TMI Blog2003 (10) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... ue market discovery and manipulate the securities market SEBI carried out a preliminary investigation to find out the role of various entities including the Appellants. According to SEBI these preliminary investigations revealed that the Appellants had indulged in large trading transactions in the scrips of some companies (stated in the impugned order) and these transactions prima facie appeared, inter alia, to have been carried out to artificially depress the prices of the scrips of the said companies. In that context on 18-4-2001 SEBI passed an ex parte order debarring the Appellants from undertaking any fresh business as stock brokers and sub-brokers till further order. A post decisional hearing was given to the Appellants on 30-4-2001 and thereafter an interim order confirming the ex parte order was passed on 4-6-2001. On the same day an Enquiry Officer was appointed. The Enquiry Officer issued a show-cause notice to the Appellants on 10-9-2001. He also issued a second show-cause notice to them on 25-1-2002. The Enquiry Officer submitted his report on 22-5-2002. The Enquiry Officer in his report observed inter alia that : (A) Nirmal Bang Securities Pvt. Ltd. (NBS) : (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prices of these securities between mid February and mid March in a concerted manner. The trading by BSL in Global Tele, HFCL, Reliance and Satyam were considered significant sales for the depression in the share prices. 2. The Respondent, in the light of the findings of the Enquiry Officer issued a show cause notice to the Appellants on 30-5-2002. They responded to the same by filing replies. They made oral submissions and filed written submissions also. The Respondent adjudicated matter and came to the conclusion that the Appellants have indulged in large trading trans- actions with a view to depress the market artificially in a concerted manner, (indulged) in short sales, synchronised trading, trading in particular time slots when the share prices registered substantial fall, routing of large transactions through unregistered sub-brokers . In the light of the said finding, the Respondent held the Appellants guilty of violating the Code of Conduct specified in Schedule II of the Stock Broker Regulations and regulations 4(a) to (d) of FUTP Regulations and ordered cancellation of the Appellants registration with SEBI. Claiming to be aggrieved by the said order the Appellants p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any of the regulations and by adhering to the safeguards cannot be viewed as a violation of SEBI requirements in position. 4. Learned Senior Counsel referred to the list of dates and events furnished in the written submission of the Appellants and submitted that in 1999-2000 there was an unprecedented boom in the information technology communication and entertainment stock (ICE Stocks) all over the world, that this resulted in buoyancy in the price of ICE stocks, that the prices of these stocks rose inter alia on NASDAQ as well as on the Stock Exchanges in India, that during this period the prices of these ICE stocks touched all time higher figures. He submitted that share of companies whose prices, the Appellants are accused of artificially depressing, had also risen as part of the unprecedented boom in prices during the period. Learned Senior Counsel stated that during the period March 2000-2001 the upward trend in the prices of the ICE stock witnessed a global meltdown and the prices of these shares fell rapidly during this period, that NASDAQ registered a fall of over 60% during this period, that even in India the prices of ICE stocks crashed and the Sensex registered a fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding Bama. Bama replied to the aforesaid notice vide its letter dated 12th June, 2002. This reply was delivered to SEBI on 12th June, 2002. Bama did not seek any personal hearing in the matter. Accordingly Bama did not appear before the Chairman, SEBI at the hearing afforded by the Chairman, SEBI and availed by the other Appellants. Consequently, as far as Bama is concerned, the order in the show-cause notice was required to be passed not later than 11th July, 2002 in view of the said Regulation 29(3). The impugned order is however dated 30th July, 2002. Therefore, as far as Bama is concerned the impugned order has been passed in violation of the said Regulation 29(3). The provisions of Regulation 29(3) being mandatory the failure to comply with the same will vitiate any order passed in violation thereof. In view of the aforesaid, the impugned order is vitiated at least qua Bama. In the impugned order, the Respondent has come to the conclusion that all the Appellants were acting in concert to artificially depress the price in certain scrips. In this regard, the findings against the Appellants are therefore not severable. SEBI, passed a common order against all the Appellants in sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertificate shall be suspended or cancelled unless the procedure specified in the regulation applicable to such intermediary is complied with. It is apparent that though regulation 13 empowers SEBI to initiate action for suspension or cancellation of registration of an intermediary, which would include a stock broker/sub-broker, it does not provide for the situations in which the registration may be suspended or cancelled. The situation under which the registration of a stock broker/sub-broker may be suspended or cancelled by SEBI are prescribed in Regulation 26 of the Stock Broker Regulations. Therefore, of necessity, in deciding whether the registration of a Broker/Sub-Broker can be suspended or cancelled in a given situation, aid must be taken of the provisions of the said Regulation 26. In this regard, it be noted that the FUTP Regulations, were made in 1995 whereas the Stock Broker Regulations, were made in 1992 i.e., prior to the notification of FUTP Regulations, which shows that while framing the FUTP Regulations the law-makers were aware and in any event deemed to be aware of the pre-exiting Stock Broker Regulations. Consequently, the proviso to regulation 13 must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that for each of the intermediaries separate Regulations have been framed by the Legislature. It is significant that each of these Regulations which apply to the different intermediaries, contain provisions such as Chapter VI of the Stock Broker Regulations, providing for eventualities/situation in which the registration of the intermediary can be suspended or cancelled. An examination of the different Regulations in respect of the different intermediaries will show that the Legislature has consciously provided for specific situations in which the registration of a particular intermediary may be cancelled or suspended. These provisions are intermediary-specific and offence-specific. It is apparent that while prescribing the situations/eventualities in which the registration of an intermediary may be cancelled or suspended, the Legislature has taken into consideration the functions of the intermediary, the likelihood, ability and possibility of the intermediary committing a particular violation, the consequences on the intermediary, etc. For example, whereas Regulation 26 of the Stock Broker Regulations merely provides for suspension of the registration of a Stock Broker/Sub-Broker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prices also fell and the Sensex registered a fall of around 28 per cent during this period. Various Indian Companies had overseas listings. The ADR s of various Indian IT companies like Infosys Wipro, Satyam (Relevant stocks) etc. also fell in line with the fall of Global prices, Factors particular to Indian markets were failure of the Calcutta Stock Exchange, Madhavpura Bank Scam; financial problems of Ketan Parekh; large selling by FIIs; large selling by Indian Institutions; issues of Corporate Governance in specific stocks; Gujarat Earthquake; fears of economic slowdown; downward revision of weightage to India in the MSCI Emerging markets index; the UTI debacle; the sudden withdrawal of funds from the ALBM segment etc. as reported by SEBI and Newspapers. If SEBI does not admit the above factors responsible then it has to prove its version. It cannot go by surmises and conjunctures. One fact alone establishes that the depression in the share prices of the concerned scrips was not an artificial one but was a real one. The prices of shares continued a downward spiral even after 15th March, 2001 upto August 2001. If, as alleged, the depression in the prices were artificial an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 182 11,466 27,54,052 27,37,317 2,60,165 4.74% SBI 526.30 244 12,841 21,65,460 28,50,512 1,95,352 3.89% Infosys 33.08 6497 42,984 6,42,255 7,35,470 59,591 4.33% Sterlite Opticals 27.95 768 4,293 9,29,737 5,62,615 47,196 3.16% By way of illustration referred to Global Tele, that against a capital of ₹ 43.72 crores market capitalisation was ₹ 2,806 crores, which indicates that the share was heavily traded. Trades transacted by the appellant was just 2.86 per cent of the total volume. No inference can be drawn on the basis of the data that such a small percentage of trade was responsible for depressing the market. SEBI has not bothered to find out who are the persons who traded in the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (i) general trading pattern of other market participants like FIIs and (j) general sentiment in the market. The fact that the appellants did not have any such intentions is clear from the fact that the markets were already falling since January, 2001 and continued to fall even after 15th March, 2001; that most of the sales of the appellants were either against previous purchases or for delivery, all sales were limit order sales, the appellants were also net buyers during the relevant period. On a particular day in a particular settlement, there are several instances where when one of the appellants had net sales in a scrip, the other appellants had net purchases in the same scrip. The appellants were overall net buyers in the market especially in index weighted stocks during the relevant period. No motive has been established by SEBI. 5.4 Net sales methodology flawed - For holding a person guilty of violating Regulation 4(a), it must be established that certain specific transactions effected or entered into by a person caused a depression in the price of a scrip. In other words, SEBI must identify those specific transactions of a person, which in fact depressed the price of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on both the exchanges. NSE had twice the traded volumes of the BSE. Accordingly, the aggregate net sales of both BSE NSE, are required to be considered when computing the percentage net sales of the Appellants. This is more so because both the exchanges had different settlement period and lot of shifting of positions used to take place on the last day of the settlement period in view of the carry forward margin requirement. 5.5 Appellants net sales had no impact on prices - Far from causing any depression in the share price, the net sales of the appellants, in fact, had no impact on the prices of the concerned scrips. This is clear from the discussion below. It will be seen that the Enquiry Officer (EO) as well as the respondent have deliberately ignored and overlooked all the relevant and material facts, which were obviously inconvenient for them, with a view to achieve the pre-determined objective of holding the appellants guilty. The facts set below completely demolish the findings in the Enquiry Report and the Impugned Order. Specific submissions on the Enquiry Report and the Impugned Order. Net positions of NBS and BEB. The scrip-wise analysis of the same is give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was falling, but BEB was purchasing but still price fell. The data shows that the price movement was independent of the fact that whether the appellants were purchasing or selling S. No. 1048 while NBS had a net sale of 40,052 shares, BEB had a net pur-chase of 2,210 shares. Similarly, on 27th Feb., 2001, 1st March, 2001 and 2nd March, 2001 between NBS and BEB, one had a net sale while the other had a net purchase. This clearly shows that the two entities were not acting in concert. Finding of the respondent that there was a conversion of a purchase position to a sale position in S.No. 1048 is erroneous in as much as after selling 40,052 shares, NBS was still a net purchaser to the tune of 58,803 shares between S.No. 1046 to S.No. 1048. On the basis that the net sales of NBS of 40,052 shares in S.No. 1048 represents 4.6 per cent of the net sales at BSE and the price fell by ₹ 170 from ₹ 609 to ₹ 439 in that settlement, the net sales of NBS accounted for a fall of only ₹ 7.82. It is further clear that the net sales of NBS accounted for a minis- cule 4.6 per cent of BSE net, which shows that there were huge net sales by others, which accounted for 95.4 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r more likely to offer large number of shares for sale at a price much lower than the prevailing market price. This is not the case in respect of even a single sale transaction of either NBS or BEB. Both the Enquiry Officer and Chairman have conveniently completely ignored this aspect of the matter. Not a single sale transaction of NBS or BEB were executed at the lower circuit filter rate and SEBI has not produced a single such instance. The Chairman has further ignored the fact that the price of the scrip fell from ₹ 670 to ₹ 609 i.e., by ₹ 61, inspite of NBS and BEB being net purchasers in S.No. 1046 and S.No. 1047. The Chairman further ignored the fact that by the end of S.No. 1048 (from S.No. 1046), the price of the scrip had fallen by ₹ 231 to ₹ 439 when NBS had a net purchase of 58,803 shares and BEB had a net purchase of 8,237 shares. In other words, the share price during S.No. 1046 to S.No. 1048 fell by 35 per cent when NBS and BEB were net buyers. This shows that there was no co-relation between the appellants transactions and the fall in the share prices. SEBI further ignored the fact that in S.No.1050 and S.No. 1051, both NBS and BEB had l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,000 1,039 965 +16,375 +1.0% +57,764 3.7% 1047 12-2-01 16-2-01 950 1,019 909 -20,173 -1.9% -53,442 -5.0% 1048 19-2-01 23-2-01 910 923 743 +69,761 +6.7% +78,220 +7.5% 1049 26-2-01 2-3-01 740 752 605 +16,852 +0.7% -86,055 -3.5% 1050 5-3-01 9-3-01 585 625 326 +18,015 +0.5% +5,556 +0.2% 1051 12-3-01 16-3-01 301 322 214 +22,820 +0.6% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither make huge sales without any limit or more likely to offer large number of shares for sale at a price much lower than the prevailing market price. It is pertinent to note that this is not the case in respect of even a single sale transaction of either NBS or BEB. Both the Enquiry Officer and the respondent have conveniently ignored this aspect of the matter. Not a single sale transaction of NBS or BEB were executed at the lower circuit filter rate. All the net sales considered by SEBI include sales on behalf of the clients, which were effected on the instructions of the clients. SEBI has not bothered to distinguish between client sales and proprietary sales and has treated them or par. This action is clearly untenable. This is more so in view of the fact that SEBI has nowhere alleged that the appellants were acting in concert with their clients nor that these client trades were actually proprietary trades of the appellant. In the case of BEB, all the sales were on behalf of clients. Infosys Technologies Statement Number Date From Date To Opening price High Price Closing Price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for only ₹ 42.11 of the fall. In S.No. 1049, while NBS was a net seller, BEB was a net purchaser. This clearly militates against any intention on the part of the appellants to depress the price of the scrip. The sale of 42,013 shares by NBS in S.No. 1051 was backed by delivery. The fall in price during S.No. 1051 was ₹ 123. Consequently, the fall is attributable to NBS would be ₹ 15.50 only. In S.No. 1046 and S.No. 1047, when NBS and BEB were net purchasers the price fell from ₹ 6,860 to ₹ 6,254, a fall of ₹ 606. This shows that there is no co-relation between the transactions of the appellants and the fall in the price of the scrip. In S.No. 1048, when NBS sold 2,687 shares, the price fell by ₹ 656 whereas in S.No. 1049 when NBS sold 18,600 shares the price fell by ₹ 658 only. This again shows that there was no co-relation between the net sales by NBS and the fall in prices. In S.No. 1050 when NBS sold 9,549 shares, the price fell by ₹ 123 and in S.No. 1051, when NBS sold 42,013 shares, the price fell by ₹ 123 only. This again shows that there is no co-relation between the net sales by NBS and the fall in prices. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... +2,813 +0.1% -23,185 -0.8% 1046 05-02-01 09-02-01 400 412 372 -2,24,803 -5.6% +7,944 +0.2% 1047 12-02-01 16-02-01 375 387 365 +2,89,734 +9.5% +85,763 +2.8% 1048 19-02-01 23-02-01 361 376 318 -35,040 -1.6% -82,550 -3.8% 1049 26-02-01 02-03-01 321 353 263 -3,44,378 -8.2% +26,357 +0.6% 1050 05-03-01 09-03-01 250 280 229 +3,05,263 +10.2% +2,365 +0.1% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact that the net sales in S.Nos. 1046 and 1051 were against previous purchases. The particulars of the net sales of NBS and BEB vis-a-vis the net sales by other market participants are that S.No. Our Sales Sales by other market participants 1046 -2,24,803 -37,89,536 1047 + -30,49,830 1048 -1,17,590 -20,72,410 1049 -3,44,378 -38,55,354 1050 + -29,92,775 1051 -1,15,053 -48,11,884 DSQ Software Statement Number Date From Date To Opening price High Price Closing Price Net Position % of net BSE Net Position % net of BSE Rs. Rs. Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sales in a particular settlement without taking into account the opening position in the settlement. In view of this, the net positions of +415 and -14,298 in S.Nos. 1047 and 1048 do not reflect the unwinding of previous purchases. This establishes that the findings that the net purchases in S. No. 1046, which stood at 52.6% of the net of BSE came down to 0.1% of the net purchase position in S.No. 1047, which shows that NBS purchased more shares in this settlement than the shares it sold. These facts have been conveniently ignored by the Enquiry Officer as well as the Respondent. Both the Enquiry Officer as well as the Respondent have failed and neglected to analyse the trend in the price of this scrip with reference to the transactions of NBS and BEB, which is essential to determine whether these transactions caused any depression, artificial or otherwise, in the price of the scrip. In fact, this is the single most important factor, which was required to be considered by SEBI. The approach of SEBI for reaching conclusions on the basis of unwinding of previous purchases de hors the effect of the transactions on the price of the scrip is misconceived and erroneous. The reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 254 1046 05-2-01 09-2-01 252 260 230 -52,205 -1.8% -1,50,508 -5.3% 1047 12-2-01 16-2-01 229 247 231 -21,936 -0.7% +1,44,340 +4.5% 1048 19-2-01 23-2-01 234 240 210 -1,41,699 -1.6% -1,82,780 -2.0% 1049 26-2-01 02-3-01 215 215 136 +2,09,795 4.37% -82,020 -1.7% 1050 05-3-01 09-3-01 125 147 115 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that BEB hammered down the price of the scrip without coming to any independent reasoned conclusion in that regard. An examination of the above tables will clearly show that the transactions of NBS and BEB did not cause any depression in the price of the scrip. In fact, these transactions did not have any impact at all on the price of the scrip. In S.No. 1047, the price of the scrip remained steady despite net sales of NBS to the tune of 21,036 shares and net purchases of BEB to the tune of 1,44,340 shares. Thereafter, despite NBS being a net purchaser in S. No. 1049 to the tune of 2,09,795 shares, the price of the scrip registered a substantial fall. Subsequently, even though NBS and BEB were both net purchasers in S. No. 1050, the price of the scrip continued to fall. Significantly, in S. No. 1051, when both NBS and BEB were net sellers, the price of the scrip rose. These facts clearly establishes that neither NBS nor BEB caused any fall in the price of the scrip much less hammered the price of the scrip. In S. Nos. 1047 and 1049, both NBS and BEB had different positions. When NBS had net sales, BEB had net purchases and vice versa. This completely demolishes the charge/fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lient and proprietary trades and the absence of any sales at the lower circuit filter levels reiterated. Wipro Statement Number Date From Date To Opening price High Price Closing Price Net Position % of net BSE Net Position % net of BSE Rs. Rs. Rs. Nirmal Bang Bang Equity 2,713 1046 05-2-01 09-2-01 2,755 2,985 2,938 +16,153 +4.8% +9,844 +2.9% 1047 12-2-01 16-2-01 2,930 3,074 2,828 -4,359 -2.2% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 577) (1,63,155) 36,939 (41, 385) (99,548) HFCL 50,480 33,699 (27,086) (27,893) (23,541) Satyam (1,94,626) 42,254 3,06,214 (1,71,620) (2,38,514) Silverline (41,920) (63,020) (1,44,930) (1,39,598) (84,724) Wipro 855 2,413 (55) (15,068) (19,282) Zee Telefilms 1,64,460 27,194 (64,563) (1,17,316) 61,164 On the basis of the aforesaid data, the Respondent and the EO concluded that Bama was a consistent net seller in the above scrips on the above dates. The above figures were supplied by Bama to the EO on the basis of the data contained in the first show cause notice. The net positions on each day have been computed after con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave contributed to the artificial depression of prices of these scrips during the relevant period. This finding is clearly speculative and vague and can never form the basis of a finding of guilt against Bama. When faced with the submission that no such correlation has been established, both the EO and the Respondent concluded that it was not necessary that every time the finding on correlation between the transactions and the fall should be given. Despite the fact that all the aforesaid submissions of Bama were contained in its replies to the show-cause notices, the same have been totally ignored by the EO and the Respondent while arriving at the final conclusions. This shows the prejudiced mind of SEBI and its pre-determined intention of holding Bama guilty irrespective of the facts of the case. Sales in Select Time Slots The particulars of the transactions in respect of which the Respondent has found Bama guilty of causing a fall in the prices of the scrip by selling in specified time slots are as that: Scrip Date Time from Time to Minutes Quantity % of market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O did not find Bama guilty of selling shares with the intention of artificially depressing the prices of the scrips to induce the sale or purchase of securities by any other person. The EO has simply concluded that net sales of Bama in the time bands caused a fall in the share prices. The report of the EO which Bama was called upon to show cause to, itself failed to make out a case of any violation of the prohibition contained in respect of the FUTP Regulations. The report was liable to be discarded ex facie on this ground alone. The Respondent before whom this argument was raised, realising this inherent deficiency in the Enquiry Report, exceeded his jurisdiction by holding that these net sales of Bama were effected deliberately to depress the prices of the scrips. It is therefore, clear that the Respondent has gone beyond the report of the EO. Not only this, it is also apparent that the Respondent has held Bama guilty of a charge, which was not made by the Enquiry Officer. The very graphs relied upon by the Enquiry Officer reveal a completely perverse, arbitrary, unscientific and irrational approach on the part of the Enquiry Officer. In fact, it is a clear attempt to reach a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the same time slot. This would show that not only were the sales driven by market prices but also that the purchases within the same segment were also at the market determined prices. If the intention, as held by the Respondent (but not by the Enquiry Officer) was to deliberately depress the prices of the scrip then Bama would not have simultaneously acquired shares of other scrip in the same segment at market determined prices during the same time slot. The Enquiry Report further overlooks another significant fact, namely that during the said time slots Bama purchased shares of the very same companies. This infor- mation was deliberately overlooked by SEBI though available in the trade logs. This militates against any allegation/charge of any intention of Bama to depress the price of scrip much less to depress them artificially. The enquiry report further overlooks that each and every sale was a limit order sale, the limit being in the range of 0.5 per cent of the market price. All the sales were executed as per the limit orders. Analysis of time slots The following analysis will clearly establish that the sales of Bama did not have any impact on the price of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 442.00 15:09:30 15:09:30 200102231359429 50 443.00 15:10:11 15:10:11 200102231359738 50 443.90 15:10:38 15:10:38 200102231368207 50 441.25 15:11:59 15:11:59 Buy Sell Order Total qty Average rate Start time End time Total qty Average rate Start time End time 200102231369114 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch 01 Global Telesystem Time: 12:33 to 12:41 Price fell by ₹ 12.90 from ₹ 330 to 317 Buy Sell Order Total qty Average rate Start time End time Total qty Average rate Start time End time 200103020764670 100 328.80 12:34:41 12:34:41 200103020786247 100 325.40 12:36:11 12:36:11 200103020791513 50,000 320.39 12:37:27 12:37:29 200103020805710 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200103011251660 1000 330.00 14:18:12 14:18:12 200103011255062 100 329.90 14:18:49 14:18:49 200103011275317 200 332.25 14:22:59 14:22:59 200103011276396 500 332.70 14:22:59 14:22:59 200103011276746 50 332.25 14:23:10 14:23:17 200103011258565 200 330.00 14:25:26 14:25:26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Buy Sell Order Total Qty Average rate Start time End time Total qty Average rate Start time End time 200103011307208 25 323.00 14:29:13 14:29:13 200103011307596 1000 321.05 14:29:17 14:29:17 200103011308362 50 322.80 14:29:24 14:29:24 200103011308736 600 322.50 14:29:27 14:29:27 2001030 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 500 297.49 10:57:27 10:57:27 200103020356895 20 298.00 10:58:11 10:58:11 200103020367822 20 296.00 11:00:30 11:00:30 200103020375050 5000 295.04 11:00:49 11:00:49 200103020379158 200 292.55 11:01:34 11:01:34 200103011546973 25 292.00 11:01:43 11:01:43 200103020322064 200 291.00 11:01:5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11:04:07 200103020397663 100 287.00 11:04:40 11:04:40 200103020397592 15623 287.02 11:04:40 11:04:51 200103020398480 300 286.10 11:04:56 11:04:56 200103020399354 1000 286.00 11:04:58 11:04:58 Apart from sales, there were also purchases made by Bama during this time slot, which was uniformly spread out throughout the time slot. After the first two sales transactions, the price of the scrip actually rose. Between the period from 11:01:43 to 11:02:25, Bama was a continuous purchaser, inspite of whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200103020937137 500 280.00 13:18:53 13:18:53 200103020944086 100 280.55 13:18:57 13:18:57 200103020948389 500 280.50 13:19:49 13:19:54 200103020961160 100 277.90 13:22:40 13:22:40 200103020961358 500 278.50 13:23:05 13:23:05 200103020963342 260 278.50 13:23:14 13:23:14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200103020747051 20 271.00 13:51:27 13:51:27 200103020578969 50 271.00 13:51:27 13:51:27 200103021007512 5,000 271.00 13:51:28 13:51:29 200103021064782 70,299 270.04 13:51:33 13:51:39 200103021065419 20 270.00 13:51:41 13:51:41 200103021067738 300 268.55 13:52:11 13:52:11 200103021071400 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9000 1062.21 12:47:48 12:48:34 200103020848913 25 1054.00 12:52:40 12:52:40 200103020852567 5 1048.10 12:53:45 12:53:45 200103020856801 10 1050.00 12:55:19 12:55:19 200103020859198 10 1040.00 12:57:50 12:57:50 Apart from the sales, there were also purchases made by Bama during this time slot, which was uniformly spread out throughout the time slot. By the time Bama s first sale transaction took place, the price of the scrip had already fallen by ₹ 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by ₹ 5.62, this fall is less than 0.5%, which is totally insigni- ficant. Despite Bama s sales, the price of the scrip rose to ₹ 1016 at about 13:57. This shows that Bama s transactions had no impact on the price of the scrip. (viii )1st March 01 Wipro Time: 13:33 to 13:41 Price fell by ₹ 15 Buy Sell Order Total qty Average rate Start time End time Total qty Average rate Start time End time 200103011091685 100 2541.63 13:35:44 13:35:44 200103011096686 4128 2522.41 13:37:28 13:37:29 200103010244645 2 2515.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200103010965739 100 172.95 12:57:20 12:57:20 200103010970970 1000 172.55 12:58:51 12:58:51 200103010825864 200 171.50 13:00:31 13:00:31 200103010686143 10 171.00 13:03:44 13:03:44 200103010992233 200 170.90 13:05:46 13:05:46 200103010998502 300 171.00 13:09:43 13:09:43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200103011062476 200 166.20 13:27:52 13:27:52 200103011071378 100 167.17 13:30:24 13:30:24 200103011083849 5000 168.00 13:33:15 13:33:18 200103011097345 50 167.00 13:37:43 13:37:43 200103011103164 500 167.50 13:39:39 13:39:39 200103011108332 200 167.00 13:41:34 13:41:34 20010301 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 500 164.64 13:56:05 13:56:05 Apart from sales, there were also purchases made by Bama during this time slot, which was uniformly spread out throughout the time slot. The two major sale transactions of 34,448 and 99,000 shares did not have any impact at all on the price of the scrip. The share price barely moved after these sales. The price of the scrip fell during the period when Bama was a continuous purchaser. Though Bama was a net buyer from 12:53 to 13.10 and 13.33 to 13.53, the price of the scrip continued to fall. It is seen that the price of the scrip feel steadily irrespective of the nature of the transaction of Bama i.e. whether it was a sale or a purchase. This clearly establishes that the decline in the price of the scrip was due to market sentiments and not due to the transactions of Bama. (ix)23rd February 01 Zee Telefilms Time: 12:26 to 12:32 Price fell by ₹ 8.35 from ₹ 228 to ₹ 220 Buy Sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 200102230705467 1000 222.50 12:31:10 12:31:10 200102230707239 2000 222.90 12:31:39 12:31:39 200102230708358 200 222.45 12:31:56 12:31:56 Neither of the two sale transactions had any impact whatsoever on the price of the scrip. Even after the sale of 99,000 shares, the price of the scrip remained unchanged. In fact, the price of the scrip feel steadily during the period when Bama was purchasing the shares. This shows that the transactions on Bama had no impact on the price. Significantly, after Bama s relatively large purchase of 10,915 shares, the price of the scrip fell marginally by ₹ 120. This again shows that Bama s transactions did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 87680 143.00 12:18:07 12:18:38 200103020686171 10000 142.59 12:18:09 12:18:09 200103020709997 5000 142.88 12:18:25 12:18:25 200103020696148 1000 140.75 12:19:21 12:19:21 200103020705077 100 141.00 12:19:21 12:19:21 [ Buy Sell Order Total Qty Average rate Start time E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion has been justified ostensibly on the basis of the following sale transactions of Bama and BSPL. Date Scrip Bama BSPL 1-3-2001 Infosys 15,000 2,490 1-3-2001 Reliance 85,917 2,09,000 2-3-2001 Satyam Computers 4,79,961 17,300 As far as Infosys and Reliance are concerned, the aforesaid finding is ex facie illegal and contrary to the other findings of the Enquiry Officer and the Respondent. Both, the Enquiry Officer and the Respondent have come to the conclusion that the trading pattern of the Appellants in Infosys and Reliance on 1st and 2nd March, 2001 did not show any consistent pattern that could be said to have hammered down the prices of these scrips. Having found that the transactions of the Appellants in the scrips of Infosys and Reliance on 1st and 2nd March, 2001 could not be said to have hammered down the prices of these scrips, there was absolutely no question of the Appellants inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned order. This shows a total non-application of mind on the part of the Chairman, SEBI. 5.8 Dealings on behalf of Shankar Sharma - Significantly, neither the EO nor the Respondent has found that BEB was aware of the fact that the trades on behalf of Shankar Sharma were synchronized. In fact both have held that the circumstances surrounding the transactions should have aroused the suspicion of BEB. This in fact implies that both the EO and the Chairman have accepted that BEB had no knowledge that the trades were synchronized. Unless the client informs the broker that a particular trade is synchronized, there is no way for the broker to know that the trade is synchronized. This is because in the screen based trading system, the identity of the counterparty broker is not revealed. In fact, his identity is never revealed. On SEBI s own showing in the report of the EO and the Order of the Respondent, knowledge is an integral constituent of these offences. If SEBI had any doubt as to whether Shri Nirmal Bang had knowledge of these trades, SEBI ought to have questioned him in that regard. However, SEBI did not do so and no statement of Shri Nirmal Bang was recorded by SEBI. So also, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said scrips. The case of the SEBI is only that the trades were synchronized and were not genuine and were not intended to effect transfer of beneficial ownership. It is submitted that this is not enough to find BEB guilty of violating Regulation 4(d) and in the absence of SEBI establishing that the trades were intended to operate only as a device to depress the market price of the scrips, the finding that these trades are in violation of Regulation 4(d) cannot be sustained. Bye-law 357(iii) of the BSE Bye-laws provides that if a broker purchases or sells securities or assist or knowingly is a party to any purchase or sale of securities for the purpose of upsetting the equilibrium of the market or bringing about a condition of demoralisation in which the prices will not fairly reflect the market value, it will amount to prejudicial business. It is not the case of SEBI that these trades upset the equilibrium of the market or brought about a condition of demoralisation in which the prices did not fairly reflect the market value nor has SEBI established this. In view of this Bye-law 357(iii) has not been violated by BEB. This is apart from the fact that BEB had no knowledge th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis, he concluded that BEB had dealt with/through an unregistered sub-broker (Palombe is not a registered sub-broker) which amounts to lack of due diligence, exercise of due skill and care expected of a registered broker as per the Code of Conduct applicable to broker (page 319 of Volume II). The Respondent has reproduced the findings of the EO verbatim in his order. It is significant to note that the charge levelled against the Appellants is one of lack of due diligence, exercise of due skill and care expected of a registered broker as per the Code of Conduct applicable to brokers . It is submitted firstly that neither the report of the EO nor the order of the Respondent identity the relevant Regulation/Rule of the Code of Conduct applicable to brokers, which is alleged to have been violated. Secondly, assuming while denying that Palombe was acting as a sub-broker, dealing with a unregistered sub-broker merely entails a penalty of ₹ 25,000 under the Stock Exchange Bye-laws. If such an activity were a prohibited/banned activity, the imposition of a monetary penalty would not have been provided for in the Stock Exchange Bye-laws. Thirdly, it was only as late as 22nd Octobe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorized clerk or employee in the employment of another member. (c)Does not advertise in public press or in any other manner that he is acting as a broker. (d)Does not act as a broker within a distance of fifity miles of the city of Bombay. (e)Does not pass contracts in his own name or issue price lists or pamphlets in respect of business in securities if working within a distance of fifty miles of the city of Bombay. (f)Does not issue price list or pamphlets or circulars in respect of business in securities to other than its own constituents if acting as broker beyond the distance of fifty miles of the city of Bombay. From Bye-Law 218(a), it is apparent that a broker may share brokerage with any person introducing a constituent provided such person is not disqualified under clauses (i) to (vi) of Bye-Law 218( a). Even if it is assumed without admitting that Palombe was acting as a sub-broker, a sub-broker is not a person disqualified under clauses (i) to (vi) of Bye-Law 218(a). Accordingly the Appellants were entitled to share brokerage with Palombe. Curiously, both the EO and the Respondent have alleged that it was not shown by the Appellants that Palombe is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e insignificant as compared to the overall volumes of NBS and BEB and the extent of compliance has been more than 95 per cent. Thirdly, the contravention was by retail clients and not on the proprietary account of NBS and BEB. Finally, it is submitted that the short sales were not attributable to any wilful default or neglect on the part of NBS and BEB but were purely technical and unintentional. With specific reference to (d), that out of about 282 clients, it was found that client registration forms were not available only in respect of 5 clients of BSPL and BSPL had not issued confirmation notes in the case of only one client. Moreover, BSPL has had no dispute with any of its aforesaid clients nor was their any default. In view of the above, even assuming without admitting that the charges/findings are correct, a penalty of cancellation of registration is certainly not commensurate with the alleged contraventions. Even the Enquiry Officer has recommended that a lenient view be taken in respect of the absence of client registration forms. Certain statements made by SEBI in its written submissions were also countered by the Appellants. On the Respondents statement that Two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in the impugned order, the Chairman, SEBI has not found Bama guilty of artificially depressing the prices of the scrips and therefore the Respondent is attempting to impose the impugned order by making general and wide ranging allegations. The authorities cited by the learned senior counsel: (i) Bareilly Electric Supply Co. Ltd. v. Workmen AIR 1972 SC 330. On the question of the requirement of the Respondent producing evidence to prove the charges - when it is claimed that Evidence Act is not applicable, that does not mean that the principles of natural justice are not to be complied with. (ii) Videocon International Ltd. v. SEBI [2002] 4 Comp. LJ 4021 (SAT - Mum.). In the absence of reasonably good evidence to support, charge of market manipulation, which is a very serious charge cannot stick on the Appellant Company merely on surmises and conjunctures. Regulation 4(a ) of the FUTP Regulation attracts only if the transaction is made so as to induce any other person to sell or purchase securities. To attract regulation the intention of the party is relevant - and element of mens rea is also involved. (iii) Hansraj Gupta v. Dehra Dun - Mussoorie Electric Tramway ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iple of construction of a statute that effort should be made in construing the different provisions so that each provision will have its play and in the event of any conflict, a harmonious construction should be given. The well known principle of harmonious construction is that effect shall be given to all the provisions so as to make it workable. A particular provision cannot be picked up and interpreted to defeat another provision made in that behalf under the statute. (ix) Ranjit Thakur v. Union of India AIR 1987 SC 2386 (on quantum of penalty and bias) The sentence has to suit the offence and the offender. It should not be vindictive or unduly harsh. It should not be so disproportionate to the offence as to shock the conscience and amount in itself to conclusive evidence of bias. The doctrine of proportionality, as part of the concept of judicial review would ensure that even on an aspect which is, otherwise, within the exclusive province of Court Martial, if the decision of the Court even as to sentence is an outrageous defiance of logic then the sentence would not be immune from correction. Irrationality and perversity are recognized ground of judicial review. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfined to the scope of those two show-cause notices. Shri Dada also stated that show-cause notices issued to the Appellants are common, the charges are with reference to the manipulation of the market by dealing in common scrips, during the common period, that technically the Appellants are separate legal entities but in reality they are one and the same and they acted in concert. The Respondent made the following further submissions : 8. The main points in the show-cause notice, Enquiry Report and the Chairman s Order can broadly dealt with under the following captions : (i)Synchronised Deals with Shri Shankar Sharma which were fictitious in nature. (ii)Relationship between Bang Entities and Palombe Securities and Finance Ltd. (iii)Short sales by NBS BEB after the ban on short sales. (iv)Manipulative Trading by each of the Bang Entities. 8.1 Synchronised Deals with Shri Shankar Sharma which were fictitious in nature - BEB has executed transactions, which are dubious in nature and made with a view to manipulate the market and avoid detection and to vitiate the transparency and fairness of the working of the market. These transactions were executed on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... almost simultaneously. There is no transfer of title in these shares since purchase and sale quantity is exactly the same and by the same party. In view of the above it is clear that FGSB and BEB were acting in concert with each other and entered into in the synchronised deals between the period 1st January, 2001 and 31st March , 2001 aggregating to approximately ₹ 200 crores which did not involve change of ownership and thereby created a false volumes resulting in upsetting the market equilibrium. Such transactions are per se manipulative and are regarded as such not only in India but world over. 8.2 Relationship between Bang Entities and Palombe - Investigations reveal that Bang Entities have a close nexus with a non-descript unregistered entity Palombe. Trading terminals of Bang Entities are installed at the office of Palombe. Palombe has been used by various established broking entities to put their trades with a view to circumvent trading limits and avoid detection. Palombe ostensibly introduced various clients for trading with Bang Entities, which include Shankar Sharma of FGSB, who in turn had been introduced by CSL Securities Consortium (hereinafter referred to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived sub-brokerage fees from Bang Entities. In the case of trades done by Shankar Sharma through Bang Entities during the period 1st April, 2000 to 1st March, 2001 Palombe passed on part of sub-brokerage received from BEB to CSL since they had introduced Shankar Sharma to Palombe. The introductory brokerage accrued to Palombe on account of trades done by Shankar Sharma through BEB was approximately 30 lakhs for the year 2000-2001 and therefore, their trades routed by Shankar Sharma through BEB during the period was approximately ₹ 600 crore. The placement of terminals belonging to the Bang Entities at a location outside the Bang Entities office i.e., Palombe s office and permitting Palombe to carry on business on these terminals definitely goes beyond mere sharing of commission for introducing clients. From the facts it is clear that the relationship of Bang Entities with Palombe definitely goes beyond mere sharing of commission for introducing clients. The activities of Palombe may be considered as analogous to the activity of a sub-broker in the securities market but were much more than that. Therefore, the Bang Entities had dealt with through unregistered sub-broker wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s essentially on its own account and on behalf of its proprietary sub-brokers BSPL shows manipulative trading with a view to hammer the scrip prices. Enquiry Officer found that Bama was a consistent net seller, and had also unwound the previously built purchase position and created fresh sales position especially in the scrip of Global Tele, HFCL, Satyam, Silverline, Zee Telefilms and Wipro on the crucial dates of 22nd, 23rd, 28th February, 1st and 2nd March of 2001. Enquiry Officer has come to the conclusion that Bama have contributed to the artificial depression of prices of these scrips during the relevant period. Scrip 22-Feb 23-Feb 28-Feb Ist-Mar 2nd Mar. Closing Position Net for the day Closing Position Closing Position Net for the day Closing Position Net for the day Closing Position Global Tele (10577) (152578) (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such sales had resulted in artificially depressing the prices of the shares. Sales in concert with Bang Securities Bama has built up position in several scrips in concert with BSPL to manipulate the shares prices. Net sales position in Global Tele, HFCL, Infosys, Reliance, Satyam Computers, HLL, Wipro, Zee Tele, HCL Tech., DSQ Software, Aptech, etc. were taken by the Bama on 1st and 2nd March, on own account and for Bang Securities. It may be noted that BSPL is a sub-broker of NSB and BEB. Enquiry Officer has found that to the extent of the trading in Infosys, and Reliance on 1st March and Satyam Computers on 2nd March, BSPL, and Bama Securities were acting in concert with each other to artificially depress the share price. The section of Enquiry Report (page 92) referred by the appellant pertains to analysis of trading pattern of Bama in certain scrips including Infosys, Satyam, etc. for the dates 22nd, 23rd, 28th February, 1st and 2nd March, 2001. The finding of Enquiry Officer is specific to trading pattern of Bama. Whereas in page No. 103 of Enquiry Report the Enquiry Officer has analysed the trading position taken by Bama and BSPL on 1st and 2nd March of 2001 and have c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (17.65) Satyam 2-3-01 10.57 11.05 0.08 62714 3.97% (12.2) Satyam 2-3-01 13.17 13.53 0.36 63979 2.56% (12.85) SSI 2-3-01 13.41 13.54 0.13 9955 14.79% (28) SSI 2-3-01 12.32 13.01 0.29 19450 11.13% (71) WIPRO 1-3-01 13.33 13.41 0.08 9026 15.46% (15) Zee Tele 23-2-01 12.26 12.32 0.09 76279 2.33% (8.35) Zee Tele 1-3-01 12.53 13.56 1.03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime band, which has been arrived after considering both purchases and sales made by the member during the relevant time band. Bama has purchased 11,865 shares and sold 97,520 shares during the time slot. The Appellant has claimed that the purchases were uniformly spread out during the time slot, but it can be seen from the data given in the Appellant s submission that quantum of purchases and sales were different. The Appellant has argued that before the first sale transaction of Bama, the price already fallen by ₹ 7. In this regard it is to be noted that the Appellant has not considered each execution price and had merely taken average price for the sale transaction of 6,521 shares. Based on this average price the Appellant has concluded that price of the scrip has fallen by ₹ 7 before the first sale transaction, that during the time slot Bama has sold 97,520 shares which is the relevant factor. The Appellant has argued that between the period from 15:08:39 to 15:13:50, Bama was a continuous purchaser. During the said time period Bama has merely purchased 1,350 shares. Whereas, just before and after the aforesaid time band Bama has sold 50,000 shares (15:07:33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of short sale to market sell Diff in the op-cl price % of fall Satyam Comp. 14:13-14:33 1,55,744 5.01 (17.65) (5.26) The appellant has argued that after one of the largest sale transactions of 77,961 shares, there was no change at all in the price of the scrip. In this regard it was submitted by the Respondent that the said sale transaction of 77,961 shares took place at 14:28:47 hours at ₹ 325.02. The order number for the said trade is 200103011304713. The order number of subsequent trade of 500 shares was 200103011191399. From the order number it can be concluded that this purchase order was placed much before the sale order for 77,961 shares was placed. Subsequent order after the sale order for 77,961 shares which resulted in purchase of 25 shares at ₹ 323 was placed on 14:29:13 hours. The above analysis clearly shows that the sale transactions resulted in fall in price. The Appellant has argued that after the sale transactions of 96,006 shares there was no change in the price of the scrip. This inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by the Appellant it can be seen that after first two sales transaction of 500 and 20 shares at average rate of ₹ 297.49 and ₹ 298.00 respectively, Bama has purchased 20 shares at an average rate of ₹ 296.00 which is lower than the price at which Bama has sold 20 shares previously. There SEBI s allegations are correct. The data given in the submissions only shows that purchase of 200 shares by Bama was executed at 11:03:52, 26 seconds after Bama sold 45,026 shares and the average purchase price was higher than the average sale price. It was submitted by the Respondent that during the time slot 10:57 hours to 11:05 hours of March 2nd, 2001 Bama had net sale of 62,714 shares which is around 3.97% of the shares traded during the period when the scrip price dropped by ₹ 12.20. Satyam Computers - 2nd March, 2001 Scrip Time band Short Sell (Qty.) % of market sell Diff in the op-cl price % of fall in price Satyam Comp. 13:17-13:53 63,979 2.56 (12.85) (4.57) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 (15.00) (0.60) During the relevant time slot, Bama had purchased 102 shares and sold 9,128 shares. The price drop during the time slot was ₹ 15. It was denied that neither the sales and purchases were uniformly placed nor the quantum of sale and purchases were uniform during the time slot. It is evident from the data (order numbers) provided by the Appellant that the order for purchase of 2 shares, which was not significant was placed much before the sale order which resulted in the sale execution of 4,128 shares. The buy order was executed only because the price was made to drop by sales of Bama to that level. Zee Telefilms - 1st March, 2001 Scrip Time band Short Sell (Qty.) % of short sale to market sell Diff in the op-cl price during the band % of fall in price Zeetele. 12:53-13:56 1,29,478 6.52 (8.95) (5.17) During the relevant time slot, Bama had purchased 12,820 shares and sold 1,42,298 shares. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04 (11.65) (7.77) It was submitted by the Respondent that during the relevant time slot, Bama had purchased 1,06,450 shares and sold 2,23,382 shares.The price drop during the time slot was ₹ 11.65 the Respondent denied the Appellants version that transactions were uniformly placed during the time slot. The Respondent submitted that the time gap between the sale of 87,680 shares and purchase of 1,00,000 shares in 00:01:08 hours and hence inferring about the impact of the purchase transaction of 1,00,000 shares is not correct. It may be noted that the data provided by the Appellant shows that every subsequent sale transaction executed by Bama during the time slot is at lower price. The Appellant in his submission has picked up certain scrip and has stated that Enquiry Officer has not found Bang Entities individually or collec-tively guilty of artificially depressing the prices of this scrip. The Respon-dent countering this submission submitted that the Enquiry Officer has examined the trading pattern of the member between mid-February and mid-March in totality when the shares prices fell and have come to the conclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scrip of Global Tele, HFCL, Satyam, Infosys, DSQ Software, Zee Tele. Finding of Enquiry Officer in individual scrip is that: (a)Global Tele Date Date Open Hi Close BEB Sett No. Form To Buy Sell Net % Net 1043 15-1-01 19-1-01 728 739 734 150,109 1,42,285 7,824 0.7% 1044 22-1-01 26-1-01 740 787 732 1,21,242 1,22,304 -1,062 -0.1% 1045 29-1-01 2-2-01 706 748 673 1,21,197 1,32,075 -10,878 -1.1% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 522 438.9 29,930 69,105 -39175 62,61,836 1.1% St. No. 1048 113458 111248 2210 23805958 0.5% 26-2-01 443.1 454 415.8 24,746 50,880 -26,134 64,55,577 0.8% 27-2-01 420 426.75 353.15 35,195 25,607 9,588 89,21,771 0.3% 28-2-01 350.1 409.6 404.25 33,143 25,448 7,695 84,57,716 0.3% 1-3-01 409.6 429.95 372.1 38,291 24,475 13,816 70,83,435 0.3% 2-3-01 37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22-1-01 26-1-01 1241 1300 1269 125221 65,831 59,390 6.4% 1045 29-1-01 2-2-01 1250 1265 1027 185,845 181,910 3,935 0.2% 1046 5-2-01 9-2-01 1000 1039 965 421,926 364,162 57,764 3.7% 1047 12-2-01 16-2-01 950 1019 910 150,764 204,206 -53,442 -5.0% 1048 19-2-01 23-2-01 910 923 743 251,746 172,926 78,820 7.5% 1049 26-2-01 2-3-01 740 759 604 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12591 40449 -27858 8560199 0.5% 28-2-01 542.6 670.85 532.1 670.4 102503 100359 2144 9917229 1.0% 1-3-01 690 759 635 718.05 82022 103200 -21178 7606238 1.4% 2-3-01 745.1 755 603.2 604.80 18260 15293 2967 9907310 0.2% St No. 1049 243291 329346 -86055 42066348 0.8% Enquiry Officer has observed that BEB has liquidated the earlier net purchases and made fresh sales in Settlement No. 1047 of -53442 which constituted 5% of the net sales of the Exchange. Enquiry Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6778 23,650 18,723 4,927 2.9% 1045 29-1-01 2-2-01 6610 6924 6860 8,148 18,933 -10,785 -7.2% 1046 05-2-01 9-2-01 6777 6777 6406 17,866 17,525 341 0.2% 1047 12-2-01 16-2-01 6380 6537 6254 10,657 10,387 270 0.2% 1048 19-2-01 23-2-01 6260 6343 5598 8,344 8,124 220 0.1% 1049 26-2-01 2-3-01 5730 6330 4940 18,883 17,872 1,011 0.3% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 353 263 4,24,005 3,97,648 26,357 0.6% 1050 5-3-01 9-3-01 250 280 229 2,67,146 2,64,781 2,365 0.1% 1051 12-3-01 16-3-01 230 264 237 1,40,570 1,76,792 -36,222 -0.7% [ Dates Open High Close Buy Sales Net Market Sales % of Market 19-2-01 361.25 373.9 372.1 51690 111047 -59357 11876278 0.9% 20-2-01 373.6 376.4 371.6 45680 19040 26640 10515941 0.2% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1048 and had in subsequent settlements viz., S.Nos. 1049 and 1050, BEB has taken advantage of price fall and increased the purchase position which was subsequently in S.No. 1051 was reduced. Enquiry Officer has observed that BEB had net sales of 138885, 79317 and 285297 on 23rd February, 1st March, and 2nd March of 2001 respectively when the scrip price displayed a fall of ₹ 20, 34 and ₹ 50 respectively. DSQ Software Date Date Open Hi Close BEB Sett No. From To Buy Sell Net % Net 1043 15-1-01 19-1-01 373 418 405 1,92,515 1,92,875 -360 -0.1% 1044 22-1-01 26-1-01 415 444 429 43,180 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22-2-01 401.15 404.95 397.95 29310 32295 -2985 5028516 0.6% 23-2-01 395.3 398.05 368.75 19735 23526 -3,791 5120994 0.5% Sett No. 48 114081 114687 -606 22247422 0.5% 26-2-01 374.4 398.2 382.75 10190 22965 -12775 4700527 0.5% 27-2-01 385.35 389.7 337.7 30150 15625 14525 6797996 0.2% 28-2-01 336 380 373.95 41935 30580 11355 4849538 0.6% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,340 4.5% 1048 19-2-01 23-2-01 234 241 210 490,560 673,340 -182,780 -2.0% 1049 26-2-01 2-3-01 215 215 136 175,786 257,806 -82,020 -1.7% 1050 5-3-01 9-3-01 125 147 117 505,318 461,118 44,200 0.4% 1051 12-3-01 16-3-01 120 157 144 227,241 259,087 -31,846 -0.4% Dates Open High Close Buy Sales Net Market Sales % of Market 19-2-2001 234 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at purchase in S.No. 1050, when prices of the scrip moved from ₹ 125 to ₹ 117 are preceded by significant net sales in the earlier settlements, viz., 1048 (1,82,780 shares) and 1049 (82,020 shares) when the prices have dropped from ₹ 234 to ₹ 210 and from ₹ 215 to ₹ 136 respectively. Enquiry Officer has further observed that, considering the opening position, BEB had purchase position of 1,96,290 shares was unwounded and converted into sale position in subsequent settlements (S.No. 1049). Enquiry Officer has concluded that the purchases in settlement No. 1050 when the closing price was ₹ 115 was with a view to cover the earlier short sales and/or taking advantage of the fall in price after hammering down the prices. Enquiry Officer has observed that the trading pattern of BEB in settlement No. 1048 reveals that the purchases on 19th February and 20th February was liquidated on 21st February and fresh sales were made from 21st to 23rd February. BEB had net sale of -2,57,590 on 22nd February and -52,640 on 23rd February when the price had fallen by ₹ 25. The purchases on 1st March, 2001 for 23,135 shares were for covering earlier sales. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 210 241 206 57,310 55,739 1,571 0.1% 234,815 216,945 17,870 1.3% Enquiry Officer has observed that NSB and BEB have simultaneously created net sales in settlement 1049 constituting 17.9 per cent and 9.2 per cent of net at the Exchange and to this extent both the entities have acted in concert to have depressed the share price of Global Tele. HFCL Date Date Open Hi Close BEB NBS Sett No. From To Buy Sell Net %Net Buy Sell Net %Net 1046 5-2-01 9-2-01 1000 1039 96 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 343 5598 8,344 8,124 220 0.1% 78,468 81,155 -2,687 -1.0% 1049 26-2-01 2-3-01 5730 6330 4940 18,883 17,872 1,011 0.3% 148,760 167,360 -18,600 -6.4% 1050 5-3-01 9-3-01 4700 5315 4817 9,292 10,517 -1,225 -0.4% 61,834 71,383 -9,549 -3.3% 1051 12-3-01 16-3-01 4738 4990 4694 6,364 6,526 -162 0.0% 23,230 65,243 -42,013 -12.6% Enquiry Officer has observed that BEB and NBS had net sales in settlement Nos. 1050 and 1051 covering the period 5-3-2001 to 16-3-2001 and Enquiry Officer has come to the conclusion that to this extent, BEB can be said to be acting in concert with NBS in artificially depressing the price by its sales. Satyam Date Date Open Hi Close BEB NBS Sett No. From To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Close BEB NBS Sett No. From To Buy Sell Net %Net Buy Sell Net %Net 1045 29-1-01 2-2-01 407 450 415 93,286 93,226 60 0.0% 754,105 789,005 -34,900 -5.3% 1046 5-2-01 9-2-01 409 446 418 54,784 54,379 405 0.1% 724,383 403,371 321,012 57.2% 1047 12-2-01 16-2-01 415 463 423 78,367 81,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -01 264 294 280 831,480 1,151,725 -320,245 -6.4% 3,741,297 3,400,066 341,231 6.9% 1045 29-1-01 2-2-01 269 273 254 921,929 733,219 188,710 6.0% 2,833,047 2,853,194 -20,147 -0.6% 1046 5-2-01 9-2-01 252 260 231 232,586 383,094 -150,508 -5.3% 878,078 930,283 -52,205 -1.8% 1047 12-2-01 16-2-01 229 247 231 221,970 77,630 144,340 4.5% 456,385 478,321 -21,936 -0.7% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here. BEB has dealt with Palombe, an unregistered sub-broker which amounts to lack of due diligence, exercise of due skill and care expected of a registered broker as per the code of conduct applicable to the brokers. This matter has already been discussed in the preceding pages and, therefore, not repeated here. BEB has indulged in short sales between 8th March, 2001 and 31st March, 2001 to the extent of ₹ 3.05 crores in violation of SEBI Circular No. SMD/RPD/Policy/CIR-13/2001 dated 7th March, 2001. This matter has already been discussed in the preceding pages and, therefore, not repeated here. 8.6 Trading by Bang Securities P. Ltd. (BSPL), Sub-broker - BSPL is a registered sub-broker of NBS and BEB. BSPL has indulged in large trading transactions in the selective scrips including the scrip of HFCL, Global Tele, Zee Tele, HLL, Reliance Industries, SBI, Satyam and Infosys with a view to depress artificially the prices of these securities between mid February and mid March in a concerted manner. BSPL had a significant net sale position on 23rd February, 1st and 2nd March of 2001. BSPL has also traded for Ketan Parekh Group entities Classic Credit and Landmark and Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 632 655 609 343,469 315,020 28,449 3.2% 1048 19-02-01 23-02-01 615 624 439 540,929 580,981 -40,052 -4.6% 1049 26-02-01 02-03-01 443 454 313 508,790 859,105 -350,315 -17.9% 1050 05-03-01 09-03-01 306 312 226 529,984 275,202 254,782 14.1% 1051 12-03-01 16-03-01 210 241 206 234,815 216,945 17,870 1.3% Date Op. Hi Cl. NBS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presenting 4.6% and 17.9% of the net sales at BSE contributed to fall of only. ₹ 7.82 and ₹ 22.74 and ₹ 22.74 and ₹ 11.88 respectively. In this regard it was submitted that though Enquiry Report and Chairman Order have observed that there is a correlation between the Appellant s transaction and change in the scrip price, the Appellant assumption that his contribution to the change in scrip price is equal to his net at the end of settlement as a ratio of net at the exchange for the relevant period is not acceptable. (b) HFCL Date Date Op Hi Cl BEB Sett No. From To Buy Sell Net %Net 1043 15-01-01 19-01-01 1180 1222 1211 1,072,461 1,063,601 8,860 0.8% 1044 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5860 6800 6779 171,478 189,504 -18,026 -3.7% 1044 22-01-01 26-01-01 6950 6988 6778 49,999 72,602 -22,603 -13.4% Date Date Op Hi Cl BEB Sett No. From To Buy Sell Net %Net 1045 29-01-01 02-02-01 6610 6924 6860 69,638 57,158 12,480 8.3% 1046 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 26-01-01 424 430 414 3,050,630 2,809,278 241,352 9.2% 1045 29-01-01 02-02-01 400 427 415 3,115,273 3,112,460 2,813 0.1% 1046 05-02-01 09-02-01 400 412 372 2,885,180 3,109,983 -224,803 -5.6% 1047 12-02-01 16-02-01 375 387 365 1,553,704 1,263,970 289,734 9.5% 1048 19-02-01 23-02-01 361 376 318 1,727,274 1,762,314 -35,040 -1.6% 1049 26-02-01 02-03-01 321 353 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,925 -2.3% 1044 22-01-01 26-01-01 415 444 429 3,96,955 3,98,850 -1,895 -0.4% 1045 29-01-01 02-02-01 407 450 415 7,54,105 7,89,005 -34,900 -5.3% 1046 05-02-01 09-02-01 409 446 418 7,24,383 4,03,371 321,012 57.2% 1047 12-02-01 16-02-01 415 463 423 4,68,678 4,68,263 415 0.1% 1048 19-02-01 23-02-01 424 433 369 4,79,278 4,93,576 -14,298 -3.1% 1049 26-02-01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12-02-01 16-02-01 229 247 231 456,385 478,321 -21,936 -0.7% 1048 19-02-01 23-02-01 234 241 210 1,717,642 1,859,341 -141,699 -1.6% 1049 26-02-01 02-03-01 215 215 136 1,208,299 1,631,119 209,795 -8.8% 1050 05-03-01 09-03-01 125 147 117 2,643,142 2,606,129 37,013 0.3% 1051 12-03-01 16-03-01 120 157 144 771,469 858,652 -87,183 -1.1% Enquiry Officer has observed that NBS was continuous net seller from sett. Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or will be entered into by or for the same or different parties. It also must be established as it has in this matter, that the transaction was done for the purpose of creating a false or misleading appearance of active trading in such security, or a false or misleading appearance with respect to the market for any such security. However, proof of scienter in manipulation cases need not be direct, but rather may be inferred from circumstantial evidence, including evidence of price movement, trading activity and other factors. Further proof of manipulation is generally not based on a single activity, but rather on a course of conduct showing an intentional interference with the normal functioning of the market for a security. Indeed, manipulation is usually the result of acts, practices, and courses of conduct that deceive the market place: proof of manipulation almost always depends on inferences drawn from a mass of factual data. Findings must be gleaned from patterns of behaviour, from apparent irregularities, and from trading data. When all of these are considered together, they can emerge as ingredients in a manipulative scheme designed to tamper with free market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their certificate of registration, conduct of brokers, etiquette, ethics etc. There was no specific Regulation relating to fraudulent and unfair trade practices committed by the brokers. SEBI under sections 11 and 11B of the SEBI Act has the power to regulate fraudulent and unfair trade practices and manipulative transactions done by any person including inter alia brokers and sub-brokers. When the FUTP Regulations came into force with effect from 25th October, 1995 it became a complete code relating to Fraudulent and Unfair Trade Practices committed by any person including brokers and sub-brokers. The source of SEBI s power to suspend and cancel the Registration of an intermediary can be traced to section 12(3) of the SEBI Act. Regulations 3 and 4 of the FUTP Regulations relate to prohibition of dealing in securities in a fraudulent manner and prohibition against market manipulation. Regulation 2(c) defined fraud. FUTP Regulations provide for the procedure for investigation etc. Regulation 11 of the FUTP Regulations provide that SEBI upon consideration of the report of the Investigating Officer may issue directions for ensuring due compliance with the provisions of the Act, rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be complied with or procedure, one can go to the Regulations of the intermediary concerned. The Standard of Proof SEBI is a regulatory Authority and regulates conduct of all intermediaries in the security market. The Appellant being an intermediary could perform in the Security market fully under the SEBI Regulatory jurisdiction. The proceedings that SEBI adopt are adjudicatory proceedings which are civil in nature. SEBI adjudicated proceedings are not criminal proceedings. In all civil proceedings, standard of proof is on the basis of preponderance of probabilities and not beyond reasonable doubt as required in criminal cases. Fraudulent or manipulative trading are therefore required to be proved by SEBI only on the basis of preponderance of probabilities and not beyond reasonable doubt Union of India v. Chaturbhai M. Patel Co. AIR 1976 SC 712 and National Housing Bank v. A Z Grindlays Bank 1998 Volume 11 1998 (2) Law Judgments 153 at page 178. The enquiry proceedings are adjudicatory proceedings of a civil nature and are not criminal proceedings and therefore the standard of proof required is not as high as that required in criminal proceedings. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are considered together, they can emerge as ingredients in a manipulative scheme to designed to tamper with free market forces . As held in the case of Carole L. Hynes. Limitation Regulation 29(3) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 says that The Board after considering the reply to the show-cause notice, if received, shall as soon as possible but not later than thirty days from the receipt of the reply, if any, pass such orders as it deems fit. In the present case a common interim order was passed on April 18, 2001 debarring Mr. Nirmal Bang, Mr. Kishore Bang, and Mr. Dilip Bang and Bang Entities from undertaking any fresh business as stock broker or sub-broker till further orders. A common post-decisional hearing was given to the Bang Entities on 30th April, 2001 at which the Bang Entities made common oral submissions and the Entities thereafter submitted their common written submissions, pursuant to which a common Order was passed on 4th June, 2001 confirming the above order. The show-cause notices dated 10th September, 2001 and 25th January, 2002, were issued to the Bang Entities as joint noticees by the Enquiry Officer and the enquiry procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 40 cannot be restricted only to written reply to the show-cause notice. Oral submissions are also to be treated as replies. Since, the order was issued, within 30 days of the completion of the oral submissions and all the Oral submissions were required to be completed. It cannot be said that the order was issued beyond the time limit prescribed regulation 40(3) of the 1992 Regulations. In the present case since all the proceedings conducted by SEBI against the Bang Entities are common the question of passing a separate order against Bama Securities does not arise and therefore there the question of any delay in passing the impugned Order dated 30th July, 2002, beyond the period prescribed under section 29(3) does not arise as the same was passed within 30 days of giving a oral/personal hearing on 1st July, 2002. The ratio of the judgment in Atul Kanodia s case that the period of 30 days requires to be reconsidered in view of the following Judgments : (A)Bhaskaranand Agarwal v. State of Sikkim AIR 1998 Sikkim 4. (B)Ganesh Prasad Sah Kesari v. Lakshmi Narayan Gupta AIR 1985 SC 964. (C)Karnal Leather Karamchari Sanghatan v. Liberty Footwear Co. AIR 1990 SC 247. Spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Chairman of SEBI adjudicated the notice and passed an order on 30-7-2002 cancelling the registration of the Appellants, holding that the Appellants had indulged in large trading transactions with a view to depress the market artificially in a concerted manner, indulged in short sales and synchronized trading, traded in particular time slots when the share prices registered substantial fall and routed large transactions through unregistered sub-brokers. They were accordingly found guilty of violating the code of conduct specified in the Stock Broker Regulations and regulation 4(a) to (d) of the FUTP Regulations. 11. The Appellants in appeal Nos. 54/2002; (NBS); 55/2002; (BEB); and 56/2002 (Bama); are Stock Brokers. While NBS and BEB are members of BSE, Bama is a member of NSE. Appellant in appeal No. 57/2002 is a sub-broker to NBS and BEB. These brokers are stated to have about 100 sub-brokers operating for them, and that they are providing service to over 10,000 retail investors across the country. 12. The Appellants annual traded turnover, in the year 2000-2001 according to them was around ₹ 57,196 crores. According to the Appellants despite the large scale operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains. (4) Malpractices : A stock broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors or which leads to interference with the fair and smooth functioning of the market. A stock broker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness. (5) Compliance with statutory requirements : A stock broker shall abide by the provisions of the Act and the rules, regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to him. The Code of Conduct applicable to Sub-brokers is separately provided in Schedule II of the Stock Brokers Regulations. In the said Code under Clause A the requirements at (1) and (2) above have been stipulated. It is noted that sub-brokers are attached to some brokers. For example in the instant case Bang Securities P. Ltd., (BSPL) is a sub-broker under NSB and BEB. Sub brokers are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trade Practices relating to Securities Market is the core chapter in the FUTP Regulations. Regulation 3 thereunder prohibits any person from buying selling or otherwise, dealing in securities in a fraudulent manner. Prohibition against market manipulation is covered by regulation 4. Sub-clauses (a) to (d) of regulation 4 referred to in the order have been extracted above. Regulation 5 is on prohibition of misleading statements to induce sale or purchase of securities and regulation 6 prohibits unfair trade practices relating to securities . 18. Chapter III provides for investigation into alleged contravention of the regulations and consequential action thereafter. Regulation 7 empowers SEBI suo motu or upon information received by it to cause an investiga- tion to be made in respect of the conduct and affairs of any person buying, selling or otherwise dealing in securities, by an investigating officer, for the purposes, namely - (a) to ascertain whether there are any circum-stances which would render any person guilty of having contravened any of these regulations or directions issued thereunder (b) to investigate into any complaint of any contravention of the regulation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 4(a)( i) a person should have effected, taken part in, or entered into either directly or indirectly, transactions in securities (ii) the transactions must be with an intention (iii) such transaction must be to artificially raise or depress the prices of securities (iv) the result of the action must be to induce the sales or purchase of securities by any person. The ingredients of regulation 4(d) are that (i) a person must enter into a purchase or sale of any securities (ii) said purchase or sale must not be intended to effect the transfer of beneficial ownership (iii) the purchase or sale must be intended to operate only as a device to inflate, depress or cause fluctuations in the market price of securities. On a perusal of the regulation it is clear that reach of clause (a) is wider than the reach of clause (d) Regulation 4( a) brings not only the purchaser and seller but even third parties also to its ambit, if they are found in any way involved in effecting or taking part in the transactions directly or indirectly. The motive behind the action and the effect of the actions is also relevant. Transactions in securities, with the intention of raising or depressing the prices of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions that are not genuine trade transactions. Word indulge according to Webster s Encyclopedic Dictionary means to yield to an inclination or desire . Here again it is action based. The expression indulge used in clause (b)( c) also gives credence to believe that the action should be an intentional one. In my view for the market manipulation stated in regulation 4 if one is to be charged it is absolutely necessary to prove that the person had acted intentionally. It is to be noted that the prohibition in regulation 4 is on market manipulation. Market manipulation, by its very nature cannot be attributed to any unintentional act. Intention is built in the process. 21. This Tribunal in Videocon case had examined the extent of evidence required to establish the charge of market manipulation and had observed that : As stated earlier, in the absence of reasonably good evidence to support, charge of market manipulation, which is a very serious one, cannot stick on the Appellant company, merely on surmises and conjunctures. 22. In this context, with reference to the test of evidence applicable to the domestic inquiries, Shri Dada had referred to the decision in Gulab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The extent of proof required to hold the delinquent guilty has been explained by the Hon ble Supreme Court in Bank of India s case (supra). The Court held : 11. Strict rules of evidence are not applicable to departmental enquiry proceedings. The only requirement of law is that the allegation against the delinquent officer must be established by such evidence acting upon which a reasonable person acting reasonably and objectively may arrive at a finding upholding the gravament of the charges against the delinquent officer. Mere conjuncture or surmises cannot sustain the finding of guilt even in departmental enquiry proceeding. . . . (p. 2411) [Emphasis supplied] In M.S. Bindra v. Union of India [1998] 7 SCC 310 the Court had while deciding an appeal against the removal of an officer from service on doubtful integrity held that mere possibility is hardly sufficient to assume that it would have happened . In Nand Kishore Prasad v. State of Bihar [1978] 3 SCC 366, the Court while considering the appeal against the removal of an employee from service based on the findings of a departmental enquiry viewed that : 19. Before dealing with the contentions canvassed, we may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : . . . It is true that there is no difference between the general rules of evidence in civil and criminal cases, and the definition of proved in section 3 of the Evidence Act does not draw a distinction between civil and criminal cases. Nor does this definition insist on perfect proof because absolute certainly amounting to demonstration is rarely to be had in the affairs of life. Nevertheless, the standard of measuring proof prescribed by the definition is that of a person of prudence and practical good sense . . . The same is largely true about proof a charge of corrupt practice which cannot be established by a mere balance of probabilities. . . . (p. 671) [Emphasis supplied] The Hon ble Supreme Court in yet another case with reference to adjudication under the Sea Customs Act and Land Customs Act relating to imposition of penalty on the person concerned had held : To such a situation though the provisions of the Code of Criminal Procedure or the Evidence Act may not apply, except in so far as they are statutorily made applicable, the fundamental principles of criminal jurisprudence and of natural justice must necessarily apply. If so, the burden of proof is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport of the said submission, had cited this Tribunal s decision in Atul Kanodia s case (supra). According to regulation 27 of the Stock Brokers Regulations no order of penalty of suspension or cancellation shall be imposed except after holding an enquiry in accordance with the procedure specified in regulation 28. The proviso to the regulation keeps certain cases out of the purview of the said requirement. The proviso has no application to the present case. Section 28 empowers SEBI to appoint an Enquiry Officer for the purpose of holding an enquiry under regulation 27. 24. In terms of regulation 28(7) the Enquiry Officer is required, after taking into account all relevant facts and submissions made by the Stock Broker, to submit a report to the Board and recommend the penalty to be awarded as also on the justification of the penalty imposed in the show-cause notice. In terms of regulation 29(1) on receipt of the report from the Enquiry Officer, SEBI is required to consider the same and issue show-cause notice to the Stock Broker/Sub-Broker as to why the penalty as it considers appropriate should not be imposed. Sub-regulation (2) requires the Stock Broker/Sub-Broker to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible or feasible to segregate Bama s case and issue a separate order. It is noticed that the hearing was concluded on 1-7-2002 and the order was passed on 30-7-2002 well within the stipulated 30 days time limit. In the absence of any evidence on record to prove the contrary, the date of passing the order has to be accepted as 30-7-2002 as is reflected from the order itself. The ratio in the Atul Kanodia s case has no application to the case, as in the said case the order was passed by SEBI, beyond the 30 days prescribed in regulation 29(3). In the light of the facts and circumstances of the case in my view, the impugned order cannot be said to have been passed beyond 30 days and it is not vitiated even qua Bama. The Respon-dent has also prayed to reconsider the ratio of the judgment in Atul Kanodia s case (supra) and had for the purpose cited Bhaskaranand Agarwal s case (supra), Ganesh Prasad Shah Kesari s case (supra) and Karnal Leather Karamchari Sanghtan s case (supra ). I do not consider that reconsideration of Atul Kanodia is called for, for deciding the present case. 26. Yet another major legal issue, agitated by the Appellants is the authority of SEBI to issue the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under regulation 11 may be issued are the following namely:- (a)directing the person concerned not to deal in securities in any particular manner; (b)requiring the person concerned to call upon any of its officers, other employees or representatives to refrain from dealing in securities in any particular manner; (c)prohibiting the person concerned from disposing of any of the securities acquired in contravention of these regulations; (d)directing the person concerned to dispose of any such securities acquired in contravention of these regulations, in such manner as the Board may deem fit, for restoring the status quo ante. Since the parties had relied on the provisions of regulations 25 and 26 of the Stock Broker Regulations, it is considered necessary to extract the same also for ready reference. 25. Liability for action in case of default.-(1) A stock-broker who- (a)fails to comply with any conditions subject to which registration has been granted; (b)contravenes any of the provisions of the Act, rules or regulations; (c)contravenes the provisions of the Securities Contracts (Regulations) Act, or the rules made thereunder; (d)contravenes the ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered in the impugned order. According to them SEBI has passed the order for violation of the provisions of the Stock Broker Regulations and FUTP Regulations. According to the Appellants penalty of cancellation of registration of Stock Broker/Sub-broker can be imposed only on the three grounds stipulated under regulation 26(2) of the Stock Broker Regulations, that in the instant case since the Appellants have not been charged with or found guilty of indulging in fraud, the certificate of registration cannot be cancelled. In this context Shri Dwarkadas had argued elaborately, referring to the provisions of regulations 25 and 26 of the Stock Broker Regulations. He had also cited authorities, which I have referred to in the earlier part of this order while setting out his arguments, in support of his contention that the penalty of suspension or cancellation can be imposed as per the guidelines provided in regulation 26 only. In this context referring to regulation 26(1)(v) the Learned Senior Counsel had submitted that the said regulation specifically provides for the suspension of registration in the event of a broker/sub-broker indulging in manipulation or price rigging in the market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 25(1). Learned Senior Counsel had submitted that this is the only harmonious construction that can be placed on regulations 25 and 26 and the only construction by which the provisions of regulations 25 and 26 will be given full effect and rendered workable. 30. Shri Rafiq Dada, Learned Senior Counsel for the Respondent countering the Appellants submissions on the power under regulation 13 submitted that Stock Broker Regulations is a general regulation, regulating the activities of the Stock Brokers and sub-brokers and it provides the consequences that would visit them on violation of the requirements stipulated therein. He submitted that there was no specific regulation relating to fraudulent and unfair trade practices committed by the brokers, and till such time the FUTP Regulations were brought in, sections 11 and 11B which provide adequate power to SEBI, were invoked to deal with the fraudulent and unfair trade practices indulged in by any person including Stock brokers and sub-brokers, that FUTP Regulations was notified on 25-10-1995. Learned Senior Counsel submitted that FUTP Regulations by itself is a complete code relating to Fraudulent and Unfair Trade practices. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries can be awarded the punishment of suspension or cancellation of their certificate of registration. Learned Senior Counsel submitted that regulations 25 and 26 of the Stock Broker Regulations do not in any way curtail the powers of SEBI under regulation 13 of the FUTP Regulations. 31. I have given considerable thought to the rival contentions on the powers of SEBI to order suspension/cancellation of the certificate of registration granted to the intermediaries, on finding those intermediaries guilty of violating the provisions of FUTP Regulations. The basic principles to be followed in inflicting penalties have been provided by the Hon ble Supreme Court in several cases. To quote one such decision is that of Ranjit Thakur s case (supra). The Hon ble Court in the said case has observed that the sentence has to suit the offence and the offender, that it should not be vindictive or harsh and it should not be so disproportionate to the offence as to shock the conscience and amount in itself to conclusive evidence of bias. The Hon ble Court has further held that the penalty imposed must be commensurate with the gravity of the misconduct and that any penalty disproportionate to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation/suspension of the certificate of registration available in the regulations applicable to intermediaries, is only with a view to avoid undue burdening of the Regulation by repealing those requirements in the text of the FUTP Regulations and such cross references in the Regulations are very common. I have noted that SEBI has now codified the procedure for holding enquiries vide Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, and the same is applicable to all intermediaries including the Stock Brokers and sub-brokers. 35. I have noted the argument advanced by Shri Dwarkadas that since regulation 26 clarifies the offences for imposing the penalty of suspension and cancellation, the respondent has to abide the guidelines provided in the said regulation. But I find difficult to agree with his submission that for violation of FUTP Regulations, penalty of suspension or cancellation of certificate of registration be made only as per the provisions of regulation 26. 36. Regulation 26(1) inter alia provided that a penalty of suspension of registration of a stock broker may be imposed, if a Stock brok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscretion of the authority imposing the penalty. The position is clear from section 24 of the SEBI Act. The said section is extracted below. 24 Offences.-(1) Without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made thereunder he shall be punishable with imprisonment for a term which may extend to one year, or with fine, or with both . The Legislature has not provided any guidelines except capping the term of imprisonment. Even the maximum fine leviable has not been stipulated. In what circumstances, penalty of imprisonment is to be awarded and in what circumstances fine is to be imposed and in what circumstances both imprisonment and fine can be imposed, are left to the discretion of the court. No doubt the authority imposing the penalty can not impose the same whimsically. It is in this context one has to look for the guidance given by the Hon ble Supreme Court in Ranjit Thakur s case (supra) referred earlier - that the penalty imposed must be commensurate with the gravity of the misconduct and that any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales after 8-3-2001 in violation of SEBI Circular dated 7-3-2001. In the case of Bama the other charges are : (i)Dealing in securities in a structured manner in time slots. (ii)Acted in concert with Bang Securities Ltd. (BSL) for indulging in simultaneous sales in the scrips of Infosys, Reliance and Satyam on the specified dates. In the case of Bang Securities : Apart from the charge that it was indulging in large trading transactions in selected scrips with a view to depress artificially the prices of those securities, it has also been alleged that they acted in concert with Bama for indulging in simultaneous sales in the scrips of Infosys, Reliance and Satyam on the specified dates. 42. It is noted that the four Appellants are owned, managed and controlled by Bang family. In fact the Appellants themselves have described them as Bang Entities . The fact that they are separate entities in the eyes of law, does not change their basic character of Bang family entity. It can be safely concluded that the controlling mind of these 4 entities are common. But whether they had acted in a concerted manner so as to depress the market is a question of fact to which we wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. A Bear market is a weak or falling market characterised by the dominance of Sellers . It was alleged by the Respondent that the Appellants operated in Bear Market. SEBI in its order has attempted to pin down the Appellants mainly on the ground that they were sellers. SEBI seems to have gone by the notion that selling in a falling market is a market manipulation. It is not selling per se, but the intention of the seller that would decide as to whether he was indulging in manipulation. Selling scrips in a falling market, with no intention of manipulation, in my view cannot attract regulation 4. 45. I have perused the data furnished by the Appellants and the Respondents with reference to the allegation of large trading transactions by the Appellants with a view to depress the market. The Appellants have denied the charge of large trading transactions and also the allegation of concerted action by them. Since I have already set out the data relied on by the parties in his regards in the context of their respective submissions recorded in the earlier part of the order I do not propose to reproduce the same here. I have examined those data with reference to the observation made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich order is placed appropriate, that no advice of any nature is provided to any client, which in fact, takes the investment decision without being influenced by the Appellants. In this context it is to be noted that in terms of clause B(1) of the Code of Conduct applicable to Stock Brokers A stock broker in his dealings with the clients and the general investing public shall faithfully execute the orders for buying and selling of securities at the best available market price... . In the normal course, the Broker acts only as an agent of his client. To prove that the Broker was deciding the transactions for the client, one has to bring in evidence. SEBI has not produced any evidence to show that the transactions done by the Appellants were in their own account or on clients account. The Learned Senior Counsel for the Respondent had submitted that the Appellants conduct has to be viewed from their overall conduct. I have not missed this submission. But the material on record do not support the Learned Senior Counsel s submission that in the totality of the facts and circumstances the Appellants could be considered to have indulged in large trading transactions to depress the mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion, which SEBI has not done. I would like to make it clear in this context that my finding that the charge under discussion does not stick is based only on the basis of the limited material available before me. Trading by Bama 47. It has been alleged that the trading pattern of Bama on 22, 23 and 28th February and 1st and 2nd March in the scrips of Global Tele, HFCL, Satyam, Silverline, Zee and Wipro showed that Bama was a consistent net seller. The Appellant has questioned the data on the ground that the same do not represent the true position. I do not consider that it is necessary to go into the details further, as the motive of Bama has not been established. In fact the Respondent itself is not sure in the matter as could be seen from the statement that the net sales position of Bama can be said to have contributed to the artificial depression of price of these scrips during the relevant period. 48. The Respondent had alleged that NBS had transacted with two unregistered firms namely Money Growth Investments and Arihant Investments and BEB with another unregistered firm viz. Palombe. The Appellants have disputed the charge. It seems that SEBI itself has not recogni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEBI had any tangible evidence to support the version put in the impugned order holding those three entities as unregistered sub-brokers, there was no reason for SEBI not to proceed against them for violation of the Broker Rules. Since the Appellants had disputed SEBI s version that those entities are unregistered sub-brokers, all the more it was for SEBI to prove that they are unregistered sub-brokers. In fact SEBI in its order has gone to the extent of saying that It is not shown by the member that Palombe is one such person with whom brokerage can be shared in terms of the proviso to bye law 218(a) of BSE or Palombe is not a disqualified person for sharing brokerage in terms of the proviso to the bye law 218(a). It was for the Respondent, which has levelled the charge that BEB had transacted through Palombe, which allegedly is an unregistered sub-broker, to prove the charge and not for the Appellant to prove as suggested in the order. About the other two entities NBS s statement that those entities had represented to it as clients remains unrebutted. There is nothing on record to substantiate the charge that NBS and BEB had made huge transactions through unregistered sub-broke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically this is OK. But when parties decide to synchronize the transaction the story is different. There are many transactions giving an impression that these were all synchronized, otherwise there was no possibility of such perfect matching of quantity price etc. As the Respondent rightly stated it is too much of a coincidence over too long a period in too many transactions when both parties to the transaction had entered buy and sell orders for the same quantity of shares almost simultaneously. The data furnished in the show-cause notice certainly goes to prove the synchronized nature of the transaction which is in violation of regulation 4 of the FUTP Regulations. The facts on record categorically establishes that BEB had indulged in synchronized trading in violation of regulation 47 of the FUTP Regulations. In a synchronized trading intention is implicit. 53. Bama has been charged for effecting sales in time slots. I have gone through the data relied on for the purpose, as available on record. The Respondent has established with proof that sale in time slots by Bama had contributed to the decline in the share prices. The following table clearly illustrates the case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant BEB, by the very nature of the transaction cannot absolve itself of the involvement in the transaction. Intention is reflected from the action of the Appellant. Choosing selective time slots does not appear to be an involuntary action. I am not saying that these time slots sales were responsible for the market fall. But these time slots had contributed to the market fall. The Respondent had observed that Bama had sales including short sales in the specified time slots as given in the show-cause notice. Taking into account the quantum of shares sold, the fall in price of the shares during the time slots had concluded that the data support the charge that the member had sales including short sales during specific time bands and caused fall in the price. 55. The charge against Bang Securities which is a sub-broker is that of indulging in excessive sales to bring down the prices, acting in concert with others, short sale of 2 lakh shares of Global Tele system, receipt of loan of ₹ 5 crores from Palombe and sharing of introductory fees with it. The charge of excessive sales to bring down the prices remains unestablished. I have examined the data provided in supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d charge cannot be sustained. Once the said charge itself fails, the question as to whether Bang Entities acted in concert or not becomes academic. The charge of dealing with unregistered sub-brokers by NBS BEB also fails for the reason stated earlier. The charge that NBS and BEB had indulged in short sales after 8-3-2001 remains established. The charge that BEB had indulged in synchronized deals with FGBS also stands established. Also the charge that Bama s sales in certain picked up time slots had an adverse effect on the market remains established. No charge against BSL has been established. 57. Respondent has cancelled the certificate of registration of all the Appellants. Perhaps such a harsh penalty was awarded because of the view it had held that the Appellants had traded in securities with the intention to depress the market. But since the said central charge has failed to be established it is felt that it is not proper to award the penalty of cancellation of certificate of registration. Cancellation of Certificate of registration is akin to capital punishment as far as an intermediary is concerned and therefore the same has to be awarded with great care and caution. A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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