Case: 1.SEBI, 2.In Re: Ranbaxy Laboratories Limited Vs 1.Kanodia Stock Broking Pvt. Ltd.. Securities and Exchange Board of India
| Judges | V.K. Chopra, Member |
| Issue | Company Law |
| Judgement Date | January 10, 2007 |
| Court | Securities and Exchange Board of India |
Order:
V.K. Chopra, Member
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BACKGROUND
1.1 M/s Kanodia Stock Broking Pvt. Ltd., is a broker of Calcutta Stock Exchange (hereinafter referred to as "the Broker") bearing SEBI Registration No INB030878338. Securities and Exchange Board of India (hereinafter referred to in short as "the Board") had ordered an investigation into the dealings of in the shares of Ranbaxy Laboratories Ltd (hereinafter referred to in short as "Ranbaxy").
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 preliminary 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), 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 28, 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 five months.
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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 or any other penalty deemed appropriate, should not be imposed on him.
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REPLY TO THE SHOW CAUSE NOTICE
3.1 The Broker submitted his reply to the said show cause notice, vide letter dated May 17, 2004 followed with another reply dated January 19, 2005. The contentions raised in both letters are same and some of them reproduced hereunder:
a)...all the transactions were traded on the screen based trading provided by the C-Star System at market rates. There is no evidence of any kind that quantity and price were negotiated outside the exchange system. The system has its own on line surveillance, checking and audit system. System does not accept any rate other than existing market rates. Hence, the contention of the enquiry officer that the prices were rigged (as stated in para 5.6) is not at all true and does not hold good.
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Enquiry officer has not considered the fact that we are normally doing jobbing business and doing so the quantity and price can always match with offer quantity and rate of other broker. As pointed out by enquiry officer himself the volume of transaction is hardly 2% of the total volume. Hence it is very surprising that enquiry officer is recommending such a severe penalty.
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The enquiry officer in its report is mentioning 'KP' group broker regarding Mr. Ashok Kumar Poddar. We would like to know whether the enquiry officer knew before hand that some group of brokers were involved in the market in the name of 'KP' group before hand and if yes, why SEBI on its part had not adviced the regional stock exchange to bar such brokers. It is very easy to find fault or give advice after the transaction is done and do post mortem.
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The Enquiry officers report mention that Mr. Ashok Kumar Poddar was declared defaulter and subsequently his registration was cancelled. In this also, the language used by the enquiry officer indicates that the fault of transaction got matched is with us and not of the system. We would like to know who allowed Mr. Ashok Kumar Poddar to become a member and who allowed to issue him a SEBI registration to transact on the stock exchanges. Definitely it is not our fault. Are you now going to suspend yourself for allowing such brokers to become member of stock exchanges and destroy the investors protection and confidence of which you project yourself as 'masiah' and only body to care for.
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HEARING
4.1 The Broker was accordingly advised to attend the personal hearing before me at SEBI's Eastern Regional Office, Kolkata on September 13, 2006, which was attended by Shri Ramesh Kanodia, Director Kanodia Stock Broking (Pvt.) Ltd. During the course of hearing, the broker reiterated the submissions made in their reply dated May 17, 2004 to the show cause notice. Therefore, I am proceeding in the matter on the basis of the submission of the broker and the material before me.
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CONSIDERATION OF ISSUES & FINDINGS
5.1 I have carefully examined the Enquiry Report, Show Cause Notice, Reply of the broker and submissions made at the time of hearing.
5.2 I find from the Enquiry Report that 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 concluded in his enquiry report that the broker Kanodia Stock Broking (P) Ltd. has carried out 44 instances of synchronization of trades with a view to create misleading appearance of trading and which tampers with price discovery mechanism of stock exchange.
5.4 I find the entire charge levelled against the broker is on the basis of the aforesaid 44 instances of synchronized trades. A synchronised trade is a kind of transaction where the seller and buyer execute the trade for almost same quantity and price with orders placed at substantially the same time. I...
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