TMI Blog2006 (6) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively) in manipulating the price of the shares of Snowcem India Limited (hereinafter called the company ). It was also held that the appellant had failed to exercise due skill and care in this regard and that it had failed to collect margins from its clients while trading on their behalf and thereby violated the circulars issued by the Board. The facts giving rise to this appeal lie in a narrow compass and these may first be stated. 3. National Stock Exchange conducted an internal investigation in the scrip of the company and submitted its report to the Board wherein it had found that there was major spurt in the total traded volume in the shares of the company during the period from January, 1999 to August, 1999. On receipt of this report the Board ordered detailed investigations into the dealings in the scrip of the company. These investigations revealed that KIL and Bora were two predominant traders in the scrip of the company during the period of investigations and that they traded through the appellant as a broker. The investigations further revealed that KIL was trading with the money received by it from the company which in turn was given to Bora to purchase the forfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh circulars dated November 18, 1993 to December 11, 1998. A detailed reply to the show cause notice was filed by the appellant denying the allegations. It emphatically denied the allegations that it had aided and abetted KIL and Bora in executing manipulative and fraudulent transactions. The stand taken by the appellant was that it acted as a broker for purchasing shares on behalf of these clients and that it was not aware whether the clients were indulging in circular or fictitious transactions. As regards the allegations regarding non-collection of margins, the appellant pleaded that while selling the scrips on behalf of its clients it had received in advance the securities to be sold with valid transfer documents and therefore it did not feel the necessity of collecting the margins. Reference was made to the circulars issued by the Board in this regard. 4. On a consideration of the reply filed by the appellant and the material collected by the enquiry officer the Board came to the conclusion that the appellant had entered into transactions for big quantities of shares for its clients and it was not possible for such quantities to match time and again on the screen of the exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5. Member brokers shall sell securities on behalf of client only on receipt of a minimum margin of 20 percent on the price of securities proposed to be sold, unless the member has received the securities to be sold with valid transfer documents to his satisfaction prior to such sale. Member may not, if they so desire, collect such a margin from Financial Institutions, Mutual Funds and FII's. Therefore, on December 11, 1998 the Board issued yet another circular dealing with margins and the relevant paragraph of this circular is reproduced hereunder for facility of reference: It shall be mandatory for member-brokers to collect margins from clients in all cases where the margin in respect of the client in the settlement, would work out to be more than ₹ 50,000/-. The margin so collected shall be kept separately in the client bank account and utilized for making payment to the clearing house for margin and settlement with respect to that client. 7. A conjoint reading of the aforesaid clauses of the two circulars would make it clear that brokers who buy securities on behalf of their clients should collect margin money of a minimum 20% of the price of the securiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant as a broker have been referred to in detail in the show cause notice dated October 3, 2003. The relevant chart relied upon by the Board is reproduced hereunder for facility of reference. Order date Order Time Order No. B/S TM Name Client Total Vol. Price Trade No. 19990701 10:02:40 199907010007920 S Kasat KIL 25000 52 5538 19990701 10:06:45 199907010020801 B Indraprastha KIL 25000 52 5538 19990701 10:08:58 199907010027353 S Kasat KIL 25000 52 9430 19990701 10:10:19 199907010031406 B Indraprastha KIL 25000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions it is clear that on 01/07/1999 a sell order was placed through the appellant at 10:02:40 hours. The name of the client is KIL on whose behalf the appellant had placed the order. Barely four minutes thereafter a buy order is also fed into the computer on behalf of the same client i.e., KIL through another broker Indraprastha. The buy and sell orders are for the same quantity and for the same price and they match. Similarly, in the other transactions though there is some time gap, the buyer and seller are KIL. It was strenuously urged by the learned Counsel for the appellant that these deals could not be termed as fictitious or synchronized because the buy and sell orders were not placed simultaneously. That may be so but if the share was illiquid as has been pointed out to us by the learned Counsel appearing for the Board then the sell order could well have matched after a gap of four minutes or even longer and the trade could still be described as synchronized or structured. Be that as it may, the buyer and seller are the same. We do not think that the same shares could be bought and sold by the same person. The trades, on the face of it, appear to be fictitious and we sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who were trading in the scrips of the company in a manipulative manner. He referred to Ex. 'C; on the record to substantiate his plea. This is a document sent by the appellant to the Board giving details of the clients on whose behalf it had traded. As per the directions of the Board the appellant had furnished this information regarding the details of the clients. Merely because the appellant traded on behalf of several clients in the scrip of the company would again not lead us to the conclusion that the appellant knew about the nature of the transactions executed by KIL and Bora. We may tend to agree with the learned Counsel for the Board that the appellant was known to the clients on whose behalf it had traded but that again does not fill up the gap. We have perused the impugned order and find that the Board has jumped to the conclusion that, merely because the appellant acted as a broker on behalf of its clients it ought to have known the nature of the transactions executed by them. We have already observed that this conclusion is rather far fetched and we are unable to concur with the same. In this view of the matter we cannot uphold the findings recorded by the Board in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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