K.M.Abraham, - (1.) IN the wake of unusual price movement noticed in the shares of various companies (with low market capitalization) including Amluckie INvestment Company Limited (hereinafter referred to as the company) listed on Calcutta Stock Exchange Association Limited (hereinafter referred to as CSE), Securities and Exchange Board of INdia (hereinafter referred to as SEBI) inter alia conducted a preliminary analysis of trading data in respect of buying, selling, dealing in the shares of the company, for the period April 01, 2005 to August 23, 2005 (hereinafter referred to as the relevant period). It was inter alia observed that the average share price of the company increased from Rs. 95/- to Rs. 298.50/- (an increase of 214%) during the relevant period. SEBI observed that various stock brokers prima facie violated the provisions of Securities and Exchange Board of INdia (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as the PFUTP Regulations) and the provisions of Securities and Exchange Board of INdia (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as the Broker Regulations), while dealing in the shares of the company. IN the facts and circumstances, in order to protect the interest of investors and also the integrity of the securities market, SEBI, vide an ad- interim ex-parte order dated September 29, 2005 inter alia directed various entities/stock brokers including M/s M. Bhiwaniwala & Co., not to buy, sell or deal in securities, in any manner, either directly or indirectly, till further directions. The said order was confirmed (as against the stock brokers), by SEBI, vide order dated January 12, 2006, as stated therein, after affording an opportunity of hearing.
(2.) The investigation conducted by SEBI revealed that certain stock brokers executed matched trades in the shares of the company among themselves. The investigation conducted by SEBI had identified three stock brokers, namely, M/s Shyam Lal Sultania, M/s M. Bhiwaniwala & Co. and M/s. Ashok Kumar Kayan based on their pattern of trading and the volumes contributed by them in the shares of the company during the investigation period. The major findings of the investigation were that most of their (above mentioned stock brokers) trades were client to client which have been executed on a single terminal of the same stock broker. These stock brokers were alleged to have allowed their clients to simultaneously place both buy and sell orders for the same quantity and price, which consequently, led to the price rise and manipulation in the shares of the company. Instances of matching trades between the said stock brokers among themselves have also been noticed. On the basis of the material collected during the investigations, it was inter alia alleged that the trade practices of M/s. M. Bhiwaniwala & Co. (hereinafter referred to as the Broker), while dealing in the shares of the company were unfair and fraudulent. The Broker was therefore alleged to have contravened the provisions of Regulations 4(2)(a), 4(2)(e) and 4(2)(o) of PFUTP Regulations and Clauses A(1) to A(4) and Clause B(4)(a) of the Code of Conduct specified in Schedule II of the Broker Regulations. Thereafter, SEBI, vide order dated April 21, 2007 read with a subsequent order dated December 10, 2008 appointed an Enquiry Officer under the provisions of the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as Enquiry Regulations) to enquire into the alleged violations committed by the Broker. Since, the Enquiry Regulations was repealed with effect from the notification of Securities and Exchange Board of India (Intermediaries) Regulations, 2008, the Designated Authority (hereinafter referred to as the Enquiry Officer) submitted his report dated May 12, 2009 under the provisions of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 and recommended to suspend the certificate of registration of the Broker for a period of two months. The Enquiry Officer further recommended that the period of prohibition already undergone by the Broker in terms of SEBI orders dated September 29, 2005 and January 12, 2006 might be taken into account for the purpose of computing the recommended penalty.
(3.) SUBSEQUENTLY, a notice dated May 21, 2009 was issued by SEBI to the Broker advising it to show cause as to why the penalty as recommended by the Enquiry Officer should not be imposed against it. The Broker was advised to reply to the show cause notice within twenty one days of the receipt thereof. The Broker was also advised to inform whether it would like to avail the opportunity of hearing. A copy of the Enquiry Report was also forwarded to the Broker along with the said notice. The Broker vide letter dated May 22, 2009 inter alia stated I dont have any objection against above order of enquiry officer, so please adjust the above recommended suspension from already suspension of three years.;