Adjudication Order against Triveni Management Consultancy Services Ltd. in the matter of Adani Exports Ltd

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BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. PKK/AO/06/2011]
________________________________________________________________
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA
ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING
INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER)
RULES, 1995
Against
Triveni Management Consultancy Services Ltd.
[Member Broker-NSE, SEBI Regn. No. INB230652831]
[PAN: AABCT4249C]
In the matter of
Adani Exports Ltd.
Background
1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’)
conducted investigation in respect of buying, selling and dealing in the
shares of M/s. Adani Exports Ltd. (hereinafter referred to as ‘AEL ’) for the
period from between July 09, 2004 and January 14, 2005 (hereinafter
referred to as the ‘First Period’) and August 01, 2005 to September 05,
2005 (hereinafter referred to as the ‘Second Period’). The scrip of AEL
was traded on the exchanges with a face value of Rs.10 per share up to
July 27, 2004 and thereafter with a face value of Rs.1. The price of the
scrip of AEL witnessed wide fluctuations in the price ranging from Rs.481
to Rs.756 during the first period and from Rs.64.35 to Rs.74.20 during the
second period.

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2. The role of the main brokers and clients who had traded heavily during the
period under investigation in the scrip of AEL was scrutinized. The
Investigations revealed that certain entities transacted in the shares of
AEL in a fraudulent manner that led to creation of artificial volume and a
false market. Their trading distorted market equilibrium leading to spurt in
the price which did not have any correlation with the performance of the
company. Triveni Management Consultancy Services Ltd. (hereinafter
referred to as the ‘Noticee’), a stock broker, is alleged to have aided and
facilitated the said manipulation by executing fraudulent trades in the
scrip.
3. SEBI has therefore, initiated adjudication proceedings under the Securities
and Exchange Board of India Act, 1992 (hereinafter referred to as the
‘Act’) against the Noticee to inquire into and adjudge the alleged violations
of the provisions of Regulations 4 (1), 4 (2) (a), (b), (e), (g) & (n) of the
SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to
Securities Market) Regulations, 2003 (hereinafter referred to as the
‘PFUTP Regulations’) and Clauses A (1), (2), (3), (4) & (5) of the Code of
Conduct for Stock Brokers as specified in Schedule II under Regulation 7
of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992
(hereinafter referred to as the ‘Stock Brokers Regulations’).
Appointment of Adjudicating Officer:
4. SEBI vide Order dated July 24, 2007 appointed Ms. Babita Rayudu as the
Adjudicating Officer (AO) under section 15-I of the Act read with Rule 3 of
SEBI (Procedure for holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995 (hereinafter referred to as the
‘Adjudication Rules’) to inquire into and adjudge under Sections 15HA and
15HB of the Act, the alleged violation of the above mentioned provisions
of PFUTP Regulations and the Stock Brokers Regulations. Thereafter,

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SEBI vide Order dated November 23, 2007 appointed Shri Sandeep
Deore as the AO in the instant matter. SEBI vide Order dated August 17,
2010 appointed the undersigned as AO, consequent to the transfer of Shri
Deore to the Enforcement Department.
Notice, Reply & Personal Hearing
5. The AO issued a Notice bearing no. EAD-2 /SD/AB/129609/2008 dated
June 23, 2008 (hereinafter referred to as ‘SCN’) to the Noticee in terms of
Rule 4 of the Adjudication Rules requiring it to show cause as to why an
inquiry should not be held against it for the alleged violations.
6. It is alleged that one of the Noticee’s clients, Shri Sunil Kuril, had traded
substantially in the scrip of AEL during the First Period and had entered
into synchronized trading with other entities, on NSE. He had allegedly
entered into reversal of trades throughout the period from 15.10.2004 to
14.01.2005. He along with a few other entities had created a volume of
1,29,81,714 shares during the above period. These trades were mostly in
the nature of reversal and of these trades orders for 90,97,854 shares
appear to be synchronized as the buy and sell orders were placed within
time gap of 1-10 Seconds. The said client’s orders for buying 7,81,893
shares and selling 7,78,003 shares appeared to be synchronized. Thus, it
is alleged that the Noticee facilitated the manipulation of the scrip of AEL
by executing transactions that were not genuine resulting in the creation of
a misleading appearance of trading in the scrip of AEL and artificial
volumes.
7. The AO sent the SCN by Registered Post Acknowledgment Due and the
same was duly delivered. The Noticee replied to the SCN vide its letter
dated June 28, 2008 and denied all the charges against it. In the interest
of natural justice and in order to conduct an inquiry as per rule 4 (3) of the
Rules, the AO vide letters dated January 07, 2009 and February 03, 2009

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granted opportunities of personal hearing to the Noticee on February 02,
2009 and February 18, 2009 respectively. However, the Noticee did not
appear for the said personal hearings. The undersigned vide his letter
dated November 11, 2010 granted another opportunity of personal hearing
to the Noticee on November 19, 2010. The Noticee attended the said
personal hearing. The written and oral submissions of the Noticee are
discussed later in this order.
8. In view of the above, I am proceeding with the inquiry taking into account
the documents and material as available on record.
Consideration of Issues, Evidence and Findings
10. I have carefully perused the charges made against the Noticee mentioned
in the SCN, the written and oral submissions of the Noticee and the
materials and documents available on record. The issues that arise for
consideration in the present case are:
a) Whether the Noticee has violated the provisions of
Regulations 4(1), 4(2) (a), (b), (e), (g) & (n) of PFUTP
Regulations and Clauses A (1), (2), (3), (4) & (5) of the Code of
Conduct for Stock Brokers as specified in Schedule II under
Regulation 7 of the Stock Brokers Regulations?
b) Does the violation, if any, on the part of the Noticee attract any
monetary penalty under Sections 15HA and 15HB of the Act?
c) If yes, what should be the quantum of monetary penalty?
11. Before moving forward, it will be appropriate to refer to the relevant
provisions of PFUTP Regulations and the Stock Brokers Regulations
which read as under:-

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4. Prohibition of manipulative, fraudulent and unfair trade practices
(1) Without prejudice to the provisions of regulation 3, no person shall
indulge in a fraudulent or an unfair trade practice in securities.
(2) Dealing in securities shall be deemed to be a fraudulent or an unfair
trade practice if it involves fraud and may include all or any of the following,
namely :—
(a) indulging in an act which creates false or misleading appearance of
trading in the securities market;
(b) dealing in a security not intended to effect transfer of beneficial ownership
but intended to operate only as a device to inflate, depress or cause
fluctuations in the price of such security for wrongful gain or avoidance of
loss;
(e) any act or omission amounting to manipulation of the price of a security;
(g) entering into a transaction in securities without intention of performing it
or without intention of change of ownership of such security;
(n) circular transactions in respect of a security entered into between
intermediaries in order to increase commission to provide a false appearance
of trading in such security or to inflate, depress or cause fluctuations in the
price of such security;
Stock Brokers 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
A. General.
(1) Integrity: A stock-broker, shall maintain high standards of integrity,
promptitude and fairness in the conduct of all his business.

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(2) 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.
(4) Malpractices: A stock-broker shall not create false market either singly or
in concert with others or indulge in any act detrimental to the investors
interest or which leads to interference with the fair and smooth functioning of
the market. A stock-broker shall not involve himself in excessive speculative
business in the market beyond reasonable levels not commensurate with his
financial soundness.
(5) Compliance with statutory requirements: A stock-broker shall abide by all
the provisions of the Act and the rules, regulations issued by the Government,
the Board and the Stock Exchange from time to time as may be applicable to
him.
12. It is alleged that the Noticee had executed a large number of reversal
trades and synchronized trades where the difference between the buy
order and the sell order was few seconds only. However, mere matching
of orders within short time is not sufficient to conclude that the Noticee
was involved in the fraudulent acts of his client. The complicity of the
Noticee in manipulation has to be proved with sufficient evidences.
13. The Hon’ble Securities Appellate Tribunal in the case of Kasat Securities
Pvt. Ltd. vs. SEBI (Appeal No. 27/2006, Date of decision: 20.06.2006)
has held that unless there is material on record to show that the broker
knew that trades by a client were fictitious, it cannot be concluded that the
broker had aided and abetted the client in executing fraudulent
transactions. It was also held that merely because an entity has acted as a
broker cannot lead to the conclusion that it must have known about the

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nature of the transaction. There has to be some other material on record
to prove that fact.
14. It is therefore clear that even if it is found that the client had executed
fraudulent transactions, the same does not automatically lead to the
conclusion that the broker executing the transactions was involved with his
client in doing so, unless there is sufficient evidence on record to establish
that the broker was aware that the transactions of the client were fictitious.
The Noticee has submitted inter alia that they had exercised due care and
diligence while admitting the said client by obtaining KYC document and
verifying his credentials as well as completing other formalities. The client
was almost regular in discharging his settlement obligations and had
maintained adequate security with them. The nature of the client’s trading
was jobbing and he used to trade in large number of scrips. The Noticee
has further submitted that they were unaware of any nexus between the
client, Shri Sunil Kuril, and other entities who allegedly traded in he
synchronised manner in the scrip. It was impossible for them to suspect
any manipulative role allegedly played by their client Shri Kuril and his
trades do not lead to conclusion that they had aided and abetted the
manipulation in the scrip. They had not executed any proprietary trade in
the scrip and except brokerage they did not make any pecuniary gain. The
client, being a jobber, used to trade in different scrips and he used to
square off his trades almost on the same day. As a stock broker they took
all precautions and exercised due care and diligence in execution of all
trades done by the client, Shri Sunil Kuril. I observe that there is not
sufficient evidence on record which conclusively establishes that the
Noticee was aware of the nature of the trades of its client or that it had
colluded with its client or counterparty brokers or their clients in executing
fictitious transactions. In view of the above, I am inclined to accept the
contentions of the Noticee and give the benefit of doubt to the Noticee.

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15. In view of the above observations, findings and material on record I
conclude that the allegation of violation of Regulations 4 (1) and 4 (2) (a),
(b), (e), (g) & (n) of the PFUTP Regulations by the Noticee is not
established.
16. The Noticee is also alleged to have violated the Clauses A (1), (2), (3) (4)
& (5) of the Code of Conduct for Stock Brokers as specified in Schedule II
under Regulation 7 of the Stock Brokers Regulations. As stated above, the
allegation of aiding manipulation in the scrip by the Noticee has not been
established. The Noticee has submitted that it had complied with all the
regulatory requirements like execution of KYC, collecting the necessary
documents and information and verifying the antecedents of the client,
collection of initial deposit and margins etc. The Noticee has also
submitted that the said client was a jobber and used to trade in a large
number of scrips. There are not sufficient evidences on record to
conclusively establish that the Noticee failed to maintain high standards of
integrity, promptitude and fairness and to exercise due skill, care and
diligence in the conduct of all his business. In view of the same, I am
inclined to give benefit of doubt to the Noticee. I therefore conclude that
the allegation of violation of Clauses A (1), (2), (3) (4) & (5) of the Code of
Conduct for Stock Brokers as specified in Schedule II under Regulation 7
of the Stock Brokers Regulations by the Noticee does not stand
established.
Order
17. In view of the foregoing, the allegations of violation of the abovementioned
provisions of the PFUTP Regulations and the Stock Brokers Regulations
by the Noticee, as specified in the SCN dated June 23, 2008 do not stand
established and the matter is, accordingly, disposed of.

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18. In terms of the Rule 6 of the Adjudication Rules, copies of this order are
sent to the Noticee and also to Securities and Exchange Board of India.
Date: January 13, 2011 P K KURIACHEN
Place: Mumbai ADJUDICATING OFFICER