TaxTMI 
TaxTMI 
2007 (8) TMI 813
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....00. Subsequently, the share price plummeted to Rs. 149/- on March 31, 2001 from Rs. 1499/- on April 1, 2000. The said price movements were also accompanied by large volumes (at times, the daily average volume reached 10, 00,000 shares) at BSE and NSE. 1.3 In the facts and circumstances, based upon prima facie findings, Securities and Exchange Board of India (hereinafter referred to as SEBI) vide an interim order dated July 20, 2001 inter alia prohibited the company and its promoter viz. Shri Dinesh Dalmia from accessing capital market for a period of one year or completion of investigation and action thereupon whichever is later. The said interim order was confirmed by SEBI, vide order dated December 20, 2001 after giving reasonable opportunity of hearing. 1.4 The investigation conducted by SEBI inter alia found that Shri Dinesh Dalmia had fraudulently allotted 1.7 crore shares of the company to its group/associate entities. Out of the above, around 1.3 crore shares of the company were off loaded in the securities market by the group/associate entities of Shri Dinesh Dalmia viz. Hulda Properties and Trades Ltd., Powerflow Holdings Ltd., DSQ Holdings Ltd. and DSQ Industries Lt....
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....ined in the demat account shall not be withdrawn without prior permission in writing from SEBI". 1.6 The aforesaid order dated September 9, 2004 was challenged by the company and Shri Dinesh Dalmia before the Hon'ble Securities Appellate Tribunal (SAT). Vide order dated December 8, 2005, SAT upheld the aforesaid SEBI order inter alia with the following modification: The period of debarment shall be from the date when the interim order was passed by SEBI on 27.1.2001 and will run for a period of 10 years from that date and the order to that extent also is modified. 1.7 SAT, in the said order, has inter alia observed "I find that by its actions as outlined above, the company has acted in a fraudulent manner". "unlisted shares were sold to the unsuspecting investors way back in 2000-01 at a price of several hundred rupees for each share. 1.8 The investigation conducted by SEBI inter alia found that the associates of Shri Dinesh Dalmia viz. Hulda Properties and Trades Ltd., Powerflow Holdings Ltd., DSQ Holdings Ltd. traded heavily in the shares of the company among themselves and thereby created volumes by executing synchronized trades, circular trade....
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....have acted to the detriment of investors and the safety and credibility of the securities market. They have indulged in activities that are fraudulent and unfair and manipulative. ...the associated entities had entered into synchronized and circular deals wherein the buy order and sell orders were inputted in the trading system at the same time for same rate and same quantity. While one of the associated entities was selling, other entities were buying shares. By entering into such synchronized deals, they have facilitated trades where effectively there was no change in beneficial ownership and there was creation of artificial market. 1.12 Further, the investigation conducted by SEBI inter alia found that Accord Capital Markets Ltd., (hereinafter referred to as the Broker), Member NSE had dealt substantially in the shares of the company during October 1999 to January 2001. The Broker is also a member of Calcutta Stock Exchange Association Ltd. and BSE. The client of the Broker was Mehta & Ajmera, a partnership firm of Shri Himanshu Ajmera and Shri Girish S. Mehta. Shri Himanshu Ajmera and Shri Girish S. Mehta are the major shareholders and directors of the ....
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....y, vide letter dated January 8, 2007 the Broker filed its reply to the show cause notice. 3.2 In the reply, it has been inter alia stated that SEBI had not furnished the Broker with the documents and records relied upon and that it had requested for the inspection of the relevant trade and order logs etc. The Broker submitted that refusal to disclose the original documents which formed basis of the charge were in breach of the principles of natural justice. The Broker contended that there was no arrangement/ understanding/ meeting of minds whatsoever either with the counterparty clients or the counterparty stock brokers. Without prejudice to the above contention, the Broker stated that, negotiated deals are permitted to be executed in the manner as prescribed in SEBI circular dated September 14, 1999. The Broker claimed that some of the trades were not synchronized in its strict sense as there were difference in the order time, price and quantity. It also stated that it had not funded in the transaction. It also claimed that merely because the selling clients availed funding from the selling brokers, it would not necessarily mean that the Broker was a party to any conspiracy to ....
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....ed to follow the principles laid down by SAT in the case of Nirmal Bang Securities Pvt. Ltd. in reference to the facts and circumstances of the present case. The Broker stated that it had executed the trade as per the instructions of its client from time to time and that the beneficial ownership of shares was also changed. The Broker also contended that its trades constituted a very small percentage of the total market turnover. It also stated that there was no failure of due diligence on its part and that all its trades were executed in the normal course of its business on the screens of the exchange. It claimed that the trades executed by it were small considering the liquidity of the shares of the company and therefore, it could not have affected the price discovery mechanism. 3.6 The Broker contended that the Enquiry Officer had failed to follow the order of SEBI dated September 10, 2004 in the matter of ICICI Brokerage Services Ltd. It has been contended that the facts of SEBI v. Cabot International Capital Corporation and the present case had no correlation to each other. The Broker further stated in its reply that the reference made to certain case laws in the Enquiry Rep....
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....d for the violation of Regulation 3, 4, 5 and 6 of the FUTP Regulations, notwithstanding the repeal thereof. The appointment of the second Enquiry Officer, vide order dated July 24, 2003 is only a continuation of the proceedings already initiated against the Broker under the provisions of the Enquiry Regulations read with the provisions of the FUTP Regulations. Therefore, I do not accept the contention of the Broker that the appointment of the second Enquiry Officer is ultra vires of the Enquiry Regulations. Further, I note that no prejudice has been caused to the Broker as the second Enquiry Officer had granted sufficient opportunities to the Broker to make its submissions in respect of the charges leveled against it. 4.4 I note that the Broker has not disputed the trades executed by it in the shares of the company. The proprietary trades and the trades for Mehta & Ajmera (client of the Broker), in the shares of the company are also not disputed. Further, I note that the partners of the client of the Broker are Shri Girish Mehta and Shri Himanshu Ajmera. The said Shri Girish Mehta and Shri Himanshu Ajmera are the promoters/directors of the Broker and are also the major share ho....
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....ectors were 1) Mr Hitesh Vasa 2) Mr Kamlesh Pancholi Q4. What was the business of Time and for what purpose was it founded? Ans. Time Vinimay was basically formed as a investment vehicle of Mehta and Ajmera - a partnership concern (engaged in share broking). Time was incorporated as a private limited company in the beginning of 1999. 4.7 Further, in his capacity as the director of the Broker Shri Nilesh Doshi had stated Q3. Who are the directors in Accord Capital Markets Ltd. and their residential address. Ans. In total there are 5 directors, including myself. The other directors are 1) Shri Girish Section Mehta, residing at 19, Mahendra Road, Kolkatta 25, 2) Shri Himanshu Ajmera-residing at 44/2 Sarat Bose Road, kolkatta - 700 020, 3) Shri Manoj Patel, residing at Ballygunge Circular Road, Kolkatta 19 and 4) Shri Kamlesh Pancholi residing at 5 Ashton Road, Kolkatta - 20. Q4a. Does Accord Capital or directors of Accord have any connection/relation with DSQ Software Ltd. or the directors / promoters of DSQ Software Ltd. Ans. As Accord, we do not have....
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....ker that there was no prior understanding while executing the trades, the above statements of Shri Nilesh Doshi would clearly establish the close business relationship which existed between the Broker, its client (Mehta & Ajmera), its directors, the DSQ group etc at the time of execution of the trades. 4.9 On a perusal, inter alia, of the above statements, the following points emerge; i) The Broker had executed substantial number of synchronized trades (as alleged) in the shares of the company for its client, Mehta & Ajmera and themselves. ii) Mehta & Ajmera is the partnership firm in which the partners are Shri Girish Mehta & Shri Himanshu Ajmera who are also the promoters/directors of the Broker. iii) Shri Girish Mehta & Shri Himanshu Ajmera are the substantial shareholders of the Broker. Collectively they were holding more than 85% as on October 31, 2001 and continue to hold the same. iv) The certificate of registration of Shri Girish Mehta & Shri Himanshu Ajmera as a stock broker (trade name Mehta & Ajmera) were suspended by SEBI in respect of their dealings in the s....
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....nse as there were difference in the time, order quantity and price. However, I note that the Broker had executed so many other trades which were exactly matched with reference to the time, quantity and price. 4.12 I note that most of the synchronized trades executed by the Broker were perfectly matched with the counter party orders even with respect of the price to the extent of two decimal points. The proximity in placing the orders at the same price and for the same quantity almost at the same time (in majority of the cases) resulted in the matching of the aforesaid transactions, with all the ingredients i.e. quantity, price and the time, required to conclude the trades. The time difference (between the buy and sell orders) of majority of the synchronized trades was very less with the price and quantity matching. The said synchronization cannot take place in the absence of any specific understanding/arrangement between the clients at the first instance, especially when the shares of the company were highly liquid at the time of the trades. 4.13 I note that during the relevant period, the shares of the company were highly liquid and that the liquidity in trading suggests the....
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....rties and Trades Ltd. and DSQ Holdings Ltd., the associates of Shri Dinesh Dalmia, who was having business relationship with the promoters/directors of the Broker. Therefore, it is unbelievable that such coincidence of trades would take place without the actual meeting of minds, especially when the client was none other than the partnership firm of the directors of the Broker, with a business association with Shri Dinesh Dalmia. 4.17 In the above circumstances, it is highly unbelievable that the synchronized trades executed by the Broker on behalf of its client (including the proprietary trades) in the shares of the company were in the normal course of business without any malafide intentions and without any prior knowledge. No matter what was the putative objective, in the facts and circumstances, the transactions (executed between connected people) per se, were synchronized in nature and the same could be possible only with prior meeting of minds. The trades of the Broker created artificial volume in the shares of the company and the conduct of the Broker needs to be judged in the attendant material circumstances of the case wherein the buy order and sell orders were inputted ....
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....ecuted and this disturbs the true price discovery mechanism of the exchange. The appellant is only feigning innocence which plea in the circumstances cannot be accepted." 4.20 In the above facts and circumstances, the transactions, executed on behalf of the client (Mehta and Ajmera) including the proprietary trades, which were matched with the counter party client belonging to the company cannot be a coincidence and the same would not have been possible without a pre determined mind to execute the same with the price, quantity of shares matching in respect of the buy and sell orders. Such synchronized deals involving interplay of market forces, pre supposes the active participation of the said stock brokers. The nature of the relationship that existed between the Broker, its promoter, its client (Mehta & Ajmera), Time Vinimay Private Ltd. (investment company incorporated by Mehta and Ajmera) and Shri Dinesh Dalmia as explained above in graphic details would only lead to the conclusion that the trades were executed with prior meeting of minds and any inference of exclusion of meeting of minds in the facts and circumstances would be inconsistent with the attendant circumstances of....
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....ares of the company which was highly liquid can not be matched (in all respects) without a pre determined mind. 4.22 Further, once it is found that certain trades were executed with a pre determined plan for the purpose of creating a false appearance in the market, it is immaterial to look into the number of such trades, volume of the shares traded. In manipulation, the participation of a specific stock broker may be minuscule while comparing with the total number of trades, volume of the shares traded in the exchange etc. The question is whether the trades were executed with the involvement of various parties with a prior knowledge for the purpose of manipulation? If yes, the parities involved therein are liable to be punished in accordance with law. In the present case, it is established that the trades were executed with the prior knowledge for the purpose of manipulation. Given the fact that there was manipulation in the scrip as borne out by the orders of SEBI, such manipulation could not have been possible by Shri Dinesh Dalmia and his associates alone without the stock brokers acting in concert. Further, it stands to reason that the Broker who had direct dealings with the....
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....ent man's estimate as to the probabilities of the case. Hon'ble Securities Appellate Tribunal (SAT) has observed in the matter of Ketan Parekh v. SEBI: ...Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available.... 4.25 Presumption plays a critical role in coming to a finding as to the involvement or otherwise of a market participant in any manipulation. For instance, while trading, a lip service can be paid to a screen based trading system while agreement is reached beforehand between brokers to effect the transaction. Anonymity can be a cloak to cover anastomosis of interest. Therefore, the hackneyed plea based on intentions in the market place can not pass muster in all circumstances, more so when such intentions are in the special/peculiar knowledge of the parties to the transactions. Also any suggestion attributing innocence to the parties involved in such transactions would give rise to an untenable situation where certain other thir....
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....ase cannot be dismissed as of no consequence, on the specious plea that they were on a very small scale, spread over a period of time. On the contrary, such synchronized transactions have to be appreciated on materials/data/statements brought on record establishing the nexus between the Broker, the company, the associates of Shri Dinesh Dalmia and the other counter party stock brokers. 4.30 It is also important to note the following observation of SAT in respect of synchronised trades: i) in the matter of Nirmal Bang Securities (P) Ltd. v. SEBI: BEB has been charged for synchronized deals with First Global. I have examined the data provided by the parties on this issue. I find many transactions between BEB and FGSB. There are many instances of such transactions. I find the scrip, quantity and price for these orders had been synchronized by the counter party brokers. Such transactions undoubtedly create an artificial market to mislead the genuine investors. Synchronized trading is violative of all prudential and transparent norms of trading in securities. Synchronized trading on a large scale can create false vol....
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....g or is dubious in nature and is executed with a view to avoid regulatory detection or does not involve change of beneficial ownership or is executed to create false volumes resulting in upsetting the market equilibrium.... Any transaction executed with the intention to defeat the market mechanism whether negotiated or not would be illegal. Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available.... The nature of the transaction executed the frequency with which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether there is real change of beneficial ownership, the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn. 4.31 Artificial increase in the volu....
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....ices of securities and thereby inducing the sale or purchase of securities by any person; (b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market; (c) indulge in any act which results in reflection of prices of securities based on transactions that are not genuine trade transactions; (d) enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress, or cause fluctuations in the market price of securities. (e) pay, offer or agree to pay or offer, directly or indirectly, to any person any money or money's worth for inducing another person to purchase or sell any security with the sole object of inflating, depressing, or causing fluctuations in the market price of securities. 4.34 Undoubtedly, the trades executed by the Broker in the shares of the company created misleading appearance of trading in the securities market by execut....
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....sis of the material available on record it is difficult to conclude that the Broker had exercised the norms mentioned in the Code of Conduct as alleged. 4.38 In the facts and circumstances, it is established that the Broker had violated Clauses A(1) to (4) of the Code of Conduct as specified in Schedule II of the Broker Regulations. 4.39 SEBI circular dated September 14, 1999 stipulates that all negotiated deals shall be executed only on the screens of the exchanges in the price and order matching mechanism of the exchange just like any other normal trade. In the present case, as already observed, most of the trades executed by the Broker in the shares of the company were fictitious. Further, the said trades were found to be not genuine trades and executed only for the purpose of creating misleading appearance of trading, artificial volume/price in the shares of the company. This is not the one which was envisaged under the aforesaid SEBI circular. 4.40 The Broker had executed several trades which facilitated inter alia its clients to transact substantially in the shares of the company. As discussed above, the synchronized trades of the Broker for its client executed witho....
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....ases (shares) C) DSQ Holdings Ltd. Feriod (October 1999 - March 2001) Sales (shares) Net (shares) BSE 3629037 INSE 872360 5449037 7134560 -1820000 -6282200 CSE 1602900 161000 1441900 Total 6104297 12744597 -6640300 D) DSQ Industries Ltd. Period (October 1999 March 2001) Sales (shares) Net (shares) Exchange Furchases (shares) NSE 155200 500000 -344800 Document 2 A. Synchronised trades with Prabhudas Liladher Pvt. Ltd. Trade Trade Ime Qty: To Order No. order order order ClientTM Order No. order order order Client Seconds date time me 26- 11:42:4430000 AC 1999102611:42:40 3000 318.5 M & PL 19991026 11:42:44 30000 318.50 Power 0:00:04 Oct- flow 99 0279124 00 A 0279246 24- 10:10:3568500 AC 19991124 10:10:357000 425.0 M & PL 19991124 10:10:3270000425.00 DSQH0:00:03 Nov- 0048412 A 0048252 00 99 24- 10:11:11200 AC 19991124 10:11:117000 424.0M & PL 1999112410:10:3270000425.00 DSQH0:00:39 Nov- 99 ☠0050684 °° 0048252 24 10:11:1169300AC 19991124 10:11:117000 424.0M & PL 19991124 10:11:1070000424.00 D....
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....29:031945.00 20000 Hulda 126584 AM 00 21- 2000022110:29:24 1947.00 20000 10:29:26M Feb-0127958 AM &DKB A 200002210 10:29:26 1947.00 20000 Hulda 128055 AM 00 21- 20000221 10:30:01 1953.00 20000 10:30:01M Feb 0130212 AM &DKB A 00 21- 2000022110:48:321945.00 30000 10:48:34M Feb-0195220 AM &DKB A 00 28- 20000228 10:25:23 1802.00 30000 10:25:23M &DKB Feb-0097911 AM A 00 28- 20000228 10:37:571785.00 25000 10:37:57M Feb 0139221 AM &DKB A 00 28- 20000228 10:38:161785.00 25000 10:38:16M Feb 0140166 AM &DKB A 00 28- 20000228 10:38:421783.00 20000 10:38:44|M Feb-0141487 AM & DKB A 00 07- 20000307|10:22:452258.00 25000 10:22:46M Mar 0101272 AM &DKB A 00 07- 20000307|10:23:09 2262.00 25000 10:23:14M &DKB Mar-0102950 AM A 00 07- 20000307|10:23:50 2267.00 25000 10:23:51M &DKB Mar-0105824 AM A 105928 AM 00 07- 2000030710:24:23 2268.00 25000 10:24:23M &DKB Mar-0108270 AM A 20000221010:30:011953.00 20000 Hulda 130221 AM 200002210 10:48:341945.00 30000 Hulda 195354 AM 200002280 10:25:201802.00 30000 DSQ H 097....
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.... Jun 0162730 AM A 200003130 12:40:502367.4025000 Hulda 355191 PM 200003130 12:40:502367.4025000 Hulda 355191 PM 200003130 12:40:502367.40 25000 Hulda 355191 PM 200003130 12:41:112367.4025000 Hulda 355688 PM 2000041809:59:37 1457.00 20000 DSQ H 024035 AM 200004180 10:00:111453.00 20000 DSQ H 026829 AM 20000418010:01:061457.00 25000 DSQ H 031234 AM 20000516010:07:42613.50 25000 DSQ H 057220 AM 20000516010:09:10604.50 25000 DSQ H 063444 AM 20000516010:09:36603.50 25000 DSQ H 065126 AM 20000516010:10:04603.50 20000 DSQ H 066880 AM 20000516010:10:04603.50 20000 DSQ H 066880 AM 200005290 10:21:05562.00 25000 DSQ H 104795 AM |200006010|10:01:52723.50 25000 DSQ H 034448 AM 200006050 10:33:49 973.00 25000 DSQ H 144960 AM 200006050 10:34:37977.00 25000 DSQ H 148274 AM 200006050|10:35:13977.00 25000 DSQ H 150743 AM 200006050 10:35:46 977.00 25000 DSQ H 153000 AM 200006050 10:38:25966.00 25000 DSQ H 162704 AM 00 05- 20000605 10:39:01964.00 25000 10:39:01M &DKB Jun 0164823 AM A 200006050 10:39:00 964.00 25000 DSQ H 164798 AM 00 05- 20000605 10:....
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....KB Jul-0077430 AM A 00 10- 2000071010:10:56 1028.50 25000 10:10:57M &DKB Jul-0078944 AM A 079038 00 10- 20000710 10:11:15 1028.75 25000 10:11:15 M & DKB Jul-0080311 AM A 00 10- 20000710 10:11:35 1027.00 25000 10:11:35 M & DKB Jul- 0081683 AM A 081694 00 10- 20000710 10:11:50 1027.00 25000 10:11:51M & DKB Jul-0082794 AM A 00 10- 20000710 10:12:08 1027.50 25000 10:12:10M & DKB Jul-0084081 AM A 00 10- 2000071010:12:281028.50 25000 10:12:28M &DKB Jul-0085502 AM A 085554 00 26- 20000726 10:30:37670.50 30000 10:30:37 Self DKB Jul 0193246 AM >3 >3 20000710010:10:38 1029.00 25000 DSQ H AM 077533 20000710010:10:571028.50 25000 DSQ H AM 20000710010:11:151028.75 25000 DSQ H 080266 AM 20000710010:11:35 1027.00 25000 DSQ H AM 20000710010:11:511027.00 25000 DSQ H 082843 AM 20000710010:12:101027.50 25000 Hulda 084173 AM 20000710010:12:28 1028.5025000 Hulda AM 20000726010:30:37670.50 30000 Hulda 193251 AM Document 6 مم 26- 20000726 10:31:05670.50 15000 10:31:05 Self DKB Jul 0195187 AM 00 18- 00 Oct-0335234 AM 2000101....