Appeal Nos. 114/160/165 of 2012. Case: 1. HB Stockholdings Limited, 2. Alaknanda Capital Services Pvt. Ltd., 3. Har Sai Investments Ltd. Vs Securities and Exchange Board of India. Securities and Exchange Board of India

Case Number:Appeal Nos. 114/160/165 of 2012
Party Name:1. HB Stockholdings Limited, 2. Alaknanda Capital Services Pvt. Ltd., 3. Har Sai Investments Ltd. Vs Securities and Exchange Board of India
Counsel:Mr. Rohit Kapadia, Senior Advocate with Mr. Prashant Mishra, Mr. Piyush Prasad, Mr. Praveer Shetty and Mr. Nishith Doshi, Advocates Mr. Joby Mathew, Advocate Mr. Kumar Desai, Advocate with Mr. Ajay Khaire and Ms. Virakthi Hegde, Advocates Mr. Mihir Mody and Mr. Akhilesh Singh, Advocates, Mr. Neville Lashkari, Advocate Ms. Virakthi Hegde, Advocates
Judges:Jog Singh, Member and A. S. Lamba, Member
Issue:Securities and Exchange Board of India Act, 1992 - Sections 11(4)(b) and 11B; Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 - Regulation 4(a), (b), (c) and (d); SEBI (Stock Broker and Sub- Broker) Regulations, 1992 - Regulation 20(2)
Judgement Date:August 27, 2013
Court:Securities and Exchange Board of India
 
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Judgment:

Jog Singh, Member

  1. A common Show Cause Notice (SCN) dated September 2, 2005 was issued by Respondent to three Appellants, i.e., HB Stockholdings Ltd., Alaknanda Capital Services Pvt. Ltd. and Har Sai Investments Ltd. pertaining to certain incidents which took place in the year 2000.After prolonged and protracted proceedings, the investigation culminated into the impugned order dated May 9, 2012, whereby the Respondent has restrained the three Appellants from buying, selling or dealing in the securities market, whatsoever, directly or indirectly for a period of twoyears. With consent of the learned counsel for the parties concerned, these three appeals were, therefore, heard together and are being disposed of by this common order. For the sake of convenience, facts of Appeal no. 114 of 2012 (HB Stockholdings Ltd. vs. SEBI) have been taken as lead case.

  2. Appellant in Appeal no. 114 of 2012, namely, HB Stockholdings Ltd. (for short "HB") is in the sole business of investment in and sale/purchase of securities in the capital market and its shares are listed on the National Stock Exchange of India Ltd. (NSE) and the Bombay Stock Exchange Ltd. (BSE). Appellant in Appeal no. 160 of 2012, namely, Alaknanda Capital Services Pvt. Ltd. (for short "Alaknanda") is carrying on the business of dealing in securities and the Appellant in Appeal no. 165 of 2012, namely, Har Sai Investments Ltd. (for short "Har Sai") is a public limited company,incorporated on January 2, 1995, and carrying on the sole business of sale and purchase of securities in the capital market. As part of their normal business activities and also as part of investment of funds available with them, the Appellants traded in shares of various companies that are listed on stock exchanges, including Delhi Stock Exchange Ltd. (DSE) and on NSE,through members of such stock exchanges. One of the companies whose shares Appellants traded in, in year 2000, was Jagsonpal Pharmaceuticals Ltd. ("the Company").

  3. Brief facts leading to the present appeals are that the Respondent-SEBI is stated to have conducted some investigation into dealings in the scrip of the Company and reaching prima facie conclusion that all three Appellants had undertaken synchronized trades during August 2000 to December 2000 (the first period) and thereby the Appellants are alleged to have manipulated the price of the scrip during relevant time. Price of the scrip on NSE increased from Rs. 599/- as on August 18, 2000, touched a high of Rs. 700/- on September, 11, 2000 and thereafter decreased to Rs. 660/- on November 1, 2000. The Respondent also claims that there were irregular patterns in volumes of trading on the Company's scrip, which varied between 39,200 shares on October 31, 2000 to 5 shares as on August 18, 2000 and such a phenomenon was observed on both stock exchanges, only on days, when the three Appellants traded in the scrip of the Company during August to December 2000 and these artificial volumes in the scrip of the Company, are considered injurious to healthy functioning of the capital market. In fact, it is noteworthy that during July 2001 to October 2001 (the second period), price of the same scrip on NSE fell down from Rs. 319.20 on July 2, 2001 to Rs. 129.50 on October 31, 2001. Since some of the Appellants did not trade during the second period in the scrip, it does not form part of present appeal.

  4. Accordingly, the SCN was issued by the Respondent dated September 2, 2005 under Sections 11(4)(b) and 11B of the Securities and Exchange Board of India Act, 1992 for the alleged violation of the provisions of Regulation 4(a), (b), (c) and (d) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade PracticesRelating to Securities Market) Regulations, 1995, hereinafter referred to as FUTP Regulations, 1995 for suspicious dealings in the scrip of the Company during the first period.

  5. It was alleged in the SCN that Appellants had entered into structured/synchronized trades in the scrip of the Company listed on NSE and DSE and that the noticees were related to each other. It is further asserted that there was some abnormal price movement in the Company's scrip during the period in question and on analysis of volume, an irregular pattern was noted. Further, the time gap between the buy and sell orders placed by one Appellant and the counter parties were of a mere few seconds to few minutes, in some cases. Similarly, the price and quantity of shares placed by parties in the transactions concerned was also the same, in most cases. Moreover, orders were placed on a consistently higher price than the previous day's closing price. Therefore, it was alleged that the Appellants had acted with the malafide intention of creating a false market for the Company's scrip.

  6. The Appellant states that it requested the Respondent for supply of documents which formed the basis of the SCN vide letter dated September 26, 2005, and some of the documents were provided to it and on the basis of the available material supplied by the Respondent, a reply to the SCN wassubmitted by the Appellant vide letter dated December 10, 2005. A personal hearing also took place before the learned Whole Time Member (WTM) on October 27, 2006 during which the Appellant raised certain preliminary issues besides reiterating their request for the supply of additional documents, as requested vide its letter dated October 27, 2006 to file an effective and proper reply. However, nothing was done by the Respondent to supply these additional documents for years together.

  7. For more than four years after the hearing conducted by the learned WTM, the Appellant received no communication from the Respondent and suddenly on April 1, 2011 a notice of personal hearing - to be held on April 25, 2011, was received by the Appellant. Based on whatever material was supplied by the Respondent, the Appellant presented its written submissions, inter alia, contending that the long delay in concluding proceedings against the Appellant itself was antithetic to the rule of law, fairness and justice and as such proceedings in the matter, stood vitiated. On persistent requests made by the Appellant, it received certain more documents on May 10, 2011. The Appellant preferred an additional reply on May 27, 2011 and once again reiterated their request for the following documents:-

    i. Investigation Report of SEBI based on which the SCN was issued.

    ii. Statements & Documents forming part of the Investigation.

    iii. Notice under Regulation 20(1) or Order under Regulation 20(2) of SEBI (Stock Broker and Sub-Broker) Regulations, 1992.

    iv. Information / Statements / Complaints on which SEBI has relied in issuing Investigation Order.

    v. Price Volume Data of the Scrip of BSE from August 1999 to July 2000, December 2000-July 2001 & November 2001 to July 2002.

    vi. Price Volume Data of the Scrip of NSE from August 1999 to July 2000, December 2000-July 2001 & November 2001 to July 2002.

    vii. BSE, NSE, DSE Index forming for the part period of the under Investigation.

    viii. Price Volume Data of BSE alongwith the above details of other Pharmaceutical Companies for the period August 1999 to July 2000, December 2000-July 2001 & November 2001 to July 2002.

    ix. Price Volume Data of NSE alongwith the above details of other Pharma Companies for the period August 1999 to July 2000, December 2000-July 2001 & November 2001 to July 2002.

    x. Price Volume Data of DSE alongwith the above details of other Pharma Companies for the period August 1999 to July 2000, December 2000-July 2001 & November 2001 to July 2002.

    xi. Complete Log Book of DSE for the period August 1999 to July 2000, December 2000-July 2001 & November 2001 to July 2002 including details such as high or low price, transaction time, order placing time, quantity of order placed, purchase & selling broker and dealer Documents Index forming for the part period of the under details, traded quantity, delivery taken / given settlement no. etc.

    xii. Complete Log Book of NSE for the period August 1999 to July 2000, December 2000-July 2001 & November 2001 to July 2002 including details such as high or low price, transaction time, order placing time, quantity of order placed, purchase & selling broker and dealer details, traded quantity, delivery taken / given, settlement no. etc.

    xiii. Complete Log Books (NSE, DSE) of all transactions alleged to be synchronized/structured including details regarding time of placing order, time of execution, order price etc. Only extracts (NSE) were supplied for the first time vide letter dated May 10, 2011.

    xiv. Details of persons who have been induced to sell/purchase the scrip due to the trading of the Noticee.

    xv. Details of such transactions which are alleged to have been influenced by the change in the price.

    xvi. Statement of such persons.

    xvii. Documents / statements showing the intention of the Noticee to manipulate price.

    xviii. Details of notices issued to / enquiry initiated and result thereof to other entities who are parties to the alleged structured/ synchronized transactions.

    xix. All other documents referred to in the SCN.

  8. It is submitted by the Appellant that the most important and crucial material on which the SCN was based, i.e., the trade and order logs were not supplied to the...

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