NBS accounted for only ₹ 42.11 of the fall. In S.No. 1049, while NBS was a net seller, BEB was a net purchaser. This clearly militates against any intention on the part of the appellants to depress the price of the scrip. The sale of 42,013 shares by NBS in S.No. 1051 was backed by delivery. The fall in price during S.No. 1051 was ₹ 123. Consequently, the fall is attr....
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....1044 22-01-01 26-01-01 424 430 414 +2,41,352 +9.2% -56,404 -2.2% 1045 29-01-01 02-02-01 400 428 415 +2,813 +0.1% -23,185 -0.8% 1046 05-02-01 09-02-01 400 412 372 -2,24,803 -5.6% +7,944 +0.2% 1047 12-02-01 16-02-01 375 387 365 +2,89,734 +9.5% +85,763 +2.8% 1048 19-02-01 23-02-01 361 376 318 -35,040 -1.6% -82,550 -3.8% 1049 26-02-01 02-03-01 321 353 263 -3,44,378 -8.2% +26,357 +0.6% 1050 05-03-01 09-03-01 250 280 229 +3,05,263 +10.2% +2,365 +0.1% 1051 12-03-01 16-03-01 230 264 237 -78,831 -1.6% -36,222 -0.7% The settlement-wise position given above are admittedly net positions for the settlement without taking into account the opening positions. Hence, the finding of the Respondent, that the purchase position of 2,41,352 shares in S.No. 1044 were reduced to 2,813 shares in S.No. 1045 is incorrect (Page 68 of the Appeal). In fact, these were separate purchases made in two different settlements. The net sales of NBS in S.Nos. 1046, 1048 and 1051 were either against previous purchases or against delivery. The net sales of BEB in all the settlements were either against previous purchases or for delivery. Bes....
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....300 +19.8% +285 +0.0% 1050 05-3-01 09-3-01 300 318 212 +15,195 +0.6% +9,255 +0.3% 1051 12-3-01 16-3-01 195 195 145 +4,020 +0.1% +7,245 +0.2% Significantly, neither the Enquiry Officer nor the Respondent has found that either NBS or BEB effected transactions in the shares of this scrip with the intention of causing an artificial depression in the price of this scrip or that the transactions effected by NBS or BEB, in fact, caused a depression in the price of this scrip. In fact, as far as BEB is concerned, the Respondent has not even confirmed the findings of the Enquiry Officer. The only conclusions of the Enquiry Officer are that NBS unwound its net purchases and that BEB was also simultaneously selling shares of this scrip. The finding of the Enquiry Officer and the Respondent that the net purchases made by NBS in S.No. 1046 were unwound in the subsequent S.Nos. 1047 and 1048 is incorrect. The Respondent has wrongly stated that this fact was admitted by the Appellants. The net positions given in the statement contained in the report of the Enquiry Officer are the net positions arrived at on the basis of the purchases and sales in a particular settlement w....
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....lumes of the scrip on the BSE. The net sales of BEB constituted 0.5% and 0.1% of the net of BSE in S. Nos. 1047 and 1048 respectively. In fact, the net sales of BEB in S. No. 1048 were only 606 shares. These net sales could never have had any effect on the price of the scrip. In fact, also, the net sales of BEB did not cause any fall in the price of the scrip. This is clear from one fact alone and that is that when BEB was a net seller in S.No. 1047, the price of the scrip rose. 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. Zee Telefilms 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 254 1046 05-2-01 09-2-01 252 260 230 -52,205 -1.8% -1,50,508 -5.3% 1047 12-2-01 16-2-01 229 247 231 -21,936 -0.7% +1,44,340 +4.5% 1048 19-2-01 23-2-01 234 240 210 -1,41,699 -1.6% -1,82,780 -2.0% 1049 26-2-01 02-3-01 215 215 136 +2,09,795 4.37% -82,020 -1.7% 1050 05-3-01 09-3-01 125 147 115 +37,013 0.3% +4....
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.... much less hammered the price of the scrip. In S. Nos. 1047 and 1049, both NBS and BEB had different positions. When NBS had net sales, BEB had net purchases and vice versa. This completely demolishes the charge/finding that NBS and BEB were acting in concert. Even the net sales of NBS and BEB taken together were insignificant when compared to the net of BSE and consequently could never have had any impact on the price of the scrip. Both the Enquiry Officer and the Respondent have stressed on the fact that on 23rd and 27th February and 2nd March 2001, when BEB was a net seller the price of the scrip registered a fall. Both the Enquiry Officer and the Chairman, SEBI have ignored the fact that the price of the scrip registered a fall even when BEB was a net purchaser on 19th & 26th February and 1st March, 2001, which shows that the transactions of BEB did not have any effect on the price of the scrip much less resulted in a depression in the price of the scrip. Another significant fact is that when BEB had a relatively large net purchase position on 20th February, 2001 and a relatively large sale position on 22nd February, 2001, the price of the scrip barely moved. Further, on 21st F....
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....this finding in the Impugned Order. The Respondent has completely ignored this finding. The only reasonable conclusion can be that the Respondent has not agreed with the findings of the Enquiry Officer. In this view of the matter, the Appellants are not dealing with the findings of the Enquiry Officer. Trading by Bama on 23rd February, 1st & 2nd March, 2001 5.6 The Enquiry Officer and the Respondent both came to the conclusion that the trading pattern of Bama on 22nd, 23rd and 28th February, 1st and 2nd March in the scrips of Global Telesystems, HFCL, Satyam, Silverline, Zee and Wipro showed that Bama was a consistent net seller and also unwound the previously built purchase positions and created fresh net sales positions that can be said to have contributed to the artificial depression of prices of these scrips during the relevant period. According to the Enquiry Officer and the Respondent, Bama was a consistent seller in these scrips on 22nd, 23rd and 28th February and 1st and 2nd March, 2001 as under: Scrip 22-Feb. 23-Feb. 28-Feb. 1-Mar. 2-Mar. Global Telesystems (10,577) (1,63,155) 36,939 (41, 385) (99,548) HFCL 50,480 33,699 (27,086) (27,893) (23,541) Sat....
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....espondent. There has also been no attempt to show that the depression in the prices of the scrips, if any, was indeed artificial and both the EO and the Respondent have proceeded on the assumption that the prices of the scrips had fallen and that such a fall was artificial. It is clear from the findings of the EO and the Respondent that no correlation between the net sale position of Bama and the alleged artificial depression of prices of the scrips was established. Both of them have concluded that the net sales position of Bama "can be said to have contributed to the artificial depression of prices of these scrips during the relevant period." This finding is clearly speculative and vague and can never form the basis of a finding of guilt against Bama. When faced with the submission that no such correlation has been established, both the EO and the Respondent concluded that it was not necessary that every time the finding on correlation between the transactions and the fall should be given. Despite the fact that all the aforesaid submissions of Bama were contained in its replies to the show-cause notices, the same have been totally ignored by the EO and the Respondent w....
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....e, arbitrary, unscientific and irrational approach on the part of the Enquiry Officer. In fact, it is a clear attempt to reach a pre-meditated conclusion or a case of misplaced wisdom by hindsight. This is established by the fact that the Enquiry Report does not contain any information or particulars with regard to either the quantity or price or the sellers responsible for the fall in the price of the very same scrips during the other time slots plotted on the graph. The Enquiry Report does not contain any information whatsoever with regard to the purchases, if any, made by Bama either before or during the concerned time slots. In fact, from charts appearing hereinafter, it will be apparent that within the very same time slots in which Bama is alleged to have sold shares with the alleged intention of depressing the prices, Bama also purchased shares. What the EO however appears to have done is to deliberately withhold the information with regard to the purchases made during the time slots by Bama and tabulate "the net sales position" giving the impression to the reader that Bama was only a seller and not a purchaser of these shares within these time slots. The Enquiry Re....
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....rs. Analysis of time slots The following analysis will clearly establish that the sales of Bama did not have any impact on the price of the scrip, much less cause any fall/depression thereof. (i)23rd February '01 Global Telesystem Time: 15:04 to 15:14 Price fell by ₹ 18.65 from ₹ 457 to 438 Buy Sell Order Total qty Average rate Start time End time Total qty Average rate Start time End time 200102231327097 300 453.00 15:05:52 15:06:07 200102231340940 6521 450.01 15:06:33 15:06:39 200102231341857 20599 448.02 15:06:44 15:07:03 200102231280548 100 447.00 15:06:58 15:06:58 200102231325974 300 445.40 15:7:08 15:07:08 200102231320707 10 445.00 15:07:28 15:7:28 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....
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....pread out throughout this time slot. (iii )1st March '01 Satyam Computers Time : 14:13 to 14:33 Price fell by ₹ 17.65 from ₹ 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 200 331.60 14:17:14 14:17:14 200103011184456 200 331.00 14:17:45 14:17:46 200103011251660 1000 330.00 14:18:12 14:18:12 200103011255062 100 329.90 14:18:49 14:18:49 200103011275317 200 332.25 14:22:59 14:22:59 200103011276396 500 332.70 14:22:59 14:22:59 200103011276746 50 332.25 14:23:10 14:23:17 200103011258565 200 330.00 14:25:26 14:25:26 200103011256768 25 329.85 14:25:32 14:25:32 200103010983473 300 328.00 14:25:59 14:26:18 200103011243574 50 327.60 14:26:19 14:26:19 200103010737582 50 327.60 14:26:19 14:26:19 200103011293812 200 328.70 14:26:36 14:26:36 200103011295406 500 329.00 14:26:57 14:26:57 200103011295532 50 328.00 14:27:36 1....
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....00103020168259 100 290.00 11:02:02 11:02:02 200103020283549 200 290.00 11:02:03 11:02:03 200103020217637 10 289.00 11:02:04 11:02:04 200103020383631 1000 288.80 11:02:23 11:02:23 200103020383828 200 288.80 11:02:25 11:02:25 200103020385548 200 286.18 11:03:18 11:03:18 200103020389146 45026 286.52 11:03:19 11:03:26 200103020392602 200 287.45 11:03:52 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 s....
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....5 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 200103020578969 50 271.00 13:51:27 13:51:27 200103021007512 5,000 271.00 13:51:28 13:51:29 200103021064782 70,299 270.04 13:51:33 13:51:39 200103021065419 20 270.00 13:51:41 13:51:41 200103021067738 300 268.55 13:52:11 13:52:11 200103021071400 200 268.95 13:53:01 13:53:01 200103021075430 100 268.95 13:53:58 13:53:58 Apart from sales, there were also purchases made by Bama during this time slot, which was uniformly spread out throughout the time slot. The latest and only significant sale transaction of Bama of 70,299 shares had no impact whatsoever on the price of the scrip - the price of the scrip did not change at all. From 13:17:13 to 13:51:33 (before the sale of 70,299 shares) i.e., when the price of the share fell from ₹ 282 to ₹ 270, Bama was a net buyer to the tune of 6,300 shares. After the sale of 70,299 shares, during this time slot, the price fell only by ₹ 3. After the purchase of 5,000 shares at 13:51:28, the price of the scrip fell. Similarly, ....
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.... by about ₹ 23. Obviously, Bama cannot be held responsible for the fall in the share price. The price had already declined. Apart from sales, Bama had also purchased shares of this scrip during this time slot. Even if it is assumed (without admitting) that Bama's sale of 10,000 shares caused the price of fall by ₹ 5.62, this fall is less than 0.5%, which is totally insigni- ficant. Despite Bama's sales, the price of the scrip rose to ₹ 1016 at about 13:57. This shows that Bama's transactions had no impact on the price of the scrip. (viii )1st March '01 Wipro Time: 13:33 to 13:41 Price fell by ₹ 15 Buy Sell Order Total qty Average rate Start time End time Total qty Average rate Start time End time 200103011091685 100 2541.63 13:35:44 13:35:44 200103011096686 4128 2522.41 13:37:28 13:37:29 200103010244645 2 2515.00 13:37:29 13:37:29 200103011101887 5000 2500.60 13:39:14 13:39:14 Just as in the other cases, apart from sales there were also purchases by Bama during this time slot, which was uniformly spread out throughout the time slot. Even after Bama purchased shares in this scrip, the price fell. Significantly, these purcha....
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.... 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 200103011142075 550 165.00 13:55:10 13:55:12 200103011146762 550 165.00 13:55:34 13:55:34 200103011086577 500 164.64 13:56:05 13:56:05 Apart from sales, there were also purchases made by Bama during this time slot, which was uniformly spread out throughout the time slot. The two major sale transactions of 34,448 and 99,000 shares did not have any impact at all on the price of the scrip. The share price barely moved after these sales. The price of the scrip fell during the period when Bama was a continuous purchaser. Though Bama was a net buyer from 12:53 to 13.10 and 13.33 to 13.53, the price of the scrip continued to fall. It is seen that the price of the scrip feel steadily irrespective of the nature of the t....
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....0660118 25000 148.80 12:04:58 12:06:26 200103020686361 1000 145.87 12:13:40 12:13:40 200103020701918 40538 145.16 12:16:19 12:16:24 200103020702181 361 144.95 12:16:25 12:16:28 200103020704266 100000 143.75 12:16:59 12:16:59 200103020707935 87680 143.00 12:18:07 12:18:38 200103020686171 10000 142.59 12:18:09 12:18:09 200103020709997 5000 142.88 12:18:25 12:18:25 200103020696148 1000 140.75 12:19:21 12:19:21 200103020705077 100 141.00 12:19:21 12:19:21 [ Buy Sell Order Total Qty Average rate Start time End time Total Qty Average rate Start time End time 200103020711086 5000 139.90 12:19:24 12:19:29 200103020713343 50 140.00 12:19:24 12:19:25 200103020714384 35599 140.05 12:19:24 12:19:29 200103020714799 18204 139.90 12:19:29 12:19:57 Apart from sales, there were also purchases 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,....
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....of this scrip therefore did not fall on 1st March, 2001. Hence there was no question of holding the Appellants guilty of depressing the price of the shares of Reliance on 1st March 2001, artificially or otherwise. Though this fact was noted by the Respondent, it was conveniently ignored and overlooked. It is apparent that SEBI acted with a predetermined mind with a view to find the Appellants guilty. Even otherwise, it is clear that the Enquiry Officer and the Respondent have reached the conclusion of guilt without making any attempt whatsoever to determine whether in fact the transactions of the Appellants had any impact on the prices of the scrips. Both of them have reached their conclusions merely on the basis of the fact that both Bama and BSPL had net sales in respect of these scrips on the same day. In this regard, the submissions 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....
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....y event an adverse inference must be drawn against SEBI for failing to obtain appropriate statements from Shri Nirmal Bang as well as Palombe. In view of the above, it must be presumed in favour of BEB that it had no knowledge of the impugned trades on behalf of Shankar Sharma. Even if it is assumed without admitting that the trades were synchronized as charged and found by SEBI, BEB cannot be held guilty of having violated the FUTP Regulations as well as the BSE Bye-laws since BEB was not aware that the transactions were synchronized, that knowledge is an essential ingredient of the offences provided for in the FUTP Regulations as well as the said BSE Bye-laws quoted by SEBI. SEBI has found BEB guilty of violating Regulations 4(c) and 4(d ) of the FUTP Regulations by executing the purportedly synchronized trades. Even 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 purportedl....
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....al ingredient of the offence. As stated above BEB did not have any knowledge of the purportedly synchronized trades. Consequently BEB cannot be said to have violated the said Bye-law 357(ii). The EO and the Respondent have overlooked the fact that these trades were screen based. In a screen based system, the price discovery is achieved by a matching of "best buy" and "best sell" orders. For instance, if a client wishes to purchase X quantity of shares at a limit price his order will be executed at the market price or the limit price, which is lower. The vice versa is also true for a seller. Further, with the variety of safeguards in place such as circuit filter, scrip-wise, broker-wise limits etc. in a screen based trading system, a buy or sell order of unlimited quantity or at rates exceeding the circuit filter 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....
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....cular further goes on to advise the Stock Exchanges to amend their bye-laws suitably to take action against broker who mis-utilise or permit misutilisaton of their trading terminal for unregistered sub-broking activities and to amend its bye-laws to prohibit members from dealing with sub-brokers, who are not registered with SEBI. This circular itself illustrates that prior to the issuance of the same, there was no rule or regulation barring this activity. Since the terminal installed at the premises of Palombe was prior to 22nd October, 2001, the Appellants cannot be accused of lack of due diligence, skill or care. In any event, the mere installation of trading terminal in the premises of an unregistered sub-broker does not ipso facto result in evidence of lack of due diligence, skill or care on the part of broker. In fact, in the instant case, the Appellants 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 Palo....
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....oof is clearly on SEBI. It is obvious that, being unable to discharge this onus, SEBI has tried to pass the onus into the Appellants. The finding of the EO and the Respondent in this regard is clearly perverse. 5.10 Other Charges - The Enquiry Officer and the Respondent have concluded that the Appellants have violated the Code of Conduct pres-cribed in Schedule II of SEBI (Stock Brokers and Sub-brokers) Regula-tions, 1992. In this regard the following are the specific findings that (a) NBS and Bama dealt with 2 and 1 unregistered sub-brokers respectively. (b) BEB dealt with FGSB in a synchronized manner. (c) NBS & BEB violated the circular dated 7th March, 2001 prohibiting short sales, to the extent of ₹ 2.31 crores and ₹ 3.05 crores respectively. (d) BSPL did not have client registration forms in respect of five clients and had not issued 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 puni....
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....ith effect from 19th April, 2001 by an order dated 19th April, 2001 passed by the Chairman, SEBI under section 11B of the SEBI Act. In these circumstances the Respondent is now accusing the Appellants of committing a breach of SEBI circular issued more than five months thereafter, i.e., 22-10-2001." The allegation in the written submission that "all the time slots, which are identified and given in the show-cause notice are time slots where net sales of Bama in the time slot was preceded by short sales", that this allegation is false and represents a new element of a charge, never levelled earlier, that the Respondent has also not produced any evidence. Referring to the Respondent's submission with reference to time slot (ref. Zee Telefilms on 23-2-2000) that "This is typographical error in Enquiry Report and Chairman order regarding timings of the time 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 ....
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....as affording sufficient proof of fraud. (iv) Gulabchand v. Kudilal AIR 1966 SC 1734 The Indian Evidence Act applies the same standard of proof in civil cases. It makes no difference between cases in which charges of a fraudulent or criminal character are made and cases in which such charges are not made. But this is not to say that the courts will not, while striking the balance of probability keep in mind the presumption of honesty or innocence or the nature of the crime or fraud charged. (v) Varanasaya Sanskrit Vishwa Vidyalaya v. Dr. Rajkishore Tripathi. Concept of acting in concert - using strong language not sufficient. Proof required. It is not enough to state in general terms that there was collusion "without more particulars. General allegations are insufficient even to amount to an averment of fraud or which only court ought to take notice, 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 legis....
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....r passing orders) Regulation 29(3) of the Stock Broker Regulations has specifically put the time limit to pass the order of suspension or cancellation. It is a mandatory requirement, which SEBI cannot ignore but adhere to. Taking into consideration the strictly binding mandatory provisions of regulation 29(3) and the fact that the order was passed beyond the prescribed time limit of 30 days SEBI's order was set aside. 6. Shri Rafiq Dada Learned Senior Counsel appearing for SEBI submitted that broadly the main limbs of the charges against the Appellants are that of (i) market manipulation (ii) Synchronised trading (iii) short sales and ( iv) transactions with unregistered sub-brokers. 7. Shri Dada explained the circumstances leading to the issuance of the impugned order, and the developments preceding the same. Learned 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 sta....
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.... The approximate value of such trades executed through the member during the period 20-2-2001 to 2-3-2001 is in excess of ₹ 50 crores. Further instances of such fictitious transactions for the month of 1st January to 19th February, 2001 and 5th March to 31st March, 2001 were brought out in show-cause notice dated January 25, 2002. The total amount of such transaction during the period January to March of 2001 was ₹ 200 crores. The scrip, quantity and price for these orders has been synchronised by the counter party brokers resulting in circular trades, which were highly irregular in nature and violative of all prudential and transparent norms of trading in securities. BEB and FGSB were artificially shifting position which did not involve change of ownership and thereby creating false volumes resulting in upsetting the 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 t....
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....or broking concerns to route their proprietary trades through other brokers and pay hefty brokerages. The instant arrangement appears even more intriguing since the brokerage have been passed on and shared between different entities. This complex arrangement has indications of a collusive nexus to circumvent and avoid detection of concentration and manipulative market practices. Whereas Palombe has described the payment of 50 per cent brokerage earned on business done by such clients as "introductory fees", Shankar Sharma has described it as "Remissier charges". The true nature of sharing of brokerage is being disguised under different names but the fact remains that the payments have been made to Palombe for no role or responsibility in the trading of clients introduced by them. Bang Entities made a cumulative payment of approximately ₹ 1.4 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 ₹ 2,800 crores by Bang Entities for clients introduced by Palombe. This constitute a very important percentage. The trading terminals of BEB,....
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....es respectively in breach of SEBI Circular No. SMD/RPD/Policy/CIR-13/2001 dated 7th March, 2001. Instances of intra day short sales and net short sales of NBS and BEB can be seen from the Chartered Accountant Report dated 2nd September, 2001 which is based on documentary evidences such as cumulative day wise, scrip wise, client wise position, Demat Holding Statements etc. submitted by them pursuant to the inspection conducted by the BSE. Copy of the report filed in the proceedings was referred to. The appellants contention that the client was permitted to sell only when they had a prior purchase position with any other exchange is not correct in view of the clear observation of the Chartered Accountant, that the transaction in respect of corresponding purchases, demat holding statement, purchase position on other exchange have been excluded. The short sales as found by the Chartered Accountant 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 ₹ 2.31 crores and ₹ 3.05 crores respectively. Manipulative trading by each of the Bang Entities 8.4 Trading by Bama Securities Ltd. - Bama has in....
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.... closing position of Bama on the specific dates. From the table above it can be seen that Bama was net seller in Global Tele on all the days i.e., on 23rd February, 1st and 2nd March, 2001. Regarding the scrip of HFCL, Satyam, Wipro and Zee, Bama had net sales in 2 out of 3 days. The impugned order clearly establishes that the net sales of the Bang Entities during Mid February and mid March when compared with the net at the exchange was significant. It is contended that basis of net sales taken by Enquiry Officer and Chairman is misconceived and erroneous. When there is substantial market fall it is more logical to examine net position for a particular period (settlement/day/time slot) to understand 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, Relia....
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.... the following are significant transactions in support of the charge that the member had sales including short sales during specific time bands and caused fall in the prices by these sales. Scrip Date Time From Time To Minutes Sales % of market Fall in price Global Tele 23-2-01 15.04 15:14 0.10 85655 11.68% (18.65) 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) 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 n....
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.... the scrip has fallen by ₹ 7 before the first sale transaction, that during the time slot Bama has sold 97,520 shares which is the relevant factor. The Appellant has argued that between the period from 15:08:39 to 15:13:50, Bama was a continuous purchaser. During the said time period Bama has merely purchased 1,350 shares. Whereas, just before and after the aforesaid time band Bama has sold 50,000 shares (15:07:33) and 20,000 shares (15:14:00) respectively. 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 ₹ 442 which is ₹ 2 below then the averag....
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....nterpretation of data by the Appellant is not correct as the time gap between the end of execution of the relevant trade (14:31:59 hours) and the end of the time slot is just over 1 minute. During this time period the Appellant can themselves see that the scrip price has dropped to ₹ 315. This shows that there was a price drop after the aforesaid sale transaction. The Appellant has argued that during the periods when the price of the scrip registered the largest fall of ₹ 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 ₹ 333 to ₹ 325, Bama was a net buyer to the extent of 125 shares. According to the Appellants' data, when the scrip price fell from ₹ 333 to ₹ 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 marke....
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....ve dropped after the said sale. SSI- 2nd March, 2001 Scrip Time band Short Sell (Qty.) % of market sell Diff in the op-cl price % of fall in price Softsoln. 12:32-13:01 19,450 11.13 (71.00) (6.48) During the relevant time slot, Bama had purchased 55 shares and sold 19,505 shares. The price drop during the time slot was ₹ 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 ₹ 28. The time slot pertains to 13.41 to 13.54 when the price dropped from ₹ 1033 to 1,005. The rise in the scrip to ₹ 1016 at about 1357 shows that earlier price fall was artificial and it ....
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....nt was aware of the same. During the relevant time slot, Bama had purchased 37,985 shares and sold 3,06,040 shares. The price drop during the time slot was ₹ 8.35. It was argued by the 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 ₹ 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 purch....
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....1 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% 22-2-01 554 554 518.5 13,075 21,293 -8218 43,25,143 0.5% 23-2-01 519.8 522 438.9 29,930 69,105 -39175 62,61,836 1.1% St. No. 1048 113458 111248 2210 23805958 0.5% 26-2-01 443.1 454 415.8 24,746 50,880 -26,134 64,55,577 0.8% 27-2-01 420 426.75 353.15 35,195 25,607 9,588 89,21,771 0.3% 28-2-01 350.1 409.6 404.25 33,143 25....
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.... 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 0.4% 23-2-01 822.5 822.5 731.5 742.8 14714 47277 -32563 7569125 0.6% St No. 1048 251746 172926 78820 35531488 0.5% 26-2-01 740 751.95 677.65 688.5 27915 70045 -42130 6075372 1.2% 27-2-01 694 699.5 578.35 578.35 12591 40449 -27858 8560199 0.5% 28-2-01 542.6 670.85 532.1 670.4 102503 100359 2144 9917229 1.0% 1-3-01 690 759 635 718.05 82022 103200 -21178 7606238 1.4% 2-3-01 745.1 755 603.2 604.80 18260 15293 2967 9907310 0.2% St No. 1049 243291 329346 -86055 42066348 0.8% Enquiry Officer has observed that BEB has liquidated the earlier net purchases and made fresh sales in Settlement No. 1047 of -53442 which constituted 5% of the net sales of the Exchange. Enquiry Officer has observed that net purchase of BEB in settlement Nos. 1048 to 1051 and fall in price of the scrip has to be examined in totality against the trading pattern of BEB between mid February and....
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....t 1043 15-1-01 19-1-01 386 421 418 5,39,782 5,22,635 17,147 0.5% 1044 22-1-01 26-1-01 424 430 414 2,39,280 2,95,684 -56,404 -2.2% 1045 29-1-01 2-2-01 400 427 415 2,86,793 3,09,978 -23,185 -0.8% 1046 05-2-01 9-2-01 400 412 372 3,86,724 3,78,780 7,944 0.2% 1047 12-2-01 16-2-01 375 387 365 5,41,310 4,55,547 85,763 2.8% 1048 19-2-01 23-2-01 361 376 318 2,77,184 3,59,734 -82,550 -3.8% 1049 26-2-01 2-3-01 321 353 263 4,24,005 3,97,648 26,357 0.6% 1050 5-3-01 9-3-01 250 280 229 2,67,146 2,64,781 2,365 0.1% 1051 12-3-01 16-3-01 230 264 237 1,40,570 1,76,792 -36,222 -0.7% [ Dates Open High Close Buy Sales Net Market Sales % of Market 19-2-01 361.25 373.9 372.1 51690 111047 -59357 11876278 0.9% 20-2-01 373.6 376.4 371.6 45680 19040 26640 10515941 0.2% 21-2-01 370 370 343.25 115401 19871 95530 15296333 0.1% 22-2-01 341.9 341.9 337.9 29353 35831 -6478 11895217 0.3% 23-2-01 336.5 336.5 317.75 35060 173945 -138885 11183237 1.6% St No. 48 277184 359734 -82550 60767006 0.6% 26-2-01 321 331.2 326.2 26165 16670 9495 9915426 0.2% 27-2-01 327....
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.... 28-2-01 336 380 373.95 41935 30580 11355 4849538 0.6% 1-3-01 378 385 361.7 15355 27905 -12550 4189442 0.7% 2-3-01 365.75 365.75 303.85 7710 7980 -270 5707945 0.1% Sett No. 49 105340 105055 285 26245448 0.4% Enquiry Officer has observed that BEB was net seller on 23rd February, 1st March and 2nd March when the scrip price dropped by ₹ 52, ₹ 12 and ₹ 52 respectively. From 21st to 26th of February, BEB was continuous net seller. In S.Nos. 1047 and 1048, BEB had net sales of 3358 and -606 respectively. Zee Tele Date Date Open Hi Close BEB Sett No. Form To Buy Sell Net % Net 1043 15-1-01 19-1-01 243 263 261 441,118 138,053 303,065 5.5% 1044 22-1-01 26-1-01 264 294 280 831,480 1,151,725 -320,245 -6.4% 1045 29-1-01 2-2-01 269 273 254 921,929 733,219 188,710 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 4....
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....acy the extent of the price fall vis-a-vis the member's trade. What is to be seen is the overall trading behaviour of the member. Further, it depends, amongst others, what proportion his sales are to the exchange net sales as a whole. Even if the member was a net purchaser in one particular settlement, it has to be seen as to what is his contribution to the demand as a whole in the market whether these purchases 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 ....
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....,727,274 1,762,314 -35,040 -1.6% 1049 26-2-01 2-3-01 321 353 263 424,005 397,648 26,357 0.6% 2,435,456 2,779,834 -344,378 -8.2% 1050 5-3-01 9-3-01 250 280 229 267,146 264,781 2,365 0.1% 925,412 620,149 305,263 10.2% 1051 12-3-01 16-3-01 230 264 237 140,570 176,792 -36,222 -0.7% 459,371 538,202 -78,831 -1.6% Enquiry Officer has observed that in settlement 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....
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....ter 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 ₹ 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 trading transactions in the selective scrips including the scrip of HFCL, Global Tele, Zee Tele, HLL, Reliance Industries, SBI, Satyam and Infosys with a view to depress artificially the prices of these securities between mid February and mid March in a concerted manner. BSPL had a significant net sale position on 23rd February, 1st and 2nd March of 2001. BSPL has al....
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....les 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. 1048 it was converted into net sales of 40,052 which constituted 4.6% of the net of BSE. It has been contended that there is neither a reduction in net purchase position nor a conversion of purchase position into a sale position as the opening position was not taken into account to arrive at net position at the end of the relevant settlements. In this regard it was submitted that the opening position is not important as the purchases and sales in the relevant settlement gives the idea of the trading pattern of the Appellant in each settlement. It has also been argued that NBS had net sales only in 3 out of 5 days in settlement 1049. Even after accepting that NBS had net sales only in 3 days in settlement 1049, it does not affect the analysis and the final findings. It is contended that the net sales of NBS in settlements 10....
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....net seller. Particularly in Sett. 1049 and Sett. No. 1051, NBS had net sales of 6.4% and 12.6% of the net of BSE respectively. Enquiry Officer has come to the conclusion that NBS had indulged in sales on the crucial dates when the share prices have fallen which created artificial depression in prices. (d) Satyam Date Date Op Hi Cl BEB Sett No. From To Buy Sell Net %Net 1043 15-01-01 19-01-01 386 421 418 3,247,084 3,317,170 -70,086 -2.2% 1044 22-01-01 26-01-01 424 430 414 3,050,630 2,809,278 241,352 9.2% 1045 29-01-01 02-02-01 400 427 415 3,115,273 3,112,460 2,813 0.1% 1046 05-02-01 09-02-01 400 412 372 2,885,180 3,109,983 -224,803 -5.6% 1047 12-02-01 16-02-01 375 387 365 1,553,704 1,263,970 289,734 9.5% 1048 19-02-01 23-02-01 361 376 318 1,727,274 1,762,314 -35,040 -1.6% 1049 26-02-01 02-03-01 321 353 263 2,435,456 2,779,834 -344,378 -8.2% 1050 05-03-01 09-03-01 250 280 229 925,412 620,149 305,263 10.2% 1051 12-03-01 16-03-01 230 264 237 459,371 538,202 -78,831 -1.6% Enquiry Officer has observed that that the sales in Sett. Nos 1048 and 1049 were not fully backed by deliveries w....
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.... 15-01-01 19-01-01 243 263 261 3,025,558 2,371,684 653,874 11.9% 1044 22-01-01 26-01-01 264 294 280 3,741,297 3,400,066 341,231 6.9% 1045 29-01-01 02-02-01 269 273 254 2,833,047 2,853,194 -20,147 -0.6% 1046 05-02-01 09-02-01 252 260 231 878,078 930,283 -52,205 -1.8% 1047 12-02-01 16-02-01 229 247 231 456,385 478,321 -21,936 -0.7% 1048 19-02-01 23-02-01 234 241 210 1,717,642 1,859,341 -141,699 -1.6% 1049 26-02-01 02-03-01 215 215 136 1,208,299 1,631,119 209,795 -8.8% 1050 05-03-01 09-03-01 125 147 117 2,643,142 2,606,129 37,013 0.3% 1051 12-03-01 16-03-01 120 157 144 771,469 858,652 -87,183 -1.1% Enquiry Officer has observed that NBS was continuous net seller from sett. Nos. 1046 to 1048. Subsequent purchases in settlement Nos. 1049 & 1050 appears to be towards covering the short sales in the earlier settlements. Again, in sett. No. 1051, there was a net sale of 87013. NBS has acted in concert BEB in effecting large sale transaction in the scrips of Global Tele, HFCL, Infosys, Satyam, DSQ, Zee Telefilms in the settlements covering mid February and mid March. NBS has dealt with the following un-....
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....but rather may be inferred from circumstantial evidence, including evidence of price movement, trading activity and other factors. Further proof of manipulation is generally not based on a single activity, but rather on a course of conduct showing an intentional interference with the normal functioning of the market for a security. Indeed, manipulation is usually the result of acts, practices, and courses of conduct that deceive the market place: "proof of manipulation almost always depends on inferences drawn from a mass of factual data. Findings must be gleaned from patterns of behaviour, from apparent irregularities, and from trading data. When all of these are considered together, they can emerge as ingredients in a manipulative scheme designed to tamper with free market forces." It has also been held that "It is sufficient for the person to engage in a course of business which operates as a fraud or deceit as to the nature of the Market for the security." It has inter alia been held that the practice of placing orders at or near the end of the day in order to cause the stock to close at an uptick is violative.... "Absent an admission, manipulative i....
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.... sub-brokers. When the FUTP Regulations came into force with effect from 25th October, 1995 it became a complete code relating to Fraudulent and Unfair Trade Practices committed by any person including brokers and sub-brokers. The source of SEBI's power to suspend and cancel the Registration of an intermediary can be traced to section 12(3) of the SEBI Act. Regulations 3 and 4 of the FUTP Regulations relate to prohibition of dealing in securities in a fraudulent manner and prohibition against market manipulation. Regulation 2(c) defined fraud. FUTP Regulations provide for the procedure for investigation etc. Regulation 11 of the FUTP Regulations provide that SEBI upon consideration of the report of the Investigating Officer may issue directions for ensuring due compliance with the provisions of the Act, rules and regulations as inter alia set out in Regulation 12 and may also as per Regulation 13 initiate action for suspension or cancellation of the certificate of registration. Deciding punishment is based on gravity of the offence and is always left to the judicial/quasi judicial officer (Suppose the FUTP Regulations had come in first and the Brokers Regulations later). No guidel....
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....ich are civil in nature. SEBI adjudicated proceedings are not criminal proceedings. In all civil proceedings, standard of proof is on the basis of "preponderance of probabilities" and not "beyond reasonable doubt" as required in criminal cases. Fraudulent or manipulative trading are therefore required to be proved by SEBI only on the basis of "preponderance of probabilities" and not "beyond reasonable doubt" Union of India v. Chaturbhai M. Patel & Co. AIR 1976 SC 712 and National Housing Bank v. A & Z Grindlays Bank 1998 Volume 11 1998 (2) Law Judgments 153 at page 178. The enquiry proceedings are adjudicatory proceedings of a civil nature and are not criminal proceedings and therefore the standard of proof required is not as high as that required in criminal proceedings. Further strict rules of evidence are not applicable to adjudicate proceedings. The charges are required to be established by such evidence, acting upon which a reasonable person acting reasonably and objectively can con- clude that the charges are proved - Bank of India v. Degala Suryanarayana AIR 1999 SC 2407. None of the trades executed by the Bang Entities have been dis....
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....n as possible but not later than thirty days from the receipt of the reply, if any, pass such orders as it deems fit." In the present case a common interim order was passed on April 18, 2001 debarring Mr. Nirmal Bang, Mr. Kishore Bang, and Mr. Dilip Bang and Bang Entities from undertaking any fresh business as stock broker or sub-broker till further orders. A common post-decisional hearing was given to the Bang Entities on 30th April, 2001 at which the Bang Entities made common oral submissions and the Entities thereafter submitted their common written submissions, pursuant to which a common Order was passed on 4th June, 2001 confirming the above order. The show-cause notices dated 10th September, 2001 and 25th January, 2002, were issued to the Bang Entities as joint noticees by the Enquiry Officer and the enquiry proceedings conducted by him were also in common. SEBI by its order dated 4th June 2001 had appointed one Inquiry Officer in respect of the Bang Entities. A common show-cause notice dated 30th May, 2002 was issued to the Bang Entities after the Enquiry Officer submitted his common Report on 22nd May, 2002. A personal hearing was granted to the Bang Entities on 1st J....
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....0(3) of the 1992 Regulations." In the present case since all the proceedings conducted by SEBI against the Bang Entities are common the question of passing a separate order against Bama Securities does not arise and therefore there the question of any delay in passing the impugned Order dated 30th July, 2002, beyond the period prescribed under section 29(3) does not arise as the same was passed within 30 days of giving a oral/personal hearing on 1st July, 2002. The ratio of the judgment in Atul Kanodia's case that the period of 30 days requires to be reconsidered in view of the following Judgments : (A)Bhaskaranand Agarwal v. State of Sikkim AIR 1998 Sikkim 4. (B)Ganesh Prasad Sah Kesari v. Lakshmi Narayan Gupta AIR 1985 SC 964. (C)Karnal Leather Karamchari Sanghatan v. Liberty Footwear Co. AIR 1990 SC 247. Speculative transactions are per se not illegal. However, speculative transactions undertaken by the Bang Entities in its entirely in the facts and circumstances of the present case have been shown to be per se manipulative and illegal transactions, actions in breach of the Stock Brokers Regulations and Code of Conduct. The cumulative effect of all the transactions refe....
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....tered substantial fall and routed large transactions through unregistered sub-brokers. They were accordingly found guilty of violating the code of conduct specified in the Stock Broker Regulations and regulation 4(a) to (d) of the FUTP Regulations. 11. The Appellants in appeal Nos. 54/2002; (NBS); 55/2002; (BEB); and 56/2002 (Bama); are Stock Brokers. While NBS and BEB are members of BSE, Bama is a member of NSE. Appellant in appeal No. 57/2002 is a sub-broker to NBS and BEB. These brokers are stated to have about 100 sub-brokers operating for them, and that they are providing service to over 10,000 retail investors across the country. 12. The Appellants' annual traded turnover, in the year 2000-2001 according to them was around ₹ 57,196 crores. According to the Appellants despite the large scale operation for over seven years there has not been a single instance of an investor grievance against them, signifying their good business practices. It is an admitted fact that these four Appellants belong to Bang family. SEBI has alleged that they were acting in concert. Appellants have denied. Whether they were acting in concert or not is a matter, to be decided in the light of t....
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....ooth functioning of the market. A stock broker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness. (5) Compliance with statutory requirements : A stock broker shall abide by the provisions of the Act and the rules, regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to him. The Code of Conduct applicable to Sub-brokers is separately provided in Schedule II of the Stock Brokers Regulations. In the said Code under Clause "A" the requirements at (1) and (2) above have been stipulated. It is noted that sub-brokers are attached to some brokers. For example in the instant case Bang Securities P. Ltd., (BSPL) is a sub-broker under NSB and BEB. Sub brokers are required to obtain registration certificate from SEBI to carry on the activities of sub-broker. 16. Regulation 4(a) to ( d) of the FUTP Regulations, which according to the Respondent, the Appellants have violated is as follows : "Prohibition against market manipulation.-No person shall- (a)effect, take part in, or enter into, either directly or indirectly, transact....
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....ave been extracted above. Regulation 5 is on "prohibition of misleading statements to induce sale or purchase of securities and regulation 6 prohibits "unfair trade practices relating to securities". 18. Chapter III provides for investigation into alleged contravention of the regulations and consequential action thereafter. Regulation 7 empowers SEBI suo motu or upon information received by it to cause an investiga- tion to be made in respect of the conduct and affairs of any person buying, selling or otherwise dealing in securities, by an investigating officer, for the purposes, namely - (a) to ascertain whether there are any circum-stances which would render any person guilty of having contravened any of these regulations or directions issued thereunder (b) to investigate into any complaint of any contravention of the regulation, received from any investor, intermediary or any investors. In terms of regulation 8, in the normal course, before causing an investigation the Board is required to give notice to the person concerned but this requirement can be dispensed with for certain reasons specified in the regulation. Regulation 9 is on the duties and obligations of....
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.... securities by any person. The ingredients of regulation 4(d) are that (i) a person must enter into a purchase or sale of any securities (ii) said purchase or sale must not be intended to effect the transfer of beneficial ownership (iii) the purchase or sale must be intended to operate only as a device to inflate, depress or cause fluctuations in the market price of securities. On a perusal of the regulation it is clear that reach of clause (a) is wider than the reach of clause (d) Regulation 4( a) brings not only the purchaser and seller but even third parties also to its ambit, if they are found in any way involved in effecting or taking part in the transactions directly or indirectly. The motive behind the action and the effect of the actions is also relevant. Transactions in securities, with the intention of raising or depressing the prices of securities and thereby inducing the sale or purchase of securities by any person is the pointer in this regard. Artificial action to induce other persons to transact in securities is the core theme of regulation 4(d). According to Black's Law Dictionary 'deceit' means 'a fraudulent and deceptive misrepresentation, artifice or device used ....
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....view for the market manipulation stated in regulation 4 if one is to be charged it is absolutely necessary to prove that the person had acted intentionally. It is to be noted that the prohibition in regulation 4 is on market manipulation. Market manipulation, by its very nature cannot be attributed to any unintentional act. Intention is built in the process. 21. This Tribunal in Videocon case had examined the extent of evidence required to establish the charge of market manipulation and had observed that : "As stated earlier, in the absence of reasonably good evidence to support, charge of market manipulation, which is a very serious one, cannot stick on the Appellant company, merely on surmises and conjunctures." 22. In this context, with reference to the test of evidence applicable to the domestic inquiries, Shri Dada had referred to the decision in Gulabchand's case (supra) that "it is wrong to insist that in civil cases such charge must be proved clearly and beyond reasonable doubt". He had also cited the Hon'ble Bombay High Court in National Housing Bank's case (supra) in this regard. In the said case the Hon'ble High Court had reiterated the principle l....
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....quirement of law is that the allegation against the delinquent officer must be established by such evidence acting upon which a reasonable person acting reasonably and objectively may arrive at a finding upholding the gravament of the charges against the delinquent officer. Mere conjuncture or surmises cannot sustain the finding of guilt even in departmental enquiry proceeding. . . ." (p. 2411) [Emphasis supplied] In M.S. Bindra v. Union of India [1998] 7 SCC 310 the Court had while deciding an appeal against the removal of an officer from service on doubtful integrity held that "mere possibility is hardly sufficient to assume that it would have happened". In Nand Kishore Prasad v. State of Bihar [1978] 3 SCC 366, the Court while considering the appeal against the removal of an employee from service based on the findings of a departmental enquiry viewed that : "19. Before dealing with the contentions canvassed, we may remind ourselves of the principles in point crystalised by judicial decisions. The first of these principles is that disciplinary proceedings before a domestic Tribunal are of a quasi judicial character, therefore, the minimum requirement of the....
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....iminal cases. Nor does this definition insist on perfect proof because absolute certainly amounting to demonstration is rarely to be had in the affairs of life. Nevertheless, the standard of measuring proof prescribed by the definition is that of a person of prudence and practical good sense . . . The same is largely true about proof a charge of corrupt practice which cannot be established by a mere balance of probabilities. . . ." (p. 671) [Emphasis supplied] The Hon'ble Supreme Court in yet another case with reference to adjudication under the Sea Customs Act and Land Customs Act relating to imposition of penalty on the person concerned had held : "To such a situation though the provisions of the Code of Criminal Procedure or the Evidence Act may not apply, except in so far as they are statutorily made applicable, the fundamental principles of criminal jurisprudence and of natural justice must necessarily apply. If so, the burden of proof is on the customs authorities and they have to bring home the guilt to the person alleged to have committed a particular offence under the said Acts by adducing evidence." (Ambalal v. Union of India AIR 1961 SC 264). On applic....
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.... except after holding an enquiry in accordance with the procedure specified in regulation 28. The proviso to the regulation keeps certain cases out of the purview of the said requirement. The proviso has no application to the present case. Section 28 empowers SEBI to appoint an Enquiry Officer 'for the purpose of holding an enquiry under regulation 27.' 24. In terms of regulation 28(7) the Enquiry Officer is required, after taking into account all relevant facts and submissions made by the Stock Broker, to submit a report to the Board and recommend the penalty to be awarded as also on the justification of the penalty imposed in the show-cause notice. In terms of regulation 29(1) on receipt of the report from the Enquiry Officer, SEBI is required to consider the same and issue show-cause notice to the Stock Broker/Sub-Broker as to why the penalty as it considers appropriate should not be imposed. Sub-regulation (2) requires the Stock Broker/Sub-Broker to send to SEBI a reply to the show-cause notice within 21 days from the date of receipt of the notice. According to sub regulation (3) "the Board after considering the reply to the show-cause notice, if received, shall as soon a....
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....sence of any evidence on record to prove the contrary, the date of passing the order has to be accepted as 30-7-2002 as is reflected from the order itself. The ratio in the Atul Kanodia's case has no application to the case, as in the said case the order was passed by SEBI, beyond the 30 days prescribed in regulation 29(3). In the light of the facts and circumstances of the case in my view, the impugned order cannot be said to have been passed beyond 30 days and it is not vitiated even qua Bama. The Respon-dent has also prayed to reconsider the ratio of the judgment in Atul Kanodia's case (supra) and had for the purpose cited Bhaskaranand Agarwal's case (supra), Ganesh Prasad Shah Kesari's case (supra) and Karnal Leather Karamchari Sanghtan's case (supra ). I do not consider that reconsideration of Atul Kanodia is called for, for deciding the present case. 26. Yet another major legal issue, agitated by the Appellants is the authority of SEBI to issue the impugned order cancelling the certificate of registration granted to the Appellants invoking regulation 13 of the FUTP Regulations. In this context the order passed by the Respondent need be looked into, which is extracted verbati....
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....f 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 contravention of these regulations, in such manner as the Board may deem fit, for restoring the status quo ante. Since the parties had relied on the provisions of regulations 25 and 26 of the Stock Broker Regulations, it is considered necessary to extract the same also for ready reference. "25. Liability for action in case of default.-(1) A stock-broker who- (a)fails to comply with any conditions subject to which registration has been granted; (b)contravenes any of the provisions of the Act, rules or regulations; (c)contravenes the provisions of the Securities Contracts (Regulations) Act, or the rules made thereunder; (d)contravenes the rules, regulations or bye-laws of the stock exchange; shall be liable to any of the penalties specified in sub-regulation (2). (2) The penalties referred to in sub-regulation (1) may be either- (a)suspension of ....
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....ker/Sub-broker can be imposed only on the three grounds stipulated under regulation 26(2) of the Stock Broker Regulations, that in the instant case since the Appellants have not been charged with or found guilty of indulging in fraud, the certificate of registration cannot be cancelled. In this context Shri Dwarkadas had argued elaborately, referring to the provisions of regulations 25 and 26 of the Stock Broker Regulations. He had also cited authorities, which I have referred to in the earlier part of this order while setting out his arguments, in support of his contention that the penalty of suspension or cancellation can be imposed as per the guidelines provided in regulation 26 only. In this context referring to regulation 26(1)(v) the Learned Senior Counsel had submitted that the said regulation specifically provides for the suspension of registration in the event of a broker/sub-broker indulging in manipulation or price rigging in the market (which is the charge/finding against the Appellants in the present case), that though market manipulation and fraud are both covered by the FUTP Regulations, different penalties have been prescribed in Regulation 26 - that market manipula....
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.... and rendered workable. 30. Shri Rafiq Dada, Learned Senior Counsel for the Respondent countering the Appellants' submissions on the power under regulation 13 submitted that Stock Broker Regulations is a general regulation, regulating the activities of the Stock Brokers and sub-brokers and it provides the consequences that would visit them on violation of the requirements stipulated therein. He submitted that there was no specific regulation relating to fraudulent and unfair trade practices committed by the brokers, and till such time the FUTP Regulations were brought in, sections 11 and 11B which provide adequate power to SEBI, were invoked to deal with the fraudulent and unfair trade practices indulged in by any person including Stock brokers and sub-brokers, that FUTP Regulations was notified on 25-10-1995. Learned Senior Counsel submitted that FUTP Regulations by itself is a complete code relating to Fraudulent and Unfair Trade practices. It provides for prohibiting the fraudulent and unfair trade practices. The penalty to person who indulges in the fraudulent and unfair trade practices is provided in the regulation itself, that it is a self contained regulation and that SEBI'....
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....nder regulation 13 of the FUTP Regulations. 31. I have given considerable thought to the rival contentions on the powers of SEBI to order suspension/cancellation of the certificate of registration granted to the intermediaries, on finding those intermediaries guilty of violating the provisions of FUTP Regulations. The basic principles to be followed in inflicting penalties have been provided by the Hon'ble Supreme Court in several cases. To quote one such decision is that of Ranjit Thakur's case (supra). The Hon'ble Court in the said case has observed that the sentence has to suit the offence and the offender, that it should not be vindictive or harsh and it should not be so disproportionate to the offence as to shock the conscience and amount in itself to conclusive evidence of bias. The Hon'ble Court has further held that the penalty imposed must be commensurate with the gravity of the misconduct and that any penalty disproportionate to the gravity of the misconduct would be violative of Article 14 of the Constitution. 32. SEBI's power to suspend or cancel the certificate of registration of an intermediary registered with it flows from section 12(3) of the SEBI Act. In terms of....
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....f the FUTP Regulations and such cross references in the Regulations are very common. I have noted that SEBI has now codified the procedure for holding enquiries vide Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, and the same is applicable to all intermediaries including the Stock Brokers and sub-brokers. 35. I have noted the argument advanced by Shri Dwarkadas that since regulation 26 clarifies the offences for imposing the penalty of suspension and cancellation, the respondent has to abide the guidelines provided in the said regulation. But I find difficult to agree with his submission that for violation of FUTP Regulations, penalty of suspension or cancellation of certificate of registration be made only as per the provisions of regulation 26. 36. Regulation 26(1) inter alia provided that a penalty of suspension of registration of a stock broker may be imposed, if a Stock broker violates the provisions of the SEBI Act, rules and regulations, and the Stock Broker indulges in manipulating or price rigging or cornering activities in the market. One of the grounds for cancellation provided in regula....
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....f penalty by the adjudicating officer under this Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made thereunder he shall be punishable with imprisonment for a term which may extend to one year, or with fine, or with both". The Legislature has not provided any guidelines except capping the term of imprisonment. Even the maximum fine leviable has not been stipulated. In what circumstances, penalty of imprisonment is to be awarded and in what circumstances fine is to be imposed and in what circumstances both imprisonment and fine can be imposed, are left to the discretion of the court. No doubt the authority imposing the penalty can not impose the same whimsically. It is in this context one has to look for the guidance given by the Hon'ble Supreme Court in Ranjit Thakur's case (supra) referred earlier - that the penalty imposed must be commensurate with the gravity of the misconduct and that any penalty disproportionate to the gravity of the misconduct would be violative of Article 124 of the Constitution. 39. For the reasons stated above I am of the view that SEBI is empowered to ....
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....rities Ltd. (BSL) for indulging in simultaneous sales in the scrips of Infosys, Reliance and Satyam on the specified dates. In the case of Bang Securities : Apart from the charge that it was indulging in large trading transactions in selected scrips with a view to depress artificially the prices of those securities, it has also been alleged that they acted in concert with Bama for indulging in simultaneous sales in the scrips of Infosys, Reliance and Satyam on the specified dates. 42. It is noted that the four Appellants are owned, managed and controlled by Bang family. In fact the Appellants themselves have described them as "Bang Entities". The fact that they are separate entities in the eyes of law, does not change their basic character of Bang family entity. It can be safely concluded that the controlling mind of these 4 entities are common. But whether they had acted in a concerted manner so as to depress the market is a question of fact to which we will come later. 43. The Respondent in its order has stated that the Bang Entities have "indulged in large trading transactions with a view to depress artificially in a concerted manner", short sales, synchr....
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....t that the Appellants operated in Bear Market. SEBI in its order has attempted to pin down the Appellants mainly on the ground that they were sellers. SEBI seems to have gone by the notion that selling in a falling market is a market manipulation. It is not selling per se, but the intention of the seller that would decide as to whether he was indulging in manipulation. Selling scrips in a falling market, with no intention of manipulation, in my view cannot attract regulation 4. 45. I have perused the data furnished by the Appellants and the Respondents with reference to the allegation of large trading transactions by the Appellants with a view to depress the market. The Appellants have denied the charge of large trading transactions and also the allegation of concerted action by them. Since I have already set out the data relied on by the parties in his regards in the context of their respective submissions recorded in the earlier part of the order I do not propose to reproduce the same here. I have examined those data with reference to the observation made by the Respondent in respect of the transactions is each scrip stated in the order. It is seen from the data before me that t....
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....akes the investment decision without being influenced by the Appellants. In this context it is to be noted that in terms of clause B(1) of the Code of Conduct applicable to Stock Brokers 'A stock broker in his dealings with the clients and the general investing public shall faithfully execute the orders for buying and selling of securities at the best available market price...'. In the normal course, the Broker acts only as an agent of his client. To prove that the Broker was deciding the transactions for the client, one has to bring in evidence. SEBI has not produced any evidence to show that the transactions done by the Appellants were in their own account or on clients' account. The Learned Senior Counsel for the Respondent had submitted that the Appellants' conduct has to be viewed from their overall conduct. I have not missed this submission. But the material on record do not support the Learned Senior Counsel's submission that in the totality of the facts and circumstances the Appellants could be considered to have indulged in large trading transactions to depress the market. 46. Undertaking large trading transactions, following the rules and regulations and complying with s....
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....the charge under discussion does not stick is based only on the basis of the limited material available before me. Trading by Bama 47. It has been alleged that the trading pattern of Bama on 22, 23 and 28th February and 1st and 2nd March in the scrips of Global Tele, HFCL, Satyam, Silverline, Zee and Wipro showed that Bama was a consistent net seller. The Appellant has questioned the data on the ground that the same do not represent the true position. I do not consider that it is necessary to go into the details further, as the motive of Bama has not been established. In fact the Respondent itself is not sure in the matter as could be seen from the statement that "the net sales position of Bama can be said to have contributed to the artificial depression of price of these scrips during the relevant period." 48. The Respondent had alleged that NBS had transacted with two unregistered firms namely Money Growth Investments and Arihant Investments and BEB with another unregistered firm viz. Palombe. The Appellants have disputed the charge. It seems that SEBI itself has not recognised those three companies as unregistered sub-broker. As I could see from the records, SEBI ha....
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.... the impugned order holding those three entities as unregistered sub-brokers, there was no reason for SEBI not to proceed against them for violation of the Broker Rules. Since the Appellants had disputed SEBI's version that those entities are unregistered sub-brokers, all the more it was for SEBI to prove that they are unregistered sub-brokers. In fact SEBI in its order has gone to the extent of saying that "It is not shown by the member that Palombe is one such person with whom brokerage can be shared in terms of the proviso to bye law 218(a) of BSE or Palombe is not a disqualified person for sharing brokerage in terms of the proviso to the bye law 218(a)." It was for the Respondent, which has levelled the charge that BEB had transacted through Palombe, which allegedly is an unregistered sub-broker, to prove the charge and not for the Appellant to prove as suggested in the order. About the other two entities NBS's statement that those entities had represented to it as clients remains unrebutted. There is nothing on record to substantiate the charge that NBS and BEB had made huge transactions through unregistered sub-brokers, so as to view that they had violated the Stock....
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....e the transaction the story is different. There are many transactions giving an impression that these were all synchronized, otherwise there was no possibility of such perfect matching of quantity price etc. As the Respondent rightly stated it is too much of a coincidence over too long a period in too many transactions when both parties to the transaction had entered buy and sell orders for the same quantity of shares almost simultaneously. The data furnished in the show-cause notice certainly goes to prove the synchronized nature of the transaction which is in violation of regulation 4 of the FUTP Regulations. The facts on record categorically establishes that BEB had indulged in synchronized trading in violation of regulation 47 of the FUTP Regulations. In a synchronized trading intention is implicit. 53. Bama has been charged for effecting sales in time slots. I have gone through the data relied on for the purpose, as available on record. The Respondent has established with proof that sale in time slots by Bama had contributed to the decline in the share prices. The following table clearly illustrates the case. Scrip Date Time Time Minutes Sales % of market Fall in Pric....
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.... reason the charge of acting in concert also fails. The Enquiry Officer himself has dropped the charge of short sale of 2 lakh shares of Global Telesystem. Similarly the Enquiry Officer has dropped the charge of receiving loan of ₹ 5 crores from Palombe. In these circumstances none of the charges against the Bang Securities P. Ltd., survives. 56. I have taken into consideration all the relevant facts and explanations/submissions of the parties placed before me. The charge that the Appellants had indulged in large trading transactions with a view to depress the market artificially in a concerted manner remains unsubstantiated. From the particulars furnished by the Respondent it is clear that the share prices had fallen on certain days in the period covered under investigation, and the price fall was steep on 1-3-2001 and on certain days thereafter. But the Respondent has attributed the cause of such steep price fall to the transactions effected by the Appellants. But considering the Appellants' share of transactions with reference to total volume of the particular scrip traded at the exchanges, on those days, it is difficult to believe that such a small percentage of trade wi....