BEFORE THE ADJUDICATING OFFICER SECURITIES AND … · Noticees are SEBI registered brokers, had...

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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. EAD-2/AO/ 174-175 /2013]

________________________________________________________________

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

Against

1. ISF Securities Ltd [PAN: AAACI1667E]

&

2. Vishwas Securities Limited [PAN: AAACV2921N]

In the matter of

Exedy India Limited

Background:

1. Securities and Exchange Board of India (hereinafter referred to as SEBI)

conducted an investigation into the dealings in the scrip of Exedy India

Limited erstwhile Ceekay Daikin Limited (hereinafter referred to as EIL) and

into the possible violation of the SEBI Act, 1992 (hereinafter referred to as the

Act) and various Rules and Regulations made there under. The investigation

was initiated as there was a sharp rise in the price of the scrip at the Bombay

Stock Exchange (hereinafter referred to as “BSE”) during the period April 01,

2009 to October 31, 2009. During the investigation period, the price of the

scrip of EIL rose from ` 22.70 to a high of ` 119.60 (i.e., a rise of 431%).

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2. The Investigation, inter alia, revealed that two clients, namely, ISF Securities

Ltd (hereinafter referred to as ISF) dealing in its proprietary account and

Vishwas Securities Ltd (hereinafter referred to as VSL) dealing through

trading member SIC Stocks and Services P. Ltd (hereinafter collectively

referred to as the Noticees) executed trades amongst themselves in large

quantities and created artificial volume and price increase in the scrip of EIL.

The Noticees had also executed self trades which are fictitious in nature.

3. SEBI has, therefore, initiated adjudication proceedings under the Act to

inquire into and adjudge the alleged violations of the provisions mentioned

under Regulations 3(a) & (d) and 4(1) & 4(2)(a) and (g) of the SEBI

(Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities

Market) Regulations, 2003 (hereinafter referred to as PFUTP Regulations)

against the Noticees and also Clauses A(1), (3), (4) and (5) of the Code of

Conduct as specified under Schedule II of Regulation 7 of the SEBI (Stock

Brokers and Sub-brokers) Regulations, 1992 (hereinafter referred to as the

Broker Regulations) against ISF.

Appointment of Adjudicating Officer:

4. SEBI vide Order dated October 09, 2012 appointed the undersigned as the

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 ‘Adjudication

Rules’) to inquire into and adjudge under Section 15HA and 15HB of the Act

for the alleged violation of the abovementioned provisions of PFUTP

Regulations and Broker Regulations by the Noticees.

Notice, Reply & Personal Hearing:

5. Accordingly, a common notice dated November 12, 2012 (hereinafter referred

to as the ‘SCN’) was issued to the Noticees in terms of Rule 4 of the

Adjudication Rules requiring them to show cause as to why an inquiry should

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not be held for the alleged violations. It was alleged in the SCN that the

Noticees are SEBI registered brokers, had dealt in the scrip of EIL as clients

and contributed at around 35% of the total trading volume in the scrip during

the investigation period. Further, the Noticees had matched themselves for

1,22,350 shares which comprise more than 50% of their buy quantity and

35% of their sell quantity respectively. The Noticees also entered into self

trades on several occasions thereby creating artificial / fictitious volumes in

the scrip of EIL.

6. The SCN was duly delivered to the Noticees. The Noticees vide their letters

dated December 03, 2012 and November 25, 2012, respectively, replied to

the SCN. ISF vide its letter dated December 03, 2012 requested for certain

documents. Vide e-mail dated December 18, 2012 it was informed to ISF that

all the material relied upon while issuing the SCN has already been provided

to it with the SCN and accordingly, it was advised to submit its detailed reply,

if any, latest by December 28, 2012. ISF has submitted that they have sought

details of order logs, trade logs and details of synchronized trades with VSL

from BSE and the same were expected shortly. Therefore, they sought

extension of 15 days to submit their reply to the SCN. Accordingly, ISF

submitted its detailed reply vide letter dated December 31, 2012.

7. VSL vide its reply dated November 25, 2012 denied the charges levelled

against it in the SCN. VSL submitted that it entered into maximum

transactions between the price ranges of ` 24.65 to ` 43.70 during May 20,

2009 to June 08, 2009 and the price difference was only ` 19.05. The

transactions done by them are not the cause to increase the share price of

431% during the investigation period. Further, since their company has not

been working from last four years, they were not in a position to find out the

data in their office.

8. In the interest of natural justice and in order to conduct an inquiry as per Rule

4 (3) of the Adjudication Rules, an opportunity of personal hearing was

granted to the Noticees on January 07, 2013. The authorized representative

along with one Mr. Sunil Khemka, Director of ISF attended the said hearing

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and made oral submissions. They reiterated the submissions made in their

reply dated December 31, 2012. VSL did not attend the said hearing on the

scheduled date.

9. Another opportunity of hearing was granted to VSL on February 08, 2013. The

Noticee did not attend the said hearing, but vide letter dated February 13,

2013 informed that it received the notice of hearing only on February 08, 2013

and therefore, requested for another opportunity of hearing. Accordingly, vide

notice dated February 21, 2013 last and final opportunity of hearing was

granted to it on March 05, 2013. However, the Noticee failed to appear before

me on the said date. In view of the above, I note that ample time and

opportunities were given to VSL to appear for personal hearing and present its

case in this matter to meet the ends of natural justice.

10. In view of the above, I am proceeding with the inquiry taking into account the

documents and material as available on record.

Consideration of Issues, Evidence and Findings:

11. I have carefully perused the charges against the Noticees as per the SCN,

oral and written submissions made by the Noticees and the materials as

available on record. The issues that arise for consideration in the present

case are:

(a) Whether the Noticees have violated the provisions of Regulations

3(a) & (d) and 4(1), 4(2)(a) and (g) of the SEBI PFUTP Regulations and

ISF has also violated Clauses A(1), (3), (4) and (5) of the Code of

Conduct as specified under Schedule II of Regulation 7 of the SEBI

Broker Regulations?

(b) Does the violation, if any, on the part of the Noticees attract any

penalty under Sections 15HA and 15HB of the Act?

(c) If yes, what should be the quantum of penalty?

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12. Before moving forward, it will be appropriate to refer to the relevant provisions

which read as under:-

Relevant provisions of PFUTP Regulations:

3. Prohibition of certain dealings in securities No person shall directly or indirectly— (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b)........ (c)......... (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 recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.

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)............ (c)............. (d)............. (g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security;

Relevant provisions of Broker Regulations:

Stock brokers to abide by Code of Conduct. 7. The stock broker holding a certificate shall at all times abide by the Code of Conduct as specified in Schedule II. SCHEDULE II

A. General. (1) Integrity: A stock-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business.

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(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 stockbroker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness. (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.

13. I find from the documents available on record that EIL is a company listed on

BSE. It is a manufacturer of clutches and supplier to the original equipment

market such as TELCO, Maruti, Mahindra, Eicher, Premier Auto etc.

Company has its address at Plot L-4, MIDC Industrial Area, Chikalthana,

Aurangabad. The shareholding pattern of the EIL during the quarter ended

March 2009 to December 2009 is as given below:

Particular

Quarter ended March 2009

Quarter ended June 2009

Quarter ended Sept. 2009

Quarter ended Dec. 2009

No. of shareholders

No. Of shares

% No. of shareholders

No. Of shares


No. Of shares


No. Of shares

%

Promoter Holding

11 12,34,438 30.62 11 12,34,438 30.62 11 12,34,438 30.62 10 12,34,438 30.62

Non Promoter Holding

2029 27,97,058 69.38 2007 27,97,058 69.38 1914 27,97,058 69.38 1902 27,97,058 69.38

Total share capital

2040 40,31,496 100 2018 40,31,496 100 1925 40,31,496 100 1912 40,31,496 100

The shareholding pattern shows no major change over the quarters from

March 2009 to December 2009.

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14. The quarterly results of the company for various quarters which covers the

period of Investigation are summarized as follows:

(Rs. in crores)

Description Quarter Ended

March 31, 2009 June 30, 2009 Sept 30, 2009 Dec 31, 2009

Net sales 27.22 31.85 37.91 36.18 Other Income 0.67 1.16 0.60 3.22 Total income 27.89 33.01 38.51 39.40 PBIT -0.77 2.06 0.75 1.21 Net Profit -2.57 0.11 -0.80 -0.30

15. The yearly results of EIL for the three financial years are given below:

Description Year Ended

31-Mar-2008 31-Mar-2009 31-Mar-2010 Net sales 100.46 104.04 152.67

Other Income 2.10 2.99 8.28

Total income 102.56 107.03 160.95

PBIT 6.91 -1.89 5.28

Net Profit 2.66 -7.30 -1.12

16. EIL has made following corporate announcements during the investigation period:

Sr. No.

Exported

Date & Time

Announcement Price Impact/Shares Traded Remarks

1 08-05-2009 17:54

Ceekay Daikin - Unaudited Financial Results for Mar 31, 2009--Ceekay Daikin Ltd has informed BSE about the unaudited financial results for the Quarter & Year ended March 31, 2009.

08/05/2009 Friday BSE

O H L C

21.50 21.95 21.50 21.90 No. of shares traded: 260 11/05/2009 Monday BSE

O H L C 21.90 22.00 21.00 21.05

No. of shares traded: 925

On Monday, the scrip opened at previous close and closed at 3.88% lower than previous day’s close.

2 24-07-2009 17:59

Ceekay Daikin - Financial Results for Mar 31 & Jun 30, 2009--Ceekay Daikin Ltd has informed BSE about the financial results for the Year ended March 31, 2009 Quarter ended June 30, 2009.


O H L C

50.10 50.10 50.10 50.10 No. of shares traded: 1625 27/07/2009 Monday BSE

O H L C 52.60 52.60 52.60 52.60


On Monday, the scrip opened and closed at 4.99% higher than previous day’s close

3 25-09-2009 12:32

Ceekay Daikin - Outcome of AGM-- held on September 25, 2009, inter alia, have accorded the following: (1). Adoption of the Balance Sheet as at March 31,

24/09/2009 Thursday BSE

O H L C

78.00 79.05 77.10 79.05 No. of shares traded: 3302

On Friday, opened at 4.81% higher than previous close

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Sr. No.

Exported

Date & Time

Announcement Price Impact/Shares Traded Remarks

2009 and Profit & Loss Account for the year ended March 31, 2008 together with the Report of the Auditors & the Directors thereon. (2). Re-appointment of Directors of the Company, liable to retire by rotation. (3). Re-appointment of Auditors of the Company. (4) increasing the Borrowing power of the Company upto Rs 150 Crores (5) appointment of Mr. Hideshi Shiba, Mr.Mahesh B Kothari, Mr. Pradeep B Chinai as Managing Directors for the period of three years from October 01, 2009 to September 30, 2012.


O H L C 82.85 82.85 75.10 75.30


and closed at 4.74% lower than previous day’s close.

4 29-10-2009 20:01

Ceekay Daikin - Financial Results for Sep 30, 2009--Ceekay Daikin Ltd has informed BSE about the financial results for the Quarter ended September 30, 2009.

29/10/2009 Thursday BSE

O H L C

61.85 67.00 61.80 67.00 No. of shares traded: 150 30/10/2009 Friday BSE

O H L C 64.00 64.25 63.70 63.70


On Friday, the scrip opened at 4.47% lower to previous close and closed at 4.93% lower than previous day’s close

From the table, it is seen that except for the announcement related to results

of quarter ended June 2009, all other announcements had negative impact on

the scrip price.

17. The Price Volume data of the scrip on BSE for the period before, during and

after the investigation period is given below:

Period Dates Opening

Price (volume) on first day of the period

Closing price (volume) on last day of the period (Rs.)

Low price(volume) during the period (Rs.)

High Price(volume) during the period (Rs.)

Avg. no. of (shares) traded daily during the period

Before Investigation period

March 01, 2009 to March 31, 2009

Price 25 18.35 17.2 29.2 (6,503)

Vol (5,428) (4,491) (35) (35,791)

During Investigation Period

April 01, 2009 to October 31, 2009

Price 17.80 63.70 17.80 119.60 (10,267)

Vol (1903) (570) (5) (72,562) After investigation period

November 1, 2009 to November 30, 2009

Price 62.5 50.1 50.1 62.5 (437)

Vol (595) (1,791) (28) (1,791)

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It can be seen from the table that the average daily traded volume was higher

during the investigation period as compared to before and after the

investigation period. The highest recorded price per share was ` 119.60 on

20 August, 2009.

18. The price volume chart on BSE for the period of investigation is as under:

The total volumes traded on BSE during the Investigation period was

14,27,128 shares whereas average traded volume was 10,267 shares per

day.

19. The price volume data for the scrip for the period April to October 2009 is as

given below:

Day Date Open High Low Close No Of Trades

Total Traded

Quantity TURNOVER %

change

01-April-2009 17.80 19.25 17.80 18.75 22.00 1903 36,177.00 002-April-2009 19.40 19.65 18.70 19.65 13.00 740 14,418.00 4.80%06-April-2009 19.65 20.50 19.65 19.90 43.00 3403 68,209.00 1.27%08-April-2009 20.25 20.40 20.00 20.15 21.00 1415 28,546.00 1.26%09-April-2009 20.90 21.15 20.50 21.15 32.00 2858 59,858.00 4.96%13-April-2009 21.30 22.20 20.85 22.00 39.00 3875 84,622.00 4.02%15-April-2009 21.35 22.75 21.25 22.15 41.00 3630 80,407.00 0.68%16-April-2009 21.90 22.00 21.05 21.85 19.00 2345 49,898.00 -1.35%17-April-2009 21.00 22.00 21.00 22.00 2.00 1200 25,400.00 0.69%20-April-2009 21.30 22.35 21.00 21.45 30.00 2751 59,363.00 -2.50%22-April-2009 20.50 20.50 20.40 20.45 6.00 900 18,395.00 -4.66%

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Price

Price Volume Exedy India

Total Traded Quantity

Closing Price

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23-April-2009 21.05 21.45 21.05 21.45 6.00 800 17,050.00 4.89%24-April-2009 21.50 21.50 21.50 21.50 2.00 225 4,837.00 0.23%27-April-2009 22.15 22.15 22.15 22.15 2.00 20 443.00 3.02%28-April-2009 22.45 22.60 22.45 22.50 3.00 198 4,455.00 1.58%29-April-2009 21.50 21.50 21.50 21.50 2.00 325 6,987.00 -4.44%04-May-2009 20.70 22.00 20.70 20.75 10.00 1675 35,199.00 -3.49%05-May-2009 20.10 20.10 19.75 19.75 21.00 3726 73,765.00 -4.82%06-May-2009 20.40 20.70 20.40 20.65 20.00 1202 24,781.00 4.56%08-May-2009 21.50 21.95 21.50 21.90 4.00 260 5,615.00 6.05%11-May-2009 21.90 22.00 21.00 21.05 8.00 925 20,092.00 -3.88%12-May-2009 22.00 22.40 22.00 22.20 6.00 218 4,836.00 5.46%13-May-2009 21.95 22.00 21.95 22.00 3.00 200 4,397.00 -0.90%15-May-2009 20.35 22.40 20.35 20.65 14.00 2625 57,556.00 -6.14%19-May-2009 22.50 22.70 22.50 22.70 27.00 8008 1,81,712.00 9.93%20-May-2009 24.65 24.75 23.25 24.60 108.00 23005 5,49,967.00 8.37%21-May-2009 26.30 26.90 24.00 24.75 145.00 30881 7,82,951.00 0.61%22-May-2009 25.95 26.05 24.20 25.85 118.00 22351 5,68,279.00 4.44%25-May-2009 26.00 27.10 26.00 27.10 40.00 39410 10,67,226.00 4.84%26-May-2009 28.45 28.45 27.50 28.45 170.00 63521 17,90,741.00 4.98%27-May-2009 29.75 29.85 28.60 29.85 121.00 72562 21,46,260.00 4.92%28-May-2009 31.00 31.30 29.85 31.30 169.00 46690 14,38,273.00 4.86%29-May-2009 32.70 32.85 31.40 32.85 148.00 54691 17,75,083.00 4.95%01-June-2009 33.00 34.45 32.85 34.45 233.00 67300 22,98,689.00 4.87%02-June-2009 35.90 36.15 34.70 36.15 146.00 49289 17,63,755.00 4.93%03-June-2009 37.90 37.95 35.00 37.95 167.00 42117 15,71,683.00 4.98%04-June-2009 39.80 39.80 38.25 39.80 50.00 27927 11,10,382.00 4.87%05-June-2009 41.75 41.75 40.50 41.75 68.00 18274 7,61,378.00 4.90%08-June-2009 43.70 43.70 39.70 39.70 106.00 20334 8,34,890.00 -4.91%09-June-2009 37.75 37.75 37.75 37.75 7.00 802 30,275.00 -4.91%10-June-2009 35.90 35.90 35.90 35.90 9.00 2651 95,170.00 -4.90%11-June-2009 34.15 34.15 34.15 34.15 6.00 720 24,588.00 -4.87%12-June-2009 32.45 32.45 32.45 32.45 12.00 5310 1,72,309.00 -4.98%15-June-2009 30.85 30.85 30.85 30.85 4.00 810 24,988.00 -4.93%16-June-2009 29.35 32.05 29.35 31.30 80.00 12134 3,67,408.00 1.46%17-June-2009 32.75 32.75 29.75 29.75 73.00 19924 6,04,810.00 -4.95%18-June-2009 29.50 30.80 28.30 28.30 34.00 4929 1,46,416.00 -4.87%19-June-2009 29.60 29.60 26.90 28.20 58.00 15589 4,37,000.00 -0.35%22-June-2009 29.45 29.45 26.80 27.95 45.00 8309 2,32,771.00 -0.89%23-June-2009 28.50 28.50 26.60 27.00 35.00 7318 1,98,560.00 -3.40%24-June-2009 28.35 28.35 27.05 27.40 23.00 3070 84,814.00 1.48%25-June-2009 28.75 28.75 26.05 27.35 63.00 11399 3,04,448.00 -0.18%26-June-2009 28.20 28.20 26.05 27.35 36.00 7405 1,99,250.00 0.00%29-June-2009 28.45 28.45 26.60 26.90 20.00 8475 2,28,055.00 -1.65%30-June-2009 27.80 27.80 25.85 26.60 61.00 13780 3,65,134.00 -1.12%01-July-2009 27.70 27.90 26.75 27.90 53.00 10641 2,94,605.00 4.89%

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02-July-2009 33.15 33.15 26.10 29.25 72.00 15946 4,96,656.00 4.84%03-July-2009 30.65 30.65 28.15 29.80 62.00 19537 5,86,420.00 1.88%06-July-2009 30.80 30.80 28.75 29.50 46.00 11717 3,47,686.00 -1.01%07-July-2009 30.95 30.95 28.50 30.65 57.00 15016 4,53,840.00 3.90%08-July-2009 32.15 32.15 29.15 31.05 77.00 28847 8,84,582.00 1.31%09-July-2009 32.10 32.60 30.20 32.60 87.00 35400 11,42,310.00 4.99%10-July-2009 32.90 34.20 32.05 33.35 85.00 20467 6,83,337.00 2.30%13-July-2009 34.80 34.80 32.50 32.55 15.00 7535 2,51,205.00 -2.40%14-July-2009 33.85 34.15 31.55 34.15 47.00 15343 5,16,881.00 4.92%15-July-2009 35.85 35.85 33.90 35.75 40.00 15846 5,65,815.00 4.69%16-July-2009 37.50 37.50 35.30 37.50 82.00 17751 6,64,009.00 4.90%17-July-2009 39.35 39.35 39.30 39.35 73.00 11586 4,55,809.00 4.93%20-July-2009 41.30 41.30 41.30 41.30 11.00 3070 1,26,791.00 4.96%21-July-2009 43.35 43.35 43.35 43.35 6.00 1075 46,601.00 4.96%22-July-2009 45.50 45.50 45.50 45.50 11.00 4723 2,14,896.00 4.96%23-July-2009 47.75 47.75 47.75 47.75 7.00 1925 91,918.00 4.95%24-July-2009 50.10 50.10 50.10 50.10 5.00 1625 81,412.00 4.92%27-July-2009 52.60 52.60 52.60 52.60 10.00 1870 98,362.00 4.99%28-July-2009 55.20 55.20 55.20 55.20 15.00 4498 2,48,289.00 4.94%29-July-2009 57.95 57.95 52.45 57.95 110.00 41885 24,09,478.00 4.98%30-July-2009 60.20 60.80 55.10 60.20 93.00 24713 14,54,038.00 3.88%31-July-2009 61.50 61.50 57.20 60.65 77.00 11358 6,69,761.00 0.75%03-August-2009 61.00 63.65 60.50 63.65 78.00 50233 31,80,959.00 4.95%04-August-2009 66.00 66.80 65.00 66.80 36.00 17084 11,38,906.00 4.95%05-August-2009 70.10 70.10 68.30 70.10 42.00 28410 19,90,988.00 4.94%06-August-2009 73.60 73.60 73.60 73.60 38.00 17058 12,55,468.00 4.99%07-August-2009 76.95 77.25 75.00 77.25 71.00 27942 21,56,595.00 4.96%10-August-2009 81.10 81.10 81.00 81.10 71.00 16855 13,66,901.00 4.98%11-August-2009 85.15 85.15 81.05 85.15 91.00 21180 18,02,011.00 4.99%12-August-2009 89.10 89.40 86.85 89.40 68.00 8241 7,31,974.00 4.99%13-August-2009 93.85 93.85 88.60 93.85 107.00 11221 10,47,867.00 4.98%14-August-2009 96.00 98.50 96.00 98.50 141.00 12659 12,45,941.00 4.95%17-August-2009 103.40 103.40 99.00 103.40 45.00 11458 11,84,645.00 4.97%18-August-2009 108.40 108.55 108.40 108.55 142.00 12909 14,01,259.00 4.98%19-August-2009 113.95 113.95 113.70 113.95 79.00 8778 10,00,213.00 4.97%20-August-2009 117.50 119.60 108.30 108.30 124.00 29492 33,52,672.00 -4.96%21-August-2009 102.90 102.90 102.90 102.90 10.00 1190 1,22,451.00 -4.99%24-August-2009 97.80 97.80 97.80 97.80 5.00 570 55,746.00 -4.96%25-August-2009 92.95 92.95 92.95 92.95 6.00 200 18,590.00 -4.96%26-August-2009 88.35 88.35 88.35 88.35 15.00 1435 1,26,782.00 -4.95%27-August-2009 83.95 83.95 83.95 83.95 7.00 260 21,827.00 -4.98%28-August-2009 79.80 79.80 79.80 79.80 41.00 12782 10,20,003.00 -4.94%31-August-2009 75.85 75.85 75.85 75.85 13.00 1264 95,874.00 -4.95%01-September-2009 72.10 72.10 72.10 72.10 19.00 4950 3,56,895.00 -4.94%

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02-September-2009 68.50 69.00 68.50 68.70 52.00 3684 2,52,447.00 -4.72%03-September-2009 70.00 72.00 66.00 70.65 41.00 2426 1,70,111.00 2.84%04-September-2009 69.30 74.15 69.30 73.70 31.00 3918 2,87,476.00 4.32%07-September-2009 73.05 73.05 70.05 71.00 20.00 1246 89,396.00 -3.66%08-September-2009 68.00 71.00 67.50 67.65 37.00 2502 1,70,187.00 -4.72%09-September-2009 65.50 66.50 64.35 66.35 14.00 1752 1,14,187.00 -1.92%10-September-2009 65.00 65.00 63.05 63.35 22.00 1231 77,761.00 -4.52%11-September-2009 62.30 66.50 60.20 66.50 20.00 6110 3,81,495.00 4.97%14-September-2009 66.50 66.50 63.25 63.25 9.00 865 55,512.00 -4.89%15-September-2009 61.25 61.25 61.20 61.20 2.00 250 15,305.00 -3.24%16-September-2009 61.20 62.00 61.20 62.00 10.00 677 41,595.00 1.31%17-September-2009 65.10 65.10 64.80 65.10 14.00 4475 2,91,212.00 5.00%18-September-2009 66.00 68.35 65.00 68.35 18.00 4855 3,29,626.00 4.99%22-September-2009 71.75 71.75 71.75 71.75 9.00 1563 1,12,145.00 4.97%23-September-2009 73.00 75.30 73.00 75.30 21.00 2583 1,94,129.00 4.95%24-September-2009 78.00 79.05 77.10 79.05 32.00 3302 2,59,971.00 4.98%25-September-2009 82.85 82.85 75.10 75.30 49.00 3989 3,16,799.00 -4.74%29-September-2009 79.05 79.05 71.55 72.35 21.00 1420 1,05,448.00 -3.92%30-September-2009 74.70 74.70 74.70 74.70 1.00 10 747.00 3.25%01-October-2009 78.35 78.40 72.00 75.25 18.00 3175 2,38,436.00 0.74%05-October-2009 75.00 77.95 71.50 76.95 11.00 587 43,129.00 2.26%06-October-2009 73.15 76.00 73.15 73.15 8.00 860 63,621.00 -4.94%07-October-2009 72.10 76.25 72.10 72.80 4.00 229 16,953.00 -0.48%08-October-2009 72.00 72.00 69.80 69.80 2.00 110 7,898.00 -4.12%09-October-2009 70.50 72.00 70.50 71.00 10.00 950 67,445.00 1.72%12-October-2009 72.50 74.55 68.00 74.55 18.00 1418 1,04,259.00 5.00%14-October-2009 70.95 78.20 70.90 78.00 22.00 2039 1,55,358.00 4.63%15-October-2009 74.30 74.50 74.30 74.50 7.00 203 15,111.00 -4.49%16-October-2009 71.00 77.45 71.00 74.80 3.00 40 2,923.00 0.40%17-October-2009 72.50 72.50 72.50 72.50 1.00 50 3,625.00 -3.07%20-October-2009 76.10 76.10 70.10 70.35 7.00 1841 1,30,864.00 -2.97%21-October-2009 72.00 72.00 67.90 67.95 8.00 1095 77,248.00 -3.41%22-October-2009 66.00 71.30 66.00 71.20 6.00 1640 1,15,259.00 4.78%23-October-2009 69.00 69.00 69.00 69.00 1.00 50 3,450.00 -3.09%26-October-2009 66.00 71.00 66.00 71.00 5.00 229 15,247.00 2.90%27-October-2009 67.65 67.65 67.65 67.65 1.00 5 338.00 -4.72%28-October-2009 71.00 71.00 64.30 65.00 4.00 80 5,486.00 -3.92%29-October-2009 61.85 67.00 61.80 67.00 4.00 150 9,530.00 3.08%30-October-2009 64.00 64.25 63.70 63.70 10.00 570 36,374.00 -4.93%

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20. The comparison of the stock with BSE auto index during investigation period

is shown below:

It can be seen that except for period from July 2009 to September 2009 the

scrip moved in tandem with BSE auto index. Presently the scrip is delisted

from BSE.

21. From the foregoing, I observe that the scrip of EIL is thinly traded within a

price band of 5% showing highly inefficient price discovery at the exchange.

Though there were no major corporate announcements impacting the price of

the scrip, it hit the upper circuit on 25 days out of 27 consecutive trading days

starting from July 14, 2009 to August 19, 2009 and peaked at ` 113.95

starting from ` 32.55. Thereafter, the scrip of EIL hit lower circuit on ten

consecutive trading days to close at ` 68.70 on September 03, 2009.

22. I find that ISF is a member of NSE, BSE and USE as also a depository

participant of CDSL. It has traded in the scrip of EIL on its proprietary account.

It was one of the top brokers and clients in trading the scrip of EIL on buy and

0.00

20.00

40.00

60.00

80.00

100.00

120.00

20002500300035004000450050005500600065007000

BSE Auto

Exedy

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sell during the investigation period. As a broker, ISF bought 218206 shares

contributing 15.29% of the total market volume. On the other side, it sold

303352 shares contributing 21.26% of the total market volume. As a client,

ISF purchased 213206 shares and sold 303352 shares respectively. ISF on

its own submitted that it had invested in the scrip of EIL long back in the year

2007 onwards and was holding 92641 shares of EIL as on March 31, 2009

and that it did not enter into any off-market transactions with other entities to

acquire the said shares. It is therefore clear that ISF offloaded a net quantity

of 90146 shares during the investigation period. The entire offloading of

shares have been done while the price of the scrip was peaking during July-

August, 2009. ISF in its reply to the SCN submitted that it has not traded in

the scrip of EIL after August 05, 2009 as it had disposed off all its shares by

then. They have disposed of the entire lot of 92641 shares at an average

price of ` 34.86 which is much much lower than the market highest price of

` 119. However, the fact remains that the price of the scrip was hovering in

the twenties during April-May, 2009 which was rigged up and they could

offload at an average price of ` 34.86. The increase in price upto ` 119 may

be matter for further investigation but not the subject of our present inquiry.

23. VSL is a SEBI registered stock broker of NSE traded in the scrip of EIL as a

client through SIC Stocks and Services Pvt. Ltd. VSL purchased 218667

shares and sold 234259 shares contributing 15.32% and 18.52% of the total

market volume respectively during the investigation period. VSL offloaded a

net quantity of 45592 shares in the market.

24. It is interesting to note how the Noticees managed to offload such large

quantities of shares of EIL while the price of the scrip was rising in the market

even in the absence of any major corporate announcements or other external

developments. In this context, one has to remember that the shares of EIL are

thinly traded and even offloading a small quantity of shares would take the

price to the lower price band level. It is noted in the investigation report that

the Noticees have matched trades for 122350 shares which comprise of more

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than 50% of their respective buy quantity and more than 35% of their

respective sell quantity. The BSE observed that the Noticees traded amongst

themselves for 135504 shares (8.65% of market volume) of which order for

trades in respect of 82872 shares (5.29% of market volume) were

synchronized i.e. buy and sell orders were placed within a minute from each

other. It was observed that out of 179 days the Noticees traded amongst

themselves for 43 days of which on 6 trading days trade amongst themselves

accounted for more than 30% of days volume.

25. As mentioned earlier, during the period of investigation, the price of scrip

moved from ` 22.50 to a high of ` 119.60 (431.55 % increase) through first

trades as well as intra-day price movements. The contribution of the Noticees

in establishing new higher price (NHP) during the investigation period is

tabulated below:

Sr. No.

Clients Name PAN Qty No. of Trades

% to total Market NHP trades

NHP (Rs.)

% to total Market NHP

1 Vishvas Securities Ltd AAACV2921N 6703 28 22.22% 20.2 19.84%

2 ISF Securities Ltd AAACI1667E 9441 14 11.11% 9.1 8.94%

Market 33089 126 100.00% 101.8 100.00%

It is observed that, ISF contributed to new price discovery including first trades

for a total ` 9.1 through 14 trades during the investigation period. Its

contribution to total market NHP trades was 11.11%.VSL contributed to new

price discovery including first trades for a total ` 20.2 through 28 trades during

the investigation period. The number of trades by VSL contributing to new

price discovery was 22.22% of the total market NHP trades.

26. The details of trades by Noticees which resulted into last traded price (LTP)

influence are tabulated in the tables below:

Name

All trades LTP Diff. <0 LTP Diff. > 0 LTP Diff. =0

Sum of LTP

diff

Sum of Quantity

No of trades

LTP impact

QTY traded

No of trades

LTP impact

QTY traded

No of trades

QTY traded

No of trade

s

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Table: LTP contribution

It is observed from the above table that trades of VSL and ISF, resulted in

LTP contribution of `114.35, and `66.45 respectively. They bought shares at

a price higher than last traded price in the scrip on 318 and 224 instances

respectively and bought shares price lower than last traded price on 308 and

179 instances respectively.

27. Comparison of LTP contribution of the Noticees to total market trades in the

scrip is tabulated below:

Table: LTP comparison with Market

As evident from the table, VSL contributed around 27% trades in both positive

and negative LTP trades; whereas ISF contributed around 19% trades in both

positive and negative LTP trades. They also contributed to around 10% trades

each which had no LTP impact.

Trades between Vishvas Securities and ISF Securities Ltd contributing to LTP:

Volume Total No.

of Trades

Positive LTP Negative LTP Net LTP

Sum No. of trades

Sum No. of trades

sum

Between Entities

135504 444 51.25 73 46.85 148 4.4

Market 1427128 5714 816.55 1160 770.6 1133 45.9

Vishvas Securities

Ltd 114.35 218667 996 -112.9 67391 308 227.25 53965 318 97311 370

ISF Securities

66.45 213206 777 -56.85 46390 179 123.3 49224 224 117592 374

Total Market

45.9 14271128 5714 -770.65 249177 1133 816.55 253676 1160 924275 3421

Clients Name Total No. of Trades

% to market

No. of Trades with

-ve LTP contribution

% to market

No. of Trades with

+ve LTP contribution

% to Market

No of trades

with zero LTP diff

% to Market

Vishvas Securities Ltd

996 17.43% 308 27.04% 318 27.41% 370 10.81%

ISF Securities Ltd

777 13.60% 179 18.61% 224 19.31% 374 10.93%

Total Market 5714 100.00% 1133 100% 1160 100% 3421 100%

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% to Market

9.49% 7.77% 6.28% 6.29% 6.08% 13.06% 9.59%

As seen from the above table, the total trades between the two suspected

entities, have contributed ` 51.25 in positive LTP difference trades and

` 46.85 in negative LTP difference trades. The number of trades executed

between the entities and contributing to positive/negative/zero LTP difference

are all less than 10% as compared to total marketwise trades in EIL in each

category.

28. Analysis of all the first trades (each day) during the investigation period is as

given below:

S. No

Clients Name Positive

LTP % positive

LTP to marketNo. of Trades

Net LTP

NHP %NHP to market

1 Vishvas

Securities Ltd 30.2 18.16% 26 22.6 15.75 18.43%

2 ISF Securities

Limited 23.4 14.07% 18 19.8 8.4 9.83%

Market Total 166.3 100% 139 61.65 85.45 100%

It can be seen from above table that VSL and ISF contributed in net of LTP

` 22.6 and ` 19.8 respectively through first trades in 26 and 18 trading

days respectively out of total 139 trading days during the investigation period.

29. Further, I find from the SCN that while dealing in the scrip of EIL, the Noticees

have executed trades which were fictitious in nature and amounted to self

trades i.e. trades wherein same client appeared on both buy and sell side of

the trades which created artificial volumes in the market and gave a false and

misleading appearance of trading in the scrip on the exchange. The details of

the self trades executed by the Noticees are as under:

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Client Name TRADE DATE

Self Trade Volume

Self Trade count

Day's Market volume

% of Self trades to day's market volume

Total buy volume of the Client

% of Self trades to total buy volume of the Client

Total Buy trade count of the Client

Total sell volume of the Client

% of Self trades to total sell volume of the Client

Total sell volume of the Client

VISHVAS SECURITIES

LTD

19‐05‐2009 500 1 8008 6.24% 519 96.34% 2 2228 22.44% 4

20‐05‐2009 700 1 23005 3.04% 6950 10.07% 22 6849 10.22% 27

22‐05‐2009 225 1 22351 1.01% 8259 2.72% 57 8259 2.72% 25

27‐05‐2009 2 2 72562 0.00% 8277 0.02% 17 8277 0.02% 24

28‐05‐2009 6 2 46690 0.01% 12912 0.05% 43 3726 0.16% 16

29‐05‐2009 2507 2 54691 4.58% 26510 9.46% 50 19438 12.90% 53

01‐06‐2009 1562 7 67300 2.32% 12413 12.58% 75 12413 12.58% 54

02‐06‐2009 5 1 49289 0.01% 10122 0.05% 36 9022 0.06% 36

03‐06‐2009 5 1 42117 0.01% 19687 0.03% 67 8616 0.06% 15

08‐06‐2009 49 1 20334 0.24% 5645 0.87% 26 9244 0.53% 34

17‐06‐2009 30 1 19924 0.15% 6045 0.50% 32 6487 0.46% 7

22‐06‐2009 10 1 8309 0.12% 391 2.56% 13 4975 0.20% 12

23‐06‐2009 10 1 7318 0.14% 1054 0.95% 14 5250 0.19% 15

06‐07‐2009 9 2 11717 0.08% 3550 0.25% 12 4149 0.22% 14

Total 5620 24 453615 122334 466 108933 276

ISF SECURITIES LIMITED

20‐05‐2009 1 1 23005 0.00% 5551 0.02% 30 5003 0.02% 23

25‐05‐2009 168 3 39410 0.43% 5352 3.14% 17 34226 0.49% 26

26‐05‐2009 903 1 63521 1.42% 29498 3.06% 74 19187 4.71% 50

27‐05‐2009 5763 3 72562 7.94% 27036 21.32% 50 35186 16.38% 39

01‐06‐2009 9 1 67300 0.01% 14258 0.06% 62 12450 0.07% 44

02‐06‐2009 664 2 49289 1.35% 20312 3.27% 56 17064 3.89% 46

22‐06‐2009 25 2 8309 0.30% 4786 0.52% 19 1786 1.40% 14

10‐07‐2009 1 1 20467 0.00% 2111 0.05% 12 5851 0.02% 13

Total 7534 14 343863 108904 320 130753 225

The above table reveals that the Noticees entered into self trades for 7534

shares and 5620 shares, respectively. VSL executed 24 self trades for

5620 shares on 14 trading days out of 179 trading days resulting out of a total

of 466 buy orders and 276 sell orders. Similarly, ISF entered into 14 self

trades on 8 trading days out of 179 trading days resulting out of a total of 320

buy orders and 225 sell orders.

30. ISF submitted in its reply to the SCN that merely on 8 days out of the 179

days that the buy/sell orders had gotten matched with their subsequent

sell/buy orders. The dealer had explained that he might have put reverse

orders of minimal quantity of 1 share to either check if the VSAT/ Internet

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connectivity is proper or whether the rates are getting updated in time or not.

ISF in its reply has taken one specific instance of trading on May 27, 2009 and

has submitted that it had instructed its dealer to put buy order of 41000 shares

at the rate of ` 29.85 (Order Value Rs. 1223850/-). However, the dealer had

put the orders after breaking the order and also while putting the orders in the

system, two buy orders for 3000 shares each were wrongly put as sell orders

in haste, which got matched unintentionally with its own buy orders. The said

error occurred when the market on that particular day was in last minutes of

trading and did not cause any harm to the investors. I agree with the

contention of ISF that the self trades executed by them are insignificant and

negligible vis-a-vis the total trading in the scrip. In my view, such few trades in

isolation may not lead to the conclusion that they are fraudulent and

manipulative trades but, given the above circumstances, facts of the instant

case and the nature of trades executed by the Noticees, the contention of ISF

that such trades are mere coincidences or for reasons stated above are not

acceptable.

31. From the foregoing and after considering the allegations as per the SCN,

submissions made by the Noticees and the material available on record, I find

that the scrip of EIL is thinly traded scrip under 5% price band with erratic

price discovery. Even in the absence of any major corporate announcements

or external factors, the Noticees by executing trades amongst themselves

created artificial volume and price increase in the scrip. The Noticees by

creating false appearance of trading in the scrip of EIL induced gullible

investors to trade in the scrip and managed to offload large quantities of

shares held by them at artificially higher prices. It is therefore established

beyond doubt that the Noticees have violated Regulation 3(a) and (d), 4(1),

4(2)(a) and (g) of the SEBI PFUTP Regulations. Further, ISF being a SEBI

registered stock broker by indulging in fraudulent and manipulative trades has

also violated Clauses A(1), (3), (4) and (5) of the Code of Conduct as

specified under Schedule II of Regulation 7 of the SEBI Broker Regulations

warranting imposition of monetary penalty under Section 15HA and 15HB of

the SEBI Act, 1992.

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.

32. The provisions of Sections 15HA and 15HB of the SEBI Act, reads as under:

Penalty for fraudulent and unfair trade practices.

15HA. If any person indulges in fraudulent and unfair trade practices relating to

securities, he shall be liable to a penalty of twenty-five crore rupees or three times the

amount of profits made out of such practices, whichever is higher.

15HB. Penalty for contravention where no separate penalty has been provided

“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”.

33. While imposing monetary penalty it is obligatory to consider the factors

stipulated in Section 15J of the SEBI Act which reads as under:

15J - 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.

34. I observe that from the material available on record it is difficult to quantify any

gain or unfair advantage accrued to the Noticees or the extent of loss suffered

by the investors as a result of the default of the Noticee or to ascertain

whether the defaults are repetitive in nature. It will suffice to state that keeping

in mind the practices indulged in by the Noticees, gains per se were made by

them in that they traded in the scrip in a manner meant to create artificial

volumes and liquidity which is an important criterion, apart from price, capable

of misleading the investors while making an investment decision. In fact,

liquidity/volumes in particular scrip raise the issue of ‘demand’ in the securities

market. The greater the liquidity, the higher is the investors’ attraction towards

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investing in that scrip. Hence, anyone could have been carried away by the

unusual fluctuations in the volumes and induced into investing in the said

scrip. Besides, this kind of activity seriously affects the normal price discovery

mechanism of the securities market. People who indulge in manipulative,

fraudulent and deceptive transactions, or abet the carrying out of such

transactions which are fraudulent and deceptive, should be suitably penalized

for the said acts of omissions and commissions.

35. The Noticees being SEBI registered stock brokers created artificial volumes,

false appearance of trading and generated investor interest in the otherwise

thinly traded scrip of EIL. The Noticees offloaded their entire shareholding at

artificially rigged up prices to gullible investors and after suspension of trading

of the scrip by the BSE they do not have an exit opportunity. Operators like

the Noticees often take small and unsuspecting investors up the garden path

leaving them high and dry. The stocks zoom for no rhyme or reason and then

crash dramatically. These are one of the reasons why the retail investors shy

away from the securities market. It is therefore of paramount importance for

the regulator to keep up the market integrity, instill investor confidence and

protect the interests of the investors by punishing such offenders suitably.

Order:

36. 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 read with Rule 5 of the Adjudication Rules, I hereby impose a

penalty of � 10,00,000 (Rupees Ten Lakhs Only) under Section 15HA of the

Act and ` 1,00,000 (Rupees One Lakh Only) under Section 15HB of the Act

on ISF Securities Limited (ISF) and ` 10,00,000 (Rupees Ten Lakhs Only)

under Section 15HA of the Act on Vishwas Securities Limited (VSL) thus, a

total of ` 21,00,000 (Rupees Twenty One Lakhs only) on the Noticees. In my

view, the penalty is commensurate with the default committed by the

Noticees.

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37. The penalty amount as mentioned above shall be paid by the Noticees

through a duly crossed demand draft drawn in favour of “SEBI – Penalties

Remittable to Government of India” and payable at Mumbai, within 45 days of

receipt of this order. The said demand draft should be forwarded to the

Division Chief, IVD-ID-10, Securities and Exchange Board of India, Plot No.

C4-A, ‘G’ Block, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.

38. In terms of the Rule 6 of the Adjudication Rules, copies of this order are sent

to the Noticees and also to Securities and Exchange Board of India.

Date: March 12, 2013 P K KURIACHEN

Place: Mumbai ADJUDICATING OFFICER

BEFORE THE ADJUDICATING OFFICER SECURITIES AND … · Noticees are SEBI registered brokers, had...

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