Case: 1.SEBI, 2.In Re: Ranbaxy Laboratories Limited Vs 1.Salasar Stock Broking Ltd.. Securities and Exchange Board of India

JudgesV.K. Chopra, Member
IssueCompany Law
Judgement DateJanuary 19, 2007
CourtSecurities and Exchange Board of India

Order:

V.K. Chopra, Member

1.1 Securities and Exchange Board of India (hereinafter referred to in short as "the Board") had ordered an investigation into the affairs relating to buying, selling and dealing in the shares of Ranbaxy Laboratories Ltd (hereinafter referred to in short as "Ranbaxy") against many entities including M/s Salasar Stock Broking Ltd., (hereinafter referred to in short as "Broker") a broker of Calcutta Stock Exchange (hereinafter referred to as "CSE")(SEBI Registration no. INB030752637), National Stock Exchange (NSE) (SEBI Registration no. INB230752635) and Stock Exchange, Mumbai (BSE) (SEBI Registration no. INB010752633).

1.2 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. The Board initiated investigation into the scrip in August 1999 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).

1.3 The Board after considering the Investigation Report appointed an Enquiry Officer vide Order dated November 27, 2002 to enquire into the violations allegedly committed by the Broker under 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 in short as "PFUTP Regulations"), Regulation 7 read with clause A(3) & A(4) of Schedule II of the Code of Conduct for stockbrokers of the SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992 (hereinafter referred to in short as "Stock brokers Regulations") and Rules, Regulations and Bye-laws of Stock Exchanges.

1.4 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 submitted a report dated November 27, 2003 whereby 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 SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992; and Regulation 4(b) & (c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995. He recommended suspension of registration of the Broker for a period of five months.

2.0 SHOW CAUSE NOTICE

2.1 Pursuant to the receipt of the said Enquiry Report, a Show Cause Notice dated April 28, 2004 was issued to the Broker, along with a copy of the said Enquiry Report, advising the Broker to show cause as to why the action, as recommended by the Enquiry Officer, should not be imposed on them. The Broker submitted its reply to the said show cause notice, vide letter dated May 17, 2004.

3.0 REPLY OF THE MEMBER

3.1 The Broker submitted that the Enquiry officer has recommended suspension of registration without mentioning the Registration No. 030752637 pertaining to the membership of CSE. The Broker again submitted that the said recommendation should be restricted to the membership of CSE only and can not become applicable to National Stock Exchange on the ground that the investigation in Ranbaxy had been conducted based on the transactions on CSE.

3.2 The Broker submitted that the finding of the Enquiry Officer regarding the synchronized deals with prior understanding is based purely on presumptions and surmise and not supported by any material evidence.

3.3 The Broker stated that the Enquiry Officer interpreted SEBI circular No. SMDRP/POLICY/CIR-32/1999 dated September 14, 1999 beyond its scope. It is no where mentioned in the circular that the intent of prior understanding will be taken into consideration while interpreting the above circular. All the trades which are executed on the Exchange trading system are good and bonafide trades and can not be construed as outside the trading system when the transactions are appearing in the system. The Broker also submitted that all those trades are not negotiated trades and the aforesaid circular of SEBI is not applicable in the matter.

3.4 The Broker submitted that there was maximum liquidity in the scrip Ranbaxy and hence there was no tampering of price discovery mechanism through synchronised or matching trades.

3.5 With regard to the 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, the Broker submitted that they had not indulged in manipulative, fraudulent or deceptive transactions or schemes or had spread rumors with a view to distorting market equilibrium or making personal gain. They submitted that they had put the order in the scrip Ranbaxy on their behalf as jobbing transactions and the said transactions are squared off on the same day and the profit or loss is taken into the Brokers account. They submitted that they are having the financial soundness for buying and selling of securities in their own account and they never involved in excessive speculative business.

3.6 The Broker submitted that the Enquiry Officer has applied Regulation 4(b) & (c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995 on the ground that the Broker has executed the synchronised and matched trades. The Broker denied the same and stated that they had done only jobbing transactions. They added that they have not advanced any money to any person thereby inducing any other person to offer to buy any security in any issue with the intention of securing the minimum subscription to such issue.

4.0 HEARING

4.1 The Broker was accordingly advised to attend the personal hearing before me at SEBI's Eastern Regional Office, Kolkata. Mr. Kiran Kumar Sonthalia, Director, M/s Salsar Stock Broking Ltd attended the hearing on September 13, 2006 and filed written submission on the same date. Therefore, I am proceeding in the matter on the basis of the submission of the Broker and the material before me.

5.0 CONSIDERATION OF ISSUES & FINDINGS

5.1 I have carefully examined the Enquiry Report, Show Cause Notice, Reply of the Broker and submissions made at...

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