BEFORE THE ADJUDICATING OFFICER SECURITIES AND EXCHANGE BOARD OF INDIA

Transcription

BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. ASK/AO-90/2014-15]
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
Mr. Anil Dave
(PAN: AJWPD1843K)
In the matter of
Investigation into the trading of Mr. Anil Dave
BACKGROUND IN BRIEF
1.
Securities and Exchange Board of India (SEBI) vide an ad interim order
dated December 28, 2011 had, inter alia, prohibited the broker, Grishma
Securities P Ltd (GSPL) in the matter of Tijaria Polypipes Ltd (TPL) from
buying, selling or dealing in securities in any manner whatsoever till further
directions. Mr Anil Dave (Noticee), one of the clients of GSPL, had filed a
memorandum of appeal before Securities Appellate Tribunal (SAT) on
February 9, 2012 mentioning that pursuant to SEBI order dated December 28,
2011 against GSPL, his shares which was lying in the margin account of GSPL
were frozen. Hon'ble SAT vide order dated February 28, 2012 had mentioned
that this may be treated as a representation from the noticee to SEBI and SEBI
may pass appropriate orders within a period of 4 weeks. In view of the same,
the request from noticee was examined and it was observed that the funds
transferred to the account of GSPL from noticee's account was partially used
Adjudication order in the matter of investigation into the trading of Mr. Anil Dave
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for settling his obligations and the remaining funds received in his account were
transferred to the account of Mr Vimal Patel and Mr Pramod Goenka (other
clients of GSPL). Noticee filed another memorandum of appeal before Hon'ble
SAT. During the course of hearing, Hon‘ble SAT mentioned that SEBI should
initiate investigation against the noticee in view of the above mentioned
findings. In view of the same, the matter was taken up for investigation by
SEBI.
2.
SEBI conducted investigation in the trading of the noticee as a client of
GSPL during the period November 12, 2011 to December 28, 2011(hereinafter
referred to as ‗Investigation Period‘) to ascertain, inter alia, whether there was
any violation of the provisions of Securities and Exchange Board of India
(SEBI) Act, 1992 and SEBI (Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Market) Regulations 2003 (hereinafter referred
to as "PFUTP Regulations"). However, for the purpose of investigation,
wherever deemed necessary, reference has been made to outside this
investigation period. Investigation revealed that the noticee had indulged in
synchronized trades with Mr. Vimal Patel another client of GSPL and also
permitted GSPL to use his account as a conduit for diverting funds to other
front entities of GSPL. It was, therefore, observed that the noticee has violated
section 12A (a), (b) and (c) of SEBI Act, 1992 and provisions of Regulations
3(a), (b), (c), (d), 4(1) and 4(2)(a) of PFUTP Regulations, 2003.
APPOINTMENT OF ADJUDICATING OFFICER
3.
The undersigned was appointed as the Adjudicating Officer vide order
dated May 12, 2014 to inquire and adjudge under Section 15HA of the SEBI
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Act 1992, the aforesaid alleged violations of provisions of SEBI Act, 1992 and
PFUTP Regulations, 2003 by the noticee.
SHOW CAUSE NOTICE, REPLY AND HEARING
4.
Show Cause Notice No. EAD-5/ADJ/ASK/AA/OW/13987/2014 dated
May 16, 2014 (herein after referred to as ―SCN‖) was issued to the Noticee
under rule 4 of SEBI (Procedure for Holding Inquiry and imposing penalties by
Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‗Rules‘) to show
cause as to why an inquiry should not be held against it in terms of rule 4 of the
Rules read with section 15I of SEBI Act, 1992 and penalty be not imposed
under section 15HA of SEBI Act, 1992 for the violations specified in the SCN.
The copies of the documents relied upon in the SCN were provided to the
Noticee along with the SCN. It was alleged in the SCN that the noticee had
indulged in synchronized trades with Mr. Vimal Patel another client of GSPL
and also permitted GSPL to use his account as a conduit for diverting funds to
other front entities of GSPL.
5.
The Noticee vide letter dated June 03, 2014 sought inspection of all the
documents/data relied upon in the present matter but not limited to investigation
report and the statements recorded by SEBI in the matter. Vide letter dated June
13, 2014, noticee was informed that the documents relied upon by SEBI and the
findings of investigation had already been furnished to the noticee along with
the SCN and he was advised to avail the inspection on June 20, 2014. Noticee
was also advised to provide a list of the documents which he wanted to inspect.
Noticee vide letter dated June 17, 2014 requested for time after July 05, 2014
for inspection of documents as his counsel was not available during the said
period. Vide letter dated June 25, 2014, another opportunity of inspection of
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October 13, 2014
documents was provided to the noticee on July 11, 2014.
6.
Mr. Anant Upadhyay, authorized representative of the noticee, inspected
the documents on the scheduled date of inspection. After inspection of
documents, he requested for the copy of the following documents:
i.
Complete Investigation Report with annexure
ii.
Statement of parties referred to in Investigation Report and Show Cause
Notice
iii.
Correspondence of SEBI with connected parties in the matter
iv.
Any other relevant document
7.
Vide letter dated July 14, 2014 noticee was provided with copy of
relevant parts of the investigation report along with all the annexures. As
regards other documents sought by the noticee, it was informed vide the said
letter that that all the documents/correspondence relied upon the SCN had
already been provided to the noticee along with the SCN. It was also informed
that the request of the noticee for 'any other relevant document', as mentioned at
(iv) above, was ambiguous and vague, and hence the same could not be
provided. Vide letter dated August 12, 2014, Noticee replied to the SCN
stating, inter alia, the following and desired a personal hearing in the matter:
i.
The noticee is a trader in the securities market and was a client of GSPL
since November 12, 2011. Pursuant to investigation initiated by SEBI
with respect to the IPO of TPL, SEBI passed an ex-parte ad-interim order
dated December 28, 2011 against TPL and various entities. It was alleged
that certain retail individual investors and Qualified Institutional Buyer
participating in the IPO were provided an exit from their investment, at a
premium, by some entities who in turn have incurred huge losses due to
their trading in the scrip of TPL on the first day of listing, i.e. October 14,
2011. Noticee was never named in the said Ex parte order nor the
confirmatory order dated November 05, 2012 passed by SEBI. Noticee's
trading account with GSPL was opened after almost a month from the
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date of the alleged violations seen in the scrip of TPL and that he has
never traded in the scrip of TPL.
ii.
Subsequent to confirmatory order, vide another order dated July 31, 2013
SEBI prohibited GSPL from buying, selling or otherwise dealing in
securities, whether directly or indirectly, in its proprietary account for a
period of five years. The said order imposed restraints on the stock
broking business of GSPL as well, pending conclusion of proceedings
under the SEBI (Intermediaries) Regulation, 2008. As a result of the
above-mentioned restraints on GSPL, the shares of the noticee held with
GSPL were also frozen. The shares were lying with GSPL in its margin
account as the shares were transferred to them ahead of the trading which
I was intending.
iii.
As the shares were lying frozen for no doing on my part, I made
application dated January 31, 2012 to SEBI, requesting to permit me to
sell my shares which are improperly frozen by SEBI. As no response
from SEBI was forthcoming, the noticee filed an appeal before the
Hon'ble SAT seeking release of his shares held with GSPL.
iv.
The Hon'ble Tribunal vide its order dated February 28, 2012 directed
SEBI to treat the memorandum of appeal filed by the Noticee as a
representation made by him. The Hon'ble Tribunal also directed SEBI to
consider the representation made by the Noticee and arrive at a decision
with respect to the prayer made in the appeal relating to grant of
permission to transfer/sell his shares held with GSPL.
v.
Thereafter, SEBI issued a letter dated March 19, 2012 to the Noticee
denying permission to transfer/ sell his shares lying with GSPL as SEBI
was of the prima facie view that the Noticee was acting as a front for
GSPL. A copy of the SEBI's letter dated March 19, 2012 was also
enclosed.
vi.
On December 28, 2012, January 2, 2013 and January 8, 2013, the Noticee
made three applications to SEBI urging SEBI to grant permission to
transfer/ sell his shares held with GSPL. On January 11, 2013, SEBI
responded to the Noticee's application dated December 28, 2012 whereby
SEBI again refused to grant the Noticee permission to transfer/sell his
shares held with GSPL. It was against this denial of the Noticee's request
that the Noticee was constrained to file another appeal (Appeal No. 24 of
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2013) before the Hon'ble Tribunal.
vii.
The Hon'ble Tribunal, in its order dated April 12, 2013, while permitting
the Noticee to sell the shares held in his account with GSPL and allowing
the Noticee to deposit the proceeds with SEBI in an interest bearing
account, had also directed that the Noticee may prefer a fresh
representation to SEBI for this purpose, which SEBI "shall consider" and
"expeditiously convey the modalities to the appellant in this regard." The
said order also directed the depositaries to defreeze the shares held by the
Noticee and the Noticee and SEBI to complete the modalities of the sale
of shares and implement the order of the Hon'ble Tribunal within a date
of one month from the date of the order.
viii.
In furtherance of the above-mentioned order of the Hon'ble Tribunal, the
Noticee wrote to SEBI on April 15, 2013, requesting SEBI's permission
to allow him to sell his shares through a stock broker of his choice,
namely, Emkay Global Financial Services Limited ("Emkay"), with
whom he had an existing and active trading and demat account. Further,
the Noticee also proposed that immediately upon receipt of the payouts
from the sale of his shares, the proceeds so realized would be deposited in
an interest bearing account by way of a fixed deposit in a nationalized
bank and that the original of such fixed deposit receipt would be
deposited by the Noticee with SEBI. Further, to address and allay the
concerns of SEBI, to ensure that the entire proceeds of the sale of shares,
that were the subject matter of Appeal No. 24 of 2013 before the Hon'ble
Tribunal, were kept aside as directed, the Noticee undertook not to enter
into any other transaction through the identified broker, Emkay till all
such shares were sold.
ix.
Again on receiving no response from SEBI, the Noticee followed up vide
its email dated April 18, 2013, and further by way of several telephone
calls. Copies of the Noticee's letters dated April 15, 2013 was also
annexed.
x.
On account of SEBI's unresponsiveness to the multiple applications and
requests made by the Noticee and the repeated efforts made by the
Noticee to engage with SEBI on the modality and method for sale of
shares, the Noticee was again constrained to seek the intervention of the
Hon'ble Tribunal. The Noticee filed a Miscellaneous Application (M.A.
41 of 2013) on April 29, 2013. A copy of the letter dated April 29, 2013
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October 13, 2014
by the Noticee was annexed.
xi.
The Hon'ble Tribunal passed on order dated May 7, 2013 and re-iterated
that the Noticee is permitted to sell his shares held with GSPL and
directed SEBI to defreeze the demat account of the Noticee at the earliest.
The parties were directed to complete the modalities to implement the
directions within a month from the date of the above-mentioned order.
The Noticee craves leave to refer to and rely on the relevant documents
annexed to and referred to in Appeal No. 24 of 2013, Appeal No. 31 of
2014 and Miscellaneous Application No. 41 of 2013 as and when
necessary and appropriate. However, as seen from the records, SEBI,
instead of engaging with the Noticee to complete the modalities of the
sale, unilaterally decided the manner in which the sale ought to be made
and jeopardized the commercial interest and decision of the Noticee. The
matter could not reach any finality and the sale of shares was held up on
account of arbitrary conduct of SEBI even as on December 24, 2013. I
crave leave to refer to all the necessary records and correspondence in the
matter.
xii.
In the meantime, only with a view to establish that the investigation was
ongoing, SEBI issued Summons dated May 31, 2013 to the Noticee in
relation to its purported investigations into the IPO of TPL, which
investigation was admittedly completed by SEBI around 4 months prior
to the issuance of the Notice. SEBI issued summons requesting that the
Noticee appear before it on June 14, 2013. Subsequently, by its letter of
June 13, 2013, SEBI sought that the Noticee appear before the
Investigating Authority on July 15, 2013, which the Noticee complied
with an extended his full co-operation towards the investigation by
providing SEBI with all the necessary responses and clarifications
required. A copy of the correspondence exchanged in this regard being
letters of SEBI dated May 31, 2013 and June 13, 2013 and responses by
the Noticee dated June 7, 2013 and July 9, 2013 are annexed hereto.
xiii.
Being aggrieved by the inaction of SEBI to pass appropriate orders, the
Noticee yet again approached the Hon'ble Tribunal for the third time in
February, 2014. While disposing of the Appeal based on the statements
made by the SEBI representative, the Hon'ble Tribunal recorded as under:
"It is not in dispute that pending disposal of this appeal respondent
has permitted appellant to sell above shares through the broker
suggested by appellant and not only through the broker suggested by
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SEBI. Thus, basic grievance of appellant set out in the appeal does
not survive.
Legal Officer of SEBI who appears in person states that investigation
relating to the case of the appellant would be completed within a
period of two months from today and show cause notice if deemed fit
would be issued within a period of two weeks thereafter and final
order thereon would be passed within a period of two months from
the date of receiving reply to the show cause notice. Statement made
by Legal Officer of respondent is accepted. If is made clear that show
cause notice if any is not issued and final order is not passed within
the time specified hereinabove respondent shall release the sale
proceeds of the shares already sold and also balance shares lying in
the demat account of the appellant with his broker, Grishma
Securities Private Limited."
xiv.
Post the aforesaid Order, the Noticee, through his attorney, addressed a
detailed representation letter to SEBI dealing with all the issues in
controversy and clarifying the matter to SEBI, which was again not
responded to by SEBI, let alone entertaining the request of the Noticee to
be heard in the matter. Copy of the letter was annexed. Thereafter, the
Noticee again vide letter dated May 30, 2014 requested SEBI to inform
the Noticee of the status of his request for release his shares held with
GSPL. Finally, on May 17, 2014, which was the last date to issue the
show cause notice as per the SAT Order, the Notice was received by the
Noticee.
Allegations contained in the Notice:
xv.
The central theme of allegation in the Notice which is issued to the
Noticee is two-fold, namely, (i) the Noticee has indulged in synchronized
trades with Mr. Vimal Patel and other clients of GSPL; and; (ii) the
Noticee permitted GSPL to use his account as a conduit for diverting
funds to other front entities of GSPL.
xvi.
In order to substantiate the allegations contained in the Notice, the
following observations are recorded against me in the Notice, which are
based on the partial and selective information and records available with
SEBI:
a) Synchronised trades of the Notice with Vimal Patel; and
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b) Trail of funds received in the account of the Noticee 's Axis Bank
account and subsequent trades of the Noticee
xvii.
xviii.
The limited nature of the allegations against the Noticee is based on mere
conjecture and surmise for the reasons more specifically set out below
and none of the records substantiating the allegations were ever provided
to the Noticee.
Further, the allegations leveled against the Noticee, in relation to transfer
of funds, in the present Adjudication Notice stem from the following
observations made by SEBI:
Sr No.
Date
Fund Flow
Amount (in RS.)
1.
November 26, 2011
Global Enterprise —
75,00,000
Noticee GSPL Vimal Patel
2
November 28, 2011
Global Enterprise-Noticee75,00,000
GSPL
GSPL (Current Account)
1,00,00,000
GSPL (NSE F&O Account
Client Account) —Vimal
Patel
3.
December 3, 2011
Shalimar Trading and
42,90,000
Shreeji Corporation Noticee
4.
December 5, 2011
United Enterprises—
7,10,000
Noticee
Noticee - GSPL (NSE
50,00,000
Client Account) — Vimal
patel
5.
6.
December 7, 2011
December 8, 2011
Noticee
United Enterprises —
Noticee
Noticee — GSPL (NSE
Client Account)
GSPL (NSE Client Account)
— Vimal Patel
— GSPL (Current Account)
30,00,000
50,00,000
80,00,000
70,00,000
10,00,000
70,00,000
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October 13, 2014
7.
8.
9.
December 9, 2011
December 10, 2011
December 12, 2011
Noticee - GSPL (NSE Client
Account) — GSPL (Current
Account) - GSPL (BSE
Client Account) — Vimal
Patel
Account) — GSPL (Current
Account)
GSPL (Current Account) —
GSPL (NSE F&O Account)
--Vimal Patel
GSPL (F&O
SettlementAccount)-IL&FS
Shalimar Trading Co —
Noticee — GSPL (BSE
Client Account)
GSPL (BSE Client Account)
— Vimal Patel
- GSPL (Current Account)
— GSPL (NSE Client
Account)
— GSPL Intermediaries P
Limited
Grishma Intermediaries P
Limited - Grishma
Intermediaries P Limited
(Client Account) — Vimal
Patel
Noticee - GSPL (BSE Client
Account) - GSPL (BSE
Current Account)
GSPL (BSE Current
Account) - GSPL (NSE
F&O Settlement Account)-
70,00,000
39,00,000
34,40,000
39,00,000
10,00,000
38,00,000
6,00,000
24,00,000
23,00,000
30,00,000
38,50,000
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10.
December 17, 2011
11.
December 21, 2011
12.
December 22, 2011
13.
December 27, 2011
14.
December 30, 2011
15.
January 2, 2012
IL&FS
Shalimar Trading Co —
Noticee —GSPL (BSE
Client Account)
— Grishma Intermediaries P
Limited (Current Account)
Grishma Intermediaries P
Limited (Current Account) GSPL (F&O Settlement
Account) — IL&FS
Noticee
Eleven Impex — Noticee
Account) - GSPL (Current
Account)
GSPL (NSE F&O
Settlement Account) —
IL&FS
GSPL (NSE F&O Client
Account) — Noticee —
Vimal Patel — Arti Dave
- Noticee
- Noticee
Noticee — Muskan Trading
Co
Noticee — Shalimar Trading
Co
- Noticee
- Noticee
Noticee — Arti Dave—
Mihir Ghelani
25,00,000
25,50,000
90,00,000
5,00,000 and
14,89,247
5,10,753
5,00,000, 14,89,247
and 5,10,753
35,00,000
18,50,000
1,12,75,000
87,25,000
1,00,00,000
1,00,00,000
19,20,000
1,65,84,733
18,50,000
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October 13, 2014
xix.
Before dealing with the allegations contained in the Notice, it is apt to
record that the substratum of the entire Notice proceeds on the basis of
certain fund flow and financial dealings between the Noticee and some
third parties. While the Noticee does not dispute the averments contained
in the Notice in so far as it relates and limits to the exact transactions, the
Noticee most respectfully submits that any adverse inference or any
remarks contrary to the facts on record deserves to be dismissed. The
Noticee states that the role of the regulator cannot be limited to referring
to some financial dealings and thereafter record incorrect findings without
looking into or analyzing the matter or such transactions in detail. It is
admitted fact that neither the Noticee was asked about such fund flow nor
was the Noticee ever made aware that it was such fund flow which
weighed with SEBI to draw such an incorrect conclusion of fraudulent
and unfair trade practice by the Noticee. As explained in detail in this
response, all the fund transfers mentioned in the Notice was on account of
regular business and commercial transactions and accounted for
appropriately by the Noticee and such third parties.
xx.
Further, the learned Adjudicating Officer ought to consider that the
Noticee had borrowed huge funds by way of loans from three entities
with a view to trade in securities. The money lenders who had lent funds
have decided to initiate civil and criminal proceedings against the Noticee
on account of non-payment of dues by the Noticees. Copies of one of the
default notices was annexed.
xxi.
I sincerely request the learned authority to consider all the submissions in
perspective and thereafter consider whether at all any regulatory
intervention is required in the matter. The learned AO is therefore
requested to note all the background facts and not just refer to the
selective and irrelevant observations recorded by SEBI in the matter.
Submissions
Failure to establish ingredients of synchronised trades
xxii.
It is most respectfully submitted that, with respect to the allegation of
synchronized trading it is a well-established position of law that the
ingredients for synchronized trade need to be present and proven. One
such ingredient is the presence of a relationship between the parties. In
the present case, no relationship was established between the Noticee and
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Vimal Patel in the Adjudication Notice. The same has been held by the
Hon'ble Tribunal in the matter of SMC Global Securities Limited v. the
Adjudicating Officer, SEBI. Further, nothing amiss in the conduct of the
Noticee and Vimal Patel has been recorded in the Adjudication Notice
that led SEBI to believe that they were indulging in manipulation by way
of synchronized trading other than the timing and quantity of the trades
which can also be attributable to mere con-incidence.
xxiii.
Further, it is humbly submitted that the Adjudication Notice fails to
establish any ingredients of fraud or any collusion between the Noticee
and Vimal Patel, which is a sine qua non before recording any finding of
manipulation or fraudulent activity. This is a settled position and has
always been the position of SEBI as is evident from the reading of the
following extract from the order passed in FMS Securities Limited
passed by the Whole Time Member, SEBI.
‗ in my view, the charge of manipulative synchronized trading by the
noticee would pre-suppose prior understanding between it and other
trading parties, which is not established on the basis of even
preponderance of probability in the facts and circumstances of this case. '
xxiv.
Admittedly, in the present case, no such prior understanding between the
parties has been set forth in the Adjudication Notice. Therefore it is
humbly submitted that, the allegations in the Adjudication notice are
based on mere surmise and conjecture without any application of mind.
xxv.
Further, it is an admitted position that synchronized trades per se are not
illegal. It is only when synchronized trades are executed with a view to
manipulate the price of the scrip that the provisions of the FUTP
Regulations are attracted. In light of the above, it is respectfully submitted
that no intention to manipulate the market or even create any artificial
volume has been established in the Adjudication Notice. It is further
submitted that the Noticee had placed the orders in the subject scrips in
good faith and acting on his own business judgment and was unaware of
any corresponding trades, if any placed by Vimal Patel and Swift Tie Up
Pvt. Limited.
Funds Transferred in the normal course of business
xxvi.
It is submitted that SEBI's observation as to the funds received from
entities such as Global Enteiprises, United Enterprises, Shalimar Traders,
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Eleven Impex etc. cannot lead to a conclusion of wrong doing as these
funds were availed of by the Noticee by way of a friendly loan for making
investments in the securities market through GSPL.
xxvii.
Additionally, the Noticee submits that while he has made payments to
GSPL against his pay-in obligations and towards an advance or margin
for future trades, the Noticee is unaware of any onward or subsequent
transfer of such funds by GSPL to any other entity or individual. The
Noticee, it is submitted, cannot be held responsible for the subsequent
actions of GSPL as the Noticee neither has control nor any knowledge of
the same.
xxviii.
It is submitted that no adverse inference can be drawn from the fact that
he was merely a client of GSPL. It is an admitted fact, that the Noticee
was registered as a client of GSPL in November 2011, which is almost a
month later to the alleged violations that took place in the matter of IPO
of TPL. Thus the allegations as to the Noticee acting as a front for GSPL
in the allegedly fraudulent trades in the IPO of TPL are untenable.
xxix.
Further, the insinuation that Noticee opened a bank account with Axis
Bank, Lamington Road Branch on November 5, 2011, shortly before
registering as a client of GSPL as GSPL also had their account with the
same bank so as to ensure that there is a smooth and timely flow of funds
is untenable and baseless. It is absurd to suggest that merely because a
client has a bank account in the same bank branch as that of his broker,
the client ipso facto becomes a "front" of the broker.
xxx.
It is important to note that any client normally prefers to operate and use
such banks which are usually operated by the broker to ensure that there
would not be any delay while clearance of the cheque nor delay in
transfer of funds.
Restraints unsustainable as no action taken against the Noticee
xxxi.
It is respectfully submitted that, SEBI has effectively penalized the
Noticee by imposing restrictions on the shares of the Noticee which are
lying in the margin account of GSPL without there being any wrong
doing on the part of the Noticee. It is also submitted that SEBI's allegation
against the Noticee made in its letter of March 19, 2012 is the sole basis
of sustaining the restraints on the sale of shares held by the Noticee in its
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October 13, 2014
account with GSPL. The present adjudication proceedings is yet another
effort by SEBI to cover up the arbitrary decision already passed in the
matter way back in 2012 when the Noticee had initially applied to SEBI
for release of his shares which were frozen by SEBI.
Monies transferred to Ms. Arti Dave as Short Term Loan
xxxii.
SEBI has alleged that the pay out of Rs. 1.65 crore and Rs. 19.2 lakh
which was received by the Noticee on January 2, 2012 was transferred
immediately to the account of Ms. Arti Dave, and subsequently to Mr.
Mihir Ghelani on the very same day. It is submitted that the fund transfer
to Ms. Arti Dave was by way of a short term loan advanced by the
Noticee.
xxxiii.
The Noticee had borrowed huge funds from third parties with a view to
invest in shares and stocks. Between the date of the receipt of funds from
the third parties and the exact utilization of such funds for purchase of
securities, the funds lying idle in the account of the Noticee were
transferred to Ms. Ara Dave as short term loan. This was transferred only
on account of having acquaintance with Ms. Arti Dave and there cannot
be any other observations in this regard.
xxxiv.
In light of all our submission made above, we respectfully submit that we
are fully and formally compliant with the letter and spirit behind the
provisions of Section l2A (a), (b) and (c) of the SEBI Act read with
Regulations 3(a), (b), (c), (d) and 4(1) and 4(2)(a) of the PFUTP
Regulations. We categorically and emphatically submit that there has
been no lapse by us warranting the issue of the Adjudication Notice
against us or any regulatory intervention of any nature whatsoever against
us.
xxxv.
We respectfully submit that the Noticee is not in contravention of the
provisions of the SEBI Act or the rules or the regulations made
thereunder. As it is abundantly clear from our submissions made above
that the Noticee has acted as required under the relevant rules regulations.
The Noticee has not adopted any scheme or implemented any device or
engaged in any sort of practice to defraud investors.
xxxvi.
The allegation of routing of funds and acting a front of GSPL in trading in
the scrip of TPL on the first day of listing to provide an exit to certain
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October 13, 2014
QIBs/retail individual investors at a premium to the Issue price is without
merit as the payments received by the Noticee were by way of a loan. The
Noticee employed these funds towards pay-in obligations and margin
requirements for trading through GSPL. The Noticee is unaware and
uninvolved in any onward fund flow. Therefore, it is abundantly clear
from our submissions above that there were no mala fide intentions in our
actions.
Conclusion
xxxvii.
8.
I request the Adjudicating Officer to appreciate the submissions made
herein and grant me an early opportunity of personal hearing in the matter
to explain the matter in perspective and to provide necessary clarifications
if required. Needless to say, I would be more than willing to provide all
necessary assistance in this regard.
In the interest of natural justice and in order to conduct an inquiry in
terms of rule 4(3) of the Rules, the Noticee was granted an opportunity of
personal hearing on August 26, 2014 at SEBI, Head Office, Mumbai, vide
notice dated August 14, 2014. On the date of hearing, Shri Anant Upadhyay,
Advocate, appeared as Authorised representative (AR) on behalf of the noticee.
AR submitted that the noticee has filed a consent application in the matter and
requested AO to defer the hearing Proceedings till the outcome of the consent
application. AO referring to the order dated March 03, 2014 of Hon'ble SAT in
M.A no 28/2004 and Appeal no. 30 of 2014 brought to the attention of the AR
that the instant proceedings has to be disposed of within the time limits
indicated therein. Thereafter, AR requested AO to grant a short adjournment
since the counsel who is to appear for the Noticee is unavailable. Accordingly,
the matter was adjourned to September 05, 2014.
9.
On the scheduled date of hearing, Mr. Anant Upadhyay and Mr. Ajay
Fernandes, Advocate, appeared as Authorised Representatives (ARs) on behalf
Page 16 of 47
October 13, 2014
of the noticee. ARs submitted that the investigation against the noticee has been
initiated pursuant to another investigation by SEBI in the matter of IPO of TPL
wherein nothing has been found as against the noticee and requested for a copy
of the Investigation Report in the matter of TPL to enable them to file
additional written submissions. AO informed that all the documents relied upon
has already been made available to the noticee, however, the request for copy of
Investigation report in the matter of TPL would be considered on merit. In this
regard, the contents of para 11 and 12 of Investigation Report in the matter of
Anil Dave (a copy of which had already been made available to the noticee)
was brought to the notice of ARs that GSPL had used funds/securities of other
clients including Vimal Patel to meet the margin obligations arising out of the
huge loss incurred by Jivraj Zala due to trading in the scrip of TPL. To which,
ARs replied that the noticee opened trading account with Grishma Securities
almost after a month from the date of the alleged violations seen in the scrip of
TPL and that they would file additional written submission in the matter within
a week's time from the date of AO's response to their request for a copy of the
Investigation Report in the matter of TPL. The ARs also requested that an
opportunity of personal hearing be granted post filing of the additional written
submissions and assured to avail the hearing opportunity at short notice so that
the matter can be disposed by AO within the timeline specified by Hon'ble
SAT.
10.
Vide letter cum notice dated September 10, 2014, noticee was informed
that the instant proceedings against him had been initiated through a separate
investigation and vide letter dated July 14, 2014 copy of relevant parts of the
investigation report along with all the annexures as sought by the noticee during
the inspection of documents on July 11, 2014 has already been provided to him
Page 17 of 47
October 13, 2014
and therefore, his request for copy Investigation Report in the matter of IPO of
TPL cannot be acceded to. Vide the said notice, as requested by the noticee,
another opportunity of hearing was given to him on September 18, 2014. On the
date of hearing, Shri Anant Upadhyay, Advocate, appeared as Authorised
representative (AR) on behalf of the noticee and reiterated the submissions
made vide letter dater dated August 12, 2014 and again requested for a copy of
the Investigation Report in the matter of TPL.The undersigned brought to the
notice of AR the contents of letter dated September 10, 2014, whereby such
request of noticee was not acceded to. AR requested for one week's time for
additional written submission in the matter and noticee was granted one week's
time to do the needful. However, no additional written submissions from the
noticee were received by the undersigned till date. As the instant proceedings
has to be disposed of within the time limits indicated in the orders dated March
03, 2014 of Hon'ble SAT in M.A no 28/2004 and Appeal no. 30 of 2014 as well
as in Appeal no. 210 of 2014 dated August 27, 2014 (copy of which was
received on September 17, 2014), I am proceeding with the inquiry taking into
account the material available on record. I also note that though noticee has
submitted that it has filed a consent application in the matter, it has been
informed to me by the concerned department of SEBI that the said application
has been withdrawn by the noticee vide his letter dated September 25, 2014 and
the application has been returned to the noticee on October 7, 2014.
CONSIDERATION OF ISSUES AND FINDINGS
11.
The issues that arise for consideration in the present case are :
a) Whether noticee had indulged in synchronized trades with Mr.
Vimal Patel another client of GSPL?
Page 18 of 47
October 13, 2014
b) Whether noticee permitted GSPL to use his account as a conduit for
diverting funds to other front entities of GSPL?
c) Whether the Noticee had violated the provisions of section 12A (a),
(b) and (c) of SEBI Act, 1992 and provisions of Regulations 3(a),
(b), (c), (d), 4(1) and 4(2)(a) of PFUTP Regulations?
d) Does the violation, if any, on the part of the Noticee attract
monetary penalty under Section 15 HA of SEBI Act?
e) If so, what would be the monetary penalty that can be imposed
taking into consideration the factors mentioned in Section 15J of
SEBI Act?
12.
Before moving forward, it is pertinent to refer to the provisions of section
12A (a), (b) and (c) of SEBI Act, 1992 and regulations 3(a), (b), (c), (d), 4(1)
and 4(2)(a) of PFUTP Regulations. The said provisions state as under:
SEBI Act, 1992
"Prohibition of manipulative and deceptive devices, insider trading and
substantial acquisition of securities or control.
12A. No person shall directly or indirectly –
(a) use or employ, in connection with the issue, purchase or sale of any
securities listed or proposed to be listed on a recognised stock exchange, any
manipulative or deceptive device or contrivance in contravention of the
provisions of this Act or the rules or the regulations made thereunder;
(b) employ any device, scheme or artifice to defraud in connection with issue
or dealing in securities which are listed or proposed to be listed on a
recognised stock exchange;
(c) engage in any act, practice, course of business which operates or would
operate as fraud or deceit upon any person, in connection with the issue,
dealing in securities which are listed or proposed to be listed on a
recognised stock exchange, in contravention of the provisions of this Act or
the rules or the regulations made thereunder;"
PFUTP Regulations
Page 19 of 47
October 13, 2014
"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) use or employ, in connection with issue, purchase or sale of any security
listed or proposed to be listed in a recognized stock exchange, any manipulative
or deceptive device or contrivance in contravention of the provisions of the Act
or the rules or the regulations made there under;
(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
recognized stock exchange;
(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;"
13.
I have taken into consideration the facts and circumstances of the case,
the material made available on record and also the background facts of the case
as requested by the noticee. Before proceeding on merits in the case, I would
like to refer to the submission made by the noticee in its reply dated August 12,
2014 that he has not been provided with full set of documents and records
relied upon by SEBI in issuing Notice. On perusal of the material on record, I
find that that due inspection of documents relied upon in SCN was provided to
the noticee and also copies of all the relied upon documents were provided to
the noticee.
Issue I. Synchronized trades with Mr. Vimal Patel
Page 20 of 47
October 13, 2014
14.
It was observed during the Investigation that some of the buy trades of
the Noticee were synchronized (i.e. where the buy and sell order quantity and
rate were identical and orders for these transactions were placed within time
gap of one minute ) with the sell trades of Mr Vimal Patel. GSPL was the
broker both on the buy and sell side. Summary of such trades is provided as
below:
Buy
Order
Last
Modif
ied
Qty
Buy
Order
Last
Modifi
ed
Time
Sell
Order
Last
Modif
ied
Price
Sell
Order
Last
Modifi
ed Qty
Sell
Order
Last
Modifie
d Time
Trade
Value
Time
Differe
nce
Day's
Market
Volum
e
% Of
Traded
Qty To
Day's
Market
Volume
Trade Date
Exch
ange
Scrip Name
Buy
Order
Last
Modifie
d Price
16/11/2011
BSE
Sujana Metal
6.67
2000
14:54:33
6.67
2000
14:54:34
13340
0:00:01
286060
0.7
755
500
14:53:05
755
500
14:53:05
377500
0:00:00
1980
25.25
64.7
2000
14:55:14
64.7
2000
14:55:15
129400
0:00:01
179561
1.11
28.7
2000
14:53:50
28.7
2000
14:53:50
57400
0:00:00
203684
0.98
104.9
500
14:52:01
104.9
500
14:52:01
52450
0:00:00
98215
0.51
397.25
5000
14:56:01
397.25
5000
14:56:01
1986250
0:00:00
29045
17.21
397.25
915
14:56:44
397.25
915
14:56:45
363483.8
0:00:01
29045
3.15
113.75
10000
14:52:32
113.75
10000
14:52:31
1137500
0:00:01
129262
7.74
38.5
15994
14:51:00
38.5
15994
14:50:55
615769
0:00:05
16889
94.7
1.94
988
13:33:52
1.94
988
13:34:00
1916.72
0:00:08
162759
0.61
31.2
14984
14:06:37
31.2
14984
14:06:16
467500.8
0:00:21
15000
99.89
39
4997
02:46:39
39
4997
02:46:34
194883
0:00:05
8487
58.87
20.75
2000
02:59:16
20.75
2000
02:59:20
41500
0:00:04
95133
2.1
16/11/2011
BSE
16/11/2011
BSE
16/11/2011
BSE
16/11/2011
BSE
16/11/2011
BSE
16/11/2011
BSE
16/11/2011
BSE
16/11/2011
BSE
8/12/2011
BSE
12/12/2011
BSE
16/11/2011
NSE
16/11/2011
NSE
15.
Monsanto
India Ltd
TVS Motor
Company Ltd
Subex Ltd
GOL Offshore
Ltd
Advanta
Limited
Advanta
Limited
Hathway
Cable Datacom
Ltd
Future Market
Networks
Ltd(Formerly
known as Agre
Developers
Ltd)
Nextgen
Animation
Mediaa Ltd
Newinfra
Future Market
Networks
Ltd(Formerly
known as Agre
Developers
Ltd)
Madras
Fertilizers Ltd
Investigation further revealed that there were synchronized trades for a
total value of over ` 54 lakh between the Noticee and Mr. Vimal Patel. In BSE,
Page 21 of 47
October 13, 2014
the synchronized trades in the scrip of Agre Developers (now known as Future
Media Networks Ltd.) Advanta Ltd, Monsanto India Ltd and
Hathway
accounted for around 94.7%, 20.36%, 25.25%, 20% and 7.74% of the day's
market volume respectively. In NSE, the synchronized trades in the scrip of
Agre Developers (now known as Future Media Networks Ltd) accounted for
around 55.87% of the day's market volume. Therefore, it was observed that the
synchronized trades between the Noticee and Mr. Vimal Patel executed through
GSPL created artificial volumes. Investigation further revealed that the bank
account of the Noticee shows that there is transfer of funds to the account of Mr
Vimal Patel.
16.
I note that the noticee has not disputed the trades referred to in the
above table, however, he has contended that with respect to the allegation of
synchronized trading it is a well-established position of law that the ingredients
for synchronized trade need to be present and proven and one such ingredient is
the presence of a relationship between the parties. It was contended that:
i.
no relationship was established between the Noticee and Vimal Patel in
the Adjudication Notice
ii.
nothing amiss in the conduct of the Noticee and Vimal Patel has been
recorded in the Adjudication Notice that led SEBI to believe that they
were indulging in manipulation by way of synchronized trading other
than the timing and quantity of the trades which can also be attributable to
mere co-incidence
iii.
the Notice fails to establish any ingredients of fraud or any collusion
between the Noticee and Vimal Patel which is a sine qua non before
recording any finding of manipulation or fraudulent activity
iv.
it is an admitted position that synchronized trades per se are not illegal
Page 22 of 47
October 13, 2014
and it is only when synchronized trades are executed with a view to
manipulate the price of the scrip that the provisions of the FUTP
Regulations are attracted.
17.
At this juncture, I would like to quote the order dated 16.01.2012 of the
Hon‘ble Securities Appellate Tribunal (SAT) in Sparkline Mercantile Co. Pvt.
Ltd. Vs SEBI wherein it was held as follows:―..It is an admitted position that it
is difficult to get direct evidence with regard to synchronization of trades for
the purpose of upsetting the market equilibrium or to manipulate the market. It
is only on the basis of circumstantial evidence that such a connection can be
proved… ..A large number of trades were executed among the group entities
within a minute of placing the order. This cannot happen without prior meeting
of minds among the connected entities. From the details of the trades executed
and having regard to the trading system, we do not think that such large
number of trades could match between the same parties unless the trading
system was being abused..‖
18.
Keeping in mind the dicta of the SAT as reproduced above, in the
instant case I note that in all the instances of synchronized trades GSPL is the
broker both on buy and sell side. It has also been brought out in the SCN that
the bank account of the noticee showed the transfer of funds of ` 18,50,000/from noticee to Vimal Patel on December 27, 2011. It has further been brought
out in the SCN that in most of the times, the amounts transferred by the noticee
were routed to Mr Vimal Patel (approximately `4.34 crore). In view of the
same, noticee cannot claim that there is no relationship between him and Mr.
Vimal Patel.
Page 23 of 47
October 13, 2014
19.
I find that on November 16, 2011, there were 11 instances of
synchronized trades in 9 scrips for an approximate value of ` 50 lakh between
noticee and Vimal Patel. The price of the security punched into the system both
by the noticee and Mr. Vimal Patel was the same, the quantity of the shares to
be sold was also the same and the time at which the two orders were punched in
is almost the same. In a screen based trading system that is followed in the
stock exchanges, it is not possible that such large number of trades could match
without the two clients executing a pre- decided plan. Further, I am of the view
that a number of synchronization of trades that too in as many as 9 scrips and
on a single day cannot be treated as mere coincidence or without knowledge
and are only possible if the trades are put in the system with prior
understanding.
20.
While examining the issue of synchronized trades, the Hon‘ble SAT
vide order dated October 31, 2003 in Appeal nos. 54 to 57 of 2002 in the case
of Nirmal Bang Securities (P) Ltd. v. SEBI observed that ―Synchronized
trading is violative of all prudential and transparent norms of trading in
securities. Synchronized trading on a large scale can create false volumes…
There are many transactions giving an impression that these were all
synchronized, otherwise there was no possibility of such perfect matching of
quantity price etc.…. In a synchronized trading intention is implicit.‖ In the
instant case, the intention of the parties to execute such synchronized
transactions could be inferred from the above attending circumstances
especially execution of several synchronized transactions that too in various
scrips in a single day. Further the Hon‘ble SAT vide order dated June 12, 2008
in Appeal No. 175/2007 in the matter of Chirag Pujara v. Whole Time Member,
SEBI observed that ".......executing matching trades with a prior understanding
Page 24 of 47
October 13, 2014
is by itself a serious violation of the Regulations which jeopardizes the integrity
of the market..."
21.
Here, I would like to also quote the order dated 04.05.2007 of the
Hon‘ble SAT in Triumph International Finance India Limited v. SEBI in
Appeal No. 35/2002 wherein it observed that ".........A unique feature of the
stock exchange is the anonymity of the buyer and the seller. Unlike other
moveable properties, shares are normally bought and sold buy the unknowns
who never get to meet. They execute the trades through their brokers and the
shares are traded at a price determined by the exchange mechanism based on
the demand and supply. It must not be forgotten that every trade establishes the
price of the scrip and when the two brokers punch in the buy and sell orders
simultaneously at a predetermined price which they fix and match the trades on
the screen of the system they are obviously interfering with the fair price
discovery process of the exchange and this would amount to manipulation and
benchmarking the price. Such trades are prohibited by the unfair trade
practices regulations framed by the Board......."
22.
I further find that the synchronized trade of the noticee at BSE in the
scrip of Future Media Networks Ltd., Advanta Ltd, Monsanto India Ltd and
Hathway accounted for around 94.7%, 20.36%, 25.25%, 20% and 7.74% of the
day's market volume respectively and at NSE in the scrip of Future Media
Networks Ltd accounted for around 55.87% of the day's market volume and
thus resulted into creation of artificial volumes in the respective scrips.
23.
Noticee in its reply has referred to the order passed in FMS Securities
Limited passed by the Whole Time Member, SEBI wherein it was, inter alia,
Page 25 of 47
October 13, 2014
observed that ..."the charge of manipulative synchronized trading by the noticee
would pre-suppose prior understanding between it and other trading parties..."
In the instant case, it is clearly established that the noticee indulged in
synchronized trades with Vimal Patel in various scrips with a prior
understanding as has been explained in the preceding paragraphs.
Issue II - Noticee permitted GSPL to use his account as a conduit for
diverting funds to other front entities of GSPL
24.
I note that it was observed during the investigation that the trading
account of the Noticee with GSPL was opened on November 12, 2011 and he
was a walk in client of GSPL and the value of the total buy of the shares bought
by the noticee on BSE and NSE was ` 1,74,84,981.36 and total value of the
sale on BSE and NSE was ` 69,11,988.6. The total value of trades (buy side
and sell side) of the noticee through GSPL is shown in the table below:
Date
Buy Value NSE
(in `)
236500
1548000
Sell Value NSE
(in `)
Buy Value BSE (in `)
Sell Value BSE
(in `)
0
November 16, 2011
0
4767092.75
0
0
December 2, 2011
0
0
December 5, 2011
9374955.94
0
0
0
December 7, 2011
1547062
0
December 8, 2011
0
1916.72
1093926.6
0
0
December 12, 2011
468000
0
0
0
December 13, 2011
2750000
0
0
December 14, 2011
66079
29049
0
0
December 15, 2011
168424
59835.15
0
0
December 16, 2011
177953
8655
0
December 19, 2011
68190
15316
1021000
0
December 20, 2011
35768
23970
0
0
December 21, 2011
29358
51030.8
500000
0
0
December 22, 2011
95284
23580
0
0
December 23, 2011
35640
576
0
0
December 26, 2011
34109
11375
0
0
December 27, 2011
57998
34161
0
0
December 28, 2011
14150
48015
Page 26 of 47
October 13, 2014
TOTAL
2567453
25.
1547062
14917528.36
5364926.6
Investigation further revealed that the gross total Income of the noticee
as per the ITR are as follows:
Assessment Year
2012-13
2013-14
Gross Total Income(`)
4680
779
As the noticee's income tax returns did not indicate his risk taking
capacity, the bank accounts of the noticee were trailed to ascertain the
source/end use of the funds. The bank account of the noticee with Axis Bank,
Lamington Road Branch was opened on November 15, 2011 and ` 5200 was
deposited by cash.
Trail of funds received in the account of the noticee's Axis bank account
and trades of noticee: The trail of funds of the noticee‘s Axis Bank,
Lamington Road Account for the period from November 1, 2011 to January,
2012 is shown below separately for each transfer.
i)
On November 18, 2011, there was a deposit of ` 1 crore in the noticee's
account from the account of United Enterprises. The balance in the account
of the noticee on the said date was ` 1,00,05,200 On November 21, 2011, the
said amount was transferred to various accounts of GSPL in 4 tranches of `
25 lakh as mentioned below:
- ` 50 lakh was transferred to the account of GSPL (NSE F&O Client
Account).
- ` 25 lakh was transferred to the account of GSPL (BSE Client
Account). From this account it was further transferred to the account of
Grishma Securities P Ltd(Current Account).
Page 27 of 47
October 13, 2014
- ` 25 lakh was transferred to the account of GSPL(NSE Client
Account).
 Investigation further revealed that the amounts transferred to GSPL NSE F&O Account (` 50 lakh) and GSPL -BSE Client Account(`25
lakh) were further transferred to the account of GSPL (Current
Account). Further from GSPL (Current Account), ` 25 lakh was
transferred to GSPL - NSE Client Account. On the same day, `
49,06,999.24 (` 25 lakh received from current Account and ` 25 lakh
transferred by the noticee) was transferred to Pramod Goenka (another
client of GSPL). The balance in the account of the Noticee on
November 21, 2011 was ` 5200.
UNITED ENTERPRISES 18/11/2011(Rs 1 crore)
ANIL DAVE(Rs 1 crore)
GSPL NSE F&O A/c
Rs 50 Lakh 21/11/11
GSPL BSE Client A/c
21/11/11
Rs 25 lakh
GSPL Current A/c 004010200394277
Rs 75 lakh
GSPL NSE Client A/c
Rs 25 Lakh
+
Rs 25 lakh from GSPL
current A/c -- 21/11/11
Pramod Krishna
Goenka
Rs 4906999.24
 Investigation further revealed that on November 16, 2011, Noticee had
purchased shares worth ` 47,67,092.75 in BSE and ` 2,36,500 in NSE.
Page 28 of 47
October 13, 2014
He had not traded in the F & O segment though it was observed that
there was a transfer of ` 50 lakh from his account to GSPL NSE F&O
Account.
ii) On November 26, 2011, there was a transfer of `75,00,000/- in the
account of the Noticee from Global Enterprise. Investigation revealed
that on the same day, it was transferred to the account of GSPL (BSE
Client Account) and further routed to the account of Mr Vimal Patel
(another client of GSPL). The final balance in the account of the
noticee as on November 26, 2011 remained ` 5200. It was observed
that though there was financial transactions between noticee and
GSPL, the noticee had not traded in BSE and NSE during the period
from
November
17,
2011
to
December
4,
2011.
Global Enterprises
75 lakh 26/11/2011
Anil Dave 75 lakh
26/11/11
GSPL BSE Client A/C 75 lakh 26/11/2011
Vimal Patel
75 lakh 26/11/2011
iii)On November 28, 2011, again there was a transfer of `75,00,000/- in
the account of the Noticee from Global Enterprise and on the same
day, the entire amount was transferred to the account of GSPL(BSE
Client Account). Investigation revealed that the entire amount was
further transferred to GSPL(Current Account). Further, ` 1 crore (the
amount of ` 75 lakh along with other funds of GSPL) was transferred
from GSPL (Current Account) to GSPL NSE F&O Account Client
Page 29 of 47
October 13, 2014
A/c on the same day. From GSPL NSE F&O Account Client A/c, ` 1
crore was transferred to the account of Mr Vimal Patel.
The final
balance in the account of the noticee as on November 28, 2011
remained ` 5200. It was observed that though there was financial
transactions between noticee and GSPL, the noticee had not traded in
BSE and NSE during the period from November 17, 2011 to
December 4, 2011.
Global Enterprises Rs 75 lakh
28/11/2011
Anil Dave Rs 75 lakh
28/11/2011
GSPL BSE Client Account A/C
75 lakh 28/11/2011
GSPL Current A/C
75 lakh 28/11/2011
GSPL NSE F& O Account Client A/c
Received Rs 1 crore
Vimal Patel
Rs 1 crore 28/11/2011
iv) On December 3, 2011, ` 42,90,000 was transferred to the account of
the noticee from the bank account of Shalimar Trading and Shreeji
Corporation. On December 5, 2011, there was a transfer of ` 7,10,000
in the account of the noticee from the bank account of United
Enterprises. On December 5, 2011, ` 50,00,000 was transferred from
the account of the noticee to the account of GSPL(NSE Client
Account). Investigation revealed that on the same day, the entire
amount of ` 50 lakh was transferred to the account of Vimal Patel. The
final balance in the account of the noticee as on December 5, 2011 was
Page 30 of 47
October 13, 2014
` 5200. It was observed that though there was financial transactions
between noticee and GSPL, the noticee had not traded in BSE and
NSE during the period from November 17, 2011 to December 4, 2011.
Shalimar Trading Co
34,20,000 3/12/11
United Enterprises
7,10,000 5/12/11
Shreeji Corporation
8,70,000 3/12/2011
Anil Dave
50 lakh 5/12/11
GSPL NSE Client A/C No
50 lakh 5/12/11
Vimal Patel
50 lakh
v) On December 7, 2011, there was a transfer of `30,00,000 and
`50,00,000 in the account of the Noticee from Global Enterprise and
United Enterprises respectively. On the same day, the entire amount
was transferred to GSPL(BSE Client Account). Investigation revealed
that on the same day, ` 70,00,000 was transferred to the account of
Vimal Patel and on December 8, 2011 `10,00,000 was transferred to
GSPL(Current Account). The final balance in the account of the
noticee as on December 7, 2011 was ` 5200. It was observed that on
December 5, 2011, the noticee had purchased shares worth `
93,74,955.94 in BSE and on December 7, 2011, he had sold shares
worth ` 15,47,062 in NSE.
Page 31 of 47
October 13, 2014
Global Enterprises 30 lakh 07/12/12
United Enterprises 50 lakh 07/12/12
Anil Dave
80 lakh
GSPL BSE Client A/C 80 lakh
GSPL Current Account
Rs 10 lakh
70 lakh
Vimal Patel
7/12/12
vi) On December 8, 2011, Global Enterprises transferred ` 70,00,000 to
the account of the Noticee and on the same day, the entire amount was
transferred to GSPL(NSE Client Account). Investigation revealed that
on the same day, the entire amount was further transferred to the
account of GSPL(Current Account). Again, on the same day, the entire
amount was further transferred to the account of GSPL(BSE Client
Account). This entire amount was transferred to the account of Mr
Vimal Patel. The final balance in the account of the noticee as on
December 9, 2011 remained ` 5200. It was observed that on December
8, 2011, that noticee had purchased shares for `1916.72 and sold
shares for ` 10,93,926.6 in BSE.
Page 32 of 47
October 13, 2014
GSPL NSE Client A/C
70 lakh 08/12/11
GSPL BSE Client A/C
70 lakh 08/12/11
vii)
Anil Dave 70 lakh 8/12/11
GSPL Current A/C
70 lakh 08/12/11
Vimal Patel 70 lakh 08/12/11
On December 9, 2011, Global Enterprise transferred ` 70,00,000
to the account of the noticee and on the same day, the entire
amount was transferred to GSPL (NSE Client Account).
Investigation revealed that on the same day, the entire amount was
further transferred to the account of GSPL (Current Account).
Again, on the same day, `39,00,000 was transferred to the account
of GSPL (NSE F & O Account) which was further transferred to
the account of Mr Vimal Patel and `34,40,000 was transferred to
GSPL NSE (F&O Settlement Account Account) which was
further transferred to IL & FS for settlement. The final balance in
the account of the noticee as on December 9, 2011 remained `
5200. It was observed that the noticee had not purchased shares in
BSE and NSE from December 9, 2011 to December 12, 2011 nor
did he trade in the F & O Segment during this period.
Page 33 of 47
October 13, 2014
Anil Dave 70 lakh 9/12/12
GSPL NSE Client A/C No
70 lakh 09/12/11
GSPL Current A/C
70 lakh 09/12/11
GSPL
NSE F&O A/C
004010200394253 Rec‘d 39 lakh
GSPL
NSE F& O Settlement A/ C
Rec‘d Rs 34,40,000
Vimal Patel
Received Rs 39,24,455
IL & FS(for settlement)
Rs 34,67,496
viii)
On December 10, 2011, Shalimar Trading Co transferred
`39,00,000 to the account the noticee and on the same day, the entire
amount was transferred to the account of GSPL(BSE Client Account).
Investigation revealed that on the same day from the GSPL(BSE Client
Account), `1,00,000 was transferred to the account of Vimal Patel and
`38,00,000 was transferred to the account of GSPL(Current Account).
Of the `38,00,000 transferred to the account of GSPL(Current
Account), `6,00,000 was transferred to the account of GSPL (NSE
Client Account) and `24,00,000 was transferred to the account of
Grishma Intermediaries P Ltd. Of the `24,00,000 transferred to the
account of Grishma Intermediaries P Ltd, `23,00,000 was transferred
Page 34 of 47
October 13, 2014
to the account of Grishma Intermediaries P Ltd(Client Account). This
amount (`23 lakh) was transferred to Vimal Patel, on December 10,
2011. The final balance in the account of the noticee as on December
10, 2011 remained `5200. It was observed that the noticee had not
purchased shares in BSE and NSE from December 9, 2011 to
December 12, 2011.
Shalimar Trading Rs 39 lakh 10/12/11
Anil Dave Rs 39 Lakh 10/12/11
Vimal Patel Received Rs 1 lakh
GSPL Current A/C
Rs 38 lakh
GSPL NSE Client A/C No Received Rs 6 lakh
Vimal Patel Rs 6 lakh
GSPL BSE Client A/C No
004010200394284
Rs 39 lakh
Grishma Intermediaries P Ltd (GIPL)
Received Rs 24 lakh
GIPL Client A/C Rs 23 lakh
Vimal Patel Rs 23 lakh
ix) On December 12, 2011, Global Enterprises transferred `30,00,000 to the
account of the noticee and on the same day, the entire amount was
transferred to the account of GSPL (BSE Client Account). Investigation
revealed that this amount was transferred to BSE Current Account and
from there `3850000 was transferred to GSPL(NSE F&O Settlement
Page 35 of 47
October 13, 2014
Account) and from there it was transferred to IL & FS. The final balance
in the account of the noticee as on December 12, 2011 remained `5200.
It was observed that on December 12, 2011, Noticee had purchased
`4,68,000 shares in BSE. However, he had not traded in the F&O
segment.
GSPL BSE Client A/C
Recd 30 lakh
GSPL NSE F&O Settlement A/c
Rec‘d Rs 3850000
GSPL Current A/c
Rs 30 lakh
IL & FS for settlement
x) On December 17, 2011, Shalimar Trading Co had transferred
`25,00,00 to the account the noticee and on the same day, the entire
amount was transferred to the account of GSPL (BSE Client Account).
Investigation revealed that GSPL (BSE Client Account) transferred
`25,50,000 to Grishma Securities P Ltd (Current Account). From this
account `90,00,000 (including other payments) was transferred to
GSPL (F&O Settlement Account) and this was transferred to IL & FS.
The final balance in the account of the noticee as on December 17,
2011 remained `5200. It was observed that from December 14, 2011
to December 17, 2011, the Noticee had purchased shares worth `
4,12,456 on NSE and, from December 13, 2011 to December 17, 2011
on BSE he had purchased shares worth ` 28,47,539.15 and sold shares
worth ` 27, 50,000.
Page 36 of 47
October 13, 2014
Shalimar Trading Co Rs 25 lakh
17/12/2011
GSPL BSE Client A/C
Rs 25 lakh
GPSL Current A/c
Rec‘d Rs 25,50,000
GSPL NSE F & O Settlement A/c
Rec‘d Rs 90 lakh (including other payments)
IL & FS Settlement
xi) On December 21, 2011, Global Enterprise transferred `5,00,000
and `14,89,247 and Eleven Impex transferred `5,10,753 to the
account of the Noticee. On December 22, 2011, noticee
transferred the same to the account of GSPL(NSE Client
Account). This amount was further transferred to GSPL(Current
Account). From GSPL (Current Account), `35,00,000 was
transferred to NSE (F&O Settlement Account) and this entire
amount was transferred to IL & FS. The final balance in the
account of the noticee as on December 22, 2011 remained `5200.
It was further observed that from December 19, 2011 to December
26, 2011, noticee had purchased shares worth ` 2,98,349 on NSE.
Further, from December 19, 2011 to December 26, 2011, noticee
had purchased shares worth ` 1,25,847.8 and sold shares worth `
15,21,000 in BSE.
Page 37 of 47
October 13, 2014
Global Enterprise
Rs 5 lakh + Rs 14,89,247
Eleven Impex Rs 5,10,753
Anil Dave Recived Rs 25 lakh
GSPL Current A/c
Recived Rs 25 Lakh
GSPL NSE Client A/c
Received Rs 25 Lakh
GSPL NSE F & O Settlement A/c
Received Rs 35 Lakh
IL & FS Rs 35 lakh
xii)
On December 27, 2011, noticee had received ` 18,50,000 from
GSPL (NSE F&O Client Account) and on the same day, the entire
amount was transferred to Mr Vimal Patel who had further transferred
it to Ms Arti Chetan Dave (a dealer of GSPL). The balance in the
account of the noticee on December 27, 2011 was `5172. It was
observed that the pay-out of ` 18,50,000 was received by the noticee
from the NSE F&O Account of GSPL.
00401010200394253
GSPL NSE F& O Client A/c
Anil Dave
Vimal Patel Rs 18,50,000
Chetan Dave Rs 1850000
27/12/2011
Arti Chetan Dave
Rs 18,50,000
Page 38 of 47
October 13, 2014
xiii)
On December 30, 2011, Noticee had received `1,12,75,000 from
GSPL (NSE Client Account) and `87,25,000 from GSPL (BSE Client
Account). Noticee had transferred `1,00,00,000 to Muskan Trading Co
and `1,00,00,000 to Shalimar Trading Co. The balance in the account
of the noticee on December 30, 2011 was `5172.
GSPL- BSE Client A/c
Rs 87,25,000
GSPL- NSE Client A/c
Rs 1,12,75,000
Anil Dave
Received Rs 2,00,00,000
Muskan Trading Co
`1,00,00,000
xiv)
Shalimar Trading Co.`1,00,00,000
On January 2, 2012, noticee received credit of `19,20,000 and `
1,65,84,733 from the account of GSPL (NSE Client Account). On the
same day, `1,85,00,000 was transferred to the account of Arti Chetan
Dave in 2 tranches. On the same day, the entire amount was transferred
to Mr Mihir Ghelani, the CEO and Compliance Officer of GSPL. The
balance in the account of the noticee on January 02, 2012 was `14,434.
GSPL- Current A/c
Rs 16584733
GSPL- Current A/c
Rs 1920000
Anil Dave
Received Rs 18504733
Arti Chetan Dave
Rs 9000000 + Rs 9500000
Mihir Ghelani
Rs 9000000 + Rs 9500000
Page 39 of 47
October 13, 2014
26.
From the trail of bank account and trades of the noticee, the following
observations were made:
 Noticee received `1,57,10,000 from United Enterprises, `3,69,89,247
from Global Enterprise, `98,20,000 from Shalimar Trading Co,
`5,10,753 from Eleven Impex and
`8,70,000 from Shreeji
Corporation.
 It was observed that noticee had paid Shalimar Trading Co
`1,00,00,000 on December 30, 2012. From the bank accounts there is
no evidence of payments to United Enterprises, Global Enterprise,
Eleven Impex and Shreeji Corporation.
 The bank statement does not show any evidence of receipt of funds
from Muskan Trading Co. But it is observed that the noticee had paid
Muskan Trading Company `1,00,00,000 on December 30, 2012.
 The amounts received from the above mentioned entities, namely,
Global Enterprise, Shalimar Trading Co, Eleven Impex, Shreeji
Corporation and United Enterprises were (`6,39,00,000) was entirely
transferred to various accounts of Grishma Securities P Ltd.
 Noticee had transferred `50,00,000 to the account NSE F&O Account
of GSPL. An amount of `18,50,000 was observed to have been
transferred from the NSE F&O account to the noticee. However,
noticee had not traded in the F& O Segment during the entire period of
investigation.
 It was observed that the account of the noticee received funds from
various entities and the entire amount was transferred to the account of
GSPL.
Page 40 of 47
October 13, 2014
 The trades of the noticee were not commensurate with the amounts
transferred.
 In most of the times, the amounts transferred by the noticee were
routed to Mr Vimal Patel (approximately `4.34 crore) or to IL & FS
Account (approximately `1.97 crore). It may be noted that IL & FS is
the clearing member of GSPL. However, Noticee had not traded in the
F& O Segment of the Exchanges.
27.
I note that the noticee has not disputed the above-mentioned trail of
funds, however, he has contended that all the fund transfers mentioned in the
SCN was on account of regular business and commercial transactions and
accounted for appropriately by the Noticee. He submitted these funds were
availed of by the Noticee by way of a friendly loan for making investments in
the securities market through GSPL and the money lenders who had lent funds
have decided to initiate civil and criminal proceedings against the Noticee on
account of non-payment of dues by the Noticees and in that context he
submitted a letter dated May 29, 2014 from United Enterprises. He further
submitted that while he has made payments to GSPL against his pay-in
obligations and towards an advance or margin for future trades, the Noticee is
unaware of any onward or subsequent transfer of such funds by GSPL to any
other entity or individual and accordingly he cannot be held responsible for the
subsequent actions of GSPL as the Noticee neither has control nor any
knowledge of the same.
28.
I note that the noticee has claimed that the funds that were received in
his account was by way of friendly loan. However, in the facts and
circumstances of the case, it seems highly improbable that the noticee, who is
Page 41 of 47
October 13, 2014
having a meagre income of ` 4,680/- and ` 779/- only for the assessment year
2012-13 and 2013-14, has managed to obtain loan, even as friendly loan, to the
tune of ` 7 crore. Moreover, these entities from whom the noticee claimed to
have obtained loans could not be located during the investigation. I further note
that the letter submitted by the noticee purportedly from one of the lender,
United Enterprises, demanding `1,57,10,000/- from the noticee is dated May
29, 2014 i.e after the issuance of SCN. It appears to be an afterthought which is
fraught with suspicion and I am of the view that in the context of totality of the
case, it is difficult to accept the claim of the noticee that it has received huge
amounts of money by way of loans and the noticee is only trying to give a color
to the transaction by calling it friendly loan.
29.
I find that while the total value of the shares bought by the noticee on
BSE and NSE was approximately ` 1.75 crore, he has transferred `6.39 crore to
various accounts of GSPL. I further note that many a time amounts were
transferred during the period when the noticee was not trading in the shares.
Further, while noticee had not traded in the F&O Segment during the entire
period of investigation, he had transferred `50,00,000 to the account NSE F&O
Account of GSPL. I also note that while the total value of the noticee's sale on
BSE and NSE was approximately ` 69.12 lakh, he received in his account sum
of approximately ` 4.03 crore from various accounts of GSPL, out of which 1
crore each was transferred to Shalimar Trading Co. and Muskan Trading Co.,
and ` 18.50 lakh was transferred to Mr. Vimal Patel for no apparent reasons nor
the noticee has offered any explanation for those transactions. I further note a
sum of `1.85 crore was transferred to Arti Chetan Dave purportedly as short
term loan and this is yet another case of huge transfer of funds in the garb of
loan. Therefore, I am of the view that, in the facts and circumstances of the
Page 42 of 47
October 13, 2014
case, the submissions of the noticee regarding the purpose of such huge transfer
of funds appears to be a concoction and the same deserves to be rejected.
30.
The Hon‘ble SAT, in Ketan Parekh Vs. Securities & Exchange Board of
India (Appeal No. 2 of 2004) decided on 14.07.2006, observed that,
―............Any transaction executed with the intention to defeat the market
mechanism whether negotiated or not would be illegal. Whether a transaction
has been executed with the intention to manipulate the market or defeat its
mechanism will depend upon the intention of the parties which could be
inferred from the attending circumstances because direct evidence in such
cases may not be available. The nature of the transaction executed, the
frequency with which such transactions are undertaken, the value of the
transactions, whether they involve circular trading and whether there is real
change of beneficial ownership, the conditions then prevailing in the market
are some of the factors which go to show the intention of the parties. This list of
factors, in the very nature of things, cannot be exhaustive. Any one factor may
or may not be decisive and it is from the cumulative effect of these that an
inference will have to be drawn.‖
31.
The proof of manipulation in the circumstances always depends on
inferences drawn from a mass of factual details, the nature of transactions,
conduct of the parties etc. From the material on record, I note that the bank
account of the noticee was opened with `5,200/- on November 15, 2011 and as
on January 02, 2012, the balance therein was `14,434/-. In between this period,
the noticee had received huge sums of money amounting to `6.39 crore in his
account and transferred the same to GSPL, which, in turn, transferred majority
of the amount to Mr. Vimal Patel i.e. approximately ` 4.34 crore and to IL &
Page 43 of 47
October 13, 2014
FS i.e approximately ` 1.97 crore. Similarly he received in his account funds to
the tune of approximately ` 4.03 crore from GSPL, which the noticee in turn
transferred other entities without any justifiable reason. This is nothing but a
manipulative device whereby moneys are transferred through layered
transactions to conceal the identity of the persons involved. Since this was done
through the medium of stock broker , it is infact a clear case of abuse of market
mechanism and the very fact that the huge sums of money are transferred in
such a manner clearly establish the manipulative intent on the part of the
noticee.
32.
I find that this is a case where the noticee had allowed his bank account
to be used as conduit for diversion of funds and in that connection he has
received and transferred huge sums of money running into several crore of
rupees to the broker and the broker in turn had transferred the moneys to the
accounts of other clients. I find that there was no payment obligation for the
noticee to such make such huge payments to the brokers. The noticee in its
reply had stated that they moneys were transferred to the broker, as advance
margin for future transactions and that he had browed money from others to
make such payments. It is quite unexpected of and unusual for the noticee to
make such huge payments, more so because
a) the noticee had no or little means/income of his own
b) the noticee had borrowed funds
c) the huge payments running to several crore of rupees was made by the
noticee without there being any payment obligation arising out of
securities market transactions with the broker
d) no prudent person would borrow funds just to park the moneys with a
broker or any other person without any purpose.
Page 44 of 47
October 13, 2014
33.
Therefore, the theory about the purpose of making such large payments
towards advance margin, as adduced by the noticee is nothing but false and
deserves to be rejected outright since it is without any reason or merit. Thus the
reply of the noticee is rejected accordingly.
34.
I further note that in the instant case, the transactions between the
noticee and the broker/other clients took place in Nov-Dec 2011 and a few days
before this i.e in October 2011, the broker GSPL and the entities like Mr.
Vimal Patel, Mihir Ghelani- to whom the moneys received in and transferred
from the account of the noticee finally landed- were involved in a fraudulent
activity in the matter of investigation in the IPO of TPL where a similar modus
operandi of layered fund transactions was used . The order dated July 31, 2013
passed by SEBI against GSPL & Ors were also upheld the Hon'ble SAT vide
order dated October 28, 2013. The complicity of the noticee in the present
matter involving similar persons and similar modus operandi only goes to
reinforce the finding given hereinabove in the present matter about the
manipulative intent on the part of the noticee in abusing the market mechanism.
35.
In view of the above, I hold that the noticee indulged in synchronized
trades with Mr. Vimal Patel and also permitted GSPL to use his account as a
conduit for diverting funds to other front entities of GSPL and thereby, the
noticee violated provisions of section 12A (a), (b) and (c) of SEBI Act, 1992
and provisions of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of PFUTP
Regulations.
36.
The aforesaid violations by the noticee make him liable for monetary
penalty under section 15HA of SEBI Act, 1992 which reads as under:
Page 45 of 47
October 13, 2014
"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 of twenty-five crore rupees or three times the amount of
profits made out of such practices, whichever is higher."
37.
While imposing monetary penalty it is important to consider the factors
stipulated in Section 15J of 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.‖
38.
The Investigation Report has not quantified any gain or unfair
advantage accrued to the noticee as a result of the manipulative activities of the
noticee. Further, there is no material made available on record to quantify
exactly the disproportionate gains or unfair advantage enjoyed by the noticee
and the consequent losses suffered by the investors as a result of noticee's
violation. However, I cannot lose sight of the fact that there was a clear abuse
of securities market mechanism by the noticee by indulging in synchronized
trades and being a conduit for transfer of huge sum of money through layered
transactions to conceal the identity of the persons involved. Therefore, it is
necessary that a justifiable penalty is imposed on the Noticee to meet the ends
of justice.
Order
39.
In light of all the above stated facts and circumstances of the case, I
hereby impose a penalty of ` 25,00,000 /- (Rupees Twenty Five Lakh only)
Page 46 of 47
October 13, 2014
under section 15HA of the SEBI Act, 1992 on the Noticee viz. Mr. Anil Dave
for violation of provisions of section 12A (a), (b) and (c) of SEBI Act, 1992 and
provisions of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of PFUTP
Regulations. I am of the view that the said penalty is commensurate with the
violations committed by the Noticee.
40.
The Noticee shall pay the said amount of penalty by way of demand
draft in favour of ―SEBI - Penalties Remittable to Government of India‖,
payable at Mumbai, within 45 days of receipt of this order. The said demand
draft should be forwarded to The Division Chief (Enforcement Department DRA-II), Securities and Exchange Board of India, SEBI Bhavan, Plot No. C – 4
A, ―G‖ Block, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.
41.
In terms of rule 6 of the Rules, copies of this order are sent to the
Noticee and also to SEBI.
Date: October 13, 2014
Place: Mumbai
A. Sunil Kumar
Adjudicating Officer
Page 47 of 47
October 13, 2014

BEFORE THE ADJUDICATING OFFICER SECURITIES AND EXCHANGE BOARD OF INDIA

Transcription

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