SUBHKAM SECURITIES PVT LTD Vs. CHAIRMAN SECURITIES & EXCHANGE BOARD OF INDIA
SECURITIES APPELLATE TRIBUNAL
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(1.) MARKET witnessed abnormal price and volume movement in the shares of Amara Raja Batteries Ltd (ARBL) traded on Bombay Stock exchange (BSE)and National Stock Exchange (NSE), in February - March, 2001. The Respondent received complaints alleging market manipulation/ irregularities in the trading of ARBL's shares. In that context the Respondent ordered investigation to ascertain the role played by various persons/intermediaries, and violations, if any, of the regulatory provisions by them. The investigation is stated to have revealed that Shri Harinarayan Bajaj and his son Shri Rahul Bajaj were the dominant traders in the ARBL's shares during the period August 2000 to March 2001, that some of the members of BSE and NSE had aided and abetted Shri Harinarayan Bajaj in creating a false market in ARBL's scripts and also that they had failed to exercise due care and skill in their dealings. The Appellant was one of the members whose involvement in the matter was subjected to investigation. In the light of the information collected during the course of investigation, the Respondent decided to conduct a detailed enquiry into the role and conduct of the Appellant in trading in the scrip. Accordingly an enquiry officer was appointed on 18.6.2001 to enquire into the affairs of the Appellant in its dealings in the scrip of ARBL and the possible violations of the rules, bye laws and regulations of BSE, provisions of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities MARKET) Regulations, 1995 (the FUTP Regulations) and the Securities and Exchange Board of India (Stock-brokers and Sub-brokers) Regulations, 1992 (the Stock Broker Regulations). The enquiry officer on concluding the enquiry came to the conclusion that the Appellant had failed to exercise due care and skill in its dealings with Shri Bajaj as required by clause A(2) of the code of conduct prescribed for the stock-brokers in the Stock Broker Regulations. He recommended seven days'suspension of the certificate of registration granted to the Appellant. The Respondent communicated the findings of the enquiry officer to the Appellant and asked to show cause as to why the penalty as recommended by the enquiry officer should not be imposed against it. The Appellant responded to the same by filing written explanation and making oral submissions before the Chairman of the Respondent.(the Chairman) The Chairman adjudicated the show cause notice. Vide his order dated 8.8.2002 the certificate of registration granted to the Appellant was suspended for a period of seven days from 26.8. 2002.
(2.) Claiming to be aggrieved by the said order, the Appellant has preferred the present appeal praying to set aside the order and also to stay the operation of the order pending disposal of the appeal. The prayer for stay of the order pending disposal of the appeal was allowed after hearing counsel for the parties.
Shri J. J. Bhatt, learned Senior Counsel appearing for the Appellant briefly stated the facts leading to the filing of the present appeal. He submitted that the Appellant is a corporate member of the Bombay Stock Exchange (BSE) Learned Senior Counsel submitted that the Respondent had levelled two charges against the Appellant, based on the investigation stated to have been carried out by it, that the first charge is that (a) the Appellant by virtue of its trading in the scrip of ARBL on behalf of Shri Harinarayan Bajaj failed to exercise due skill and care in its dealings (b) the Appellant was aware of the facts that Shri Harinarayan Bajaj is the father of a defaulter broker of BSE, and still he chose to trade for him. (c) the Appellant allowed Shri Bajaj to take position, beyond Shri Bajaj's financial capabilities, and therefore violated Regulation 7 of Schedule II of the Stock Broker Regulations. The second charge is that the Appellant aided and abetted Shri Harinarayan Bajaj and his family members in creating a false and misleading market in the scrip of ARBL and therefore, guilty of violating the provisions of regulation 4 of the FUTP Regulations. He submitted that the Respondent has completely exonerated the Respondent of the 2nd charge. He referred to the impugned order and submitted that there is a categorical finding by the enquiry officer that it was Shri Harinarayan Bajaj who created a false market in the scrip of ARBL, that the Respondent has accepted the finding by the enquiry officer that the Appellant was not a party to the market manipulation. He referred to the finding recorded by the enquiry officer that:
"SSPL (i.e. the Appellant) had done only one transaction for Mr. Harinarayan Bajaj which was carried forward for few settlements. There was no indication of price manipulation at the time SSPL executed the trade for Harinarayan Bajaj. SSPL or its directors have not traded in the scrip of ARBL. From the material available it is not possible to draw any inference that SSPL had the intention to artificially raise or depress the price. There is no proof that SSPL was aware of Mr. Bajaj's dealing with other brokers nor had the information that Mr. Bajaj was indulging in creating a false market in the scrip of ARBL. What SSPL did was a normal broking transaction as a broker. It had not derived any gain except brokerage. In view of this it can not be held that SSPL has aided and abetted Mr. Harinarayan Bajaj and his family in creating a false market in the scrip of ARBL. Therefore, I find that SSPL is not guilty of violating Regulation 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995."
(3.) LEARNED Senior Counsel submitted that having come to the conclusion that what the Appellant did was a normal broking transaction and having absolved the Appellant of any involvement in market manipulation, on trivial grounds, a very harsh penalty has been imposed on the Appellant.;
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