Decided on July 27,2010



N.K.Sodhi, Presiding Officer (Oral) - (1.) THIS order will dispose of a group of five Appeals no. 99, 100, 103 to 105 of 2010 which involve identical questions of law and fact. The appellants are closely related persons/entities who traded in the scrip of Malvica Engineering Limited (for short the company) during the period from June 2003 to November 2003 on the Bombay Stock Exchange Limited. Since the main arguments were addressed in Appeal no. 99 of 2010, the facts are being taken from this case.
(2.) THE Securities and Exchange Board of India (for short the Board) carried out investigations in the trading in the shares of the company. The role of the brokers, sub -brokers and the clients who traded in the scrip was looked into. Investigations revealed that some clients in collusion with the brokers and the sub -brokers executed circular, fictitious and reverse trades in the scrip of the company which increased volumes and raised the price of the scrip. The Board also noticed that after the manipulative trades had stopped, there was fall in the price of the scrip. On completion of the investigations, the Board decided to initiate adjudication proceedings against several clients and brokers/sub -brokers including the appellants. It is alleged that the appellants while trading in the scrip of the company had violated Regulation 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (since repealed) and the corresponding Regulation 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter called the Regulations). Each of the appellants was served with a show cause notice making the aforesaid allegations and the details of the trades executed by them had also been furnished in the form of charts that were attached as annexures to the show cause notice. The appellants filed their replies denying all the allegations. On a consideration of the material that was collected during the course of the investigations and the enquiry conducted by the adjudicating officer, he came to the conclusion that the charges levelled against the appellants stood established and by his separate orders imposed monetary penalty of varying amounts on each of them. These orders are now under challenge in these appeals.
(3.) AS found by the adjudicating officer and not disputed by the counsel for the parties, the nature of the trades executed by each of the appellants was similar. By way of sample, we may examine the trades executed by Shagufta Investment Pvt. Ltd. (Shagufta) which is one of the investors which traded in the scrip of the company. On July 9, 2003 Shagufta purchased 2690 shares through M/s. Khambatta Securities Limited as its broker. In this transaction the seller is also Shagufta through the same broker. In other words, in this particular trade, the buyer and the seller was the same and it acted through the same broker. The trade on the face of it is fictitious and was meant to create volumes in the market. No one can buy from or sell shares to himself. Not only this, Shagufta has been buying and selling shares of the company from Manoj H. Mehta and there are several trades executed in the month of July 2003 wherein Shagufta was the buyer and Manoj H. Mehta the seller. Having executed these trades, Shagufta on the same day sells the shares and Manoj H. Mehta is the buyer. These trades were again fictitious as there was no change/transfer of beneficial ownership in the traded shares. Such trades are also executed by those who seek to manipulate the scrip with a view to increase volumes to lure the lay investors in the securities market. Such being the nature of the trades executed by the appellants, we are satisfied that the adjudicating officer was right in holding that the appellants traded fraudulently and violated Regulation 4 of the Regulations. In this view of the matter, no fault can be found with the impugned orders. In the result, the appeals fail and they stand dismissed with no order as to costs.;

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