Case: 1. SEBI, 2. In Re: Sharadraj Trade Finance Limited Vs 1. Basant Kumar Chirimar. Securities and Exchange Board of India
| Judges | K.M. Abraham, Member |
| Issue | Company Laws |
| Judgement Date | August 12, 2009 |
| Court | Securities and Exchange Board of India |
Order:
K.M. Abraham, Member
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The Securities and Exchange Board of India (hereinafter referred to as SEBI) had conducted investigations into the alleged excessive speculative transactions in some of the finance/investment, bio-tech and info-tech companies which were listed at the Calcutta Stock Exchange Association Limited (hereinafter referred to as CSE). Sharadraj Trade Finance Limited (hereinafter referred to as the company) was one such company whose shares witnessed widespread speculative trading at CSE. In view of the alleged irregularities, the trading in the shares of the company during the period between July 2001 and October 2001 (hereinafter referred to as the investigation period) was subjected to investigation by SEBI to find out the possible violations of the provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as SEBI Act) and the Regulations framed there under.
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The investigation conducted by SEBI revealed that there was unusual price variation in the shares of the company during the investigation period. The share price decreased from Rs. 67.50/- to Rs. 29.60/- during the above period. It was also observed that almost the entire volume in the shares of the company during the period of investigation was generated by three stock brokers namely, Swadha Securities Private Limited, M/s Ballabh Dass Daga and M/s Basant Kumar Chirimar (Members of CSE). M/s Basant Kumar Chirimar had traded for 5,10,000 shares of the company which accounted for 25% of the total volume in the said shares at CSE during the investigation period. It was alleged that the aforesaid stock brokers executed matched/synchronized trades at their own terminals. It was inter alia alleged that M/s. Basant Kumar Chirimar had dealt in the shares of the company in a manner prima facie contravening the provisions of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as the PFUTP Regulations) and the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as the Stock Brokers Regulations). In order to enquire into the alleged violations said to have been committed by M/s Basant Kumar Chirimar, an Enquiry Officer was appointed by SEBI, vide order dated September 18, 2004 in terms of the provisions of the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as the Enquiry Regulations). M/s Basant Kumar Chirimar is hereinafter referred to as the stock broker.
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The Enquiry Officer found that the stock broker inter alia contravened the provisions of Regulation 4 (a) and 4(b) of the PFUTP Regulations and Clauses A (1), A(2) and A(4) of the Code of Conduct prescribed for stock brokers under Schedule II of the Stock Brokers Regulations. The Enquiry Officer, further, vide his Enquiry Report dated December 19, 2006 recommended that the certificate of registration of the stock broker be suspended for a period of six months. Thereafter, SEBI, vide notice dated December 28, 2006 furnished a copy of the Enquiry Report to the stock broker and advised it to show cause as to why action as recommended by the Enquiry Officer or as may be deemed appropriate not be taken against it. Though, the said letter was acknowledged by the stock broker on the same day it had failed to file its submission. As no reply was received from the stock broker, another reminder was sent to it on May 02, 2007. Thereafter, SEBI granted an opportunity of hearing to the stock broker on May 23, 2008. The stock broker failed to appear for the hearing. Subsequently, vide letter dated August 4, 2008, the stock broker requested SEBI to provide it with an opportunity of hearing. Thereafter, SEBI, vide letter dated July 25, 2008 advised the stock broker to inform as to whether it required another opportunity of hearing. Subsequently, SEBI granted various opportunities to the Broker, vide letters dated October 1, 2008, November 11, 2008 and January 20, 2009 to furnish its reply. All the aforesaid letters were acknowledged by the stock broker, no submissions were made by the stock broker in respect of the show cause notice dated December 28, 2006. Finally, Mr. Aditya Chirimar appeared before me on behalf of the stock broker on August 05, 2009 and requested to take a lenient view. He also stated that he had appeared before the Enquiry Officer in the matter on behalf of the stock broker and made submissions. He stated that he had no additional submissions apart from what he made before the Enquiry Officer. Mr. Aditya Chirimar further stated that the stock broker has stopped undertaking stock broking business. The present proceedings had been initiated under the provisions of Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. The said Regulation was repealed with effect from the notification of Securities and Exchange Board of India (Intermediaries) Regulations, 2008. Therefore, I dispose of the present proceedings under the provisions of Securities and Exchange Board of India (Intermediaries) Regulations, on the basis of the available material on record and the oral submissions made by Mr. Aditya Chirimar on behalf of the stock broker on August 05, 2009.
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After having examined the aforesaid documents and the submissions made on behalf of the stock broker, the following issues would arise for consideration:
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Whether the stock broker had contravened the relevant provisions of the PFUTP Regulations?
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Whether the stock broker had contravened the Code of Conduct prescribed for stock brokers under the Stock Brokers Regulations?
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If the stock broker is found guilty of contravening the aforesaid Regulations, what would be the quantum of penalty to be imposed on it?
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I note that SEBI had conducted investigation into the dealing in the shares of the company for the period July 2001 and October 2001 after noticing widespread speculative transactions in the shares of the company at CSE. The investigation conducted by SEBI observed that the average price of the shares of the company at CSE was in the range of Rs. 62/- to Rs. 67/- during the settlement Nos. 2002115-25. Thereafter, the price declined from Rs. 67.50/- to Rs. 29.60/-, a decrease of nearly 50% during settlement Nos. 2002126 to 2002129. The trade details furnished by CSE for the relevant period indicated that during the said period {settlement Nos. 2002126 to 2002129} almost the entire trade volume in the shares of the company was contributed by three stock brokers namely, Swadha Securities Private Limited, M/s Basant Kumar Chirimar and M/s. Ballabh Dass Daga. The table below indicates the volumes contributed by the aforesaid three stock brokers along with the total volumes traded at CSE in the shares of the company, during the investigation period.
Settlem ent No.< xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Date
stock brokers' total trade volume
CSE's total trading data
% of stock brokers' volum e to CSE
High (Rs.)
Low (Rs)
Av Price (Rs)
Net Delivery of selected stock brokers
Buy Qty
Sell Qty
Total
2002115
2.7.01-6.7.01
12000
12000
24000
24000
100
63.50
63.50
63.50
0
2002116
9.7.01-13.7.01
8000
8000
16000
17000
94
63.50
60.00
61.75
0
2002117
16.7.01-20.7.01
87000
87000
174000
249000
70
66.10
63.20
64.65
0
2002118
23.7.01-27.7.01
34000
34000
68000
68000
100
66.20
66.00
66.10
0
2002119
30.7.01-3.8.01
167700
167700
335400
335400
100
66.00
60.00
63.00
0
2002120
6.8.01-10.8.01
130000
130000
260000
260000
100
67.00
65.00
66.00
0
2002121
13.8.01-17.8.01
86100
86100
237000
237000
100
66.50
66.00
66.25
0
2002122
20.8.01-
8000
8000
16000
16000
100
67.00
67.00
67.00
0
24.8.01
2002123
27.8.01-31.8.01
30800
30800
61600
61600
100
67.00
67.00
67.00
0
2002124
3.9.01-7.9.01
87400
87400
174800
174800
100
67.50
67.00
67.25
0
2002125
10.9.01-14.9.01
31500
31500
63000
63000
100
67.50
67.50
67.50
0
2002126
17.9.01-21.9.01
16000
16000
55400
55400
100
67.50
49.00
58.25
0
2002127
24.9.01-28.9.01
86000
86000
172000
172000
100
45.20
38.80
42.00
0
2002128
1.10.01-5.10.01
35000
35000
210000
210000
100
47.50
37.20
42.35
0
2002129
8.10.01-12.10.01
24000
24000
52000
52000
100
34.50
29.60
32.05
0
Total
1919200
1995200
96%
From the above table, it can be noted that the volume at CSE in the shares of the company was 19,95,200 shares and the selected stock brokers had contributed a volume of 19,19,200 shares, which was 96% of the total volumes at CSE during the investigation period.
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I note that the stock brokers trades involved 5,10,000 shares (both buy & sell volume) of the company which accounted for nearly 25% of the total trading in the said shares at CSE during the investigation period. The stock broker had transacted in the settlements between 2002115 and 2002129, as stated below:
Settlement No.
Date of Transaction
Buy Qty
< xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />
Sale 2002115
7/2/2001
10000
10000
2002117
7/18/2001
16000
16000
7/19/2001
16000
16000
2002118
7/24/2001
10000
10000
2002119
8/1/2001
10000
10000
8/2/2001
10000
10000
2002120
8/6/2001
5000
5000
8/8/2001
10000
10000
8/10/2001
1000
1000
2002121
8/14/2001
10000
10000
8/16/2001
35000
35000
2002123
8/27/2001
8800
8800
2002125
9/11/2001
31500
31500
2002126
9/18/2001
11700
11700
2002128
10/3/200...
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