V.K.Chopra, - (1.) 1 Securities and Exchange Board of India (hereinafter referred to in short as "SEBI") conducted investigation into the market manipulation in the scrip of M/s Mazda Fabrics and Processors Ltd. (hereinafter referred to as "MFPL"). The trading details of various entities who traded in the scrip of MFPL were collected. The data and volumes contributed by these entities including M/s Active Finstock Pvt. Ltd. (hereinafter referred to as "Noticee"), a registered broker of the Bombay Stock Exchange Ltd. (BSE) with SEBI registration no. INB 010849331, were analyzed. 1.2 The investigations revealed that the Noticee had actively traded in the scrip of MFPL at BSE on behalf of their major clients M/s Chirag Investments (hereinafter referred to as 'Chirag') and M/s Khandwala Finstock during the period of investigations i.e. May 29, 1996 to August 30, 1996 and contributed to the creation of liquidity/volumes in the scrip of MFPL. 1.3 After considering the Investigation Report, SEBI appointed an Enquiry Officer to enquire into the affairs and dealings of the Noticee for finding out the possible violations of the provisions of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as "SEBI Act"), 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") and Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as "Stock Brokers Regulations"). 1.4 The Enquiry Officer, after conducting an enquiry in accordance with the provisions of Securities and Exchange Board of India (Procedure for holding Enquiry by Enquiry Officer and imposing penalty) Regulations, 2002 (hereinafter referred to as 'the Enquiry Regulations'), submitted a report dated January 04, 2006. The report revealed that Noticee has violated the provisions of Regulation 7 read with Code of Conduct as specified in Schedule II of Stock Brokers Regulations and Regulation 4(a) to (e) of PFUTP Regulations. The Enquiry Officer recommended suspension of registration of the Noticee for a period of one month. 2 SHOW CAUSE NOTICE
(2.) 1 Pursuant to the receipt of the Enquiry Report, a Show Cause Notice dated January 25, 2006 enclosing therewith a copy of report was issued to the Noticee advising it to show cause as to why action as recommended by the Enquiry Officer or penalty as considered appropriate should not be imposed on it. The Noticee submitted its reply to the said show cause notice, vide letter dated April 04, 2006. Reply OF THE NOTICEE 3.1 The Noticee did not accept or admit anything stated in the Notice and submitted as under: 3.1.1 That they had no connection or nexus either with the company, MFPL or its promoters. 3.1.2 That they had traded on behalf of Chirag in ordinary course of business and the said trades were executed between the price band of Rs 14/- to Rs 42/- which constituted mere 2.4% and 2% of the buy and sell volume respectively during May 29, 1996 and August 30, 1996. They have also stated that they had no links or nexus with brokers viz. Bhagwadas Bhogilal, Saurashtra Capital and S V Shah etc. who had traded in the scrip at the relevant time. Regarding the trading carried out by them on behalf of Khandwala Finstock, they submitted that the said fact was not there in the show cause notice issued prior to the enquiry proceedings and as such Enquiry Officer should not find anything beyond the show cause notice. However, they stated that the trades executed on behalf of Khandwala Finstock were in their ordinary course of business. 3.1.3 That they knew Shri. Ashok Bharadia only in his capacity as a Director of Wallfort Financial Services Ltd(hereinafter referred to as "WFSL") and they are not aware whether he was a Director of Clio Finance Ltd (hereinafter referred to as "CFL"). 3.1.4 That the Enquiry Officer has misinterpreted their statement regarding their awareness of WFSL. 3.1.5 That they had no relationship with Chirag except that of a broker client relationship and Chirag was one of the thousand clients they had at the relevant time. 3.1.6 That they were not aware that WFSL was involved in managing the public issue of MFPL or in bringing out application to bail out the issue or in financing the issue. They added that they were also not aware that Shri. Anil Jain was placing orders in the scrip of MFPL and that he was choosing the brokers. 3.1.7 That Chirag was their client from June 19, 1996 to August 21, 1996. They agreed that an amount of Rs 9,700/- was due as on August 16, 1996 and this amount was passed on to WFSL by a journal voucher. 3.1.8 That there is no supporting material to demonstrate that Chirag had opened a trading account with us at the behest of Shri. Anil Jain and it was Shri. Anil Jain who was placing orders with them instead of Chirag. The Noticee further stated that they had traded for Chirag strictly in consonance with its instructions. They used to receive oral instructions from Chirag for the placement of orders and all payments and dealings were made from/to the account of Chirag as per its instructions. 3.1.9 That the volume of trades in the scrip of MFPL was insignificant and they have not violated any of the provisions of PFUTP Regulations or Code of Conduct specified under the Stock Brokers Regulation. 3.1.10 That at the relevant time they were not aware of any role of WFSL in the bailing out of the public issue.
(3.) HEARING 4.1 While submitting reply to show cause notice, the Noticee requested for personal hearing. The Noticee was accordingly advised to attend a personal hearing before me at the Head Office of SEBI at Mumbai on December 8, 2006. Shri. V. Kandwala, Director, Active Finstock Pvt. Ltd., attended the hearing alongwith his advocates Shri. P.N. Modi and Shri. R.R. Bhansal. They requested time to file written submissions which was granted and the same was filed by them on December 19, 2006. In the written statement they by and large reiterated the same submission which they had already made in their reply to the show cause notice. I have considered their reply and written submission while dealing with this matter.;