Appeal No. 27 of 2013. Case: 1. Vibha Sharma, 2. Jitendra Kumar Sharma Vs Securities and Exchange Board of India. Securities and Exchange Board of India

Case NumberAppeal No. 27 of 2013
CounselFor Appellants: Mr. Somasekhar Sundaresan, Advocate with Mr. Ravichandra S. Hegde, Mr. Abishek Venkataraman, Ms. Arti Raghavan, Advocates and For Respondents: Mr. Shiraz Rustomjee, Senior Advocate with Mr. Mihir Mody, Mr. Pratham V. Masurekar, Advocates
JudgesJ. P. Devadhar, Presiding Officer, Jog Singh, Member & A. S. Lamba, Member
IssueSecurities and Exchange Board of India Act, 1992 - Section 15I(2); Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 - Rules 3, 5(1); Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) ...
Judgement DateSeptember 04, 2013
CourtSecurities and Exchange Board of India


J. P. Devadhar, Presiding Officer

  1. This is an appeal filed by Appellants - Vibha Sharma and Jitendra Kumar Sharma against Securities and Exchange Board of India before Securities Appellate Tribunal after being aggrieved by order dated December 19, 2012 passed byadjudicating officer appointed by Respondent under Section 15I(2) of Securities and Exchange Board of India Act, 1992 read with Rule 5(1) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995; due to contravention of Regulations 3(a), (b), (c) and (d) and Regulation 4(1) of Securities and Exchange Board of India (Prohibition of Fraudulentand Unfair Trade Practices Relating to Securities Market) Regulations, 2003 ("PFUTP Regulations").

  2. Securities and Exchange Board of India (hereinafter referred to as 'SEBI') conducted an investigation into the trading activity of Smt. Vibha Sharma (Appellant no. 1) and Shri Sanjay Kashiram More, following a report from National Stock Exchange (NSE), to ascertain any instances of contravention of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market)Regulations, 2003 during period from December 1, 2009 to March 31, 2010.

  3. Investigation revealed that Shri Jitendra Kumar Sharma (Appellant no. 2) is husband of Appellant no. 1 and has been equity dealer for Central Bank of India (CBI) since May 8, 2008. He used to place orders for CBI with brokers namely Kaviraj Securities P. Ltd. (Kaviraj) and Trustline Securities Ltd. (Trustline). Appellant no. 1 has a trading account with the broker, Eureka Stock & Share Broking Services Ltd. (Eureka). It was further observed that during period under investigation, on 16 days trades were executed in account of Appellant no. 1 in such a way that net quantity at end of day was zero (day traded). On 14 out of the said 16 days, sell trades of Noticee no. 1 matched 100% with that of buy trades of CBI. The Appellant no. 1 had earnedpositive square off difference in all trades with CBI as counter party. Noticee no. 1 traded for ` 35,63,000/- on 14 scrip days whereas, in the remaining 26 days during the investigation period her trading was ` 8,48,000/- only. Before placing orders for CBI,shares were purchased in account of Noticee no. 1 and sold to match the orders of CBI, thereby, earning undue profits at cost of CBI and its customers.

  4. In view of above, SEBI vide order dated April 16, 2012 appointed Mr. P. K. Kuriachen as Adjudicating Officer (AO) under Section 15-I of the SEBI Act read with Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the 'Adjudicating Rules') and to inquire into and adjudge under Section 15HA of SEBI Act, 1992 for allegedviolation of provisions of Regulation 3(a), (b), (c), (d) and 4(1) of PFUTP Regulations by Appellants.

  5. The AO issued a common notice dated June 27, 2012 (hereinafter referred to as 'SCN') to the appellants in terms of Rule 4 of Adjudication Rules requiring to show cause as to why an inquiry should not be held against them for alleged violations as mentioned above.

  6. SCNs were sent to Appellants by Registered Post Acknowledgment Due and same were duly delivered. Appellants vide letters dated July 12, 2012 and July 30, 2012 submitted their replied, in which they denied all allegations made against them and requested for certain documents relied on in proceedings so as to enable them to file further submissions before AO. AO provided all documents, as available, to Appellants as requested. Further, in interest of natural justice and in order to conduct an inquiry as per Rule 4(3) of Adjudication Rules, vide letters dated September 6, 2012granted an opportunity of personal hearing to Noticees on September 14, 2012. Appellant no. 2 alongwith their legal representative appeared before AO and made oral submissions. In the said hearing, Appellants requested for an opportunity of inspection of documents and make additional written submissions. Accordingly, an opportunity of inspection was granted to them on October 12, 2012. Upon completion of inspection, Appellants made additional written submissions vide their letters dated October 18, 2012 and November 19, 2012.

  7. The Appellants, inter alia, submitted that: The Appellant no. 2 has been employed with Bank since 1991 and has served the bank in various capacities including Branch Manager, Forex Dealer and Equity Dealer. In the capacity of an Equity Dealer his work includes - preparation of technical charts for consideration of Chief Dealer and promptly placing of orders for purchase and sale of shares withbank's broker, in accordance with instructions of Chief Dealer. He was always acting under control, instructions and supervision of Chief dealer and was not involved with decision making mechanism. Dealing room of Bank is located at its Central Office at the 5th Floor of Chandermukhi Building at Nariman Point is fitted with all necessarysecurity features, has dedicated voice recorded telephone lines through which dealers like him place orders with brokers. Mobile phones are not permitted to be used in dealing room and hence, he did not carry his mobile to office while working as equity dealer for the Bank. Chief dealer or Investment Committee of the Bank take decision regarding script, quantity and price to be invested / traded on a day-to-day basis and such decisions are taken at beginning of trading day / session and executed during theday.

  8. Appellant no. 1 traded in shares of various companies since April 2007 i.e. much before Appellant no. 2 became equity dealer for the bank. In interest of transparency, from time to time Appellant no. 2 has kept bank well informed regarding his wife's intention to trade, opening of her trading and demat accounts with Eureka, with FRR shares, her intention to obtain registration as a sub-broker, etc. Appellant no. 1 receives research reports from various stock brokers/analysts and trades on basis of such reports and on her perceptions. She tries to place orders for shares at price near to LTP, and follow normal market mantra of "buy low sell high". As a day trader, her profit target is generally low and in order to make good profit, she trades in highvolumes. Appellant no. 1 short lists scrips on basis of TV channels, articles given in newspapers, research reports of experts, opinion/advise/technical calls from her brokers and other publicly available material/information.

  9. Matching of some of orders placed by Noticee no. 1 on 14 out of 40 days with that of CBI was a mere coincidence. Noticee no. 1 traded in many scrips in which CBI did not trade during period from April 2007 to March 31, 2010 and that during period April 2007 to March 2012 only 10 scrips matched coincidentally with those of CBI. In case of PRISMCEM and NIITLTD, orders placed by Bank did not match with orders of Noticee no. 1.

  10. Further, they have availed opportunity of inspection granted to them on October 12, 2012 but not all documents and records as requested by them were provided and that there is no document, record or evidence on record to show that Appellant no. 2 had communicated details of orders to be placed by CBI to Appellant no. 1 before placing orders with brokers and/or that Appellant no. 1 had traded on basis of same. Telephone lines in dealing room were recorded, at all times to ensure that there remains no scope for any manipulation/malpractices, etc.

  11. Appellant no. 1 is wife of Appellant no. 2 and has been trading in the securities market since April 2007. The Appellant no.1's trading strategy is akin to a day trader. Trading in a manner...

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