SEBI had conducted an investigation into the alleged irregularity in the trading in the shares of Veritas (india) Limited. One entity viz. Kamalasini Tradelinks Private Limited (kTL) had approached the shareholders of VIL and acquired around 6.08% shares of VIL.
Original Description:
Original Title
Adjudication Order against Shri Vasantlal Mohanlal Vora and Arcadia Shares & Stock Brokers P. Ltd in the matter of Veritas (India) Limited
SEBI had conducted an investigation into the alleged irregularity in the trading in the shares of Veritas (india) Limited. One entity viz. Kamalasini Tradelinks Private Limited (kTL) had approached the shareholders of VIL and acquired around 6.08% shares of VIL.
SEBI had conducted an investigation into the alleged irregularity in the trading in the shares of Veritas (india) Limited. One entity viz. Kamalasini Tradelinks Private Limited (kTL) had approached the shareholders of VIL and acquired around 6.08% shares of VIL.
SECURITIES AND EXCHANGE BOARD OF INDIA [ ADJUDICATION ORDER NO. EAD-2/DSR/VVK/ RG/ 199-200 /2014 ] __________________________________________________________________
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 In respect of :
BACKGROUND : 1. Securities and Exchange Board of India (hereinafter referred to as "SEBI ") had conducted an investigation into the alleged irregularity in the trading in the shares of Veritas (India) Limited (hereinafter referred to as "VIL"), a company listed on the Bombay Stock Exchange Limited (hereinafter referred to as "BSE") and into the possible violation of the provisions of the SEBI Act, 1992 (hereinafter referred to as the Act) and various Rules and Regulations made there under during the period from J anuary 01, 2009 to March 31, 2012.
2. On the basis of Integrated Market Surveillance System (IMSS) alert touching circuit filters, two snap investigations were carried out by SEBI in the scrip of VIL for the period from May 26, 2008 to October 30, 2009 and November 03, 2009 to February 06, 2010. During the period of investigation, it was observed that the price of the scrip had increased from ` 100/- as on April 06, 2009 to ` 825.63/- as on May 10, 2010. It was further observed that one entity viz. Kamalasini Tradelinks Private Limited (KTL) had approached the shareholders of VIL and acquired around 6.08% shares of VIL through off-market transfers from various Brought to you by http://StockViz.biz Page 2 of 13
shareholders. As on March 2010, it was observed that the share capital of VIL was only 9,96,000 shares, out of which 6,71,310 shares (67.4%) were held by one promoter and remaining 3,24,690 shares (32.60%) were held by 106 non- promoter entities.
3. The investigation, inter alia, revealed that one Shri Vasantlal Mohanlal Vora (hereinafter referred to as the "Noticee No. 1") had traded in the scrip of VIL through his stock broker Arcadia Share and Stock Brokers Pvt. Ltd. (hereinafter referred to as "Noticee No. 2"). The Noticee No. 1 while trading in the scrip through Noticee No. 2 had indulged in fictitious trades on 6 instances and traded 12 shares of VIL in a self-trade manner during the period September 22, 2010 to March 30, 2012. Further, in 4 instances Noticee No. 1 was observed to have placed the orders near to the Last Traded Price (LTP) and in other 2 instances placed orders over the LTP. Further, it was observed that out of 6 instances of self trades, in 2 instances the Noticee No. 1 had placed orders through Noticee No. 2 and in 01 instance Techno Shares & Stocks Limited (Techno) acted as Noticee No. 1's broker and counterparty broker.
4. It was, therefore, alleged that the Noticee No. 1 by indulging in self trades had violated the provisions of Regulation 3(a), (b), (c), (d) and Regulation 4(1), 4(2)(a), 4(2)(b), 4(2)(e) and 4(2)(g) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as "PFUTP Regulations"). Further, it is also alleged that the Noticee No. 2 by acting as a broker and counter party broker in executing the alleged self trades had assisted its client in placing the fictitious trades thus, violated the provisions of Regulation 3(a), (b), (c), (d) and Regulation 4(1), 4(2)(a) and 4(2)(e) of the PFUTP Regulations and Clauses A(1), A(3), A(4) and A(5) of the code of conduct as specified in Schedule II under Regulation 7 of the SEBI (Stock Broker and Sub-Broker) Regulations, 1992 (hereinafter referred to as Broker Regulations).
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APPOINTMENT OF ADJUDICATING OFFICER 5. SEBI has, therefore, initiated Adjudication proceedings against the Noticees and I have been appointed as the Adjudicating Officer vide order dated the August 26, 2013 under Section 15-I of the SEBI Act read with Rule 3 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the said Rules) to inquire into and adjudge under Section 15HA of the SEBI Act the alleged violation of the PFUTP Regulations by the Noticee Nos. 1 and 2 and under Section 15HB for the alleged violations of Broker Regulations by Noticee No. 2 .
NOTICE, REPLY AND PERSONAL HEARING 6. The Noticees were issued separate Show Cause Notices dated September 25, 2013 (hereinafter referred to as SCN/s ) under Rule 4(1) of the said Rules to show cause as to why an inquiry should not be held and why penalty be not imposed on the Noticees for the said violations. The Noticee No. 1 vide its letter dated October 07, 2013 informed that he will be filing a reply in due course of time. Further, vide letter dated October 11, 2013, the Noticee No. 1 submitted his preliminary reply and requested for 3 weeks' time to file a detailed reply in the matter. Subsequently, the Noticee filed its reply dated February 24,2014.
7. With respect to the SCN issued to Noticee No. 2, vide letter dated October 14, 2013 it sought two weeks' time to submit its reply. Further, vide letter dated October 28, 2013, the Noticee No. 2 filed its preliminary reply in the matter and further requested for an opportunity to inspect documents in the matter. The said request was acceded to and accordingly, vide letter dated December 09, 2013 Noticee No. 2 was granted an opportunity of inspection of documents. Ultimately, the Noticee No. 2 carried out the inspection of documents and vide letter dated February 10, 2014 the same was intimated by Investigation Department, SEBI. Further, vide letter dated February 27, 2014 the Noticee No. 2 submitted its detailed reply in the matter. Brought to you by http://StockViz.biz Page 4 of 13
8. Thereafter, in the interest of natural justice and in order to conduct an inquiry as per Rule 4 (3) of the said Rules, an opportunity of personal hearing was granted to the Noticees on May 26, 2014. The authorized representatives of the Noticees attended the scheduled hearing and reiterated the submissions made vide their replies dated the February 24, 2014 and February 27, 2014, respectively.
CONSIDERATION OF EVIDENCE AND FINDINGS 9. I have carefully perused the charges leveled against the Noticees in the SCNs, the written submissions made by them and the documents available on record. In the instant matter, the following issues arise for consideration and determination :- a) Whether the Noticee No. 1 has violated the provisions of Regulation 3(a), (b), (c), (d) and Regulation 4(1), 4(2)(a), 4(2)(b), 4(2)(e) and 4(2)(g) of the PFUTP Regulations?
b) Whether the Noticee No. 2 has violated the provisions of Regulation 3(a), (b), (c), (d) and Regulation 4(1), 4(2)(a) and 4(2)(e) of the PFUTP Regulations and Clauses A(1), A(3), A(4) and A(5) of the code of conduct as specified in Schedule II under Regulation 7 of the Broker Regulations?
c) Do the violations, if any, on the part of the Noticees attract any penalty under Section 15HA and 15HB of the SEBI Act ?
d) If yes, what should be the quantum of monetary penalty?
10. Before proceeding further, I would like to refer to the relevant provisions of the PUFTP Regulations and Broker Regulations which reads as under :-
Relevant provisions of PFUTP Regulations. Prohibition of certain dealings in securities Brought to you by http://StockViz.biz Page 5 of 13
3. No person shall directly or indirectly - (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognised stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognised stock exchange; and, (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognised stock exchange in contravention of the provisions of the Act or the rules and the regulations made thereunder."
4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely;-
(a) indulging in an act which creates false or misleading appearance of trading in the securities market; (b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss; c) ........ d) ........ (e) any act or omission amounting to manipulation of the price of a security; (f) ......... (g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security.
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Relevant provisions of Broker Regulations Stock brokers to abide by Code of Conduct 7. The stock brokers holding certificate shall at all times abide by the Code of Conduct as specified in Schedule II. SCHEDULE II CODE OF CONDUCT FOR STOCK BROKERS [Regulation 7] A. General (1) Integrity: A stock-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business; (2) ................. (3) Manipulation: A stock broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains; (4) Malpractices : A stock broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors interest or which leads to interference with the fair and smooth functioning of the market. A stock broker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness; and, (5) Compliance with statutory requirements: A stock broker shall abide by all the provisions of the Act and the Rules, regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to him."
11. I find from the SCN that the Noticee No. 1 had traded in the scrip of VIL and had indulged in fictitious trades which were self trades in nature through its broker Noticee No. 2. The Noticee No. 1 had indulged in self trades on 6 instances and had traded 12 shares of VIL in fictitious manner during the period from September 22, 2010 to March 30, 2012 and on 4 instances the Noticee No. 1 had placed the orders near to the LTP and in other 2 instances the Noticee No. 1 had placed orders over LTP. Out of 6 instances of self trades, the Noticee No. 1 in 2 instances, had placed the self trades through Noticee No. 2 who acted as Brought to you by http://StockViz.biz Page 7 of 13
both, a broker and counter party broker. In one instance the Noticee No. 1 had placed the orders through broker Techno and in the remaining 3 instances, he had placed orders through different brokers.
12. I further find from the investigation report that the Noticee No. 1 had purchased 680 shares and sold 526 shares of VIP and he was one of the top buyers during the period from J anuary 01, 2009 to March 31, 2012. One Shri J ignesh Damji Rambhia appeared to be a major sell client with 102 shares and one Shri Umangkumar Patel appeared as a major buy client with 74 shares. The details are as under :-
Client Name PAN Gr Buy Volu me Gr Buy volume %age of Buy to Mkt. Gr sell volume Gr.Sell Value % of sell to Mkt. Gr volume %age Trade Volume VASANTLAL MOHANLAL VORA AAAPV5230F 680 224633. 90 2.75 526 174428.25 2.13 1206 4.88
13. I also find from the SCN that the Noticee No. 1 was one of the top 10 LTP contributors during the period J anuary 01, 2009 to March 31, 2012 and the details of the same are as under :- Client Name PAN Nega tive LTP Positive LTP Overall LTP No. of trades above LTP No.of trades below LTP Total Trades as a Buyer Total Trades as a Seller Total Trades
VASANTLA L MOHANLAL VORA
AAAPV5230F
306.25
650.5
344.25
20
28
154
221
375
14. Further, the Noticee No. 1 had also contributed in establishment of new high price during 1st J anuary 01, 2009 to March 31, 2012 as he traded in the scrip of VIL on 375 instances and out of the said instances on 87 instances, he had contributed in establishing new high price in the scrip and on 50 instances he was alleged to have contributed in establishing new low price. The details of the same are as under: -
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Client Name PAN No. of instances establishing new high Total contribution to new high %age of contribution No. of instances establishing new low Total contribution to new low %age of contrib -ution
VASANT LAL MOHANL AL VORA
AAAPV5230F
87
435.45
12.02
50
193.15
15.08
15. Further, following are the details of the total quantities transacted by Noticee No. 2 on behalf of Noticee No. 1 during the investigation period :-
Stock Broker Name Gr.Buy Qty. Gr.Buy Value % of Gr.Market Buy Gr.Sell Qty. Gr.Sell value % of Gr.Market Sell Gr.Trd.Qty. % to Total Market Trades
ARCADIA SHARE AND STOCK BROKERS PVT.LTD.
623
250738.95
2.52
573
214000.15
2.32
1196
2.42
16. The Noticee No. 1 vide his reply dated October 11, 2013 submitted that he is a retired person and a small investor. He was buying and selling in multiple scrips during the relevant period and VIL was one of them. He was dealing purely on delivery basis only. As the share markets open he puts his sauda telephonically. He is not aware as to how the price mechanism system works. He does not directly operate on Bolt Screen. On health ground the noticee submitted that he has completely stopped the above activity.
17. Further, vide his additional reply dated February 24, 2014, the Noticee No. 1 submitted that he had carried out the transactions from November 23, 2009 and continued trading upto J anuary 08, 2010 when the price was around `830/-. Thereafter, the price was showing sharp upward trend. Only during the intervening period, the price went up when he had not done any trading in the share of VIL. Further, the Noticee submitted that he resumed his trading in VIL only from J uly 29, 2010 when the price was around ` 600/-. Then market volume during the investigation period was 11,628 shares (one side ) vis-a-vis his buy and sell volume was 680 and 526, respectively, which is very meager i.e. around 5% of the market volume. On daily basis, the Noticee's buy and sell Brought to you by http://StockViz.biz Page 9 of 13
volume is not significant to have any impact on the market. The Noticee further stated that on the day of execution of alleged self trades he had carried out a large number of trades. The Noticee stated that he had incurred loss of `33,180/- while trading in VIL.
18. The Noticee No. 2 vide its reply dated October 28, 2013 submitted that it has no relationship with Noticee No. 1 except that of a broker - client relationship. The Noticee No. 1 is registered with the broker since August 2006 and was introduced by one SEBI registered sub-broker. However, since November 2012, the Noticee No. 2 has not carried out any trades in Noticee No. 1's account. By trading for the said client, it has only made gains by way of brokerage and nothing else. It stated that on perusal of the trading pattern, they understood that Noticee No. 1 had carried out delivery based transactions through it and had not defaulted in the pay in obligations of both shares and funds. Further, the Noticee No. 2 also stated that the volumes traded by Noticee no. 1 through it was very low as compared to the market volume in the scrip of VIL.
19. Further, vide letter dated February 27, 2014, the Noticee No. 2 submitted that with respect to the alleged self trades on September 22, 2010 for 5 shares and on March 16, 2012 for 2 trades, it is to be noted that buy order time is 9:09:11 a.m. whereas the sell order time is 2:09:44 p.m. Thus, there is vast time difference between buy and sell order time. Further, the self trades were executed at the then prevailing market price as there was hardly any difference to the LTP. The LTP at the relevant time was ` 360/- whereas the transaction price was ` 360/05. Further, the noticee No. 2 stated that the market volume on the day was 45 shares and the buy quantity was 15 shares and the sell quantity was 5 shares. Therefore, the said quantity was insignificant. The Noticee No. 1 on the relevant day had traded in many scrips in large numbers. Further, on perusal of the trade log for March 16, 2012, the Noticee No. 2 submitted that one buy order of 2 shares got matched with 2 sell orders of 1 share each placed by the client through different terminal IDs. Hence, it is stated that the dealer placing the order was not aware of the simultaneous order placed by the Brought to you by http://StockViz.biz Page 10 of 13
client at the relevant time. The Noticee No. 1 has sustained losses by executing the said trades therefore, it cannot be alleged that the Noticee No. 1 made any illegal gains by trading in the scrip of VIL.
20. The Noticee No. 2 further submitted that the orders for Noticee No. 1 were mostly placed on the trading terminal of its sub-broker Shri Pinkesh Shah. The orders in the trading terminal were mostly punched after viewing, informing and considering the best available buy and sell order existing in the trading terminal and at no time, price higher than the best available order price was put in the system. Since, the scrip was illiquid and volume was thin, correlating and matching of order price with LTP was not feasible, practical and relevant. The Noticee No. 2 submitted that the alleged self trades were purely coincidental and not an outcome of any design. Further, the said orders were placed during the busy market hours in the ordinary course of business and without the knowledge of existing pending unexecuted order of the client (Noticee No. 1) in the scrip of VIL.
21. From the material available on record I find that the Noticee No. 1 is a small time investor trading through various brokers. The Noticee No. 1 while trading in the scrip of VIL, which was an illiquid scrip, had indulged in certain self trades (6 occasions) for 12 shares of VIL which are fictitious in nature and thereby did participated in manipulative and fraudulent trading practices in the scrip of VIL. Out of the said 6 instances of self trades, in 2 instances, the Noticee No. 1 had traded through Noticee No. 2. By trading in a fictitious manner the Noticee No. 1 had contributed by 5% to the total market volume traded during the relevant period. As the market volume during the relevant period was very less and the scrip was an illiquid one, even a single share traded in a manipulative manner will have an impact on the market and therefore, I do not find any merit in the submissions of the Noticees that the volumes traded in fictitious manner were meager and that they did not intend to manipulate the market. I find that the Noticees by indulging and executing in such fraudulent and fictitious trades had created artificial volumes in the scrip.
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22. Further from the above paras, I find that it is difficult to conclude that the Noticees by executing the self trades has contributed in establishing a new high and low price in the scrip of VIL as the orders were punched in by the Noticees at the relevant market price and the same cannot be concluded as price manipulation. Therefore, I am of the view that the Noticees did not indulge in price manipulation and thus, have not violated Regulation 4(2)(e) of the PFUTP Regulations.
23. Therefore, I conclude that the Noticee No. 1 did violate the provisions of 3(a), (b), (c), (d) and Regulation 4(1), 4(2)(a), 4(2)(b) and 4(2)(g) of PFUTP Regulations thus, liable for imposition of monetary penalty under Section 15HA of the Act. Further, I also conclude that Noticee No. 2 did violate the provisions of 3(a), (b), (c), (d) and Regulation 4(1) and 4(2)(a) of the PFUTP Regulations and Clauses A(1), A(3), A(4) and A(5) of the code of conduct as specified in Schedule II under Regulation 7 of the Broker Regulations thus, liable for imposition of monetary penalty under Section 15HA and 15HB of the Act. The said provisions of law read as under:
Penalty for fraudulent and unfair trade practices. 15HA. Penalty for fraudulent and unfair trade practices. - If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty not exceeding twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher."
Penalty for contravention where no separate penalty has been provided. 15HB. Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board there under for which no separate penalty has been provided, shall be liable to a penalty which may extend to one crore rupees.
24. I note that the Hon'ble Supreme Court of India in the matter of SEBI vs. Shri Ram Mutual Fund [2006] 68 SCL (216), held that " once a violation of statutory regulation is established, imposition of penalty becomes sine qua non of Brought to you by http://StockViz.biz Page 12 of 13
violation and the intention of the parties committing such violation becomes totally irrelevant. Once the contravention is established then penalty is to follow".
25. Also, the Hon'ble SAT, in Chirag Tanna Vs The Adjudicating Officer, has observed that:- ..we have on record the trade and order logs from which it has been pointed out by the learned counsel for the respondent Board that the appellant had executed self trades i.e. trades in which he was both the buyer and the seller. Such trades are, admittedly, fictitious and create artificial volumes in the traded scrip..
26. While determining the quantum of penalty under Section 15HA and 15HB of the Act, it is important to consider the factors stipulated in Section 15 J of the Act which reads as under :-
15-J Factors to be taken into account by the adjudicating officer : While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have due regard to the following factors, namely: (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; (c) the repetitive nature of the default.
27. I observe from the material available on record that the Noticee No. 1 had incurred losses while dealing in the scrip of VIL in a fictitious manner. Further, I note that the defaults on the part of the Noticees were repetitive in nature as the said trades were observed on more than one instance. However, I note that even if the Noticee No. 1 incurred losses after indulging in self trades, the very act of executing fictitious trades is liable to be penalized under the securities laws.
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ORDER 28. In view of the above, after considering all the facts and circumstances of the case and exercising the powers conferred upon me under Section 15-I(2) of the SEBI Act, 1992 read with Rule 5 of the said Rules, I hereby impose the following penalties on the Noticees:
Sr. No. Name of the Noticee Penal provisions as per SEBI Act, 1992 Monetary Penalty (in `) 1. Shri Vasantlal Mohanlal Vora 15HA 5,00,000 (Rupees Five Lakh Only) 2. Arcadia Shares & Stock Brokers Pvt. Ltd. 15HA 3,00,000 (Rupees Three Lakh Only) 15HB 2,00,000 (Rupees Two Lakh Only)
In my view, the penalty is commensurate with the default committed by the Noticees.
29. The penalty amount shall be paid by the Noticees through a Demand Draft drawn in favour of SEBI Penalties Remittable to Government of India and payable at Mumbai, within 45 (forty five) days of receipt of this order. The said Demand Draft should be forwarded to the Division Chief, Investigation Department (ID-10), Securities and Exchange Board of India, SEBI Bhavan, Plot No.C4-A, G Block, Bandra-Kurla Complex, Bandra (E), Mumbai 400 051.
30. In terms of Rule 6 of the said Rules, copies of this order are sent to the Noticees and also to the Securities and Exchange Board of India.
Date : August 27, 2014 D.SURA REDDY Place: Mumbai ADJUDICATING OFFICER Brought to you by http://StockViz.biz
The Aforesaid Noticees Are Hereinafter Referred To by Their Respective Name / Noticee Number and Collectively Referred To As "Noticees", Unless The Context Specifies Otherwise
Wtm/gm/efd/ 77 /2020-21 S e B I, M F o U S 19 S 12 (3) o T S A e B o I A, 1992 R 27 (5) o T S A e B o I (I) R, 2008. I - N S R N - S I F C L Bse - Ins018655139 Nse - Ins238266238
Adjudication Order against Shri. Bhanwarlal H Ranka, Shri. Pradeep B Ranka, Ms. Kusum B Ranka, Ms. Sangeetha P Ranka, Ms. Anjana B Ranka, Shri. Arun B Ranka , Ms. Rachana A Ranka and Shri. Kantilal G Bafna in the matter of Residency Projects and Infratech Ltd.