V.K.Chopra, - (1.) BACKGROUND 1.1 Prabhu Steel Industries Ltd. (hereinafter referred to as "PSIL") was incorporated as a Private Limited Company on May 29, 1972 and got converted as a Public Limited Company w.e.f. August 17, 1981. It came out with a public issue in March 1982 and was listed on the Bombay Stock Exchange Ltd (BSE) and Calcutta Stock Exchange (CSE). 1.2 As per the distribution schedule of PSIL as on March 31, 2001, the public shareholding was just 5.79% and more than 94% shareholding was controlled by promoters, directors, relatives and their associated entities. Analysis of the financial results for the year 1999 to 2002 revealed that there had been no improvement in the performance of the company which is clear from the table hereunder: JUDGEMENT_1488_TLSB0_20070.htm 1.3 It was also observed that the price of PSIL scrip was Rs.34.50 on September 11, 2000 which rose to a high of Rs.82.50 on April 17.2001 i.e. a rise of 139% in just 7 months and there were no justifiable reasons in support of this price rise. 1.4 In view of the above, Securities and Exchange Board of India (hereinafter referred to as "SEBI") conducted investigations in the matter. Investigations inter alia revealed that the promoters, directors and associated entities of PSIL acting through Rajesh Shah Group and Sarita Choudhary had dealt in the scrip of PSIL in significant quantities with a view to create artificial market in the scrip. Investigations further revealed that the brokers of BSE viz. G R Pandya Sharebroking Ltd. (hereinafter referred to as "GRP") and Pawankumar Parmeshwarlal (hereinafter referred to as "Noticee") had transacted in PSIL scrip on behalf of their clients viz. Rajesh Shah Group and Smt. Sarita Choudhary respectively and manipulated the price and volumes in PSIL scrip. 1.5 After considering the Investigation Report, SEBI appointed an Enquiry Officer vide Order dated May 23, 2003 to enquire into the possible violations committed by the Noticee under the provisions of the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 (hereinafter referred to as "Stock Broker Regulations") and Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as "PFUTP Regulations") as also Securities and Exchange Board of India Act, 1992.
(2.) ENQUIRY PROCEEDINGS 2.1 The Enquiry Officer issued a show cause notice dated March 12, 2004 under Regulation 6 of SEBI (Procedure for holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to in short as "Enquiry Regulation") to the Noticee. The Noticee vide his letter dated April 08, 2004 acknowledged the receipt of the said show cause notice and made following submissions: 2.1.1 That the price of PSIL was as low as Rs.34.50 on September 11, 2000 and it rose to a high of Rs.82.50 on April 17, 2001 and his first sale of shares of PSIL was on March 27, 2001 and on this day the market price of the scrip was Rs.75.90. Adding further he stated that his last sale was on May 10, 2001 when the market price was Rs.76.50 and the total transactions of sale were of 23,000 shares of PSIL. 2.1.2 That there was no transactions done by him till the share price rose from Rs.34.50 to Rs. 75. 90 and his first transaction of sale was @ Rs. 75. 90. 2.1.3 That his last sale was at Rs.76.50 vide his bill no. 0007/02 dated May 10, 2001 and the price increased only by Rs.0.63 during the period from March 27, 2001 to May 19, 2001 when he transferred these shares. The volume of shares was 23,000 shares. He stated that therefore he was not a party to the price manipulation of shares from Rs.34.50 to Rs.82.50. 2.2 An opportunity of personal hearing was granted to the Noticee by the Enquiry Officer on May 10, 2004 and May 21, 2004. The Noticee attended the personal hearing on May 21, 2004 and inter alia made the following submissions: 2.2.1 The Noticee is a proprietary concern and not having any clients or even sub brokers. He was having only two BOLT terminals installed in his office and eight people in the family who traded through him can be considered as clients. 2.2.2 The transactions entered into by his clients are finance transactions and these transactions were undertaken by him to recover the amounts paid by Smt. Sarita Choudhary to GRP. 2.2.3 GRP was in financial crisis and had taken a 'spot loan' from Smt. Sarita Choudhary. 2.2.4 There was no relation whatsoever between GRP and Shri Pawankumar and Smt. Sarita Choudhary. 2.2.5 He traded only for one month and 14 days i.e. from March 27, 2001 to May 10, 2001 and the price of scrip was ranging approximately between Rs.75.90 and Rs.76.50 during this period of one month and 14 days. 2.2.6 The quantity of shares traded and the percentage to market given in the show cause notice was correct and he was also aware that these were counter party transactions. 2.2.7 He was not aware of the percentage of net and gross sale at the time of transactions. He further stated that the brokers are not aware of the fact as to what percentage his transactions constituted at the time of the transactions or even later. 2.2.8 Smt. Sarita Choudhary being wife of Pawankumar sits in the office and operates the terminal and his father guides her in taking decisions on such transactions. 2.2.9 He was not aware who was Rajesh Shah and that Smt. Sarita Choudhary advanced loan on keeping shares as security by cheque to GRP. 2.3 The Enquiry Officer, after conducting an enquiry in accordance with the provisions of Enquiry Regulations, submitted a report dated September 16, 2004 wherein he observed that the Noticee violated the provisions of Regulation 4 (a), (b), (c) & (d) of PFUTP and Regulation 7 read with Clause A(1) to (5) of Code of Conduct as specified in Schedule II of Stock Broker Regulations. He recommended suspension of registration of the Noticee for a period of six months. Show CAUSE NOTICE 3.1 Pursuant to the receipt of the said Enquiry Report, a Show Cause Notice dated September 20, 2004 was issued to Noticee, along with a copy of the said Enquiry Report, advising him to show cause as to why the action, as recommended by the Enquiry Officer, should not be imposed on him.
(3.) REPLY OF THE NOTICEE TO THE SHOW CAUSE NOTICE 4.1 The Noticee submitted his reply to the said show cause notice vide his letter dated October 04, 2004 wherein he stated as follows: 4.1.1 The spot badla financing was general practice of the market and was popular during the relevant period. The temporary financing was called spot financing and in such finances, there was no bad intention in the mind of financier. His clients were also doing this type of pure and simple spot financing as per such general practice. 4.1.2 GRP was in need of finance and Smt. Sarita Choudhary had provided Rs 26 lakhs on March 17, 2001. In the instant matter, her intention was only to recover her dues from GRP. 4.1.3 The Noticee or his client did not have any kind of interest in the PSIL scrip. 4.1.4 He or his client had never done any business with GRP or their client at any time except the transactions in PSIL scrip. 4.1.5 The PSIL shares given by GRP were only part of 32 items for recovery of the dues of Smt. Sarita Choudhary. 4.1.6 He did not pay any attention as to who picks up the trade and whoever buys in the market has to make his arrangements for pay-in etc on the schedule date. 4.1.7 He or his client had no relation with any clients of GRP. 4.1.8 GRP might be placing circular trades and he was just made channel without his knowledge. 4.1.9 GRP should have reported all these transactions as their off market / close deals. The reason for non reporting of such a transaction might be for taking some benefit or to save any margin etc. 4.1.10 His client is a close relative and this itself should not be treated as a ground to find that he had acted in concert with his client who is his wife. 4.1.11 He and his client had completely stopped the business of spot financing.;