Case: 1. SEBI, 2. In Re: Toplight Commercial Limited Vs S. Jhunjhunwala and Co.. Securities and Exchange Board of India

Party Name:1. SEBI, 2. In Re: Toplight Commercial Limited Vs S. Jhunjhunwala and Co.
Judges:K.M. Abraham, Member
Issue:Company Law
Judgement Date:November 18, 2009
Court:Securities and Exchange Board of India

Order:

K.M. Abraham, Member

  1. It was brought to the notice of Securities and Exchange Board of India (hereinafter referred to as SEBI) that shares of some illiquid companies listed at Calcutta Stock Exchange Association Limited (hereinafter referred to as CSE), were traded in a circuitous route among certain members of a group operating collusively and the same were later on sold at highly inflated prices during the period January 1, 2004 to August 3, 2004 (hereinafter referred to as the investigation period). Thereafter, SEBI initiated investigations into the dealing in the shares of such companies. One such company where the dealings in shares were investigated was Toplight Commercial Limited (hereinafter referred to as the company). The investigation was conducted to find out the possible violations of the provisions of the Securities and Exchange Board of India Act, 1992 and the Rules/Regulations framed thereunder including the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as PFUTP Regulations) and the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 (hereinafter referred to as Stock Brokers Regulations). The investigation conducted by SEBI found that the average share price of the company was Rs. 23.50/- per share on January 1, 2004, which went up to Rs. 322/- on August 3, 2004, a manifold increase in just seven months. It was revealed that certain stock brokers executed matched trades in the shares of the company among themselves. The investigation conducted by SEBI had identified four stock brokers, namely, M/s N. M. Lohia & Co., M/s S. Jhunjhunwala & Co. (hereinafter referred to as the Broker), M/s Prakash Nahata & Co. and Subh Stock Broking Private Limited based on their pattern of trading and the volumes contributed by them in the shares of the company during the investigation period. The major findings of the investigation were that most of their (above mentioned stock brokers) trades were client to client which have been executed on a single terminal of the same stock broker. These stock brokers were alleged to have allowed their clients to simultaneously place both buy and sell orders for the same quantity and price, which consequently, led to the price rise and manipulation in the shares of the company. Instances of matching trades between the said stock brokers among themselves have also been noticed. It was inter alia alleged that the Broker had executed large number of self trades in the shares of the company, apart from the synchronized trades during the investigation period. It was inter alia alleged that the trade practices of the Broker while dealing in the shares of the company were unfair and fraudulent. The Broker was therefore alleged to have contravened the provisions of Regulations 4(2)(a), 4(2)(e), 4(2)(o) and 4(2)(p) of the PFUTP Regulations, Clauses A(1) to A(5) & Clause B(4)(a) of the Code of Conduct specified in Schedule II of the Stock Brokers Regulations and SEBI circular dated September 14, 1999.

  2. Thereafter, SEBI, vide order dated November 2, 2006 read with a subsequent order dated November 23, 2007 appointed an Enquiry Officer under the provisions of the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (since repealed) to enquire into the alleged violations committed by the Broker. Since, the aforesaid Regulations was repealed with effect from the notification of Securities and Exchange Board of India (Intermediaries) Regulations, 2008, the Designated Authority (hereinafter referred to as the Enquiry Officer) submitted the report dated August 17, 2009 under the provisions of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 recommending the suspension of the certificate of registration of the Broker for a period of three months. The Enquiry Officer observed that the Broker violated Regulation 4(2)(a), 4(2)(e) & 4(2)(o) of the PFUTP Regulations and Clauses A(1) to A(5) & B(4)(a) of the Code of Conduct specified for stock brokers, mentioned in Schedule II of the Stock Brokers Regulations. Subsequently, a notice dated August 20, 2009 was issued by SEBI to the Broker advising it to show cause as to why the penalty as recommended by the Enquiry Officer or considered appropriate by it should not be imposed against it. The Broker was also advised to inform whether it would like to avail the opportunity of hearing. A copy of the Enquiry Report was also forwarded to the Broker along with the said notice. Since, the Broker had failed to make any submissions, another opportunity was provided to it by SEBI, vide letter dated October 14, 2009. The Broker was once again advised to inform as to whether it would like to avail the opportunity of hearing. Subsequently, the Broker, vide letter dated 'nil' (received by SEBI on October 20, 2009), inter alia stated that, SEBI had already suspended and debarred it from the securities market, vide order dated September 29, 2005 and the said order was vacated only by a subsequent...

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