TMI Blog2008 (10) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... ities Limited (the appellant) is a company incorporated under the Companies Act, 1956. It is a member of the Bombay Stock Exchange (BSE) and the National Stock Exchange Ltd. (NSE) and has been carrying on business of stock broking since the year 1991. The Securities and Exchange Board of India (hereinafter called the Board) conducted investigations in the scrip of JIK for the period from January 23, 2003 to April 1, 2003 and found that some irregularities had been committed during the course of the trading in the scrip. The appellant on behalf of its clients Axtel Industries Limited (Axtel) and Ameet Parikh had executed the trades in the scrip of JIK during the period of investigation. The details of the trades are as under: Client NSE BSE Total Bought Sold Bought Sold Bought Sold Axtel Industries Ltd. 0 529 0 19,835 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuine trade transactions; (d) .... (e) .... A detailed reply dated June 21, 2005 was filed by the appellant denying each and every allegation made in the show cause notice. On a consideration of the reply filed by the appellant and the material collected during the course of the investigations, the adjudicating officer by the impugned order found the appellant guilty of violating only Regulation 4(a) of the Regulations and not Regulation 4(c) and accordingly, imposed a penalty of ₹ 10 lacs. Hence this appeal. 3. We have heard the learned Counsel for the parties and are of the view that the impugned order cannot be sustained. As is clear from the chart reproduced hereinabove, the appellant as a broker had executed trades on behalf of Axtel and Ameet Parikh during the period in question. The appellant sold 529 shares of JIK on NSE and another 19,835 shares on BSE on behalf of Axtel and did not make any purchase on behalf of this client and, therefore, there is no allegation that the appellant manipulated the price of the scrip while executing the sale transactions. Since price of a scrip can ordinarily be raised art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be picked up to complete the trade. Similarly, a sell order will be matched with the best buy order (highest price) subject to the condition that no seller will be made to sell at a price lower than what he has fed into the system. If more than one pending buy orders match the sell order, the buy order placed earlier in point of time will be matched first. This is how the price discovery mechanism of the system works as it is based on the free inter play of the forces of demand and supply. The price which the system determines is truly the price which a willing buyer would pay to a willing seller. Once the system has determined the price of a scrip in the aforesaid manner, it can never be described as artificial. Artificial price, on the other hand, is a price determined by the buyer and the seller in a premeditated manner through collusion by manipulating the system of which we have seen many instances. Black's Law Dictionary (eight edition) defines the word 'artificial' as Made or produced by a human or human intervention rather than by nature . If we substitute the word 'trading system' for 'nature' in this definition, it becomes clear that an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. 6. The adjudicating officer has referred to a chart showing that the appellant had placed buy orders on behalf of Ameet Parikh before the start of the trading session in small quantities at rates higher than the previous day's closing price and this, according to the chart, he did repeatedly. From this pattern of trading, the adjudicating officer has drawn an inference in para 4.6 of the impugned order that the conduct of the appellant was not innocent because, according to him, the appellant did not give to his client the best market rate. He has also inferred an element of manipulation of the opening price of the scrip of JIK. We are unable to agree with the adjudicating officer. No allegation was ever made against the appellant that it failed to give the best market price to its client. Moreover, the inference that has been drawn is wholly unwarranted and there is no basis for it. It is the case of the appellant that the total purchases made by it on behalf of Ameet Parikh at rates which were higher than the last traded price was less than 7 per cent of the total purchases executed on his behalf during the investigation period. This plea was taken before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the scrip of Lupin Laboratories Ltd. and the same was established on the basis of charts showing that buy orders had been placed at prices higher than the last traded price. While reversing the order of the Board, this Tribunal observed that merely because some buy orders had been placed at prices higher than the last traded price in the scrip would not lead to the inference that the price was being manipulated upwards. It could indicate the desire of the appellant to purchase the shares and it is with that object in view that he may have put in buy orders at the higher rate. The Board did not challenge the findings recorded by the Tribunal. Similar is the position in the case before us. 7. The matter can be looked at from another angle as well. With a view to reduce the volatility in the trading of a scrip and to protect the interest of the investors and the stock market, stock exchanges usually set circuit filters on percentage basis on the previous day's closing price of that scrip. They are numeric percent limits set on individual scrips to stop any unduly rising or falling of a stock price. Circuit filter defines the price band within which the traders ..... X X X X Extracts X X X X X X X X Extracts X X X X
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