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TMI Blog2017 (6) TMI 1411X X X X Extracts X X X X X X X X Extracts X X X X ..... singular trades. 2. The investigation, inter alia, revealed that entities namely 1) Jayesh Narendra Kesharia, 2) Prakash Todankar, 3) Rajat Share Broking Pvt. Ltd., and 4) Sanyukta Rungta (hereinafter referred to as 'noticee no 1 to 4 respectively and collectively referred to as the noticees) had entered into transactions at higher prices than the last traded price (LTP) with low volumes in a fraudulent and manipulative manner in the scrip of BCSL. 3. SEBI has, therefore, initiated adjudication proceedings against the noticees for the alleged violation of the provisions of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) & (e) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relation to Securities Market) Regulations, 2003 (hereinafter referred to as the PFUTP Regulations). Appointment of Adjudicating Officer 4. I have been appointed as Adjudicating Officer vide order dated April 2, 2014 under Section 15 I of the Act read with Rule 3 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as 'Rules') to inquire into and adjudge under Section 15HA of the Act against the noticees for the al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Authorized Representatives (ARs) attended the hearing on December 14, 2015 and reiterated the submissions as made earlier vide letter dated August 01, 2014 and also submitted its additional reply vide letter dated January 1, 2016. The authorised representatives attended the another personal hearing on May 26, 2017 and reiterated the submission as made earlier vide letters dated August 1, 2014 and January 1, 2016. 11. Sanyukta Rungta vide letter dated August 4, 2014, acknowledged the receipt of the said SCN and submitted her reply to the SCN. Thereafter, in the interest of natural justice and in order to conduct an inquiry as per Rule 4(3) of the said Rules, an opportunity of personal hearing was granted to her on December 14, 2015. Vide letter dated December 11, 2015, Sanyukta Rungta acknowledged the receipt of the said hearing notice and submitted her additional reply to the SCN. However, she did not attend the personal hearing scheduled on December 14, 2015. Further one more opportunity of personal hearing was granted to her on May 9, 2017. Vide e-mail dated May 8, 2017, she reiterated the submissions already made vide email dated December 11, 2015. She also submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and may include all or any of the following, namely:- (a) indulging in an act which creates false or misleading appearance of trading in the securities market; (e) any act or omission amounting to manipulation of the price of a scrip 15. It is noted that the noticees had placed buy orders at higher prices than the LTP and impacted the price of the scrip by contributing significantly to the price rise. Further the seller to these trades have placed the sell order in tandem to the buy order prices with minimum quantity (on most occasions one share) to establish the new high price. It is, therefore, alleged in the SCN that the noticees had violated the provisions of Regulations 3(a), (b), (c), & (d), 4(1), 4(2)(a) & (e) of PFUTP Regulations. Submissions made by the Noticees: 16. Jayesh Narendra Kesharia, (Noticee no. 1) vide his letter dated August 8, 2014 denied all the charges leveled against him in the SCN and inter- alia submitted as under: (i) That during the IP, he had carried out transactions in various scrips. His turnover during the period of investigation was Rs. 43,00,25,888/- whereas his turnover in the scrip in question was only Rs. 78,351.17/- which is only 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit/Loss Sr Date Qty Rate Amount Date Qty Rate Amount Amount (+-) 1. 13/09/2011 1 357.75 357.75 - 0 - - 2. 28/09/2011 1 441.65 444.65 - - - 3. 29/09/2011 5 450.45 2252.25 - - - 4. 30/09/2011 5 459.45 2297.25 - - - 5. 03/10/2011 40 468.60 18744.00 - - - 6. 04/10/2011 35 477.95 16728.25 - - - 7. 05/10/2011 5 487.50 2437.50 - - - 8. 07/10/2011 300 497.25 149175.00 - - - 9. 10/10/2011 5 507.15 2535.75 - - - 10. 12/10/2011 250 527.55 131887.50 - - - 11. 13/10/2011 400 538.10 215240.00 - - - 12. - - - - 17/01/2012 10470 73.66 771286.70 - Total 1047 542096.90 771286.70 229189.80 19. Rajat Share Broking Pvt. Ltd (noticee no. 3), vide its letter dated August 1, 2014 denied the allegation leveled against it in the SCN. It submitted that the paid up capital of the company consisted of 19697000 equity shares of Rs. 10/- each 196970000. Out of 19697000 equity shares 6691500 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice and as per the fixation of upper circuits. c. BSE/SEBI surveillance department never cautioned any investor to not to deal with this share. d. BSE allowed the share to rise again from Rs. 2/- to Rs. 560/- 23. Sanyukta Rungta (noticee no. 4), vide letter dated July 30, 2014 denied all the charges leveled against her in the SCN. The noticee no. 4 submitted that she had purchased the scrip BCSL for investment purpose and wanted to buy at prevailing price. But the scrip was very infrequently traded and there were always buyers at upper circuit as such she had put buy orders at upper circuit. 24. Vide letter December 11, 2015 the noticee no. 4 further reiterated the reply submitted by her vide earlier letter dated July 30, 2014 and submitted that she had purchased the scrip of BCSL for investment purpose and had wanted to buy at prevailing market price as it was a dividend paying company. But after studying trading pattern of the scrip it was evident that the scrip was very infrequently traded and usually not more than 50 shares were traded in a day. She also submitted that the scrip was always opening with buyers at the upper circuit making impossible to buy at prevailing pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 0 0 3 153 4.26% Bimla Devi Hirawat 16.55 3 150 16.55 3 150 0 0 0 0 0 3.25% Krishna M Kumar 13 8 20 13 5 17 0 0 0 3 3 2.55% Top 10 LTP contributors 395.54 116 6528 395.64 89 3801 ‐0.1 1 35 26 2692 77.56% Total Market wide contribution to LTP 510 1448 158597 654.7 264 16619 ‐144.7 67 3857 1117 138121 100.00% During the investigation period in BSE, the top 10 clients contributed Rs. 395.64/- and Rs. -0.1/- respectively to positive and negative LTP. 28. On further examination, I find that the noticee no. 1 contributed to positive LTP of Rs. 51.13/- in 4 trades. The observation of the top three trades which resulted in contribution to positive LTP of the trades of the Noticee are as follows: Date Order no. Add Order Time Order Qty Order LTP at Top Ask Price Top Ask vol. Trade Time Trade Qty Trade Price High/Low Upd Price order entry (Range) Ask Vol. for the day Del (Total) 28/07/2011 16000061002315 add 09:00:00 100 214.35 204.15 214.35 50 09.30.16 50 214.35 214.35 to 214.35 16000061002315 Del 09.30.16 50 214.35 214.35 NA NA NA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the day. Further the rest of the buy order for 50 shares got deleted at 09:30:16. 29. Further, it is noted from the above that the noticee no. 1 puts the buy order of 100 shares on three occasions at price higher than the LTP when there is no sell order. Once his buy order matches with the 50 shares, immediately he deletes the buy order for the remaining 50 shares. Had he been the genuine investor, he would have waited for the sell order. Three consecutive buy orders of the same quantity at price higher than the LTP and deletion of the rest buy orders of the same quantity on three dates in similar fashion by the noticee no. 1, contributed to unusual move in the price of the scrip from Rs. 50/- to Rs. 559.95/-. I further note that the noticee no. 1 by stating, "mere contribution to the rise in price of the scrip by executing trades at prices higher than the last traded prices cannot and does not amount to alleged violations", has admitted that he deliberately contributed to the rise in price of the scrip of BCSL. 30. I note that the top three trades of the noticee no. 2 i.e Prakash Todankar which resulted in contribution to positive LTP are as under:- Date Order no. Add Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and the only trade of the day. Further the rest of the order for 745 shares was deleted at 09:33:01. iii. Rs. order level LTP variation of 1.95%). At that time there were no sell orders in the system. From the post event (i.e. when the order was placed) order book position, it is noted that the sell order was placed at Rs. 507.15/- by the noticee no. 1 at 12:28:30 for 5 shares. The buy order of the noticee no. 2 matched with this sell order and the trades got executed resulting in new high price of 507.15, which was the highest price for the day and the only trade of the day. Further the rest of the order for 995 shares was deleted at 12:28:30. iv. In the remaining 5 trades also, the similar pattern was noted. In all the 8 trades of buyer (the noticee no. 2) the counterparty seller was noticee no. 1 and contribution to positive LTP was Rs. 71.4/- i.e. 14% of total net LTP market wide. 31. I find that the noticee no. 3 i.e Rajat Share Broking Pvt. Ltd contributed to positive LTP of Rs. 52.2/- in 11 trades. Out of 11 trades, in 5 trades which were also first trades it contributed Rs. 31.05/-. I note that that the said trades took place during 30/8/2011 to 7/9/2011 and the coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Rs. 31.05/- i.e. 6.08% of total net LTP market wide. 32. I find that the noticee no 4 i.e Sanyukta Rungta contributed to positive LTP of Rs. 36.26/- in 19 trades. From the analysis of the top three trades which resulted in contribution to positive LTP of the trades of the notice no. 4, the observations are as under: Date Order no. Add Order Time Order Qty Order LTP at Top Ask Price Top Ask vol. Trade Time Trade Qty Trade Price High/Low Upd Price order entry (Range) Ask Vol. for the day Del (Total) 19/07/2011 20000094000032 add 09:00:00 50 152.4 145.15 152.4 50 14:44:52 50 152.4 152.4 to 152.4 18/07/2011 20000095000028 add 09:00:00 50 145.15 138.25 145.15 50 12:04:33 50 145.15 145.15 to 145.15 13/07/2011 23000101000015 add 09:00:02 100 125.45 119.5 125.45 50 15:26:52 50 125.45 125.45 to 125.45 23000101000015 del 15:26:52 50 125.45 125.45 NA NA NA NA NA NA i. I note that on Jul 13, 2011, the noticee no. 4 placed a buy order for 100 shares at 09:00:02 at an order price of Rs. 125.45/- when the LTP at order entry was Rs. 119.5/- (i.e. order level LTP variation of 2% ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 50% of buy order was matched with the sale order, he was successful in sending the misleading message to the market and the remaining buy orders were deleted by him. The same pattern was adopted by Noticee No 2 and 3. As noted above, the counterparty seller is the noticee no. 1 only in all 8 trades of noticee no. 2 and in 5 out of 11 trades of the noticee no. 3. Further they have repeatedly executed buy orders at the prices higher than LTP and deleted the remaining buy orders in the same manner once they are able to send the misleading message to the investors that the scrip is liquid and marketable enough. The noticee no. 4 also has traded frequently at prices higher than the LTP contributing more than 7% to the total net LTP. The noticees have contributed positively to the price rise of the scrip and the unusual move from Rs. 50/- to Rs. 559.95/- and defrauded the investors in the securities market. 35. Further, on analysis of the first trades of the day, it is noted that out of 340 days, the scrip of BCSL was traded only on 177 trading days, wherein on all trading days the scrip opened at a price higher than LTP, noticees had appeared always quoting price higher than LTP. 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of the appellant." 38. It may be relevant to refer to the observations of the Hon ble Securities Appellate Tribunal (SAT) in its order dated 14.7.2006 in Ketan Parekh Vs. SEBI, wherein it was held that: "When a person takes part in or enters into transactions in securities with the intention to artificially raise or depress the price he thereby automatically induces the innocent investors in the market to buy /sell their stocks. The buyer or the seller is invariably influenced by the price of the stocks and if that is being manipulated the person doing so is necessarily influencing the decision of the buyer / seller thereby inducing him to buy or sell depending upon how the market has been manipulated. We are therefore of the view that inducement to any person to buy or sell securities is the necessary consequence of manipulation and flows therefrom. In other words, if the factum of manipulation is established it will necessarily follow that the investors in the market had been induced to buy or sell and that no further proof in this regard is required. The market, as already observed, is so wide spread that it may not be humanly possible for the Board to track the persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; (c) the repetitive nature of the default. 43. From the material available on record, it is not possible to quantify any gain or unfair advantage accrued to the noticees or the extent of loss suffered by the investors as a result of the default of the noticees. However, I find that the defaults were repetitive in nature.. Further, the noticees traded in the scrip in a manner meant to raise the price of the scrip and the net contribution of the noticees to the total Net LTP is much higher which has resulted in the price rise of the scrip. This kind of activity seriously affects the normal price discovery mechanism of the securities market. People who indulge in manipulative, fraudulent and deceptive price rise should be suitably penalized for the said acts of omissions and commissions. ORDER 44. In view of the above, after considering all the facts and circumstances of the case and exercising the powers conferred upon me under Section 15-I of the Act and Rule 5 of Rules, I hereby impose a monetary penalties on the noticees as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X
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