Case: 1.SEBI, 2.In Re: Ranbaxy Limited Vs 1.Agbros Securities Pvt. Ltd.. Securities and Exchange Board of India

JudgesV.K. Chopra, Member
IssueCompany Law
Judgement DateMarch 29, 2007
CourtSecurities and Exchange Board of India

Order:

V.K. Chopra, Member

1.0 BACKGROUND

1.1 Ranbaxy Laboratories Ltd. (hereinafter referred to as "Ranbaxy") was incorporated in June 1961 and engaged mainly in the business of manufacturing and marketing of pharma products. The price of the scrip of Ranbaxy had moved up significantly from Rs. 270/- in January 1999 to about Rs. 1200/- in October 1999 accompanied with significant increase in volumes. Considering the above major spurt in price and volumes traded in the Exchanges particularly on the Stock Exchange, Mumbai (BSE), National Stock Exchange (NSE) and Calcutta Stock Exchange (CSE), Securities and Exchange Board of India (hereinafter referred to as "the Board") had conducted investigation into the dealings of many brokers in the shares of Ranbaxy including M/s Agbros Securities Pvt. Ltd., a broker (hereinafter referred to as "the Broker") CSE with SEBI Registration No. INB031017534.

1.2 The Board after considering the Investigation Report, appointed an Enquiry Officer vide Order dated November 27, 2002 to enquire into the violations of the provisions of Regulation 4(a), (b), (c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995 (hereinafter referred to as "PFUTP Regulations") Regulation 7 read with Clause A(3) and (4) of the Code of Conduct for Stock Brokers as specified in Schedule II of SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992 (hereinafter referred to as "Stock Brokers Regulations") and Rules, Regulations and Bye-laws of Stock Exchanges.

1.3 The Enquiry Officer, after conducting an enquiry in accordance with the provisions of Regulation 6 of the Securities and Exchange Board of India (Procedure for holding Enquiry by Enquiry Officer and imposing penalty) Regulations, 2002 (hereinafter referred to as "Enquiry Regulations") submitted a report dated November 14, 2003 wherein he observed that the Broker violated the provisions of SEBI circular No. SMDRP/POLICY/CIR-32/1999 dated September 14, 1999; Regulation 7 read with Clause A(3) and (4) of Code of Conduct as specified in Schedule II of Stock Brokers Regulations and Regulation 4(b) & (c) of PFUTP Regulations. He recommended suspension of registration of the Broker for a period of six months.

2.0 SHOW CAUSE NOTICE

2.1 Pursuant to the receipt of the said Enquiry Report, a Show Cause Notice dated December 05, 2003 was issued to the Broker, enclosing therewith a copy of the said Enquiry Report and advising him to show cause as to why the action as recommended by the Enquiry Officer or any other penalty deemed appropriate should not be imposed on them. The Broker submitted its reply to the show cause notice vide letter dated January 01, 2004.

3.0 REPLY OF THE BROKER TO THE SHOW CAUSE NOTICE

The findings of the Enquiry Officer in Point No. 5.2 that we had executed synchronized / matching trades in the shares of Ranbaxy Laboratories Ltd. with the Counter Party is wrong and denied. The mere fact that in all the cases order quantity and price are the same with the Counter Party quantity and price cannot and should not form the basis of concluding that these are synchronized / matching trades. Because if this is taken as the criteria then we are sure many of the trades executed at Stock Exchanges would be termed as synchronized / matching trades which cannot be the case.

In reply to the finding in Point No. 5.3 we state that there was no prior understanding with the Counter Party in the trades executed by us.

The contention of the Enquiry Officer that 10,40,000 shares were still matched by the Member with other counter party members is wrong and denied even the trade of these shares were executed by us in the normal course of business at the prevailing market rate on 'C' Star screen based trading system of Calcutta Stock Exchange these were genuine trades and it may be please noted that the 'C' star screen based trading system while making purchase or sale sauda we do not know the identity of the Counter Party broker with whom our purchase or sale order gets matched. There is no mechanism by which we can come to know who the Counter Party broker is even if we want to know about it.

As also confirmed by the Enquiry Officer in Point No. 5.5, it will be observed that the % of the alleged matching transaction to our total transaction in the shares of Ranbaxy Laboratories Ltd. during the period under consideration is quite less at 10.36%

The finding of the Enquiry Officer in Point No. 5.7 that our trades were not executed through the normal price and order mechanism of the Exchange is wrong and denied as already explained in above in our Point No. 1.

As all our trades were genuine and in the normal course so there was no Violation of Regulation 7 read with Clause A(3) and (4) of Code of Conduct as specified in Schedule II of SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992 as mentioned in Point No. 5.8. Similarly there was no violation of the Provisions of Regulation 4(b) and (c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995.

4.0 HEARING

4.1 In the said reply to show cause notice, the broker requested for personal hearing. The broker was accordingly advised to attend the personal hearing before me at Head Office SEBI at Mumbai on October 13, 2006 at 2.45p.m. Shri Narendra Balasia, Director, M/s Agbros Securities Pvt. Ltd and Shri. Prakash Shah, Authorised Representative of M/s Agbros Securities Pvt. Ltd attended the hearing and also sought a weeks time to file their written submission which was granted. Accordingly written submission dated October 27, 2006 was filed on October 31, 2006. I have considered the said written submission while dealing with the issues involved in the matter.

5.0 CONSIDERATION OF ISSUES & FINDINGS

5.1 I have carefully examined the Enquiry Report, Show Cause Notice, Reply of the broker and written submission.

5.2 The scrip of Ranbaxy Laboratories Ltd. (herein after referred as Ranbaxy) traded around the price range of Rs. 270/- at the beginning of January 1999. The price of the scrip moved up to Rs. 320/- by the end of January 1999. Subsequently, price continued to move upward during February - March 1999 and reached to Rs. 650/- by end of March 1999. Further, the price of the scrip moved to Rs. 700/ during May 1999 and came down to Rs. 600/- during June 1999. The price subsequently moved upwards and touched Rs. 800/- during July 1999 and Rs. 1000/- during August 1999. The scrip was being traded in the range of Rs. 900/- to Rs. 1100/- during August - September 1999 and increased to Rs. 1200/- during October 1999. Effectively the price of the scrip moved up from Rs. 267 on 01.01.99 to a high of Rs. 1215/- on 13.10.99. Later on the price started falling gradually and closed at Rs. 869 on 29.10.99 at BSE. The price of the scrip of Ranbaxy had moved significantly during the period from Rs. 270/-in January 1999 to about Rs. 1200/- in October 1999. The price rise in the scrip was accompanied with significant increase in volumes.

5.3 I find that the Enquiry Officer has arrived at a conclusion in his enquiry report that the broker had carried out 67 instances of synchronization of trades with a view to create misleading appearance of trading which tampers with price discovery mechanism of stock exchange.

5.4 I find that the charges levelled against the Broker are on the basis of the aforesaid synchronized trades. The synchronized trade is a kind of transaction where the seller and buyer execute the trade for almost same quantity and price at substantially the same time. I find that synchronized deal per se is not illegal. On the other hand, the synchronized deal with fraudulent or deceptive intention to create misleading appearance of trading and to manipulate the price and volume of the scrip price to tamper the price discovery mechanism of stock exchange with a view to get undue gain out of it, is no doubt a serious matter.

5.5 Hence the issue to be decided in this case is whether the broker has carried out any such synchronized trades and to take a decision as to whether the penalty recommended by the enquiry officer against the broker is proper or not. In order to decide the said issue, I felt it necessary to analyze the details of synchronized trades executed by the broker which is hereunder:

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                Buy Mem Trade Buy Order Buy Buy Sell Mem Sell Ord Sell  Sale
                
                 Time Di Price
                
                
                Name date time order order Name er time order order fference Diffe
                
                
                 Qty rate Qty rate rence
                
                
                --------------------------------------------------------------------------------------------
                
                Agbros 3/23/1999 15:07:53 10000 675.00 SANJAY 15:07:53 10000 675.00 0:00:00 0.00 
                
                Securities KHEMANI
                
                Pvt. Ltd.
                
                --------------------------------------------------------------------------------------------
                
                SANJAY 4/21/1999 15:29:43 25000 610.70 Agbros  15:29:42 25000 610.70 0:00:01 0.00 
                
                KHEMANI Securities 
                
                
                 Pvt. Ltd.
                
                
                --------------------------------------------------------------------------------------------
                
                SHRUTI 5/10/1999 10:51:13 5000 719.50 Agbros 10:51:13 5000 719.50 0:00:00 0.00 
                
                MOHTA Securities
                
                
                 Pvt. Ltd.
                
                
                --------------------------------------------------------------------------------------------
                
                Agbros 5/10/1999 12:52:54 10000 730.50 HERALD 12:52:55 10000 730.50 0:00:01 0.00
                
                Securities EQUITIES
                
                Pvt. Ltd. PVT. LTD.
                
                --------------------------------------------------------------------------------------------
                
                Agbros 5/10/1999 13:03:29 7000 729.30 CITIZEN 13:03:29 7000 729.30 0:00:00 0.00 
                
                Securities SECURITIES
                
                Pvt. Ltd.  (P) LTD
                
                --------------------------------------------------------------------------------------------
                
                Agbros 5/10/1999 14:32:13 6300 730.70 M/s Loknath 14:32:13 6300 730.70 0:00:00 0.00 
                
                Securities  Saraf
                
                Pvt. Ltd. 
                
                ----------------------------------------
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