Case: 1.SEBI, 2.In Re: Ranbaxy Laboratories Limited Vs 1.Sanjay Khemani. Securities and Exchange Board of India

Party Name:1.SEBI, 2.In Re: Ranbaxy Laboratories Limited Vs 1.Sanjay Khemani
Judges:V.K. Chopra, Member
Issue:Company Law
Judgement Date:March 29, 2007
Court:Securities and Exchange Board of India
 
FREE EXCERPT

Order:

V.K. Chopra, Member

1.0 BACKGROUND

1.1 Ranbaxy Laboratories Ltd. (hereinafter referred to in short as "Ranbaxy") was incorporated in June 1961. Ranbaxy is engaged mainly in the business of manufacturing and marketing of pharma products. 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 traded on the exchanges particularly on the Stock Exchange, Mumbai (BSE), National Stock Exchange (NSE) and Calcutta Stock Exchange (CSE).

1.2 Securities and Exchange Board of India (hereinafter referred to in short as "the Board") ordered an investigation into the dealings of many entities including Sanjay Khemani, in the shares of Ranbaxy. Sanjay Khemani is a member (hereinafter referred to as "the Broker") of Calcutta Stock Exchange (CSE) bearing SEBI Registration No. INB 030693921.

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 Regulation 4 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) and (4) of the Code of Conduct for Stock Brokers as specified in Schedule II of SEBI (Stock Brokers and 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 December 23, 2003 where he observed that the Broker violated the provisions 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, Regulation 4(b) & (c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995, SEBI circular No. SMDRP/POLICY/CIR-32/1999 dated September 14, 1999. He recommended suspension of registration of the Broker for a period of eight months.

2.0 SHOW CAUSE NOTICE

2.1 Pursuant to the receipt of the said enquiry report, a show cause notice dated January 12, 2005 was issued to the Broker, along with a copy of the said Enquiry Report, advising them 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 January 24, 2005.

3.0 REPLY OF THE BROKER TO THE SHOW CAUSE NOTICE

3.1 The Broker submitted that all the transactions were done through C-star mechanism within the parameters of CSE at the prevailing market rates and they have not done any manipulation or breach of code of conduct. With regard to the finding of association of the Broker with the associates of Ketan Parekh group, the Broker submitted that all the transactions were done through C-star system where there is no scope to know with whom they are trading.

4.0 HEARING

4.1 The Broker has not sought for a personal hearing. However, as given in all other cases, an opportunity of personal hearing was granted and they were advised to attend the personal hearing before me at SEBI's Eastern Regional Office at Calcutta on September 13, 2006. The Authorized Representative Shri P. K. Harlalka attended the hearing and reiterated that all their transactions were executed through automatic C-star mechanism of CSE and in the said system, nobody can identify the counterparties. He also submitted that they had no intention to manipulate the price or volume of the scrip Ranbaxy.

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 I find from the Enquiry Report that the scrip of 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 arrived at a conclusion in his enquiry report that the Broker has carried out 54 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 the entire charge levelled against the Broker is 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. Synchronized deal per se is not 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 discovery mechanism of stock exchange with a view to get undue gain out of it, is no doubt a serious matter.

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 proper or not. In order to decide the said issue, I felt it necessary to analyze the details of synchronized trades executed by the Broker. (As given on next page)

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  Buy Mem  Name      Trade   Buy Order  Buy     Buy   Sell Mem Name      Sell      Sell   Sell   Time    Price


                     Date     Time     Order   Order                     Order     Order  Order  diffe   diffe


                                        Qty    Rate                      Time       Qty   Rate   rence   rence

--------------------------------------------------------------------------------------------------------------
AGBROS SECURITIES  3/23/1999 15:07:53  10000  675.00 SANJAY KHEMANI     15:07:53   10000  675.00 0:00:00  0.00 
PVT. LTD.
PREM RATAN BAHETY  4/21/1999 15:16:52   5000  600.00 SANJAY KHEMANI     15:16:53   5000  600.00 0:00:01   0.00 
SANJAY KHEMANI     4/21/1999 15:29:43  25000  610.70 AGBROS SECURITIES  15:29:42  25000  610.70 0:00:01   0.00 

                                                     PVT. LTD.

SANJAY KHEMANI     4/23/1999 10:57:55  19600  558.70 KANODIA STOCK      10:57:55  19600  558.70 0:00:00   0.00 

                                                     BROKING (P) LTD

SANJAY KHEMANI     4/23/1999 15:05:57  50000  584.50 KANODIA STOCK      15:05:56  50000  584.50 0:00:01   0.00 

                                                     BROKING (P) LTD

ASHOK KUMAR PODDAR  5/3/1999 12:53:17  10000  567.40 SANJAY KHEMANI     12:53:17  10000  567.40 0:00:00   0.00 
SANJAY KHEMANI      5/3/1999 15:23:24  30000  588.80 KANODIA STOCK      15:23:23  30000  588.80 0:00:01   0.00 

                                                     BROKING (P) LTD

M/S LOKNATH SARAF   5/4/1999 14:25:29  10500  614.20 SANJAY KHEMANI     14:25:29  10500  614.20 0:00:00   0.00 
M/S LOKNATH SARAF   5/4/1999 14:25:47   9500  614.30 SANJAY KHEMANI     14:25:47   9500  614.30 0:00:00   0.00 
SANJAY KHEMANI      5/5/1999 13:22:21  15000  666.50 ASHOK KUMAR PODDAR 13:22:21  15000  666.50 0:00:00   0.00 
SANJAY KHEMANI     5/14/1999 13:38:46   5000  740.00 SANJAY KUMAR THARD 13:38:46   5000  740.00 0:00:00   0.00 
SANJAY KHEMANI     5/25/1999 13:49:48  11000  649.70 M/S LOKNATH SARAF  13:49:48  11000  649.70 0:00:00   0.00 
SHREE HARIVANSA     6/1/1999 11:06:25  50000  643.80 SANJAY KHEMANI     11:06:25  50000  643.80 0:00:00   0.00 
SECURITIES PVT
SHREE HARIVANSA     6/1/1999 12:19:18  50000  649.80 SANJAY KHEMANI     12:19:18  50000  649.80 0:00:00   0.00 
SECURITIES PVT
AGBROS SECURITIES   6/1/1999 12:20:48  50000  651.20 SANJAY KHEMANI     12:20:49  50000  651.20 0:00:01   0.00 
PVT. LTD.
SANJAY KHEMANI      6/9/1999 14:53:03  75000  605.80 AGBROS SECURITIES  14:53:03  75000  605.80 0:00:00   0.00 

                                                     PVT. LTD.

SANJAY KHEMANI      6/9/1999 14:53:21  75000  606.30 AGBROS SECURITIES  14:53:21  75000  606.30 0:00:00   0.00 

                                                     PVT. LTD. 

AGBROS SECURITIES   7/6/1999 15:08:23  25000  690.80 SANJAY KHEMANI
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