Appeal No. 33 of 2013. Case: M/s. Triveni Management Consultancy Services Ltd. Vs Adjudicating Officer Securities and Exchange Board of India. Securities and Exchange Board of India
| Case Number | Appeal No. 33 of 2013 |
| Judges | J.P. Devadhar, J. (Presiding Officer), Jog Singh, and A.S. Lamba, Members |
| Issue | Securities And Exchange Board of India Act, 1992 - Sections 15HA, 15HB, 15I, 15J, 15T, 4(1), 4(2)(a) |
| Judgement Date | November 13, 2013 |
| Court | Securities and Exchange Board of India |
Judgment:
A.S. Lamba, Member
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The present appeal has been preferred by M/s. Triveni Management Consultancy Services Ltd. (hereinafter referred to as Triveni) against order no. BM/AO-70/2012 dated December 13, 2012 passed by Adjudicating Officer, Securities and Exchange Board of India (hereinafter referred to as "SEBI") under section 15T of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as "SEBI Act") and imposition of penalty of Rs. 20 lakh under section 15HA of SEBI Act for violating Regulations 4(1), 4(2), (a), (b), (e) and (o) of 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 Rs. 5 lakh under section 15HB of SEBI Act for violation of Regulation 7 read with clauses A(1), A(2), A(3), A(4) and A(5) of Code of Conduct for Stock Brokers as specified in Schedule II of Securities and Exchange Board of India (Stock Broker and Sub-Broker) Regulations, 1992 (hereinafter referred to as "Stock Brokers Regulations). SEBI conducted investigation in trading in scrip of Asian Star Company Limited (hereinafter referred to as ASCL or company) for period October 10, 2008 to November 20, 2008) (hereinafter referred to as "Investigating Period" or "IP"). It was observed that during IP price of scrip went up from Rs. 1240 on October 10, 2008 to Rs. 1360.15 on November 20, 2008 (18.57 percent rise in 28 trading days), while SENSEX had fallen by 19.73 percent (i.e. from 10,572.85 to 8,451.01). Subsequent to IP, price of scrip started falling and closed at Rs. 905 on January 30, 2009.
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The role of brokers and their clients who traded in scrip of ASCL on BSE was scrutinized. It was observed during investigation that certain entities who were allegedly connected to each other had indulged in circular/reversal synchronized trading in such a manner that led to creation of artificial volumes in the scrip.
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From trading pattern it was observed that there was concentration among major brokers and their clients in trade of ASCL scrip on BSE during period under examination. Analysis of trading pattern revealed that broker Triveni Management Consultancy Service (hereinafter referred to as "Appellant") had maximum concentration in gross purchase at 26.25 % followed by broker BP Equities Pvt. Ltd. (hereinafter referred to as "BP Equities"), Swastika Investment Ltd. (hereinafter referred to as "Swastika") and Emkay Global Financial Services Ltd. (hereinafter referred to as "Emkay Global") at 19.27 %, 17.97 % and 16.97 % respectively. On gross sales also these brokers had same percentage of concentration as all of them had sold entire or similar quantities of shares they had bought.
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It was observed that group of entities allegedly connected to each other viz., Sandeep Jain, Jitendra Jain, Suresh Hanswal, Pradesh Nimawat, Sunil Mehta, Usha Mehta, Bharat C. Jain, Arun Manohar Sakpal, Narendra Sanghi, Meen Been Elastomers, Dilip Rathore, Bhanwar Lal Paliwal, Alpesh G Dand, Manisha Mardia, Rajnish Jain were found to be executing synchronized/structured and reversal trades among themselves. These entities were found to be linked with each other through Sunil Mehta, Ajay Roongta, Manish Mathur and together formed a group which is henceforth referred as "Mehta Group". It was alleged that Appellant was advising clients to trade in scrip of ASCL and was placing orders, which were manipulative in nature, (synchronized, structured and reversal trades) in accounts of its clients and thus found to be actively aiding and abetting in alleged manipulative transactions in connivance with Sunil Mehta. Further, it was alleged that glaring mistakes were found in maintaining KYC forms by Appellant in respect of its clients. Appellant was thus, alleged to have failed to carry out its business with due, skill, care and due diligence and violated Regulation 4(1), (2) (a), (b), (e) & (o) of SEBI PFUTP Regulations, 2003 and Regulation 7 read with Clauses A(1), A(2), A(3) A(4) & A(5) of Code of Conduct for Stock Brokers as specified in Schedule II of SEBI Stock Brokers Regulations.
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Show Cause Notice No. EAD-6/BM/VS/29351/2010 dated December 9, 2010 (hereinafter referred to as 'SCN') was issued to Appellant under rule 4 of Securities and Exchange Board of India (Procedure for Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 to show cause as to why an inquiry should not be held and penalty be not imposed under section 15HA and 15HB of SEBI Act for alleged violation specified in said SCN. Vide letter dated February 18, 2011 Appellant filed detailed reply to SCN and denied all allegations leveled against him in SCN and inter alia submitted that:
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We have always followed policy of trading as per the instructions given by our clients and have never taken investment decision on behalf of our clients. While permitting clients to trade, we decide on the exposure to be granted to each client on the basis of their previous trading history, the net worth of the client and the securities/cash available with us as margin. Some of our clients are day traders/jobbers and in their case since there is rarely any delivery, we closely monitor their trades to decide their exposure.
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That SEBI has cherry picked the trades of only four clients and only those trades of even those four clients that support their theory of synchronized trading and ignored the remaining trades and trades of other clients. This is not a rational, scientific, logical or legally permitted method of drawing adverse findings against us and alleging fraud by us.
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That the trading system of BSE and NSE are anonymous and automated, it is not possible for a broker or client to identify counter parties while placing orders.
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That SEBI ought to have established that there was some understanding between the parties to the trade to synchronize their orders in a malafide manner and that they in fact acted on such an understanding. No such finding is made in the said SCN.
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That with regard to the allegation that the reversal took place with the same brokers/clients who were counterparties to the original trades, we repeat, reiterate and submit that the same could only have taken place in the normal course of business and can only be coincidence unless it is established that there was some understanding between the parties to the trades in fact acted on such an understanding. No such finding is made in the SCN.
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That we are not aware of any "Mehta Group" or the constitution thereof.
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None of the persons whose statements SEBI has referred to any such "Mehta Group" or even stated that they acted as a group; copies of statement have not been furnished to us by SEBI.
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Mr. Manish Mathur is our Chief Operations but we are not concerned with his father or friends; it is pertinent to note that Mr. Mathur has not traded in the scrip.
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We have not been provided with copies of the statement of Sunil Mehta and we have not been provided with an opportunity to cross examine him.
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With reference to the statements of Bhanwarlal Paliwal, Suresh Hanswal, Alpesh G Dand, Manisha Mardia, Pradesh, Rajnish Jain and Ajay Roongta, we have not been provided with a copy of their statements and/or an opportunity to cross examine them; in absence of same, it is illegal for SEBI to rely upon his statement to make adverse findings against us.
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SEBI has referred to a fund flow between Sunil Mehta, Seema Mathur and Gopal Lal Mathur, but the same is not substantiated by any document of proof; in the absence of the same, it is unlawful for SEBI to rely upon the same to draw adverse finding against us.
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That we do not fall into any of the 3 categories of entities who "operated" during the Investigation Period; we did not invest in the scrip in our proprietary account, we did not fund the transactions of others, we did not use the accounts of others to trade and we were not name lenders.
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We repeat and deny that we have synchronized or structured any trades for the said alleged Mehta Group.
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We deny that we are related to Sunil Mehta through Manish Mathur; Sunil Mehta is only one of our clients and not otherwise related to us. Mr. Mathur is our employee and not a promoter or shareholder. Furthermore, Mr. Mathur's friendship with Sunil Mehta cannot be the basis to allege that we were related to Sunil Mehta or that awe had acted with him.
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That Mr. Jitendra sought periodically requested for payout of certain sums of money and we made the same to him; it is not SEBI's case that the margin maintained by us were rendered sufficient on account of such payments. We are not concerned with or aware of what he did with the proceeds thereof. In this regard it is pertinent to note that we have not been provided with copies of his bank statement which shows the utilization of funds and therefore, it is unlawful for SEBI to rely upon the same to make adverse findings against us.
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We deny that we used Jitendra's account as a conduit for transfer of funds to Sunil Mehta.
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That SEBI has not set out the names and specific details of the KYCs in respect of which there has been alleged shortcomings and details of the said alleged shortcomings; we are therefore, unable to respond the same.
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That we have permitted out clients to trade in the said scrip only on the basis of adequate margins.
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In interest of natural justice and in order to conduct an inquiry as per rule 4(3) of Rules, Appellant was granted an opportunity of personal hearing on June 20, 2011, but Appellant finally appeared on June 21, 2011 through Authorised Representatives Mr. Joby Mathew and Mr. Dinanath Dubey, and sought for cross-examination of Sunil Mehta, Jitendra Jain, Bharat C Jain, Ravindra Parekh of Meen been Elastomers Ltd., Dilip Rathore, Alpesh Dand, Amit Mardia on behalf of Manisha Mardia and Bhanwarlal Paliwal. Appellant was asked to submit written request...
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