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2006 (7) TMI 701 - AT - Companies LawBuying and selling securities in the derivatives segment - manipulation and synchronization in trading of shares - violation of transparent norms of trading in securities - HELD THAT:- A perusal of the chart would show that on 13/12/2000 one KP entity is buying the shares of DSQ Bio and another entity is selling at the same time and at the same rate and therefore the trades had to match on the screen of the exchange. In some cases the buyer and the seller is the same entity. The aforesaid chart clearly illustrates how circular trading was carried on by the KP entities in a synchronised manner through DKB as a broker. This is only one instance but not the solitary one. Large number of fictitious trades were executed in this manner in the scrips of different companies whereby artificial volumes were created by Ketan Parekh. The Board has in the impugned order referred to quite a few of the transactions executed by these entities and we are in agreement with those findings that these were synchronised trades executed in a circular manner to create artificial volumes. We are not dealing with each and every transaction executed by the appellants only with a view to avoid making this order bulky. It is relevant to mention here that the modus operandi adopted by KP entities in dealing with CSFB and DKB as brokers was similar and circular and fictitious trades were executed to create artificial volumes and market in the scrips. Ketan Parekh also received finance against delivery of shares without waiting for pay out at the exchange and the transactions were given the semblance of sale and purchase of shares. We have, therefore, no hesitation to hold that if Ketan Parekh and his entities are allowed to continue with their operations they would pose a serious threat to the integrity of the securities market and endanger the interests of the investors. Since this right was denied to the appellants the learned senior counsel contends that the principles of natural justice were flagrantly violated and that the order deserves to be set aside on this ground alone. We do not think so. In the two show cause notices issued to Shri Ketan Parekh and his entities, it was clearly pointed out to them that Shri Ketan Parekh was not only associated with the companies but was also controlling them. At no stage of the proceedings before the Board did Ketan Parekh or any of the companies rebutted this allegation. As a matter of fact, when Ketan Parekh appeared before the Board during the course of investigations he admitted that he was connected with the companies in one way or the other. It is on record that in his reply filed to the first show cause notice he did not dispute this fact. He and the companies did not file any reply to the second show cause notice. At the time of final hearing before the Board all the companies were represented by Shri Ketan Parekh and that the proceedings were being adjourned from time to time when Ketan Parekh was in judicial custody of the Calcutta Police. We also have on record identical letters from the companies requesting for an adjournment on account of non-availability of Ketan Parekh who alone, according to them, was in the know of facts. The written submissions filed by all the companies had also been signed by Shri Ketan Parekh. At no stage of the proceedings did any of the companies or Ketan Parekh make a request to the Board that it needed to cross-examine the representatives of the two brokers and, in our view, rightly, because they knew that it was Ketan Parekh who was controlling them. It appears that the plea that the appellants should have been allowed to cross-examine the representatives of the brokers had been raised for the first time by their counsel at the time of final hearing before the Board which, in any case, was not the stage to raise such a plea. It was at that stage that the appellants pleaded for the first time through their counsel that Ketan Parekh was only a director on the board of the companies and that he was not looking after their day to day business and that he was distinct from those entities. In such a situation we are of the view that the Board was justified in not allowing the representatives of the brokers to be cross-examined when it was never the case of any of the appellants including Ketan Parekh himself that he was not controlling the companies. We have, therefore, no hesitation in rejecting the contention. In this view of the matter it is not necessary for us to discuss the case law cited by the learned senior counsel in this regard. Lastly, it was urged that the Board discriminated against the appellants in imposing a high dose of penalty on them whereas lesser penalty was imposed on the two brokers who had played an equally dubious role, if not more, in the execution of the transactions which have been found to be illegal and manipulative in nature. The argument is that CSFB and DKB had both played an equal role in the execution of the transactions which have been dubbed as illegal and their certificates of registration had been suspended for a period of 18 months and two years respectively whereas the appellants have been debarred from accessing the securities market for a period of 14 years from the date of the order. The learned senior counsel referred to the orders passed by the Board in the case of CSFB and DKB in support of his contention. Having heard the learned Counsel for the parties on the quantum of penalty we are of the view that the Board was not justified in letting off the two brokers lightly by imposing on them a penalty which was clearly disproportionate to the gravity of the charges proved against them. They should have been given a heavier dose considering the fact that their role in the execution of the transactions was no less than those of the appellants. The Board had committed an error in this regard but that matter is not in appeal before us. This, however, will not justify the appellants to contend that the Board should have committed a similar mistake in their case as well and awarded them a lesser punishment. As noticed earlier the appellants have rigged the market in a big way and the penalty imposed on them in our view is quite reasonable having regard to the gravity of the charges proved. Thus, we find no ground to reduce the period of debarment. In view of our findings recorded on the second show cause notice upholding the findings of the Board we find no merit in the appeals which stand dismissed with no order as to costs.
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