The document is an adjudication order from the Securities and Exchange Board of India against Grishma Securities Pvt. Ltd. for their role in alleged market manipulation of Adani Exports Ltd. shares. It is alleged that Grishma facilitated manipulation by executing reversal trades that created artificial volumes and a misleading market. Grishma is alleged to have traded over 1 million shares in a manner indicating synchronized orders aimed at manipulation. The order considers if Grishma violated market regulations and the appropriate penalty if violations are found.

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BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. PKK/AO/64/2011]
________________________________________________________________
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
Grishma Securities Pvt. Ltd.
[Member Broker-BSE, SEBI Regn. No. INB11127132]
[Member Broker-NSE, SEBI Regn. No. INB231127136]
[PAN: AABCG1300K]
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

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to Rs.756 during the first period and from Rs.64.35 to Rs.74.20 during the
second period.
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. Grishma Securities Pvt. 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,
SEBI vide Order dated November 23, 2007 appointed Shri Sandeep

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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/129453/2008 dated
June 20, 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 two of the Noticee’s clients, Mr. Mahesh Panchal and Mr.
Nrupesh Shah, had traded substantially in the scrip of AEL during the First
and Second Period. The said clients had entered into reversal of trades
with clients of ASE Capital Market, on BSE. The Noticee had allegedly
entered into reversal of trades throughout the period from 16.07.2004 to
27.07.2004. During the said period, the Noticee had entered into trades for
1,29,422 shares which accounted for 12.5% of the total traded volume of
the said period. Orders for these trades were allegedly synchronized as
the buy and sell orders were placed within time gap of one minute, out of
which for 98,421 shares buy and sell order quantity and rate were identical
and placed within a gap of 1 minute of each other. The details of the
reversed trades were provided in Annexure I to the SCN. Further, for the
period between 28.07.2004 to 14.01.2005, it is alleged that the Noticee’s
clients, along with a few other clients of ASE Capital Market had traded
substantially in the scrip of AEL and had created a volume of 3,48,53,139
shares during the above period which is around 51% of total traded
volumes. These trades were mostly in the nature of reversal and of these
trades orders for 3,04,68,762 shares (87.39 % of their trades) were
allegedly synchronized as the buy and sell orders were placed within time
gap of one minute, out of which for 2,99,82,524 shares buy and sell order
quantity and rate were identical and were placed within a time gap of one

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minute from each other. Further, in case of 17,801 trades for 2,31,84,498
shares the time gap between the buy and sell orders was between 0-10
seconds which also defied the probability of coincidence. Orders from the
Noticee’s clients for buying 87,55,722 shares and selling 83,47,532 shares
were allegedly synchronized.
7. Further, for the period between 15.10.2004 to 14.01.2005, on NSE the
Noticee had entered into trades of which 45,72,109 shares on buy side
and 43,63,037 shares on sell side were allegedly synchronized as majority
of the order were entered with a time difference of 0-10 seconds which
defies the probability of coincidence.
8. It is further alleged that for the Second Period, The Noticee along with a
few other entities had executed reverse trades to the extent of 38,21,269
shares. Orders for 28,22,240 shares were allegedly synchronized as the
buy and sell orders were placed within time gap of 1 minute. For
18,38,077 shares, buy and sell order quantity and rate were identical and
placed within a time gap of 1 minute from each other. In case of 116
trades for 2183102 shares the time gap between the buy and sell orders
was between 0-10 seconds which defied any existence of coincidence.
The Noticee’s contribution to the alleged manipulation is to the extent of
13,87,908 shares on buy side and 12,30,055 on the sell side. Similarly on
NSE, for the same period the Noticee had allegedly entered into
synchronized trades to the extent of 8,53,004 shares.
9. Thus, it is alleged that the Noticee facilitated the manipulation in the scrip
of AEL by executing transactions that were not genuine resulting in the
creation of a misleading appearance of trading in the scrip and artificial
volumes.
10. The AO sent the SCN by Registered Post Acknowledgment Due and the
same was returned undelivered. The same was served on the Noticee

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through the BSE on February 10, 2009. In response to the same, the
Noticee sent a letter dated February 17, 2009. In the interest of natural
justice and in order to conduct an inquiry as per Rule 4 (3) of the
Adjudication Rules, the AO vide letter dated July 22, 2009 granted an
opportunity of personal hearing to the Noticee on August 17, 2009. The
Noticee vide letter dated August 17, 2009 informed its decision to go for
consent proceeding in this matter. The Noticee again sent a letter dated
September 12, 2009 and denied all the allegations contained in the SCN.
The Noticee then filed a consent application in this matter which was
subsequently rejected by SEBI.
11. The undersigned vide his letter dated February 03, 2011 granted an
opportunity of personal hearing to the Noticee on February 15, 2011. The
Noticee vide its latter dated February 11, 2011 requested for adjournment
of the said hearing. The undersigned vide letter dated February 15, 2011
provided another opportunity of personal hearing to the Noticee on
February 25, 2011. The Noticee vide letter dated February 22, 2011
submitted a detailed reply to the SCN. The authorized representatives of
the Noticee attended the said personal hearing on February 25, 2011 and
made oral submissions.
12. 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 oral and written submissions of the Noticee and the
materials and documents available on record. The issues that arise for
consideration in the present case are:

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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:-
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

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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.
(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, trading on behalf of its clients, Shri Mahesh
Panchal and Shri Nrupesh Shah, had executed a large number of reversal
trades and synchronized trades where the difference between the buy

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order and the sell order was few seconds only, in the scrip of AEL.
However, mere execution of reversal trades and matching of orders within
short time is not sufficient to conclude that the Noticee was involved in the
fraudulent acts of his clients. 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
nature of the transaction. There has to be some other material on record
to prove that fact.
14. The Noticee has submitted inter alia that they have carried out
transactions in the scrip of AEL based on the instructions of Mr. Mahesh
Panchal and Mr. Nrupesh Shah as to price, time and quantity of shares
and in the ordinary course. They as brokers do not question the
commercial wisdom of their clients. They are not aware of whether their
clients had entered into reversal and synchronized trades with the clients
of ASE, as alleged and they as brokers of the said clients are not part of
any of those carried out by the said clients. They have not done any
proprietary trading in AEL. Their turnover for the financial year ending
March 2004-05 and 2005-06 was about Rs.5126 crores and Rs.5715
crores respectively. At the relevant time they had executed trades on
behalf of 600 clients approximately including Mr. Mahesh Panchal and Mr.
Nrupesh Shah in the ordinary course of business. During the relevant
period, the said two clients traded in other scrips apart from AEL and their
trading constituted a mere 2.88% of their total trading during the relevant

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financial year. Save and except the relationship of broker and client they
have no relationship with the said clients. They were not aware that the
said clients were acting in concert with the counter party. They were not
part of any such involvement their clients had with the counterparty i.e. the
clients of ASE. They did not have any link/ connection/nexus with any of
the counter party broker/ client and that they also did not have any
common understanding with them. At the relevant time, they were not
aware about the counter party broker and counter party client since all
trades were carried out by them through the opaque screen based
mechanism of the stock exchange and had no means to know them. They
were not aware that the clients were executing trades with an intention to
create a false market. At the relevant time, there was nothing in the
conduct of their clients to excite their suspicion that there was something
unusual or abnormal in their trading behaviour. There was nothing which
could have alerted them. All the transactions were executed on behalf of
the said two clients in good faith for normal brokerage in consonance with
rules and regulations in the normal course of business. Whether to trade
or not and in which scrip to trade and the quantum to be traded, is a
matter to be decided by the client and the broker cannot ask a client to
trade or not to trade in a particular way. Further, the business wisdom of
the client cannot be questioned by the broker and there was nothing
unusual to suspect the bona fides of the said two clients at the relevant
time. By executing the said transactions, save and except legitimate
brokerage they have not gained anything.
15. The Noticee further submitted that during the period, the company made
several positive corporate announcements which generated trading
interest in the scrip. The scrip was a liquid one and trading at substantial
volumes took place even before and after the investigation period. The
Noticee also submitted that they executed the transactions in good faith
and had exercised due skill and care required in the conduct of their

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business. They had complied with all applicable provisions of law. They
had obtained KYC form from the said clients, had executed the Member
Client with them and had collected requisite margins from them.
16. I observe that there is not sufficient evidence on record which conclusively
establishes that the Noticee was aware of the nature of the transactions of
its clients or that it had colluded with its clients 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.
17. 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.
18. 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. 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.

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Order
19. 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 20, 2008 do not stand
established and the matter is, accordingly, disposed of.
20. 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: March 16, 2011 P K KURIACHEN
Place: Mumbai ADJUDICATING OFFICER