TMI Blog2015 (8) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, Jog Singh and A.S. Lamba, JJ. For The Appellant : Mr. V.M. Singh, Advocate For The Respondent : Mr. Kumar Desai, Advocate with Mr. Mihir Mody, Advocate Per : A.S. Lamba 1. The present appeal has been filed by JHP Securities Pvt. Ltd. ( JHP or Appellant for short) against Securities and Exchange Board of India ( SEBI or Respondent for short), for imposing penalty of ₹ 6,00,000/- under Section 15HA of Securities and Exchange Board of India Act, 1992 (SEBI Act for short) for violation of Regulations 4(1), 4(2)(a), 4(2)(e) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations for short) and ₹ 2,00,000/- under Section 15HB of SEBI Act for violation of Clauses A(1) to A(5) of Code of Conduct for Stock Brokers under Securities and Exchange Board of India (Stock-Brokers and Sub-Brokers) Regulations, 1992 (Stock-Brokers Regulations for short). 2. A Show Cause Notice (SCN) was issued to Appellant by Respondent vide its letter dated May 31, 2010; wherein findings of investigation, considered relevant for purpose of proceedings, and allegati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant has maintained highest standards of integrity and had always exercised due skill, care and diligence in its functioning. 5. From allegations, submissions of Appellant and material on record, it has been observed by Ld. AO that:- Appellant traded on behalf of its clients, namely, Prem Parekh, Mala Hemanth Seth, Kishore Chauhan, Hemanth Seth, Bhavesh P Pabari and Ankit Sanchaniya and purchased 71,62,146 shares of GIL (constituting 28.5% of total market volume) and sold 68,40,013 shares of GIL (constituting 26.78% of total market volume during IP). These six clients were related / connected with each other and with larger group, which included Devendra Vadhaiya who was terminal operator from which alleged synchronized, circular and reversal trades were executed. Therefore, Appellant, acting in collusion with its clients and others indulged in synchronized, circular and reversal trades, in order to manipulate price and volume of GIL scrip. 6. From other observations of Ld. AO from impugned order it is seen that six clients of Appellant, namely, Prem Parekh, Mala Hemanth Seth, Kishore Chauhan, Hemanth Seth, Bhavesh P Pabari and Ankit Sanchaniya are related and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in scrip of GIL, on behalf of its six clients during IP. It is not in dispute that these six clients of Appellant had acted in collusion amongst each other and with other entities of NG Group in synchronized / circular / reversal manner and thereby artificially increased volume / price of GIL scrip. Appellant has however stated that its relationship with its clients is that of client-broker and it is not connected / related with any of its clients or other NG Group clients and that matching of such transaction between GIL Group and NG Group and amongst NG Group entities, is merely a coincidence, as trading was done in stock exchanges anonymous trading system. 11. It is a matter of record that NG Group had purchased 1,15,49,999 shares in GIL scrip during IP in circular / reversal trades and also sold 1,15,49,999 shares in similar manner, which constituted majority (more than 50%) of total shares bought / sold during IP and Devendra Vadhaiya was part of such trading and it was Devendra Vadhaiya s terminal from where orders for buy/sell of six clients of Appellant originated. 12. Mr. V.M. Singh, Ld. Counsel for Appellant vehemently argued that it was Appellant s dealer, who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties as provided in the Rules, Bye-laws and Regulations of the Exchange then such member shall be liable therefor to the same penalty to the same extent as if such act or omission had been done or omitted by him personally. 18. From perusal of N Sridhar vs. Maruthi Jayaraman case and Rule 260 of BSE regarding Member s responsibility for Partners, Agents and Employee, it can be concluded that no employer can be held for tortious acts of its employees, unless the act of employee was wrongful and authorized by master, which is not the case in present appeal, but when a specific rule of BSE holds stock broker fully responsible for all acts / omissions of its employees, the same must prevail over general principle, enumerated by Hon ble High Court at Madras. Hence, Stock-Broker (JHP Securities) must be made liable for all acts of its employee Devendra Vadhaiya. This is all the more required since IP was almost 2 years (i.e. August 28, 2006 to August 21, 2008), and during this entire period of 2 years Devendra Vadhaiya executed trades for six clients of Appellant, which were reversal / circular / synchronized, yet Appellant failed to notice the acts of its employee. It is also admitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndulged in synchronized, circular and reversal trades for its clients for a long period of time and created misleading appearance of trading, artificial volumes and price in the shares of GIL, Appellant has been held violative of clauses A(1) to A(5) of Code of Conduct prescribed under provisions of Stock-Brokers Regulations read with regulation 7 of these Regulations and is liable for imposition of penalty under Section 15HB of SEBI Act. 21. In application of Section 15J of SEBI Act regarding factors for deciding quantum of penalty, Ld. AO has held that it is difficult to quantify disproportionate gains or unfair advantage enjoyed by an entity and consequent losses suffered by investors, since investigation report does not deal with this aspect, but keeping in view the practices indulged by Appellant, gains were made by Appellant due to manner of trading in scrip by creation of artificial volumes and liquidity and indulging in price manipulation by increasing LTP, while executing synchronized / reversal / circular trades and these kinds of trades, generate interest of gullible investors in the scrip, being so traded. These kinds of manipulative trades also affect normal price d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its six clients, in manipulation of volume and price of GIL scrip, but Appellant has tried to pass the entire blame of these manipulations in GIL scrip during IP on its employee, namely, Devendra Vadhaiya, who is also part of NG Group, and was also branch head of Appellant Andheri office and who executed all synchronized, circular, reversal trades, on behalf of six clients of Appellant, from his terminal. 24. To sum up, dispute in the present case is that, for the offences, if any, committed by an employee of the appellant-broker, whether SEBI is justified in penalising the appellant by imposing penalty of ₹ 6 lac under Section 15HA and ₹ 2 lac under Section 15HB of SEBI Act, 1992. Admittedly, Devendra Vadhaiya, was Andheri Branch in charge and terminal operator of the Appellant. In the ordinary course of business carried on from the said Andheri Branch of Appellant, Devendra Vadhaiya had executed trades on behalf of 6 clients of the Appellant which were found to be synchronised trades, circular trades and reversal trades. Admittedly, all the said 6 clients as also Devendra Vadhaiya have been found guilty of indulging in synchronised, circular and reversal trades ..... X X X X Extracts X X X X X X X X Extracts X X X X
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