Decided on August 05,2010



N.K.Sodhi, Presiding Officer (Oral) - (1.) THE appellant before us is a stock broker of the Madhya Pradesh Stock Exchange and registered with the Securities and Exchange Board of India (for short the Board). It is a sub -broker of the Madhya Pradesh Stock Exchange Securities Limited which is a subsidiary of the Madhya Pradesh Stock Exchange and a member of the Bombay Stock Exchange Limited (BSE). The appellant traded in the scrip of Kwality Dairy (India) Limited (for short the company) which is listed on the BSE on behalf of its client, Abhishek Khare. The trades were executed on BSE through Madhya Pradesh Stock Exchange Securities Limited during the period from April 23, 2003 to June 6, 2003 and it transpired that the appellant along with its counterparty broker namely, Sanjay Biyani traded in the scrip and executed most of the trades that were on the BSE through Madhya Pradesh Stock Exchange Securities Limited. It further transpired that their trades constituted 25 per cent of the trading in the scrip of the company on the BSE. It may be mentioned that Sanjay Biyani, the counterparty broker of the appellant had traded in his proprietary account. Adjudication proceedings were initiated against the appellant along with others and a show cause notice dated October 5, 2005 came to be issued to the appellant alleging violation of Regulation 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 and also the code of conduct specified in Regulation 7 read with Schedule II to the Securities and Exchange Board of India (Stock Brokers and Sub -Brokers) Regulations, 1992. It was called upon to show cause why an inquiry be not held against it and penalty imposed. A similar notice had been issued to Sanjay Biyani whose name has been wrongly mentioned as Sunil Biyani at some places in the impugned order. The appellant did not file any reply despite several opportunities granted in this regard. It also did not avail of the opportunity of personal hearing granted by the adjudicating officer as a result of which, he proceeded to decide the case on the basis of the material that was collected during the course of the investigations and the inquiry conducted by him. On a consideration of the material on the record, the adjudicating officer came to the conclusion that the charges leveled against the appellant and Sanjay Biyani stood established and by his order dated September 14, 2006 imposed a monetary penalty of Rs.10 lacs on each of them. It is against this order that the appellant has filed the present appeal. Sanjay Biyani had filed Appeal no. 138 of 2006 which was dismissed by this Tribunal on October 15, 2007.
(2.) NO one has appeared on behalf of the appellant. A letter of request dated August 4, 2010 has been received from Dr. S.K. Jain, Practicing Company Secretary on behalf of the appellant stating that a member of his staff is suffering from malaria as a result of which he could not trace the case file in his office. This case has been on the daily board since August 2, 2010 along with the other connected matters which have been listed as a group. These are old cases which were being adjourned from time to time and then adjourned sine die to await the decision of the Supreme Court in one of the matters pending there. Since the matter in the Supreme Court has not been decided so far, we directed the Registry to list all the connected matters on August 2, 2010 and all the parties had sufficient notice of the same. Not only this, the cause -list appears on the website of the respondent Board. In these circumstances, the request for adjournment is declined. We do not normally accept requests on the basis of letters written by the parties or by their representatives and we have deprecated this practice on a few earlier occasions.
(3.) WE have heard the learned counsel for the respondent Board who has taken us through the record. A copy of the show cause notice that was issued to the appellant is on the record and a perusal thereof makes it clear that the primary allegation made against the appellant is that it executed circular and fictitious trades in the scrip of the company along with his counterparty broker Sanjay Biyani. We have on record the fact that the appellant acting as a broker for Abhishek Khare had sold 7,32,764 shares of the company to Sanjay Biyani who was trading in his proprietary account. These sales were made during the period from April 23, 2003 to June 6, 2003. Having sold these shares to Sanjay Biyani, the appellant then purchased an equal quantity of shares from him in his proprietary account during the same period. We have also perused the trade and order logs pertaining to the trades executed by the appellant. Copies of these had been furnished to the appellant along with the show cause notice to which it did not file any reply. It is clear that day after day the appellant and Sanjay Biyani kept on buying and selling shares between themselves and continued reversing the trades. They have traded on 32 days during the investigation period. The total trades executed on BSE by Madhya Pradesh Stock Exchange Securities Limited during the period of investigation were 4239 trades out of which 4116 trades had been executed by the appellant along with Sanjay Biyani. Having seen the frequency with which they were trading and reversing the trades, we have no doubt that the trades were being manipulated and that the buy and sell orders were put into the system at almost the same point of time with a difference of a second or two for the same quantity and at the same price. We have also no doubt that such matching orders could not result into trades without the knowledge and connivance of the appellant as a stock broker. Their pattern of trading leaves no room for doubt that they executed synchronized trades with a manipulative intent and created artificial volumes by executing fictitious trades. There was no change of beneficial ownership in the traded shares. In this view of the matter, no fault can be found with the findings recorded by the adjudicating officer. We have perused the grounds of appeal filed by the appellant. One of the pleas taken therein is that the appellant traded only on behalf of its client, Abhishek Khare and that no trade was executed in its proprietary account. It is further pleaded that the client was a jobber who was squaring off his trades at the end of the day like any other day trader. The insinuation is that the appellant did not violate Regulation 4 of the Regulations. We cannot accept this plea. May be the client was a day trader and was squaring off all the trades at the end of the day but that does not entitle either the client or the broker to enter into reverse trades by putting in the buy and sell orders at the same point of time for the same quantity and at the same price. With the kind of trading system that we have which maintains anonymity of the trading parties, such large number of trades cannot match between the two parties during the short period unless they actively connive to match the trades and abuse the trading system. Moreover, day traders may square off their trades but the counterparty cannot be the same all the time or in such large number of trades.;

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