Case: 1.SEBI, 2.In Re: Ranbaxy Laboratories Limited Vs 1.Shyam Sundar Dalmia. Securities and Exchange Board of India
| Judges | V.K. Chopra, Member |
| Issue | Company Law |
| Judgement Date | January 19, 2007 |
| Court | Securities and Exchange Board of India |
Order:
V.K. Chopra, Member
1.0 BACKGROUND
1.1 Mr Shyam Sundar Dalmia, is a Broker of Calcutta Stock Exchange (hereinafter referred to as "the Broker") with SEBI Registration No INB030077614. Securities and Exchange Board of India (hereinafter referred to in short as "the Board") had conducted investigation into the dealings of several entities including the broker Mr Shyam Sundar Dalmia in the shares of Ranbaxy Laboratories Ltd. (hereinafter referred to in short as "Ranbaxy").
1.2 The price of the scrip of Ranbaxy 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 the provisions of the Regulation 7, read with schedule II, clause A(3) and (4) of SEBI (Stock Brokers and Sub-Brokers) Rules and Regulations, 1992 (hereinafter referred to in short as "Stock Brokers Regulations") and the provisions of Regulation 4 (a),(b),(c) and (d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 1995 (hereinafter referred to in short as "PFUTP Regulations") and Rules, Regulations and Byelaws 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 (hereinafter referred to in short as "Enquiry Regulations") submitted a report dated December 23, 2003 under Regulation 13(1) of the Enquiry Regulations whereby he observed that the Broker has 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.
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 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 said show cause notice, vide letter dated May 19, 2004.
3.0 REPLY OF THE BROKER
3.1 The Broker stated that the recommendation made by the Enquiry Officer is not commensurate with the purported findings and hence the same is unsustainable.
3.2 The Broker stated that they did not execute any synchronized trades in the scrip of Ranbaxy. They further stated that the charge of artificial matching of trade by executing 41 transactions can not be levelled merely because a purchase order and a sale order happens to be entered at around the same time for the same price and that too in a screen based trading mechanism of the stock exchange.
3.3 The Broker submitted that the Enquiry Officer has failed to show the basis on which prices and quantities have been negotiated outside the system.
3.4 The Broker stated that 17 out of a total of 41 transactions took place prior to September 14, 1999, the date on which SEBI issued its circular prohibiting negotiated deals and thus the alleged violation in respect of gross trades of 1,71,500 shares of Ranbaxy is not sustainable, and that such allegations, if any, ought to be restricted only to 86,000 shares.
3.5 The Broker stated that the rationale behind the finding of the Enquiry Officer regarding the transactions matched with Dinesh Kumar Singhania, and Asok Kumar Poddar who were associated with Ketan Parekh Group is inexplicable. The Broker further submitted that there is not even an allegation in the Enquiry Report that they were aware of any linkage between the said brokers and Ketan Parekh Group.
4.0 HEARING
4.1 In their said reply to show cause notice, the Broker requested for an opportunity of personal hearing. The Broker was accordingly advised to attend the personal hearing before me at Head Office SEBI at Mumbai on September 28, 2006. Mr. Somasekhar Sundaresan, Advocate, J. Sagar & Associates and Mr Rajesh Sinha, Company Secretary, M/s Dalmia Securities (P) Ltd. attended the hearing and also filed written submission dated September 28, 2006. 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 the time of hearing.
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 and it continued to move upward during February - March 1999 and reached to Rs. 650/- by end of March 1999. The price of the scrip thereafter moved to Rs. 700/- during May 1999 and came down to Rs. 600/- during June 1999. The price subsequently 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 its price 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.
5.3 The Enquiry Officer has arrived at a conclusion in his enquiry report that the Broker has carried out 41 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 other charges levelled against the Broker are on the basis of the aforesaid synchronized trades. The synchronized trade is a kind of transactions where the seller and buyer execute the trade for almost same quantity and price at substantially the same time. I find that synchronized deal is not per se 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 a serious offence.
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 warranted or not. In order to decide the said issue, I felt it necessary to analyze the details of synchronized trades executed by the Broker given hereunder;
Part I
Buy Mem Name Trade date Buy Order time Buy order Buy orde
Qty rrate
SHYAM SUNDAR DALMIA 5/11/1999 11:20:33 25000 758.20
SHYAM SUNDAR DALMIA 5/11/1999 11:56:49 25000 758.50
SHYAM SUNDAR DALMIA 5/11/1999 13:01:25 10000 754.70
SHYAM SUNDAR DALMIA 5/11/1999 13:11:20 10000 757.20
SHYAM SUNDAR DALMIA 5/11/1999 13:12:43 15000 757.70
SHYAM SUNDAR DALMIA 5/11/1999 14:05:35 25000 751.90
SHYAM SUNDAR DALMIA 5/26/1999 11:27:34 50000 631.60
SHYAM SUNDAR DALMIA 6/8/1999 14:00:10 20000 609.80
ARUN KUMAR & CO. 6/9/1999 10:26:38 5000 608.50
GKCL STOCK BROKING
PVT. LTD. 6/23/1999 11:50:09 5000 653.10
GOPAL PRASAD CHOKHANY 6/23/1999 12:39:06 5000 654.80
SHYAM SUNDAR DALMIA 6/23/1999 12:53:24 24000 661.50
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