TaxTMI 
TaxTMI 
2013 (9) TMI 1278
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ltd ('AIL' for short) was taken up for investigation by Bombay Stock Exchange Ltd. ('BSE' for short) due to price rise of scrip during December 18, 2003 to February 13, 2004 and fall in price of scrip thereafter. 3. During the period from December 4, 2003 to June 1, 2004 ('Investigation Period' for short) price of scrip increased from Rs. 65 to reach a high of Rs. 307 on February 13, 2004 and thereafter fell to Rs. 25.70 on June 1, 2004. During entire investigation period, stock brokers, namely, ASE Capital Markets Ltd., Galaxy Broking Ltd. and Grishma Securities (P) Ltd. had major concentration of 46.12%, 18.73% and 14.97% in gross purchase respectively and 53.35%, 15.92% and 22.69% in net purchase respectively. 4. Securities and Exchange Board of India ('SEBI' for short) ordered an investigation to examine the motive behind ASE Capital Markets Ltd., Galaxy Broking Ltd. and Grishma Securities (P) Ltd. in heavily buying the scrip and whether there was any nexus between major buyer in scrip amongst themselves and / or with company / promoter and whether they had influenced price of scrip. 5. Mr. D. Ravi Kumar, Chief General Manager, was appointed as Adjudicating Officer (su....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Appellant requested to keep the matter in abeyance. 9. Appellant was granted another opportunity of hearing vide personal hearing notice dated January 11, 2011 at SEBI Bhavan, Mumbai on January 28, 2011. However, Appellant vide letter dated January 25, 2011 stated that proprietor Mr. Gautam N. Jhaveri of M/s. Rajesh N. Jhaveri has undergone heart by-pass surgery and was advised bed rest, therefore, Appellant needs additional time. Hearing notices dated February 3, 2011 and March 7, 2011 were served on Appellant granting further opportunities of hearing but Appellant failed to attend hearings without providing any reasons. 10. It is observed from records that Appellant's consent application was rejected and same was communicated to Appellant by letter dated February 24, 2012. In view of same, Appellant was granted another opportunity of hearing vide hearing notice dated February 28, 2012 to appear for hearing on March 21, 2012 and was also advised to submit reply to SCN on or before March 14, 2012, since Appellant had not submitted any reply to SCN till date. 11. Appellant vide its letter dated March 13, 2012 submitted its reply as follows: "The charge is baseless....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Manager of Investigation Department has exonerated it and advised it to be careful in future." 12. Appellant was granted another opportunity of hearing vide personal hearing notice dated September 11, 2012 at SEBI Bhavan, Mumbai on October 5, 2012. Appellant's representative Mr. Deepak Shah, Advocate (hereinafter referred to as 'AR') at time of hearing submitted that noticee's trades of 50- 100 shares in scrip will not influence price of scrip and therefore noticee has not manipulated price of scrip during investigation period. AR submitted that all its trading in scrip was delivery based trading and in support of same, Appellant will submit its demat statement for investigation period. AR further submitted that since trading is for year 2003-04, Appellant will put its best effort to provide demat statement for investigation period. AR stated that it has no relation / connection with Jhaveri Trading & Investment Pvt. Ltd. and Ms. Harsha Jhaveri. AR undertook to submit additional reply within a week from date of hearing. Further, AR was also provided with relevant extracts of IR at time of hearing. 13. Appellant vide its letter dated October 15, 2012 submitted additional repl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....trades. 15. AO has observed from IR that during period from December 2003 to January 2004, price of scrip increased from Rs. 68 to Rs. 293 in 2 months also observed that when price of scrip rose from Rs. 68 to Rs. 293, only 175 trades had taken place in these 2 months, of which Appellant was buying client in 23 trades. Thus, Appellant appeared in 13.14% of trades during period of price rise and IR further observes that total traded quantity during this period was only 15,413 shares out of which Appellant had traded for 1,745 shares which is 11.32% of the total traded quantity in the market. 16. LTP analysis of 175 trades shows that there were 55 instances of orders placed at higher than LTP. Of these 55 instances, Appellate appeared in 12 instances (21.8%). It is observed that Appellant had undertaken 23 trades in 2 months out of which in 12 instances Appellant had put orders at higher than LTP in the range of 0.52% to 8.33%. Thus, majority (52.17%) of Appellant's trades were higher than LTP. 17. Over here AO quotes order of Hon'ble Securities Appellate Tribunal in the matter of Shailesh Jain vs. SEBI decided on May 1, 2012: "...The appellant's role has been one o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 21. AO had concluded, in view of aforesaid conclusion arrived at, it can be further held that Appellant has failed to adhere to Code of Conduct prescribed for Sub Brokers and has violated Clauses A(1), A(2), D(1), D(4), D(5) of the Code of Conduct prescribed for Sub Brokers in Schedule II under Regulation 15 of Sub Brokers Regulations. Text of said provisions is as follows: "Sub Brokers Regulations: Reg. 15 The sub-broker holding a certificate shall at all times abide by the Code of Conduct as specified at Schedule II. A(1) Integrity: A sub-broker , shall maintain high standards of integrity, promptitude and fairness in the conduct of all investment business. A(2) Exercise of due Skill and Care: A sub-broker, shall act with due skill, care and diligence in the conduct of all investment business. D(1) General Conduct: A sub-broker shall not indulge in dishonourable, disgraceful or disorderly or improper conduct on the stock exchange nor shall he willfully obstruct the business of the stock exchange. He shall comply with the rules, bye-laws and regulations of the stock exchange. D(4) Manipulation: A sub-broker shall not indulge in manipulative....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ees Fifty Thousand Only) under Section 15HB of SEBI Act, 1992, which is considered appropriate by AO in facts and circumstances of case. 25. From submissions of Appellant and findings / conclusions of AO, the following is noticed: (i) During the Investigation Period, price of scrip of AIL increased from Rs. 65 as on December 4, 2003 to high of Rs. 307 on February 13, 2004 and thereafter fell to Rs. 25.70 on June 1, 2004 and during investigation period three stock brokers, namely, ASE Capital Markets Ltd., Galaxy Broking Ltd. and Grishma Securities (P) Ltd. had concentration of 46.12%, 18.73% and 14.97% of gross purchase respectively, i.e., of 79.82% (or say 80%) of gross purchase during Investigating Period (IP) in gross purchase; which means that only 20% of purchases during IP was by others, which can be stated to be public. Here, it may be mentioned that ASE Capital Markets Ltd. dealt with M/s. Rajesh N. Jhaveri lent to what extent this was done is not clarified. Similarly, other stock brokers dealt on behalf on other clients, in the alleged manipulation of AIL scrip lent exact role has not been clarified. Similarly from figures of net purchase by these three entitie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Appeal) to the effect that from unaudited quarterly results for quarters end September 30, 2003, December 31, 2003, March 31, 2004 and June 30, 2004 vis-à-vis corresponding quarters of previous years, it was observed that there was significant rise in income from operations and net profit except for quarter ended June 30, 2004, where revenue from operations had fallen, but in March 2004 and June 2004, other income exceeded the income from operations. The company showed good performance during IP and also subsequent to IP. The increase in income has been on account of investment activities, i.e. dividend on shares and long term capital gains. (iv) We are not going into other contentions of Appellant or of AO, which are to the effect that trade of Appellant was at higher than LTP and about instances when his trade was of nature of price discovery, number of such instances when his trade discovered new price or the number of shares traded, etc.; since these are established facts and not disputed by Appellant. (v) One of the contentions of Appellant is worth mentioning where it is stated that total transactions, as per para 2 of SCN, was just 7,43,930 shares....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncreases in volume, which was less 500 shares on almost all days of IP. Hence there was not enough liquidity and that setting high price of scrip increased liquidity is not borne out on facts and AO is contradicting himself. The advice of AO that it makes economic sense to buy cheap and sell costly, is repeated on so many places and by many experts, but it has to be borne in mind that buy/sell of all commodities (including securities) is a zero sum game i.e. when one makes money, someone else loses to the same extent and hence howsoever clever you may be or follow any mantra, everyone ends up making money in some cases and loosing money in other cases, unless some people are able to manipulate scrip/ markets so that they only win and others only loose. It may however be pointed out here that all players in security market make money or lose money, on an average, if market as a whole goes up or down, but individuals making money or losing in particular trade depends on his instincts, his study of market, his vision of particular scrip coming true / not true and on so many factors. (ix) It has also been pointed out by Appellant that they traded 2.90 lakh shares in the scrip ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... through M/s. Rajesh N. Jhaveri and Grishma Securities (P) Ltd. is not known. (xi) In view, it is seen that contention of Appellant that it traded in scrip of AIL, who is his proprietary account, by purchasing same at above LTP, in genuine belief that scrip was fundamentally strong and had good / genuine investment plan, was doing well going by its financial results and price of scrip will go still high than price paid by it, appears to be the correct state of affairs. This is further supported by fact that trades were as per market rate as per market mechanism, within limits of high and low as decided by market regulator, price was paid, delivery taken, no circular or self-trade was involved. Price went up even when Appellant was not trading, no relation between various players who were pushing up price of scrip could be found and who the counter-party to purchase by Appellant was not known, since transactions were on market and screen based. SEBI has not been able to bring about any concrete proof in support of their contention that Appellant actions resulted in manipulation of market but their case was diluted, to quite an extent, when a similarly placed entity viz. Jha....