BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI

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1 BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Appeal No. 215 of 2009 Date of decision: Vijay Bhagwandas & Co. (Proprietor Mr. Vishal Shah) 112A, 1 st Floor, P.J. Towers, Dalal Street, Fort, Mumbai Appellant Versus Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G-Block, Bandra Kurla Complex, Mumbai Respondent None for the Appellant. Mr. Shiraz Rustomjee, Advocate with Ms. Daya Gupta, Advocate and Ms. Chloris John, Advocate for the Respondent. CORAM: Justice N.K. Sodhi, Presiding Officer Samar Ray, Member Per: Justice N.K. Sodhi, Presiding Officer (Oral) Same order as in Appeal no. 222 of 2009 decided on Sd/- Justice N.K.Sodhi Presiding Officer Sd/- Samar Ray Member Pmb Prepared & Compared By: Prerana

2 BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Appeal No. 222 of 2009 Date of decision: M/s. Sanchay Fincom Ltd. 14/A, Bhagwan Bhuvan, 31, Israil Mohalla, Masjid Bunder Road, Mumbai Appellant Versus Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G-Block, Bandra Kurla Complex, Mumbai Respondent Mr. Vinay Chauhan, Advocate for the Appellant. Mr. Shiraz Rustomjee, Advocate with Ms. Daya Gupta, Advocate and Ms. Chloris John, Advocate for the Respondent. CORAM: Justice N.K. Sodhi, Presiding Officer Samar Ray, Member Per: Justice N.K. Sodhi, Presiding Officer (Oral) This order will dispose of four Appeals no. 215, 220 and 222 of 2009 and 1 of 2010 all of which involve identical/ common questions of law and fact and these have been heard together. The appellants in all these cases are stock brokers registered with the Securities and Exchange Board of India (hereinafter called the Board). 2. On receipt of stock watch alert for the price and volumes in the scrip of Todays Writing Products Limited (for short the company), the Board carried out investigations into the dealings in the shares. Investigations revealed that a group of brokers and clients engaged in circular and premeditated synchronized trades in the scrip of the company and that most of the trades executed by the members of the group had been synchronized to the second thereby creating artificial volumes in the market. On receipt of the investigation report, the Board initiated adjudication proceedings against the appellants and some others who are said to have formed the group that executed circular and synchronized trades. Separate show cause notices were issued to the delinquents

3 2 and the primary charge levelled against them was that they had executed circular/ reversal trades among themselves while trading on the Bombay Stock Exchange (BSE) and National Stock Exchange of India Ltd. (NSE). It is also alleged that more than 75 per cent of the buy orders and more than 73 per cent of the sell orders executed by the members of the aforesaid group on the BSE had been synchronized to the minute. All the appellants other than the appellant in Appeal no. 215 of 2009, filed their replies denying the allegations made against them. Vishal Shah, the sole proprietor of Vijay Bhagwandas Shah and Co., the appellant in Appeal no. 215 of 2009 appeared in person during the course of the hearing and made his submissions. On a consideration of the material collected during the course of the investigations and the enquiry conducted by the adjudicating officer and taking note of the replies filed by the delinquents, the adjudicating officer came to the conclusion that the charge of executing circular/manipulative trades by the appellants and others as a group among themselves stood established and that being brokers, they had violated the code of conduct as well. Accordingly, by separate orders the adjudicating officer imposed different amounts of monetary penalty on the appellants depending upon the volumes of their manipulative trades. It is against these orders that the present appeals have been filed. 3. We have heard the learned counsel for the parties who have taken us through the record. As already observed, the primary charge levelled against the appellants is that they executed circular trades while trading in the scrip of the company. We are satisfied that they did. The details of their transactions as referred to in the impugned order are as under: Members Uttam Financial Services Ltd. (Clg. No. 779) Own Account/ Client No of Days Traded During the Period/ No of Days Done Circular Trading Buy Qty Being Part of Circular traded Qty Buy Qty as % to Market Volume Sell Qty Being Part of Circular traded Qty Sell Qty as % to Market Volume Own 23/ Sanchay Fincom Ltd. (Clg. No. 204) S.P.J.Stock Brokers (P)Ltd.(Clg. No.646) M/s. Harikishan Hiralal (Clg. No. 267) S196 (Sunil Purohit) 23/ Own 23/ (Victory Trading Corporation) 23/

4 3 Vijay Bhagwandas & Co. (Clg. No.77) Vijay Bhagwandas & Co. (Clg. No.77) Sub-broker Vijaykumar J. Thakkar (through VSE Stock Services Ltd. Clg. No. 253) Galaxy Broking Ltd. (Clg. No. 513) Southern Shares & Stocks Ltd. (Clg.no. 182) Own 12/ (Tejash D Ghelani) B668M01 (Mehul Shah) C007 (Chaitanya Raote) P203 (Chirag Pujara) 10/ / / / Total Market Volume on BSE during the Period In order to establish that the appellants executed circular trades and entered the buy and sell orders thereby synchronizing the trades to the second, it is necessary to refer, by way of a sample, to the trades executed by the appellants alongwith others on April 23, 2004 in the scrip of a company. The details are as under. CIRCULAR TRADING ON 23 rd APRIL, 2004 Date 4/23/2004 Trade Trade Diff in Buy Diff Bet Traded Seller Name Buyer Name No. Time order & Sell Buy Order quantity order Time & Sell Ord Rate :37:20 0:00: HARI :37:20 0:00: HARI :37:20 0:00: HARI :37:20 0:00: HARI :37:20 0:00: HARI :37:20 0:00: HARI :37:20 0:00: HARI :37:20 0:00: HARI :37:20 0:00: HARI :37:20 0:00: HARI :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY

5 :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :37:51 0:00: SANCHAY :38:20 0:00: SANCHAY VIJAY :38:20 0:00: SANCHAY VIJAY :38:20 0:00: SANCHAY VIJAY :38:20 0:00: SANCHAY VIJAY :38:20 0:00: SANCHAY VIJAY :38:20 0:00: SANCHAY VIJAY :38:20 0:00: SANCHAY VIJAY :38:20 0:00: SANCHAY VIJAY :38:20 0:00: SANCHAY VIJAY :38:20 0:00: SANCHAY VIJAY :38:59 0:00: VIJAY :38:59 0:00: VIJAY :38:59 0:00: VIJAY :38:59 0:00: VIJAY :38:59 0:00: VIJAY

6 :38:59 0:00: VIJAY :38:59 0:00: VIJAY :38:59 0:00: VIJAY :38:59 0:00: VIJAY :38:59 0:00: VIJAY :41:44 0:00: SANCHAY :41:44 0:00: SANCHAY :41:44 0:00: SANCHAY :41:44 0:00: SANCHAY :41:44 0:00: SANCHAY :41:44 0:00: SANCHAY :41:44 0:00: SANCHAY :41:44 0:00: SANCHAY :41:44 0:00: SANCHAY :41:44 0:00: SANCHAY :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI :42:17 0:00:01 0 SANCHAY HARI

7 6 The trades of the delinquents can be pictorially described as under: HARI Qty Time:13:37:20 Qty.: 5000 Time:13:42:17 STOCK BROKER LTD. Qty.:5000 Time:13:38:59 Qty.:5000 Time: 13:41:44 Qty: 5000 Time:13:37:51 VIJAY SANCHAY FINCOM PVT. LTD. Qty.: 5000 Time:13:38:20 A mere look at the pictorial chart would indicate that 5,000 shares of the company were sold by Hari Hiralal, one of the members of the group to Mansukh Stock Brokers who is one of the appellants before us. It will be seen that the shares are then transferred from one entity to the other and finally the same quantity of the shares go back to Hari Hiralal who started the chain. All these trades were executed within 5 minutes. There are several other trades similarly executed by the appellants and other delinquents who formed the group. The trades were not only circular but buy and sell orders had also been synchronized to the second as is clear from the charts reproduced above. The

8 7 traded quantity, time and price repeatedly matched which is evidence of the fact that the delinquents executed circular and synchronised trades. The aforesaid trades were not a solitary instance and there are several other trades depicting an identical pattern of trading between the appellants and others who formed the group. The adjudicating officer was, therefore, right in holding that the charge of circular and synchronized trades in a premeditated manner stood established. No fault can, thus, be found with the impugned orders. 4. In Appeal no. 215 of 2009, the appellant is Vijay Bhagwandas Shah and Company which is the sole proprietorship concern of Vishal Shah. Even though no one appears on his behalf, we have gone through his memorandum of appeal and find that he has raised an objection which needs to be dealt with. Vijay Bhagwanddas Shah and Company was the sole proprietorship concern of his father Vijay Bhagwandas Shah. On his death, Vishal Shah applied to the BSE for the transfer of the broking business in his name as a going concern alongwith the membership and the registration granted by the Board. In the normal course, Vishal Shah in order to carry on the broking business had to apply for a fresh membership of the Exchange and a fresh registration with the Board which would have meant paying exorbitant broker fee which is worked out on turnover basis. The old membership and the registration was allowed to be transferred in the name of Mr. Vishal Shah on a clear undertaking being given by him to the effect that he would be liable for all liabilities/obligations including monetary penalties for the period prior to the transfer. The objection now sought to be raised in the appeal is that monetary penalty has been levied on the appellant for the period when his father Vijay Bhagwandas Shah was carrying on the business and that the present appellant is not liable for the same. This plea cannot be accepted in view of the undertaking given by the appellant when he got the membership of BSE and the earlier registration transferred to his name. Having taken the advantage of the continuity of the old business, he cannot be allowed to approbate and reprobate and resile from the undertaking. The appellant is, therefore, liable for the violations that were committed even for the period prior to the transfer of the broking business in his name. 5. In Appeal no. 1 of 2010, we find that the adjudicating officer has imposed a monetary penalty of Rs. 6 lacs on the appellant while in the case of other appellants, the

9 8 penalty imposed varies from Rs. 2 lacs to Rs. 3 lacs. It is argued that the role played by the appellant in manipulating the scrip of the company is not different from the role played by the other delinquents and, therefore, the penalty imposed should not have been more than what is imposed on others. We have perused the impugned orders and, in the facts and circumstances of this case, we are inclined to agree with the learned counsel for the appellant that, by and large, the role of the appellant in this appeal cannot be said to be any different from that of the others though the volumes of trades executed by the appellant are somewhat higher. We, therefore, reduce the penalty in this case to Rs. 3 lacs. In the result, the appeals fail and the same are dismissed except that in Appeal no. 1 of 2010 the amount of penalty imposed on the appellant is reduced to Rs. 3 lacs. The impugned order in this appeal shall stand modified accordingly. There is no order as to costs in any of these appeals. Sd/- Justice N.K.Sodhi Presiding Officer Sd/- Samar Ray Member Pmb Prepared & Compared By: Pmb