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TMI Blog2008 (10) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... gruti Securities 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 20,364 Ameet Parikh 8,843 0 70,249 0 79,092 0 Total 8,843 529 70,249 19,835 79,092 20,364 On the basis of the findings recorded in the investigation report, the Board initiated adjudication proceedings against the appellant. A notice dated May 11, 2005 was issued by the adjudicating officer calling up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od 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 artificially by buying that scrip, it is alleged that the appellant made purchases on behalf of Ameet Parekh on NSE and BSE in small lots at a price higher than the last traded price (LTP) during the period of investigations and this is said to have been done to raise the price of the scrip of JIK or to support it at a level higher than what it would have otherwise been. It is on account of these buy orders executed by the appellant that it is alleged to have violated Regulation 4(a) of the Regulations. 4. At the outset, we may mention that the appellant had also been charged with violating Regulation 4(c) which prohibits a person from indulging in any act which results in reflection of prices of securities based on transactions that are "not genuine trade transactions'. In other words, what is prohibited is the execution of transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 artificial trade/price is the one that is executed or determined by human manipulation rather than through the operation of the system. As at present advised, we are of the view that in an artificial trade there has to be collusion between the buyer and the seller and in the absence of any collusion, the trade cannot be termed as 'artificial'. 5. Now let us see what the adjudicating officer has found. In para 4.6 of the impugned order he rightly observes that "To establish the charge of artificial trades, the nexus of the parties needs to be established." Having said this, he observes that there is no allegation of nexus between Ameet Parikh and the appellant and JIK. He is wrong when he observes that there is no nexus between Ameet Parikh and the appellant. The nexus is obvious. Ameet Parikh is the client and the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the adjudicating officer and has been reiterated in the grounds of appeal. Unfortunately, the adjudicating officer has not dealt with this aspect at all. We have to acknowledge that the fact that 93 per cent of the purchases of Ameet Parikh were at the last traded price or below - a fact that could not be disputed before us - lends weight to the view that the appellant was not trying to raise the price of the scrip artificially. However, in the view that we are taking of the appellant's transactions, it would not matter if the percentage of purchases at the last traded price or below were lower or the total purchases at rates higher than the last traded price were more than 7 per cent. The artificial nature of trades cannot be established on the basis of percentage of such purchases but only on the basis of collusion or nexus between the buyer and the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 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 can place the buy and sell orders on the system and any order above the upper limit of the band or below the lower limit shall not be accepted by the system. To illustrate, as in the instant case, the closing price of the scrip of JIK on BSE on 22.1.2003 was ₹ 31.70. There being a circuit filter of 20 per cent on the scrip, it could trade between 20 per cent higher than previous day's closing price and 20 per cent lower on the next day i.e. 23.1.2003. The price band for the purpose of trading on 23.1.2003 would thus be ₹ 38.04 at the upper end and ₹ 25.36 at the lower end. Any order beyond these limits (upper and lower) would not be accepted by the system. Considering that the appellant was putting in buy orders within the upper circuit limit on all the days that it traded on behalf of Ameet Parikh and if those orders resulted into trades, there b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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