SEBI Vs. HARSH PRANAV SECURITIES PVT LTD
LAWS(SB)-2003-8-10
SECURITIES APPELLATE TRIBUNAL
Decided on August 25,2003

Appellant
VERSUS
Respondents

JUDGEMENT

G.N.Bajpai, - (1.) 0 Background 1.1 On observing sudden spurt in the trading volumes in the scrip of M/s Zodiac Clothing Company Ltd. (Zodiac) National Stock Exchange (NSE) conducted investigations into the trading in the scrip from July 05, 2000 to August 22, 2000 and submitted it report to SEBI on January 10, 2001. It was observed in the NSE report that M/s. Vivenasri Financial Services Ltd. was the major net seller and M/s. Harsh Pranav Securities Pvt. Ltd. and M/s. Newfin Financial Services Pvt. Ltd. were major net buyers during the said period. It was also observed that these clients were associated with one another. 1.2 NSE conducted another investigations into the trading in the scrip of Zodiac for the period October 25, 2000 to February 27, 2001. In its report submitted to SEBI on April 30, 2002 , NSE observed that the three clients M/s. Vivenasri Financial Services Ltd. (VFSL), M/s. Newfin Financial Services Pvt. Ltd. (NFSPL) and M/s. Harsh Pranav Securities Pvt. Ltd. (HPSPL) were the major traders in the scrip during the said period and they have executed structured deals and cross deals within themselves.
(2.) 0 INVESTIGATION BY SEBI 2.1 In light of the findings of the aforesaid investigations conducted by NSE, Securities And Exchange Board of India (hereinafter referred to as the SEBI) conducted its own investigation into the affairs related to buying, selling and dealings in the shares of Zodiac for alleged market manipulation in the scrip during July 05, 2000 to February 27, 2001. Indings OF INVESTIGATION BY SEBI 3.1 During the period from July 05, 2000 to February 27, 2001 (hereinafter referred to as the "relevant period") the scrip Zodiac clocked a volume of 4,05,551 shares on BSE and 14,55,151 shares on NSE. 3.2 During the said period, the closing price of the scrip touched a low of Rs. 68.60 on August 04, 2000 and a high of Rs. 95.00 on September 12, 2000 on BSE whereas at NSE the scrip touched the lowest price of Rs. 67.40 on August 08, 2000 and a high of Rs. 96.15 on September 06, 2000. 3.3 On the basis of the trading details obtained from M/s Harsh Pranav Securities Pvt. Ltd., having its registered office at 419, Kubera Towers, Narayanguda, Hyderabad - 500029, it is observed that HPSPL has done trading in the scrip of Zodiac on NSE and BSE during the relevant period. The details of the trading done are as under : JUDGEMENT_459_TLSB0_20030.htm It was also noted that HPSPL had entered into following Off Market Deals with its group company namely VFSL : JUDGEMENT_459_TLSB0_20031.htm 3.5 From the above, it is observed that HPSPL bought 8,10,381 shares from the market and sold 6,92,025 shares in off market transactions to its another group company - VFSL. This indicates that HPSPL was a net buyer of 1,18,356 shares of Zodiac. 3.6 From the details gathered during the investigations, it was observed that HPSPL alongwith VFSL and NFSPL had common directors and are thus associate entities and therefore stated hereinabove as one group. 3.7 Following are the details of trading done by HPSPL, VFSL and NFSPL as a group : JUDGEMENT_459_TLSB0_20032.htm 3.8 From the price-volume data, it was noted that total market volume traded on NSE and BSE in Zodiac during the relevant period was 18,60,702 shares (4,05,551 shares on BSE and 14,55,151 shares on NSE). Out of this, HPSPL alongwith NFSPL and VFSL had purchased on BSE and NSE a total number of 17,96,093 shares which account for 96.53% of shares traded on BSE and NSE and sold 17,00,507 shares of the said scrip which account for 91.39% shares traded on BSE and NSE. As a matter of fact your group accounted for 93.96% of the gross turnover of NSE and BSE in Zodiac. 3.9 From the order log-trade log details in the scrip of Zodiac, it is observed that HPSPL had executed structured deals on NSE and BSE and cross deal on NSE where the counter party client was one of its group companies mentioned above. Some of the structured deals are given below : a) On July 12, 2000, VFSL sold 60000 shares of Zodiac on NSE, which was the total volume of the said shares on NSE on that date, through B R Khandahar Share & Stock Brokers P Ltd. (member NSE) out of which 59500 shares were purchased by HPSPL by way of 6 Structured deals @ Rs. 74.5 to 76.00 through Shailabhadra Securities Ltd (member NSE) as shown below. JUDGEMENT_459_TLSB0_20033.htm It may be mentioned here that 9216 was the client code of HPSPL and 19902 was the client code of VFSL. b) On October 25, 2000, 24050 shares of ZCCL were traded on NSE. Out of these, 23750 shares were traded by way of Structured deal. NFSPL your group company was a seller through Canara Securities Ltd. ( member NSE) while your company HPSPL was a buyer through Shalibhara Securities Ltd. The deals took place @ Rs. 73.40- Rs. 73.50 as shown below. JUDGEMENT_459_TLSB0_20034.htm 3.10 It was observed that aforesaid trades of HPSPL in Zodiac executed within its group companies viz. NFSPL and VFSL by way of structured deals and cross deal had hampered the true price discovery mechanism of the market price of the said scrip. 3.11 From the transactions details and demat details submitted by HPSPL and its other two group companies viz. VFSL and NFSPL it is observed that HPSPL along with its two group companies was also involved in circular trading in the scrip of Zodiac in the following manner : a) Circular Trading between HPSPL, VFSL and NFSPL during SN 48 of NSE. (i) During the settlement no 48 of NSE i.e. from November 23 to November 28, 2000, 59,443 shares of Zodiac were traded. Out of this, 49,006 shares were traded on November 23, 2000 and 10,300 shares on November 28, 2000. While on November 24, and November 27, 2000 only 12 and 125 shares were traded. NFSPL received 34930 shares from Shalibhadra Securities Ltd. (hereinafter referred to as SSL) on November 22, 200or the purchases done during the SN 46 of NSE. On November 23, 2000 NFSPL sold 34,900 shares to VFSL in off market transaction. In the demat statement of NFSPL, 34,900 shares of the said scrip are debited to HDFC Bank Ltd. for client Id 10466221 on November 23, 2000. This client Id 10466221 is of VFSL. In the demat statement of VFSL, VFSL received 34900 shares of the said scrip from HDFC Bank Ltd. for client Id 10464234 on November 23, 2000. This client Id 10464234 is of NFSPL. (ii) HPSPL received 7050 shares from SSL on November 22, 200or the purchases done during the SN 46 of NSE. On November 23, 2000 HPSPL sold 7,000 shares of the said scrip @ Rs. 78.00 to VFSL in off market transaction. In the demat statement of HPSPL on November 23, 2000, 7,000 shares of the said scrip are debited to HDFC Bank Ltd. for client Id 10466221. This client Id 10466221 is of VFSL. In the demat statement of VFSL, VFSL received 7,000 shares, of the said scrip, from HDFC Bank Ltd. from client Id 12482988 on November 23, 2000. This client Id 12482988 is of HPSPL. This suggests that VFSL received 41900 shares ( 3490rom NFSPL and 7000 shares from HPSPL ) in off market transaction on 23 November 2000. (iii) On November 23, 2000 VFSL sold 25,000 shares through Integrated Master Securities Ltd. (hereinafter referred to as IMSL) on NSE. On the same day i.e. on November 23, 2000 VFSL sold and purchased additional 15,000 shares of the said scrip through SSL. On the same day NFSPL purchased 8100 shares of the said scrip @ Rs. 78.72 through Sony Securities Ltd. on NSE. HPSPL had also purchased 17,000 shares of the said scrip @ Rs. 79.59 through SSL on NSE on the same day. (iv) From the demat statement of VFSL, it is observed that 25000 shares of ZCCL were debited on November 23, 200or SN 48 of NSE to IMSL. From the demat statement of NFSPL, it was observed that 8100 shares were credited by Sony Securities on December 18, 200or SN 48 of NSE and on December 20, 2000 NFSPL sold 8100 shares to VFSL (Client Id 10466221) in off market transaction. From the demat statement of HPSPL, it is observed that 8100 shares of the said scrip were credited by SSL on December 06, 200or SN 48 of NSE. Further, on December 07, 2000 HPSPL sold 17075 shares of the said scrip @ Rs. 78.00 to VFSL ( client Id 10466221) in off market transaction. (v) From the demat account of VFSL, it was observed that VFSL received 17,075 shares of Zodiac on December 07, 200rom HDFC Bank Ltd. from client Id. 12482988 (HPSPL) and another 8100 shares on December 20, 200rom HDFC Bank Ltd. from client Id. 10464234 ( NFSPL ). b) Circular Trading done by HPSPL and VFSL during SN 2000051 of NSE. (i) During the settlement no 51 of NSE (from December 13 to December 19, 2000), a total no. of 46,846 shares were traded at NSE. Out of this, 45,520 shares were traded on December 15, 2000. While 550, 425, 50 and 301 shares were traded on December 13, 14, 18 and 19, 2000 respectively. VFSL sold 45,000 shares on December 15, 2000 through Namah Capital Resources Ltd. (NCRL) @ Rs. 78.00 to Rs. 80.00. HPSPL purchased 44,975 shares on December 15, 2000 through SSL. HDFC Bank Ltd. is the custodian Participant for VFSL for the trading done through NCRL. i. From the demat statement of VFSL it is seen that 45,000 shares traded on December 15, 2000 in SN 51 were debited to HDFC Bank Ltd. on December 16, 2000. Also, in the demat account statement of HPSPL, 44,975 shares were received on December 27, 2000. On December 28, 2000 HPSPL sold 44900 shares @ Rs. 76.25 to VFSL in off market transaction. The same is reflected in demat statement of HPSPL and VFSL. ii. In the demat account of HPSPL, 44900 shares are debited to HDFC Bank Ltd. for VFSL ( client Id 10466221) on December 28, 2000 and the same shares are credited in VFSL's demat account by HDFC Bank Ltd. by HPSPL ( client Id account no 12482988 ) on the same day. All these trades as aforesaid, executed within the group companies of HPSPL resulted in circular trading and hampered the true price discovery mechanism of the market price. It was also observed that the aforesaid trades created artificial volumes in the scrip and that these trades were not intended to effect the transfer of beneficial ownership but intended to operate only as a device to cause fluctuations in the market thereby reflecting the prices of the scrip of Zodiac Clothing Company Ltd. which were based on not genuine trade transactions and hence created a false and misleading appearance of trading in the scrip by trading among HPSPL's group companies through different set of broke Rs. 3.12 HPSPL was thus found to be a party to the irregular trades as aforesaid which were not intended to effect the transfer of beneficial ownership but were intended to operate only as a device to cause fluctuations in the market. These trades were not genuine trade transactions and hence it was noted that HPSPL created a false and misleading appearance of trading in the scrip in violation of the provisions of Regulation 4 (a), (b), (c) and (d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations, 1995 (hereinafter referred to as the "said Regulations").
(3.) 0 SHOW CAUSE NOTICE 4.1 On the basis of the aforesaid finding of the Investigations conducted by SEBI, a detailed show cause notice dated April 28, 2003, was issued to M/s. Harsh Pranav Securities Pvt. Ltd. 4.2 Vide said show cause notice HPSPL was directed to show cause as to why appropriate direction under Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations, 1995 read with Section 11(4) and 11B of the Securities and Exchange Board of India Act, 1992, including restraining it from accessing the securities market and prohibiting it from buying, selling or dealing in the securities market in any manner whatsoever for a particular period should not be passed.;


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