1. law, govt and politics

BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. EAD-2/AO/DSR/RG/253-270 /2014]
UNDER SECTION 15 I OF SECURITIES AND EXCHANGE BOARD OF INDIA
ACT, 1992 READ WITH RULE 5 OF SECURITIES AND EXCHANGE BOARD OF
INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY
ADJUDICATING OFFICER) RULES, 1995
In respect of:
1. Shri Bharat Shantilal Thakkar (PAN:AAZPT9542R)
2. Shri Chirag Rajnikant Jariwala (PAN: AFMPJ7543L)
3. Shri Kishore Chauhan (PAN: AFPPC9703G)
4. Shri Bhavesh Pabari (PAN: AKGPP8679N)
5. Shri Prem Mohanlal Parikh (PAN: ALHPP3489N )
6. Shri Hemant Madhusudan Sheth (PAN: ANOPS8607E)
7. Shri Ankit Sanchaniya (PAN: BLNPS3316L)
8. Shri Jigar Praful Ghoghari (PAN: ASFPG8598L )
9. Shri Vipul Hiralal Shah (PAN: AZCPS9537P)
10. Ms Mala Hemant Sheth (PAN: AZXPS0694J)
11. Shri Gaurang Ajit Seth (PAN: BGEPS6596Q)
12. Shri Vivek Kishanpal Samant (PAN:BRSPS0294N)
13. Shri Bhupesh Rathod [PAN: AACPR3785K]
14. Shri Ketan Babulal Shah (PAN: AACPS0667F)
15. Shri Bipin Jayant Thaker (PAN: ABYPT4984H)
16. Shri Bharat G Vaghela (PAN: ADYPV0844N )
17. Shri Bipin Kumar Gandhi (PAN: AJHPG6989J)
18. Arcadia Share & Stock Brokers Pvt. Ltd. (PAN:AAACA4562G)
In the matter of
GOLSTONE TECHNOLOGIES LIMITED
1.
Securities and Exchange Board of India (hereinafter referred to as „SEBI‟),
pursuant to the detection of a huge rise in the traded volumes and/or price of
the shares of Goldstone Technologies Limited (hereinafter referred to as
Page 1 of 34
„GTL/company‟), a company listed at Bombay Stock Exchange Limited (BSE)
and the National Stock Exchange (NSE), conducted an investigation into the
alleged irregularity in the trading in the shares of GTL and into the possible
violation of the provisions of the Securities and Exchange Board of India Act,
1992 (hereinafter referred to as the „Act‟) and various Rules and Regulations
made there under during the period from January 21, 2009 to April 13, 2010.
It was observed that the price of the scrip unusually increased from ` 10.10
to ` 45.50 and the daily high-low traded volume was 614 shares to 12,12,337
shares.
2.
SEBI vide its interim order dated February 02, 2011 had restrained 39
persons/entities from accessing the securities market and further prohibited
them from buying, selling or dealing in securities in any manner whatsoever,
till further directions. The said interim order was later confirmed by SEBI vide
order dated July 08, 2011.
3.
The investigation, inter alia, revealed that certain entities namely, 1) Bharat
Shantilal Thakkar, 2) Chirag Rajnikant Jariwala, 3) Kishore Chauhan,
4) Bhavesh Pabari, 5) Prem Mohanlal Parikh, 6) Hemant Madhusudhan Sheth,
7) Ankit Sanchaniya, 8) Jigar Praful Ghoghari, 9) Vipul Hiralal Shah, 10) Mala
Hemant Sheth, 11) Gaurang Ajit Seth, 12) Vivek Kishanpal Samant,
13)
Bhupesh Rathod, 14) Ketan Babulal Shah, 15) Bipin Jayant Thaker,
16) Bharat G Vaghela and 17) Bipinkumar Gandhi (hereinafter referred to as
Noticee Nos. 1 to 17 and collectively referred to as the Noticees), connected to
each other by one way or the other, had dealt in the scrip of GTL through
multiple brokers, in a fraudulent and manipulative manner, without real change
in ownership of shares, by indulging in number of synchronized trades and
heavily traded amongst themselves thereby, creating artificial volumes and
price rise in the scrip. The Noticee Nos. 1 to 17 were also observed to have
done off-market transactions among themselves for the purpose of meeting
the settlement obligations of one another.
4.
It was further observed that certain Noticees had also indulged in trades which
were self trades in nature, while trading on both the exchanges i.e. BSE and
Page 2 of 34
NSE, through multiple brokers one of them being Arcadia Share and Stock
Brokers Private Limited (hereinafter referred to as Noticee No. 18, a registered
intermediary with SEBI) thereby creating artificial volumes which gave a false
and misleading appearance of trading in the scrip of GTL on the exchanges.
5.
SEBI has, therefore initiated adjudication proceedings against Noticee Nos. 1
to 17 for the alleged violation of the provisions of Regulation 3(a), (b), (c), (d),
4(1) and 4(2)(a), (b), (e) & (g) of the SEBI (Prohibition of Fraudulent and Unfair
Trade Practices relation to Securities market) Regulations, 2003 (hereinafter
referred to as the PFUTP Regulations) and against Noticee No. 18 for the
alleged violation of the provisions of Clause A(1), (2) & (3) of the Code of
Conduct as specified under Schedule II of the SEBI (Stock Brokers and SubBrokers) Regulations, 1992 (hereinafter referred to as Broker Regulations)
read with Regulation 7 of the said Regulations.
Appointment of Adjudicating Officer
6.
I have been appointed as the Adjudicating Officer, in place of the previous
Adjudicating Officer, vide order dated August 29, 2013 under section 15 I of
the Act read with Rule 3 of the SEBI (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred
to as the „Rules‟) to inquire into and adjudge under Section 15HA of the Act
against the Noticee Nos. 1 to 17 for the alleged violation of the provisions of
PFUTP Regulations and under Section 15HB of the Act against Noticee No.
18 for the alleged violation of the Broker Regulations.
Show Cause Notice, Reply and Personal Hearing
7.
A common show cause notice (hereinafter to as “SCNs”) dated October 22,
2013 was issued to the Noticees to show cause as to why an inquiry should
not be held and why penalty be not imposed on them for the aforesaid
violations. The SCNs were sent by Registered Post Ack. Due and were duly
delivered to the Noticees except in case of Noticee Nos. 7, 16 & 17 as the
same were returned undelivered. In view of the same, attempts were made to
Page 3 of 34
deliver the SCNs to the said Noticees and finally were affixed at the last
known address/s of the said Noticees, reports thereof are available on
record.
8.
Vide letter dated October 28, 2013 and April 30, 2014, one Ms. Rupal K.
Chauhan, wife of Noticee No. 3 informed that the Noticee No. 3 had passed
away on May 29, 2013 and enclosed certified copy of death certificate of
Noticee No. 3 as issued by the Department of Health and Family Welfare,
Government of Gujarat, in support thereof. In view of the same, the
adjudication proceeding initiated against Noticee No. 3 stands abated.
However, I shall examine the role of Noticee No. 3 for the limited purpose of
examining the role and findings against the other Noticees in the matter.
9.
Vide letter dated October 31, 2013 the Noticee No. 11 submitted his reply to
the SCN. With respect to Noticee No. 18, vide letter dated November 11, 2013,
it requested for 3 weeks time to file its reply in the matter. Accordingly, vide
letter dated December 02, 2013, Noticee No. 18 replied to the SCN. The other
Noticees did not file any replies in the matter.
10.
Thereafter, in the interest of natural justice and in order to conduct an inquiry
as per Rule 4(3) of the Rules, an opportunity of personal hearing was granted
to the Noticee Nos. 7, 16 and 17 on April 07, 2014 vide separate notices dated
March 07, 2014. The said notices were also affixed at the last known
addresses of the said Noticees and report of affixture is available on record.
However, the Noticee Nos. 7, 16 and 17 did not attend the said hearing on the
scheduled date. Further, all the Noticees, including Noticee Nos. 7, 16 and 17,
were granted an opportunity of personal hearing on August 13, 2014 vide
separate notices dated July 24, 2014. The said hearing notice was duly
delivered to Noticee No. 7, however, he did not attend the hearing on the
scheduled date. Further, with respect to Noticee Nos. 16 and 17 the hearing
notices were returned undelivered and therefore, the same were affixed at the
last known addresses of the said Noticees and the report thereof is available
on record.
Page 4 of 34
11.
The Noticee Nos. 4 and 6 attended the hearing in person and submitted their
separate replies dated August 11, 2014. Further, vide letter dated October 27,
2014, the Noticee No. 4 submitted his additional reply in the matter. With
respect to Noticee No. 18, the Authorised representative attended the hearing
on the scheduled date and reiterated the submissions made by the Noticee in
its reply dated December 02, 2013. Noticee Nos. 9, 16 and 17 did not avail the
opportunity of personal hearing granted to them nor did they make any
correspondence in the matter. Further, with respect to Noticee Nos. 1, 2, 5, 7,
8, 12 and 15, it is noted that the said Noticees did not attend the hearing on
the scheduled date but vide separate but identical letters dated August 08,
2014, they all filed their preliminary replies denying the charges and further
requested time to file detailed replies in the matter. However, no further replies
have been received from the said Noticees till date except in case of Noticee
No. 1, 8 and 12 who filed their detailed replies vide separate letters dated
September 30, 2014, August 14, 2014 and October 20, 2014, respectively.
With respect to Noticee Nos. 10, 11, 13 and 14, the said Noticees vide their
separate letters dated August 11, 2014 filed their replies in the matter.
12.
In view of the above, with respect to Noticee Nos. 9, 16 and 17, I note that
ample opportunities and time was granted to them for filing their replies and to
present their case in the matter. Further, with respect to Noticee Nos. 2, 5, 7
and 15, I note that the said Noticees have been granted sufficient time to file
their replies in the matter as the SCN in the present case was issued on
October 22, 2013 i.e. more than a year ago. Therefore, I am proceeding
further against the said Noticees on the basis of material available on record in
the matter.
Consideration of Issues, Evidence and Findings
13.
I have carefully perused the charges levelled against the Noticees in the SCN,
written submissions made and all the documents available on the record. In
the instant matter, the following issues arise for consideration and
determination:
Page 5 of 34
14.
a)
Whether the Noticee Nos. 1, 2 and 4 to 17 have violated Regulations
3(a), (b), (c), (d), 4(1) and 4(2)(a), (b), (e) & (g) of the PFUTP
Regulations?
b)
Whether the Noticee No. 18 has violated Clauses A(1), (2) and (3) of
the Code of Conduct for Stock Brokers as specified under Schedule
II read with Regulation 7 of Broker Regulations?
c)
Does the violations, if any, on the part of the Noticees attract
monetary penalty under Sections 15HA and 15HB of the SEBI Act?
d)
If so, what would be the quantum of monetary penalty that can be
imposed on the Noticees taking into consideration the factors as
mentioned under Section 15J of the SEBI Act?
Before proceeding forward, I would like to refer to the relevant provisions of
the PFUTP Regulations and the Brokers Regulations, 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) 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:—
Page 6 of 34
(a) indulging in an act which creates false or misleading appearance of
trading in the securities market;
(b) dealing in a security not intended to effect transfer of beneficial
ownership but intended to operate only as a device to inflate, depress
or cause fluctuations in the price of such security for wrongful gain or
avoidance of loss;
(c).............
(d).............
(e) any act or omission amounting to manipulation of the price of a scrip
(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 the 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
CODE OF CONDUCT FOR STOCK BROKERS
[Regulation 7]
A. General.
(1) Integrity: A stock-broker, shall maintain high standards of integrity,
promptitude and fairness in the conduct of all his business.
(2) Exercise of due skill and care: A stock-broker shall act with due
skill, care and diligence in the conduct of all his business.
(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.
15.
I find from the SCN that GTL is a company listed on the BSE and NSE. On
analysis of the trading activity in the scrip of GTL on BSE, it was noticed that a
group of 17 entities identified as the Pabari-Parikh group in the investigation
report i.e. Noticee Nos. 1 to 17, who were all connected to each other in one
way or the other, had traded heavily in the scrip of GTL through multiple
brokers, one of them being Noticee No. 18. The relationship between the 17
entities is detailed as under:
Page 7 of 34
KYC Relation
Fund
Movem
ent
Client
Name
Introduced sl. no.11, 10,
9, 7 for trading a/c and
knows sl. No. 14.
Share
movemen
t through
off
market
KYC Relation
Fund
Movem
ent
With sl.
no.
9,
11, 7.
10.Prem
Mohanlal
Parikh
Sl. no. 10 is cousin of
sl. no.9.
Common email with
sl. 16, 10 & 17.
Sl. no. 11 is nominee
of sl. no.10.
BR* with sl. no. 3, 4,
6, 7, 9, 11, 16, 17.
With sl.
no.
9,
10, 7.
11.Heman
t
Madhusu
dan Sheth
Sl. no. 9 & 11 both
directors of Rajnandi
Yarns Pvt. Ltd.
Same email with sl.
no. 17.
BR* with 1, 3, 10, 16,
17, 4, 6, 7 & sl. no. 14
is his wife & sl. no. 15
is his nephew.
Client
Name
With Sl.
No. 16.
1.Bhupesh
Rathod
With
sl.
no.10.
2.Ketan
Babulal
Shah
3.Bharat
Shantilal
Thakkar
4.Bipin
Jayant
Thaker
5.Bharat G
Vaghela
6.Chirag
Rajnikant
Jariwala
7.Kishore
Chauhan
Sl. no. 9 is his nephew.
Same address with sl.
no.9.
Sl. no. 9 is his nominee.
Joint a/c with sl. no. 9.
BR* with sl. no. 4, 6, 7,
10, 11, 16, 17.
Same Tel. no. with sl.
no. 9.
BR* with sl. no. 3, 6, 7,
9, 10, 11, 16, 17.
Same address & Tel.no.
as sl. no. 8 who has
share movement with
sl.no. 9.
Sl. No. 6 is nephew of sl.
no. 9 and shares same
Tel. no. with sl. no. 9.
Same Tel. no. with
sl.no.9.
Sl. no. 9 is his uncle.
BR* with sl. no. 3, 4, 7,
9, 11, 16, 17.
With sl.
no. 9,
10, 16.
Joint a/c with sl. no. 9.
Sl. no. 9 & 11 are
witness for demat a/c.
BR* with sl. no. 3, 4, 6,
With sl.
no. 9,
10, 11.
With
no. 9.
sl.
Share
moveme
nt
through
off
market
With sl.
no. 9, 11,
7, 3, 4,
12, 16,
17.
With sl.
no. 9, 10,
7, 14, 16,
17, 12, 4.
With sl.
no. 4, 10,
11, 16.
12.Jigar
Praful
Ghoghari
With sl.
no. 9.
With
sl.
no. 12, 6,
9, 10, 11.
13.Vipul
Hiralal
Shah
With sl.
no. 6.
Kaushik
Rajnikant
Mehta has off-market
transaction with sl.
No. 9.
Sl. no. 14 is the wife
of sl. no. 11 and sl.
no. 15 is the nephew.
With
Kaushik
Rajnikan
t Mehta.
With sl.
no.
9,
10.
With
no.9.
sl.
With sl.
no.
9,
10.
With sl.
no. 9, 10,
11, 6, 12,
17.
With sl.
no. 11,
14.Mala
Hemant
Sheth
With sl.
no. 9,
11, 5.
With
no. 4.
sl.
15.Gaura
ng Ajit
Seth
With
sl.
no. 9, 10,
11, 17.
16.Ankit
Sanchaniy
a
Page 8 of 34
Has common address
& Tel. no. with sl. no.
11 & sl. no. 11 and 9
both directors of
Rajnandi Yarns Pvt.
Ltd.
Same Tel. no. with sl.
no. 10 and also shares
Tel. no. with sl. no. 9
who is the nominee
9, 10, 11, 16.
With
no. 9.
sl.
17.Vivek
Kishanpal
Samant
8.Bipinkum
ar Gandhi
9.Bhavesh
Pabari
16.
Sl. no. 3 is his uncle & sl.
no. 17 is his brother in
law.
With
sl.
no. 10, 11,
3, 4, 16,
Sl. no. 10 is cousin of sl.
no.9.
Sl. no. 9 & 11 both
directors of Rajnandi
Yarns Pvt. Ltd.
Share common Tel. no.
with sl. no. 16, 17, 4.
Sl. no. 1 introduced him
for trading a/c.
BR* with sl. no. 4, 6, 7,
10, 11, 14, 16.
*BR - Business relation.
17, 8.
for his a/c.
BR* with sl. no.3, 4, 6,
7, 9, 10, 11, 17.
Sl. no. 9 is the brother
in law & shares
common Tel. no. &
sl.no. 9 is the
nominee of sl. no. 17
for trading a/c & bank
a/c.
Shares email with sl.
no. 11.
Shares email with sl.
no. 10.
With sl.
no. 11.
With sl.
no. 9, 11,
6, 7, 10,
16.
In addition to the above, it was revealed that the Pabari-Paikh Group entities
i.e. Noticee Nos. 1 to 17 had indulged in off-market transfer of 11,22,836
shares of GTL amongst themselves during the period January 01, 2009 and
January 31, 2011. These off-market transfers among the group further
confirmed the relationship / connection between the said group.
17.
From the trade log analysis, I find that during the period under investigation the
group of entities, as mentioned in above paras, had purchased 1,30,91,871
shares and sold 1,28,10,113 shares. Out of their total purchase and sale of
1,30,91,871 shares and 1,28,10,113 shares, respectively, it was noted that the
trades for 1,18,39,849 shares accounting for 90 % of the total purchase of the
group and 92.43% of the total sale of the group were within the Pabari-Parikh
Group entities and accounted for 36.69% of the market volume from within the
group entities. Out of the total trading of 1,18,39,849 shares within the group
Page 9 of 34
entities, for 51,99,929 shares accounting for 16.11% of the market volume, the
buy and sale orders were placed within one minute time difference. Further, it
was noted that 51,99,929 shares accounted for 39.72% of the total purchase
of Pabari-Parikh group entities and 40.59% of the total sale of the PabariParikh group entities.
18.
I further find that out of 51,99,929 shares, for 9,09,391 shares, which
accounted for 2.82% of the total market volume, the buy and sale orders
were placed in synchronized manner (i.e. difference between placement of
order by buyer and seller within one minute and order rate as well as order
quantity of buy side and sale side being same) by Noticee Nos. 1 to 12. The
volume of 9,09,391 shares accounted for 6.95% of the total purchase of
Pabari-Parikh Group entities and 7.10% of the total sale of the Pabari-Parikh
Group entities. The summary of the said synchronized trades entered into by
the Noticee Nos. 1 to 12 while trading on BSE is as under:
PANNO
Client Name
Bharat Shantilal Thakkar
AAZPT9542R (Noticee No. 1)
Chirag Rajnikant Jariwala
AFMPJ7543L (Notivcee No. 2)
Kishore Chauhan
AFPPC9703G (Noticee No. 3)
Bhavesh Pabari (Noticee
AKGPP8679N No. 4)
Prem Mohanlal Parikh (
ALHPP3489N Noticee No. 5)
Hemant Madhusudan
ANOPS8607E Sheth (Noticee No. 6)
Jigar Praful Ghoghari
ASFPG8598L (Noticee No. 8)
Vipul Hiralal Shah
AZCPS9537P (Noticee No. 9)
Mala Hemant Sheth
AZXPS0694J
(Noticee no. 10)
BGEPS6596Q Gaurang Ajit Seth
% of
sync
to
total
% of
buy
Synchronised Market by
buy trade
Volume client
% of
sync
to
total
% of
sale
Synchronised Market by
sale trade
Volume client
103744
0.32
15.93
0
0.00
0.00
100978
0.31
15.22
78099
0.24
17.86
42706
0.13
3.09
57112
0.18
4.00
89338
0.28
4.93
94706
0.29
4.22
35000
0.11
1.22
101731
0.32
4.32
305075
0.95
8.91
242196
0.75
7.73
23700
0.07
0.00
0
0.00
0.00
0
0.00
0.00
35324
0.11
98.12
114449
0
0.35
0.00
36.32
0.00
70000
200
0.22 22.19
0.00 100.00
Page 10 of 34
BLNPS3316L
BRSPS0294N
Grand Total
19.
(Noticee No. 11)
Ankit Sanchaniya
(Noticee no. 7)
Vivek Kishanpal Samant
(Noticee No. 12)
69550
0.22
5.57
230023
0.71
15.87
24851
909391
0.08
2.82
10.90
6.95
0
909391
0.00
2.82
0.00
7.10
I also find that Noticee Nos. 1, 3, 4, 5, 6, 7 and 10 had indulged in certain
trades which were self trades in nature while trading through their multiple
brokers including Noticee No. 18. The details of the said fictitious trades
indulged into on BSE by the said Noticees are as under:
Name of the entity
Bharat Shantilal Thakkar
(Noticee No. 1)
Kishorbhai Balubhai
Chauhan (Noticee No. 3)
Bhabesh Prakash Pabari
(Noticee No. 4)
Prem Mohanlal Parikh
(Noticee No. 5)
Hemant Madhusudan
Sheth (Noticee No. 6)
Mala Hemant Sheth
(Noticee No. 10)
Ankit Rajendra
Sanchaniya
(Noticee No. 7)
Grand Total
20.
Total buy
Total sale
Self trade
qty
% of
Total
Buy
%
Total
Sale
% of
Market
Volume
No. of
Self
trades
651250
838432
25000
3.84
2.98
0.08
1
1381255
1426051
8878
0.64
0.62
0.03
4
1813258
2242150
154337
8.51
6.88
0.48
24
2863884
2356356
549150
19.18
23.31
1.70
63
3422459
3133816
529009
15.46
16.88
1.64
94
315103
315504
35197
11.17
11.16
0.11
3
1248798
11696007
1448990
11761299
72305
1373876
5.79
11.75
4.99
11.68
0.22
4.26
15
204
For the above fictitious trades, it was noted that certain brokers appeared on
both the sides of the trade i.e. acted as broker and counter party broker. The
number of instances wherein the Noticee No. 18 had executed self trades on
behalf of its clients was significant and the details of the same are as under:
Buy and Sale Member Name
Arcadia Share & Stock Brokers
Pvt. Ltd. (Noticee No. 18)
Client Name
Ankit Rajendra Sanchaniya
(Noticee no. 7)
Hemant Madhusudan Sheth
(Noticee No. 6)
Mala Hemant Sheth
(Noticee No. 10)
Page 11 of 34
No. of Trades
Total Traded Qty
2
801
1
1
1
96
Arcadia Share & Stock Brokers Pvt. Ltd. Total
Grand Total
21.
898
898
From the price volume data analysis at BSE, I note that the scrip of GTL was
traded on 297 trading days. Out of 297 trading days, I find that the group
entities had traded among themselves on 108 days, i.e. 37% of the total
number of days the scrip was traded during the period under investigation. I
further note that the Pabari-Parikh group entities had contributed to the daily
market volume ranging from 0.13% on January 21, 2009 to 93.35% on
November 17, 2009. Further, out of 108 trading days, the Pabari-Parikh
group entities i.e. Noticee Nos. 1 to 17 had traded among themselves, on 68
trading days and thereby had contributed more than 50% to the total market
volume.
22.
On further examination, I find that out of 108 trading days when the group
traded among themselves, on 78 trading days, both buy and sell orders were
placed within time difference of one minute. It was, therefore, alleged in the
SCN that the Pabari-Parikh Group entities i.e. Noticee Nos. 1 to 17, had
contributed to daily market volume of the scrip in the range from 0.13% on
January 21, 2009 to 83.07% on September 15, 2009. By executing the said
trades, the Noticees had contributed for more than 50% to the total market
volume of the scrip. Further, out of 78 trading days, on 26 trading days, the
trades executed by the Pabari-Parikh group entities were synchronized in
nature. By executing synchronised trades among the group entities, the
Pabari-Parikh Group entities i.e. Noticee Nos. 1 to 17 had contributed to total
market volume of the scrip in the range from 0.23% on February 12, 2009 to
67.26% on April 23, 2009. I also find that on 3 trading days by entering into
synchronized trades the group entities had contributed more than 50% of the
market volume.
23.
Further, I find that the price of the scrip opened at `22.65 and touched a high
of ` 47.75, i.e. there was increase of ` 25.10. I note that on 17 trading days
and on 31 occasions a new high price was discovered. Out of the 31
occasions, on four occasions (i.e. on two days out of the 17 days), Noticee
Page 12 of 34
4
4
Nos. 7 and 10 had contributed to the increase in the price by 0.30 paisa (out
of a total increase of `25.10).
24.
I find from the analysis of the trading activity in the scrip of GTL on NSE that
12 Pabari-Parikh Group entities including Noticee Nos. 2, 3, 4, 5, 6, 7, 10, 12,
14, 15 and 16, connected to each other in one way or the other and dealing
through multiple brokers, had purchased 20,76,282 shares accounting for
6.19% of the total traded volume and sold 20,65,506 shares accounting for
6.16% of the total traded volume in the scrip of GTL during the period under
investigation. Further, as mentioned in para 16 above, the group entities had
also done certain off-market transactions which further confirms the nexus
between the said entities. The relationship between the 12 entities inclusive
of Noticee Nos. 2, 3, 4, 5, 6, 7, 10, 12, 14, 15 and 16 is detailed as under:
KYC Relation
Fund
Movem
ent
Client
Name
Share
movemen
t through
off
market
With
no.7.
7.Prem
Mohanlal
Parikh
Same Tel. no. with sl.
no.6.
BR* with sl. no. 4, 5, 6,
7, 8, 11, 12.
With sl.
no. 6.
With
sl.
no. 4, 6, 7,
8.
2.Bipin
Jayant
Thaker
3.Bharat G
Vaghela
4.Chirag
Rajnikant
Jariwala
8.Hemant
Madhusu
dan Sheth
Same address & Tel.no.
as Bipinkumar Gandhi
who
has
share
movement with sl.no. 6.
Sl. No. 4 is nephew of sl.
no. 6 and shares same
Tel. no. with sl. no. 6.
Same Tel. no. with
sl.no.6.
Sl. no. 6 is his uncle.
BR* with sl. no. 2, 5, 6,
8, 11, 12.
With sl.
no. 4.
9.Asif
Ilyas
Shaikh
With sl.
no. 6, 8,
3.
With
no. 2
Fund
Movem
ent
Sl. no. 7 is cousin of
sl. no.6.
Common email with
sl. 11, 7 & 12.
Sl. no. 8 is nominee of
sl. no.7.
BR* with sl. no. 2, 4,
5, 6, 8, 11, 12.
Sl. no. 6 & 8 both
directors of Rajnandi
Yarns Pvt. Ltd.
Same email with sl.
no. 12.
BR* with 7, 11, 12, 2,
4, 5 & sl. no. 10 is his
wife.
Has Off market share
movement with Samir
Shah and sl. no. 2 is
the client of Samir
Shah. sl. no. 2 share
the same tel. no. with
sl. no.6.
Sl. no. 10 is the wife
of sl. no. 8.
With sl.
no. 6, 8,
5.
Client
Name
sl.
1.Ketan
Babulal
Shah
KYC Relation
sl.
10.Mala
Hemant
Sheth
Page 13 of 34
Share
moveme
nt
through
off
market
With sl.
no. 6, 8,
5, 2, 8,
11, 12.
With sl.
no. 6, 7,
5.
With sl.
no. 6, 7,
5, 10, 11,
12, 2.
With sl.
no. 6, 7.
With sl.
no. 8.
Joint a/c with sl. no. 6.
Sl. no. 6 & 8 are witness
for demat a/c.
BR* with sl. no. 2, 4, 6,
7, 8, 11.
With sl.
no. 6, 7,
8.
With
sl.
no. 6, 7, 8,
12.
11.Ankit
Sanchaniy
a
5.Kishore
Chauhan
6.Bhavesh
Pabari
25.
Sl no. 12 is his brother
in law.
Sl. no. 7 is cousin of sl.
no.6
Sl. no. 6 & 8 both
directors of Rajnandi
Yarns Pvt. Ltd.
Share common Tel. no.
with sl. no. 11, 12, 2.
BR* with sl. no. 2, 4, 5,
7, 8, 10, 11
* Business Relation
With
sl.
no. 7, 8, 2,
11, 12.
12.Vivek
Kishanpal
Samant
Same Tel. no. with sl.
no. 7 and also shares
Tel. no. with sl. no. 6
who is the nominee
for his a/c.
BR* with sl. no. 2, 4,
5, 6, 7, 8, 12.
Sl. no. 6 is the brother
in law & shares
common Tel. no. &
sl.no. 6 is the
nominee of sl. no. 12
for trading a/c & bank
a/c.
Shares email with sl.
no. 8.
Shares email with sl.
no. 7.
With sl.
no. 6, 7.
With sl.
no. 6, 7,
8, 4, 12.
With sl.
no. 8.
With sl.
no. 6, 8,
4, 5, 7,
11.
I find that during the relevant period, the abovementioned 12 group entities
had purchased and sold a total of 20,76,282 shares and 20,65,506 shares,
respectively on NSE. Out of 12 Pabari-Parikh Group entities, 11 PabariParikh Group entities i.e. Noticee Nos. 2 to 7 and 10, 12, 15 and 16, had
traded for 13,14,087 shares (i.e. 3.92% of the market volume) accounting for
63.29% of the total purchase of the group and 63.62 % of the total sale of the
group within Pabari-Parikh Group entities.
26.
I further find that Noticee Nos. 5, 6 and 7 had indulged in certain trades which
were self trades in nature while trading through their multiple brokers
including Noticee No. 18. The details of the said fictitious trades indulged into
on NSE by the said Noticees are as under:
PAN
Name of the entity
Ankit Sanchaniya
BLNPS3316L (Noticee No. 7)
Prem Mohanlal Parikh
ALHPP3489N (Noticee No. 5)
Hemant Madhusudan
ANOPS8607E Sheth (Noticee No. 6)
Grand Total
Total
buy
Total
sale
% of
Total
Buy
Self
trade
qty
%
Total
Sale
% of
Market
Volume
No of
Self
trades
237148
224186
8
0.00
0.00
0.00
1
440369
327725 121542
27.60
37.09
0.36
85
585136
542945 113007
19.31
20.81
0.34
18
1262653 1094856 234557
18.58
21.42
0.70
104
Page 14 of 34
27.
For the above fictitious trades, it was noted that certain brokers appeared on
both the sides of the trade i.e. acted as broker and counter party broker. The
Noticee No. 18 had executed self trades on behalf of its client i.e. Noticee No.
6 and the details of the same are as under:
Buy and Sale Member Name
Client Name
Arcadia Share & Stock Brokers
Hemant Madhusudan Sheth
Pvt. Ltd.
(Noticee No. 6)
Arcadia Share & Stock Brokers Pvt. Ltd. Total
Grand Total
28.
Total Traded Qty No of Trades
1
8
8
8
It was, therefore, alleged in the SCN that the Noticee Nos. 1 to 17, by
indulging in the manipulative trade practices as mentioned above, had
violated Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a), (b), (e) & (g) of the
PFUTP Regulations thereby, created artificial volumes and price in the scrip
of GTL and further, alleged that the Noticee No. 18, by executing the
manipulative trades on behalf of Noticee Nos. 1 to 17 on both the exchanges,
had violated Clauses A(1), (2) and (3) of the Code of Conduct for Stock
Brokers as specified under Schedule II read with Regulation 7 of the Broker
Regulations.
Submissions made by the Noticees:
Noticee No. 1:
29.
The Noticee No. 1 vide his reply dated August 08, 2014 submitted that he
has been debarred from buying, selling and dealing in the securities market
vide SEBI order dated February 02, 2011. Further, he stated that as the
investigation period is 4 years old, they are in a process of collating the data
and will be filing their detailed reply in the matter. Further, vide letter dated
September 30, 2014 the Noticee No. 1 submitted his detailed reply and
denied being part of the alleged Pabari-Parikh group. The Noticee No. 1
further submitted that the investment decision to trade in the scrip of GTL
was his independent decision and was based on research, fundamentals of
the scrip, market news, etc. He stated that his trading in the said scrip
(purchased 6,51,250 shares and sold 8,38,432 shares - 2.02% and 2.60%
respectively) was miniscule percentage, i.e. 2.61%, if compared to the total
Page 15 of 34
1
1
market volume traded during the relevant period which was incapable of
creating artificial volumes in the market. Further, he submitted that during the
relevant period he had traded in many other scrips as he is a trader and is
into the business of jobbing.
30.
The Noticee further stated that as he has been debarred from buying, selling
and dealing in the securities market vide SEBI order dated February 02,
2011, the initiation of adjudication proceedings in the matter, although the
earlier debarment is still in force, amounts to "double jeopardy". The Noticee
No. 1 has admitted being related to Noticee No. 4 and that he has business
relations with few other entities named in the Pabari-Parikh group but has
denied having acted in collusion with them while trading in the scrip of GTL.
He stated that the trades were carried out by him in the regular and ordinary
course of business and were not influenced by anyone. The Noticee No. 1
has denied having any fund transactions with Noticee No. 4 and states that
his bank accounts clearly show that there were no monetary dealings with
any of the group entities. The Noticee submitted that he did not carry out any
off market transfers during the relevant period in the scrip of GTL and
therefore, is not connected to the group entities.
31.
With respect to the allegation of synchronised trades, the Noticee No. 1
submitted that only 0.32% of the market volume traded by him were
synchronised and therefore, the same are miniscule and could not have
affected the market equilibrium. The Noticee stated that he had told his
broker to enter the orders on the anonymous trading platform of the stock
exchanges and therefore, he was unaware of the counter party. For very few
trades carried out by him, the time difference is less than one minute and
otherwise for majority of the trades it was more than one minute ranging from
few seconds to more than 11 minutes for the shares purchased by him and
ranging from few seconds to more than 29 minutes for the shares sold by
him. Further, the trades wherein the Noticee No. 1 had sold the shares to the
other group entities were only 1.62% of the total market volume and where
the Noticee No. 1 had purchased from the group entities the volume was only
1.68% of the total market volume. With respect to the alleged self trade
Page 16 of 34
carried out by the Noticee No. 1, he submitted that he had not entered into
any self trades in the scrip of GTL. Further, he stated that even if the
allegation is taken to be factually correct, the matching of 25,000 shares in a
single trade accounting for 0.08% of the total market volume cannot be
affecting the market equilibrium.
Noticee Nos. 2, 5, 7 and 15:
32.
Vide separate but identical letters dated August 08, 2014, the Noticee Nos.
2, 5, 7 and 15 submitted that they have been debarred from buying, selling
and dealing in the securities market vide SEBI order dated February 02,
2011. Further, the said Noticees stated that as the investigation period is 4
years old, they are in a process of collating the data and will be filing their
detailed reply in the matter. However, no further replies have been received
from the said Noticees till date.
Noticee No. 4 and 6:
33.
Vide letter dated August 11, 2014, the Noticee Nos. 4 and 6, while denying all
the charges levelled against them in the SCN, submitted that they have been
debarred from buying, selling and dealing in the securities market vide SEBI
order dated February 02, 2011. Further, the said Noticees stated that as the
investigation period is 4 years old, they are in a process of collating the data
and will be filing their detailed replies in the matter. However, the Noticee No.
6 did not submit any further reply in the matter.
34.
The Noticee No. 4 submitted his detailed reply vide letter dated October 27,
2014, and stated that he was basically a cloth merchant and earned
brokerage by dealing in huge volumes of cloth. He started trading as an
investor, jobber, trader and arbitrager in the stock market only in 1996. He
stated that he trades on the exchange independently and the trading
decisions are not influenced by any other person.
With respect to the
formation of the Pabari Parikh Group, the Noticee stated that the said group
concept does not exist and he is not connected to any of the entities
mentioned in the group.
Apart from the trading in the scrip of GTL the
Page 17 of 34
Noticee submitted that he has traded in many other scrips both prior and after
the investigation period.
35.
The Noticee No. 4 also submitted that vide SEBI order dated July 08, 2013
the Noticee is still debarred from trading in the securities market and his
demat account stands frozen. The Noticee states that by initiating
adjudication proceedings in the matter although the earlier debarment being
still in force is a "double jeopardy". He submitted that he had bought 1813528
shares and sold 2242150 shares which accounted for 5.62% and 6.95%
respectively to the total market volume in the scrip of GTL. With respect to
the off market transfer, the Noticee submitted that during the investigation
period out of 25 months only on 4 days i.e. March 03, 2009, May 13, 2009,
May 16, 2009 and May 23, 2009 he had transferred 57800 shares to Noticee
No. 5 (Mr. Prem Parikh) and Notice No. 7 (Mr. Ankit Sanchaniya) to meet
with his old financial liabilities towards them.
The said transactions had
nothing to do with the trading activities of the said Noticees on the stock
exchange and therefore no adverse inferences may be drawn on the basis of
these few off market transactions.
The said transactions works out to
meager 0.18% and hence had no impact on the market volume. With respect
to the synchronised trades, the Noticee submitted that he got only 4 to 5% of
the market volume synchronised within the group and the same was not
intentional but co-incidental.
36.
Further, out of his total trading very few trades were within the time difference
of less than one minute and for majority of the trading the time difference was
more than one minute ranging from few seconds to more than 45 mins for the
shares purchased by him and few seconds to around 30 mins for the shares
sold by him. The Noticee submitted that the said synchronised trades
accounted for only 0.28% on the buy side and 0.29% on the sell side which
was very negligible if compared to the total traded market volume. With
respect to the allegation of self trades, the Noticee submitted that only on 3
days the trades executed by him were self in nature and were carried out on
the then prevailing market price. The Noticee further submitted that he had
bought only 447500 shares and sold 380172 shares of GTL on NSE which
Page 18 of 34
accounted for 1.34% and 1.13% respectively of the total market volume
traded in the said scrip. The said trading is also negligible if compared to the
total traded volume and cannot be considered to have created artificial
volume in the said scrip.
Noticee No. 8:
37.
Vide letter dated August 08, 2014, the Noticee No. 8 submitted that he has
been debarred from buying, selling and dealing in the securities market vide
SEBI order dated February 02, 2011. Further, the Noticee stated that as the
investigation period is 4 years old, he is in a process of collating the data and
file his detailed reply in the matter. Accordingly, vide letter dated August 14,
2014, the Noticee No. 8 submitted his detailed reply in the matter.
38.
The Noticee submitted that he does jobbing and arbitrage activities on the
stock market. He stated that during the investigation period he had traded in
the scrip of GTL only on one day for 23,700 shares which works out to be
0.07% of the total market volume which was very minuscule. At the time of
his placing of an order in the scrip of GTL, the scrip was very liquid and his
order got executed immediately at the then prevailing market price which did
not establish any new high price and did not even impact the last traded
price. He stated that he was placing orders in the scrip of GTL without the
knowledge of the courter party broker or client with whom the orders were
getting matched. He had traded in the scrip of GTL in the normal course of
business and did not indulge into any synchronized trades. With respect to
the off market transfers with the group entities, the Noticee submitted that he
did not carry out any such trades and therefore, was not connected to the
alleged Pabari Parikh group entities.
Noticee No.10:
39.
Vide letter dated August 11, 2014 the Noticee No. 10 submitted that she has
been debarred from buying, selling and dealing in the securities market vide
SEBI order dated February 02, 2011. The Noticee further stated that she is
not a part of the alleged Pabari Parikh group and has traded in the scrip of
GTL on her own based on research, fundamental of the scrip, market news
Page 19 of 34
etc. Her trading in the scrip of GTL was only 0.98% of the total market
volume which was miniscule percentage and could not have affected the
volumes in the scrip. The Noticee further stated that as she has been
debarred from buying, selling and dealing in the securities market vide SEBI
order dated February 02, 2011, the initiation of adjudication proceedings in
the matter, although the earlier debarment is still in force, amounts to "double
jeopardy". The Noticee admits that she is the wife of Noticee No. 6 but
denies having any business or professional connection with him. The Noticee
denies having any fund transactions with Noticee Nos. 4 & 5. During the
relevant period, the Noticee submitted that she has bought only 3,15,103
shares and sold 3,15,504 shares which was only 0.98% (on both the
occasions) of the total market volume of shares traded in the scrip of GTL.
40.
The Noticee No. 10 denied carrying out any off market transfers with Noticee
No. 6. Further, with respect to the trading within the group entities the Noticee
No. 10 submitted that her total buy within the group was 0.56% and her total
sale was 0.36% of the total market volume. With respect to the allegations of
synchronized trading, the Noticee submitted that only 0.43% of her total
trading was in a synchronized manner on the buy side and 0.36% on the sale
side which cannot be said to have created any artificial volume in the scrip.
Further, the Noticee denied entering into self trades and submitted that the
orders were entered on the anonymous automated platform provided by the
stock exchanges. The trades which were so called self in nature contributed
0.11% only to the market volume which is negligible.
41.
With respect to her trading at NSE she stated that she had bought only 26
shares and sold 1,13,125 shares which is 0% and 0.34%, respectively, of the
total market volume and therefore, cannot be considered to have created
artificial volume.
Noticee No. 11
42.
Vide letter dated October 31, 2013, the Noticee No. 11 submitted his
preliminary reply stating that he is not sharing his address with any of the
alleged entities and therefore, cannot be clubbed with the Pabari-Parikh
Page 20 of 34
group. Further, vide letter dated August 11, 2014 the Noticee submitted his
detailed reply and stated that he had traded in the shares of GTL
independently. The Noticee denied carrying out any off market transfers of
shares with any of the group entities. Further, he submitted that he has not
indulged in synchronized or self trades in the scrip. The transactions in the
scrip of GTL were carried out in the normal and ordinary course of trading
and executed at the then prevailing market price.
Noticee No. 12:
43.
The Noticee No. 12 vide his letter dated August 08, 2014 submitted that he
has been debarred from buying, selling and dealing in the securities market
vide SEBI order dated February 02, 2011. Further, the said Noticee stated
that as the investigation period is 4 years old, he is in a process of collating
the data and will file his detailed reply within 30 days in the matter.
Accordingly, vide letter dated October 20, 2014, the Noticee no. 12 denied
being part of the alleged Pabari Parikh group. He further submitted that the
trades in the scrip of GTL were carried out independently and were based on
research, fundamentals of the scrip, market news, etc. He stated that during
the investigation period he had traded in many other scrips including GTL.
The Noticee No. 12 also submitted that vide SEBI order dated July 08, 2013
the Noticee is still debarred from trading in the securities market and his
demat account stands frozen. The Noticee states that by initiating
adjudication proceedings in the matter although the earlier debarment being
still in force is a "double jeopardy".
44.
The Noticee submitted that he has business relations with few entities
mentioned as Pabari Parikh Group entities and knows them but the trading
decisions are taken independently by the Noticee being a regular trader in
the securities market. He further denied having any relation with Noticee No.
4 (Shri Bhavesh Pabari). The Noticee further denies having any fund
movements for purchase or sale of shares in the scrip of GTL or off market
transfers between him and other group entities. He submitted that he had
bought 2,28,000 shares and sold 1,99,550 shares which accounted for 0.71%
and 0.62% respectively to the total market volume traded in the shares of
Page 21 of 34
GTL. The said percentage of trading is very miniscule and therefore cannot
be considered to have created artificial volume in the said scrip.
45.
With respect to the synchronised trading the Noticee submitted that he has
not carried out any synchronised trades in the scrip of GTL. He states that
he has told his brokers to enter the orders on the anonymous trading platform
of the stock exchanges and therefore was not aware of the counter party.
Further, out of his total trading very few trades were within the time difference
of less than one minute and for majority of the trading the time difference was
more than one minute ranging from few seconds to more than 10 minutes for
the shares purchased by him and few seconds to around 47 minutes for the
shares sold by him. The Noticee submitted that his trading within the group
as alleged in the SCN was very negligible if compared to the total traded
market volume.
46.
With respect to the trading on NSE, the Noticee stated that he had bought
61500 shares and sold 25450 shares which accounted for 0.18% and 0.08%
respectively to the total traded market volume in the scrip of GTL. The said
trading is also negligible if compared to the total traded volume and cannot
be considered to have created artificial volume in the said scrip.
Noticee No. 13
47.
Vide letter dated August 11, 2014 the Noticee No. 13 submitted that he does
not belong to the Pabari Parikh group as alleged in the SCN and has carried
out the transactions in his own account independently. With respect to the
connection with the other entities, he submitted that the introduction was
sought by his broker S P Jain Securities Pvt. Ltd. and the entities were
merely for the sake of introduction of their identity. The Noticee further stated
that he had a trading account with the said broker and had not carried out
any transactions or was not instrumental for the transactions carried out by
the other group members in the market.
48.
The Noticee stated that his main activity is that of the cloth merchant and he
earns commision and has dealership of many reputed textile companies. In
Page 22 of 34
the course of his cloth business he had come in contact with Noticee No. 7
(Shri Ankit Sanchaniya) and had business dealings with him. The Noticee
further stated that he had carried out few business transactions with Noticee
No. 7 but had not traded shares with him. The Noticee denied entering into
any circular or synchronized trades in the scrip of GTL and stated that all his
transactions were delivery based and not fraudulent. Further, all the
transactions were carried out at the prevailing market price and therefore, the
Noticee denied being involved in any price manipulation in the scrip of GTL.
Noticee No. 14:
49.
Vide letter dated August 11, 2014, the Noticee No. 14 submitted that he is
basically a goldsmith and a small time investor in the capital market. The
decision of trading and investment is completely taken independently by the
Noticee and is not influenced by any other person. The Noticee denied being
part of the Pabari-Parikh Group. Further, he submitted that all the trades
were executed by him through one broker viz. Globe Capital Market Limited
and were delivery based and therefore, there cannot be any question of the
said trades being synchronised or circular in nature. He had bought 51,710
shares in his account and sold 50,710 shares of GTL. The said transactions
were delivery based. The gross volume of trading works out to be very
miniscule in quantity and therefore, the Noticee submitted that it cannot be
considered to have created artificial volume in the scrip of GTL.
Noticee No. 18:
50.
Vide letter dated December 02, 2013, the Noticee No. 18 submitted that it is
a stock broker and had traded in the scrip of GTL in the normal and ordinary
course of the stock broking business. The trades were executed in the then
existing client‟s account on receipt of their instructions and authorization. The
Noticee further submitted that it had no knowledge of any pattern or method
of placing orders and that the clients were inter connected with each other.
As on date, the Noticee submitted that it has stopped dealing for the said
clients and has improved its monitoring, control and surveillance systems to
ensure that no such activities are carried out by its clients through any of its
terminals.
Page 23 of 34
51.
Further vide letter dated September 30, 2014 the Noticee No. 18 submitted
its additional reply in the matter. The Noticee submitted that, as per its
analysis, the self trades executed from its terminal at BSE were for the
quantity of 897 ( 3 trades) whereas in the SCN the same were mentioned to
be 898 shares (4 trades). Upon comparison of volume of alleged
synchronized trades, the Noticee submitted that on buy side the same
constituted for 0.85% of the market volume and on the sell side it constituted
1.32% of the market volume which are very miniscule percentage if
compared to the market volume traded in the scrip of GTL. The Noticee
further submitted that the alleged self trades were purely co-incidental and
were not an outcome of any design. In the changing dynamics of the stock
market, clients use various strategies while trading in the cash segment.
Under the given circumstances, the Noticee stated that some of the trades
could automatically match on the automatic anonymous trading mechanism
resulting into self and/ or synchronized trades.
FINDINGS:
52.
I find from the SCN and the material available on record that during the
relevant period the Noticee Nos. 1 to 17, who were all connected to each
other and referred to as the Pabari-Parikh Group entities in the investigation
report, had traded significantly in the shares of GTL i.e. purchased
1,30,91,871 shares and sold 1,28,10,113 shares, respectively, on BSE and
the Noticee Nos. 2, 3, 4, 5, 6, 7, 10, 12, 14, 15 and 16, connected to each
other in one way or the other and dealing through multiple brokers, had
purchased 20,76,282 shares accounting for 6.19% of the total traded volume
and sold 20,65,506 shares accounting for 6.16% of the total traded volume
traded in the scrip of GTL on NSE. I find that the relationship table as
mentioned in para 15 and 24 above clearly shows that the said Noticees
were connected to each other either by way of having similar addresses /
telephone numbers, relatives, business associates and/or having fund
movements among themselves. Also, the relationship of the Noticee Nos. 1
to 17 is further established by way of off market transactions among
themselves as mentioned in para 16 above.
Page 24 of 34
53.
I note that out of their total purchase and sale of 1,30,91,871 shares and
1,28,10,113 shares, respectively, the Noticee Nos. 1 to 17 had traded for
1,18,39,849 shares accounting for 90 % of the total purchases of the group
and 92.43% of the total sales of the group within the Pabari-Parikh Group
entities and the same constituted for 36.69% of the market volume from
within the group entities while trading at BSE. Further, out of the total trading
of 1,18,39,849 shares within the group entities, for 51,99,929 shares
accounting for 16.11% of the market volume, the buy and sale orders were
placed within one minute time difference. I note that 51,99,929 shares
constituted for 39.72% of the total purchase of Pabari-Parikh group entities
and 40.59% of the total sale of the Pabari-Parikh group entities.
54.
Further, on NSE, I note that the Noticee Nos. 2, 3, 4, 5, 6, 7, 10, 12, 14, 15
and 16 had purchased and sold a total of 20,76,282 shares and 20,65,506
shares, respectively. Out of the 12 Pabari-Parikh Group entities, 11 PabariParikh Group entities, including Noticee Nos. 2 to 7 and 10, 12, 15 and 16,
had traded for 13,14,087 shares (i.e. 3.92% of the market volume)
accounting for 63.29% of the total purchase of the group and 63.62 % of the
total sale of the group within Pabari-Parikh Group entities.
55.
I find from the above that, the quantity of shares traded by the Noticee Nos. 1
to 17 within the group on BSE and by Noticee Nos. 2, 3, 4, 5, 6, 7, 10, 12, 14,
15 and 16 on NSE further substantiates the fact that they all had a meeting of
minds and traded in the scrip of GTL in collusion with each other. Therefore, I
do not find any merit in the submissions made by the Noticees that they had
no relationship with each other and had traded in the scrip of GTL
independently, without any knowledge of the counterparty client / broker and
in the ordinary course of business.
56.
I further find that the Noticee Nos. 1 to 12 had indulged in certain
synchronised trades in the shares of GTL on BSE thereby, creating false and
misleading appearance of trading in the scrip. Out of 51,99,929 shares, for
9,09,391 shares, which accounted for 2.82% of the total market volume, the
Page 25 of 34
buy and sale orders were placed in synchronized manner (i.e. difference
between placement of order by buyer and seller within one minute and order
rate as well as order quantity of buy side and sale side being same). The
volume of 9,09,391 shares accounted for 6.95% of the total purchase of
Pabari-Parikh Group entities and 7.10% of the total sale of the Pabari-Parikh
Group entities. On NSE, I find that the Noticees were not found to have
carried out any synchronized trading in the scrip of GTL. On perusal of the
details of synchronized trades as given in para 18 (on BSE) above and the
order and trade log, I find that the Noticee Nos. 1 to 12 (on BSE) did indulge
in manipulative activities in the said scrip on BSE and traded in a
synchronised manner within the group without any intention of change in
beneficial ownership of shares and I do not find merit in the contentions of the
Noticees.
57.
I find that during the relevant period the shares of GTL were traded on BSE
on 297 trading days. Out of 297 trading days, I find that the group entities had
traded among themselves on 108 days, i.e. 37% of the total number of days
the scrip was traded during the period under investigation. I find that the
group entities by trading in the said scrip had contributed to the daily market
volume ranging from 0.13% on January 21, 2009 to 93.35% on November
17, 2009. Further, I find that out of 108 trading days, the Pabari-Parikh group
entities i.e. Noticee Nos. 1 to 17 had traded among themselves on 68 trading
days and thereby, had contributed by more than 50% to the total market
volume. I further note that out of 108 trading days when the group traded
among themselves, on 78 trading days, both buy and sell orders were placed
within time difference of one minute. The said trades had contributed to daily
market volume of the scrip in the range from 0.13% on January 21, 2009 to
83.07% on September 15, 2009. Further, by executing the said trades, I find
that the Noticees had contributed more than 50% to the total market volume
of the scrip. Further, out of 78 trading days, on 26 trading days, the trades
executed by the Noticee Nos. 1 to 17 were synchronized in nature. By
executing synchronised trades among the group entities, the Pabari-Parikh
Group entities i.e. Noticee Nos. 1 to 17 had contributed to total market
volume of the scrip in the range from 0.23% on February 12, 2009 to 67.26%
Page 26 of 34
on April 23, 2009. I also find that on 3 trading days by entering into
synchronized traded the group entities had contributed more than 50% of the
market volume.
58.
In view of the above, I do not find any merit in the contentions of the Noticees
that the Noticees had entered into trades individually and that the
synchronised trades indulged into by the Noticees were insignificant /
miniscule in volume if compared to the total volumes traded in the scrip of
GTL. I find that the manipulative trading practices indulged in by the Noticees
cannot be viewed independently and have to be viewed collectively as the
overall impact of the synchronised trading done by the Noticee Nos. 1 to 17
on the market in the scrip of GTL was quiet significant. Further, I also find
that such pattern of trading cannot be executed without prior meeting of
minds and prior understanding between the Noticee Nos. 1 to 17.
59.
I find from Paras 19 and 20 (BSE trading) and Paras 26 and 27 (NSE trading)
above that the Noticee Nos. 1, 3, 4, 5, 6, 7 and 10 on BSE and the Noticee
Nos. 5, 6 and 7 on NSE had entered into certain trades which were self
trades in nature i.e. totally fictitious trades wherein the entity appears on both
the buy and sell side of the trade. On BSE, the said Noticees had executed
204 self trades for a quantity of 13,73,876 shares thereby, inflated the
volumes in the scrip by 4.26%. On NSE, Noticee Nos. Nos. 5, 6 and 7 had
entered into 104 self trades for a quantity of 2,34,557 shares thereby, inflated
the volumes in the scrip by 0.70%. I further find that the said Noticees had
executed the said fictitious trades on both the exchanges through multiple
brokers. However, I find that it was alleged in the SCN that the Noticee No.
18 was the broker who had executed significant number of self trades which
upon analysis has been found to be 4 self trades for 898 shares for the
Noticee Nos. 6, 7 and 10 on BSE and 1 self trade for 8 shares for the Noticee
Nos. 6 on NSE. I find that the said self trades, even if not significant in
number, are still fictitious in nature and therefore, I find that, by executing the
self trades for the said Noticees on both the exchanges, the Noticee has
failed to observe the code of conduct as specified under the Broker
Regulations.
Page 27 of 34
60.
I further find that the price of the scrip had opened at `22.65 and touched a
high of ` 47.75, i.e. there was an increase of ` 25.10. I find that on 17 trading
days and on 31 occasions a new high price was discovered. Out of the 31
occasions, on four occasions (i.e. on two days out of the 17 days), Noticee
Nos. 7 and 10 had contributed to the increase in the price by 0.30 paisa (out
of a total increase of `25.10). However, on perusal of the documents
available on record, I find that the same are insufficient to establish that the
price of the scrip increased because of placing of the orders by the said
Noticees in a manipulative manner. Therefore, I conclude that the trading
done by Noticee Nos. 1 to 17 was not in violation of Regulation 4(2)(e) of the
PFUTP Regulations.
61.
I note that certain Noticees have in their submissions stated that they have
been restrained from trading in the securities market vide SEBI order dated
February 02, 2011 which was confirmed by SEBI on July 08, 2011 and the
said debarment order is still in force. Further, I also note that these Noticees
have submitted that the present adjudication proceedings are double
jeopardy in nature. At this juncture, I rely on the judgement of the Hon'ble
High Court of Bombay in the case of SEBI Vs. Cabot International Capital
Corporation (2004) wherein it was observed that "the adjudication for
imposition of penalty by Adjudication Officer, after due inquiry, is neither a
criminal nor a quasi criminal proceeding. The penalty leviable under this
Chapter or under these sections, is penalty in cases of default or failure of
statutory obligation or in other words, breach of civil obligation. The
provisions and scheme of penalty under SEBI Act and the regulations, there
is not element of criminal offence or punishment as contemplated under
criminal proceedings." In view of this, I do not find merit in the contention of
the Noticees.
62.
Also, I note that some of the Noticees had requested for a copy of the entire
investigation report and certain documents which were relied upon while
issuing the SCN in the matter. Here, I note that the relevant extract of the
investigation report formed part of the SCN. I further note that the following
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information was provided to the Noticees along with the SCN in a CD form.
(a) Order appointing the Adjudicating Officer (Annexure I)
On BSE trading:
(b) Details of purchase and sale of 17 Pabari-Parikh Group entities dealing
through multiple brokers (Annexure A and B)
(c) Details of off market transfers (Annexure CC)
(d) Trading details of 17 Pabari-Parikh entities (Annexure C)
(e) Trade and Order details of trading within Pabari-Parikh Group entities
(Annexure D)
(f) Trading among 17 entities (Annexure E)
(g) Trade and Order details of synchronized Trades (Annexure F)
(h) Details of Trade and Order log containing self trades (Annexure G)
(i) Details of day wise volume contribution to the total volume traded
(Annexure H)
On NSE trading:
(j) Details of purchase and sale of 12 Pabari-Parikh Group entities dealing
through multiple brokers (Annexure A and B)
(k) Trading details of 12 Pabari-Parikh entities (Annexure C)
(l) Trade and Order details of trading within Pabari-Parikh Group entities
(Annexure D)
(m) Trading among 11 entities (Annexure E)
(n) Details of Trade and Order log containing self trades (Annexure F)
Therefore, I find that the material relevant in the present matter was already
provided to the Noticees.
63.
Further, the Noticee No. 18 vide its letter dated September 02, 2014 had
requested for an opportunity of inspection of documents in the matter.
However, I note that SCN was issued on October 22, 2013 i.e. almost a year
ago and vide letter dated November 11, 2013 the Noticee had sought for 3
weeks time to submit its reply. Further, vide letter dated December 02, 2013
the Noticee submitted its preliminary reply in the matter and requested details
of the synchronized trades executed on BSE. However, the trade and order
log containing the synchronized trades entered by the Noticees through
multiple brokers, including Noticee No. 18, were already provided to the
Page 29 of 34
Noticee along with the SCN. I also note that an opportunity of personal
hearing was granted to the Noticee on August 13, 2014 (attended by the
Noticee No. 18 on August 11, 2014) wherein the Authorised Representative
appeared for the Noticee and reiterated its earlier submissions without
requesting for any specific documents or inspection thereof. A request for
inspection being made vide letter dated September 02, 2014 is nothing but a
delaying tactic adopted by the said Noticee to prolong the present
proceedings. Therefore, I find that all the relevant documents (in a CD form)
relied upon while issuing the SCN were already provided to the Noticee and I
don't find any merit in the request for inspection of documents at this stage
i.e. after the conclusion of personal hearing in the matter.
64.
From the foregoing, I find that the Noticee Nos. 1 to 17 by trading amongst
themselves indulged in synchronised trades on numerous occasions,
resulting in no change of beneficial ownership thereby, created artificial
volume which gave a false and misleading appearance of trading in the scrip
of GTL. Further, I also conclude that the Noticee Nos. 1, 3, 4, 5, 6, 7 and 10
(on BSE) and and the Noticee Nos. 5, 6 and 7 (on NSE) had entered into self
trades and inflated the volumes in the market thereby, giving a false and
misleading appearance of trading in the scrip of GTL. Therefore, I conclude
that the Noticee Nos. 1 to 17 have violated the provisions of Regulation 3(a),
(b), (c), (d), 4(1) and 4(2)(a), (b) & (g) of the PFUTP Regulations, thus, liable
for monetary penalty as prescribed under Section 15HA of the Act which
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.
65.
I note that the code of conduct prescribed under the Broker Regulations
mandates that a stock broker shall maintain high standards of integrity,
Page 30 of 34
promptitude and fairness and shall act with due skill, care and diligence in the
conduct of his business. The code further mandates that the Broker shall not,
inter alia, indulge in manipulative transactions with a view to distort the
market equilibrium. Therefore, I conclude that the Noticee No. 18 by
executing fictitious trades on behalf of its clients has violated the provisions of
Clause A(1), (2) & (3) of the Code of Conduct as specified under schedule II
read with Regulation 7 of the Broker Regulations, thus, liable for monetary
penalty as prescribed under Section 15HB of the Act which reads as under:
Penalty for contravention where no separate penalty has been provided
15HB. Whoever fails to comply with any provision of this Act, the rules
or the regulations made or directions issued by the Board thereunder for
which no separate penalty has been provided, shall be liable to a penalty
which may extend to one crore rupees.
66.
Here, it is important to refer to the observation of the Hon‟ble Supreme Court
of India in the matter of SEBI Vs. Shri Ram Mutual Fund [2006] 68 SCL
216(SC) wherein it was held that:
“In our considered opinion, penalty is attracted as soon as the
contravention of the statutory obligation as contemplated by the Act
and the Regulations is established and hence the intention of the
parties committing such violation becomes wholly irrelevant…”.
67.
While determining the quantum of penalty under Sections 15HA and 15HB, 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:-
Page 31 of 34
(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.”
68.
I observe, from the material available on record, that it is not possible 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 Noticees.
However, I find that the defaults were repetitive in nature. Further, the
Noticees traded in the scrip in a manner meant to create artificial volumes
and liquidity which is an important criterion capable of misleading the
investors. In fact, liquidity/volumes in a particular scrip raise the issue of
„demand‟ in the securities market. The greater the liquidity, the higher is the
investors‟ attraction towards investing in that scrip. Hence, any investor 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 on the stock exchange
platform. People who indulge in manipulative, fraudulent and deceptive
transactions should be suitably penalized for the said acts of omissions and
commissions.
ORDER
69.
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 Rules, I conclude that the proceedings
against Noticee No. 3 i.e. Shri Kishor Chauhan stand abated. Further, I
hereby impose the following monetary penalties on the other Noticees:
Page 32 of 34
Sr. No.
Name of the Noticee
Penal
Penalty Amount
provisions as
(in `)
per the SEBI
Act, 1992
1.
Shri
Bharat
Shantilal 15HA
5,00,000/(Rupees Five Lakh Only)
Thaker (Noticee No. 1)
2.
Shri
Chirag
Rajnikant 15HA
5,00,000/(Rupees Five Lakh Only)
Jariwala (Noticee No. 2)
3.
Shri
Bhavesh
Pabari 15HA
5,00,000/(Rupees Five Lakh Only)
(Noticee No. 4)
4.
Shri Prem Mohanlal Parikh 15HA
5,00,000/(Rupees Five Lakh Only)
(Noticee No. 5)
5.
Shri Hemant Madhusudan 15HA
5,00,000/(Rupees Five Lakh Only)
Sheth (Noticee No. 6)
6.
Shri Ankit Sanchaniya
15HA
5,00,000/(Rupees Five Lakh Only)
(Noticee No. 7)
7.
Shri Jigar Praful Ghoghari 15HA
5,00,000/(Rupees Five Lakh Only)
(Noticee No. 8)
8.
Shri Vipul Hiralal Shah
15HA
5,00,000/(Rupees Five Lakh Only)
(Noticee No. 9)
9.
Ms Mala Hemant Sheth
15HA
5,00,000/(Rupees Five Lakh Only)
(Noticee No. 10)
10.
Shri Gaurang Ajit Seth 15HA
5,00,000/(Rupees Five Lakh Only)
(Noticee No. 11)
11.
Shri
Vivek
Kishanpal 15HA
5,00,000/(Rupees Five Lakh Only)
Samant (Noticee No. 12)
12.
Shri Bhupesh
Rathod 15HA
5,00,000/(Rupees Five Lakh Only)
(Noticee No. 13)
13.
Shri Ketan Babulal Shah 15HA
5,00,000/(Rupees Five Lakh Only)
(Noticee No. 14)
14.
Shri Bipin Jayant Thaker 15HA
5,00,000/(Rupees Five Lakh Only)
(Noticee No. 15)
15.
Shri Bharat G Vaghela 15HA
5,00,000/(Rupees Five Lakh Only)
(Noticee No. 16)
16.
Shri Bipin Kumar Gandhi 15HA
5,00,000/(Rupees Five Lakh Only)
(Noticee No. 17)
17.
Arcadia Share & Stock 15HB
2,00,000/(Rupees Two Lakh Only)
Brokers Pvt. Ltd
(Noticee No. 18)
TOTAL
82,00,000/(Rupees Eighty Two Lakh
Only)
Page 33 of 34
70.
In my view, the penalties imposed on the Noticees are commensurate with the
defaults committed by them.
71.
The penalty amounts as mentioned above shall be paid by the Noticees through
duly crossed demand drafts 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 drafts should be forwarded to the Division Chief,
Enforcement Department, DRA- II, Securities and Exchange Board of India,
SEBI Bhavan, Plot No. C4-A, „G‟ Block, Bandra Kurla Complex, Bandra (E),
Mumbai – 400 051.
72.
In terms of Rule 6 of the Rules, copies of this order are sent to the Noticees and
also to the Securities and Exchange Board of India.
D. SURA REDDY
GENERAL MANAGER &
ADJUDICATING OFFICER
DATE: October 30, 2014
PLACE: Mumbai
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