KINGLET FINLEASE & SECURITIES LTD Vs. SECURITIES AND EXCHANGE BOARD OF INDIA
SECURITIES APPELLATE TRIBUNAL
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(1.) THE present appeal is directed against the Respondent's order dated 22-8-2002. By the said order, the registration certificate granted to the Appellant to act as a stockbroker on the National Stock Exchange of India Ltd., was suspended for a period of one year with effect from 6-9-2002. THE background in which the impugned order was issued has been detailed in the order itself. THE factual position has not been disputed in the appeal. THE factual position stated in the order is considered relevant for the purpose of deciding the appeal. THE text of the order extracted below provides the factual position and the reasons for the order:
"1. Investigations were conducted by SEBI into the alleged market manipulations in the scrip of Kamal Overseas Ltd. (KOL). Investigations brought out that the shares of Kamal Overseas Ltd., were listed for trading on NSE w.e.f. 9th October, 1996. THE trading activity in the scrip was very thin and sporadic, so much so that, only 1200 shares of the company were traded between 9th October, 1996 and 15th April, 1997. Trades took place only on 6 days during this period and the share price moved in a narrow range of Rs. 75 to Rs. 81. It was observed that suddenly from 22nd April, 1997 onwards (which was the last day of St.No. 16/1997), trading activity picked up in the scrip and a volume of 10,200 shares were recorded and the price of the scrip moved upto Rs. 82. THE next two settlements viz. No. 17/1998 (23-29 April, 1997) and No. 18/1997 (30th April - 6th May, 1997) saw feverish trading activity in the scrip with a trading volume of 7,53,600 shares and 11,97,100 shares respectively."
(2.) It was seen during the course of investigations that there was only one net buyer namely, Kinglet Finlease & Securities Ltd., and there was only a handful of net sellers. Investigations brought out that Rahil Investments & Finance Ltd. (Rahil) was the client on whose behalf Kinglet had purchased these shares of KOL. Since Rahil failed to pay for its purchase obligations, Kinglet failed to honour its commitment to the exchange. Investigations conducted by NSE revealed that these trades were not genuine trades and, therefore, ordered annulment of these trades in accordance with their bye-laws. The matter was sent to SEBI for further investigations,
Investigations of SEBI brought that the trading in the scrip of KOL in St. 17 and 18 of 1997 were collusive. The buying and selling entities put trades with prior understanding in terms of quantity, rate and time of putting the buy and sell order which ensured that the orders matched and resulted in trade. The shares sold by one set of entities were picked up by a specific set of other entities only which means that the trades were circular in nature. It appeared that the trading was with an intent to defraud the Clearing Corporation of NSE.
(3.) IN Settlement No. 17/1997, Kinglet had bought 5,69,000 shares and sold 2,800 shares. Thus their net obligation was 5,66,200 shares receivable which constituted 10096 of the net receivable position. The above purchases were made at an average rate of Rs. 80/- per share. Hence in Settlement No. 17, Kinglet had a pay-in liability of approximately Rs. 425 lakhs. However, Kinglet failed to discharge its funds pay-in obligation in respect of Settlement No. 17.;
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