Adjudication Order against Shri Nitin Ramanlal Patel.pdf

of 11
BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. SD/AO/03/2011]
________________________________________________________________
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
Shri Nitin Ramanlal Patel
[PAN: ADNPP5305M]
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 Bombay Stock Exchange (BSE) and National Stock
Exchange (NSE) with a face value of Rs.10 per share up to July 27, 2004
and thereafter with a face value of Re 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.

of 11
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, including Shri Nitin Ramanlal
Patel (hereinafter referred to as the ‘Noticee’), transacted in the shares of
AEL in a fraudulent manner that led to creation of artificial volume and a
false market.
3. SEBI has therefore, initiated adjudication proceedings under the Securities
and Exchange Board of India Act, 1992 (hereinafter referred to as the
‘SEBI Act’) against the Noticee to inquire into and adjudge the alleged
violations of the provisions of Regulations 4 (1), 4 (2) (a), (b), (e) and (g) of
the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to
Securities Market) Regulations, 2003 (hereinafter referred to as the
‘PFUTP 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 SEBI Act read with
Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995 (hereinafter referred to as the
‘Adjudication Rules’) to inquire into and adjudge under Section 15HA of
the SEBI Act, the alleged violation of the above mentioned provisions of
PFUTP Regulations by the Noticee. Thereafter, consequent to Ms.
Rayudu proceeding on deputation to IRDA, SEBI vide Order dated
November 23, 2007 appointed the undersigned as the AO in the instant
matter.
Notice, Reply & Personal Hearing
5. The undersigned issued a Notice bearing no. EAD-2 /SD/AB/129443/2008
dated June 20, 2008 (hereinafter referred to as ‘SCN’) to the Noticee in

of 11
terms of Rule 4 of the Adjudication Rules requiring him to show cause as
to why an inquiry should not be held against him for the alleged violations.
6. The SCN was sent by Registered Post Acknowledgment Due and the
same was duly delivered. In response to the same, the Noticee sent a
letter dated July 15, 2008 requesting for 45 more days for replying to the
SCN. However, the Noticee did not submit any reply to the SCN even after
lapse of the said time. In the interest of natural justice and in order to
conduct an inquiry as per Rule 4 (3) of the Adjudication Rules, the
undersigned granted an opportunity of personal hearing to the Noticee on
August 03, 2009. The Noticee vide letter dated July 25, 2009 requested
for a copy of the SCN and adjournment of the said hearing. Subsequently,
Shri Anish Kharidia, authorized representative of the Noticee, attended the
said personal hearing on August 03, 2009 and undertook to submit a
detailed written submission to the SCN by August 31, 2009. Thereafter,
the Noticee made written submissions vide his letter dated September 01,
2009 wherein the Noticee inter alia denied all the allegations against him
and submitted that he was not provided with the trade and order log and
complete transaction history. Vide letter dated February 10, 2010 the
undersigned forwarded the necessary documents/ material as desired by
the Noticee and also granted another opportunity of personal hearing to
him which was attended by Shri Anish Kharidia, authorized representative
of the Noticee on February 23, 2010. During the personal hearing, on
being asked whether he wished to seek or inspect any further documents
in this matter, the authorized representative of the Noticee submitted that
he had seen all the documents and did not wish to seek any further
documents in this regard. He also undertook to submit a detailed reply to
the SCN by March 26, 2010. However, he did not submit any further
written submissions.

of 11
7. In view of the above, I am proceeding with the inquiry taking into account
the written and oral submissions of the Noticee and all the documents and
material as available on record.
Consideration of Issues, Evidence and Findings
8. I have carefully perused the charges made against the Noticee mentioned
in the SCN, the 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) of PFUTP Regulations?
b) Does the violation, if any, on the part of the Noticee attract any
monetary penalty under Section 15HA of the SEBI Act?
c) If yes, what should be the quantum of monetary penalty?
9. Before moving forward, it will be appropriate to refer to the relevant
provisions of PFUTP 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;

of 11
(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;
10. It is alleged in the SCN that the Noticee had traded substantially in the
scrip of AEL during the First and the Second Period, through M/s Ess Ess
Intermediaries Ltd. who is a sub broker of M/s ASE Capital Market. He
had allegedly entered into synchronized trades with the clients of same
member to the extent of 58,010 shares on the buy side and 57,860 shares
on the sell side during the period from 09.07.2004 to 27.07.2004. Further,
it is alleged that the Noticee’s trades for 52,910 shares were fictitious as
he was the client on the buy side as well as the sell side and the orders
were synchronized as well, thus generating artificial volumes and leading
to manipulation. The Noticee allegedly also entered into reversal of trades
with clients of other brokers on BSE throughout the period from
16.07.2004 to 27.07.2004. During the said period, the Noticee 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 appeared to be
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.
11. It is further alleged that for the period between 28.07.2004 to 14.01.2005,
the Noticee, along with a few other entities 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 trades and of these trades, orders for
3,04,68,762 shares (87.39 % of their trades) appeared to be
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

of 11
quantity and rate were identical and were placed within a time gap of one
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. The Noticee’s
orders for buying 83,45,924 shares and selling 87,60,410 shares are
allegedly synchronized.
12. 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 appeared to be 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 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
13,21,582 shares on buy side and 15,04,408 on the sell side. Similarly on
NSE, for the same period, the Noticee has allegedly entered into
synchronized trades to the extent of 12,25,260 shares.
13. Thus, the Noticee is alleged to have executed fraudulent trades by
creating false and misleading appearance of trading and price
manipulation in the scrip of AEL.
14. The Noticee vide letter dated September 01, 2009 has challenged the
allegations mentioned in the SCN and submitted inter alia that the
allegations had been leveled merely on the basis of trading data and that
the corporate announcements made during the period May 2004 to July
2004 by AEL on exchanges, which could have serious and significant
bearing on the price volume volatility of AEL during that period, have been
completely ignored. The Noticee denied all the allegations against him. He

of 11
further submitted that he had not been provided with complete details of
his trades. After receiving the said letter dated September 01, 2009 from
the Noticee, the undersigned had forwarded the necessary documents/
material as desired by the Noticee vide letter dated February 10, 2010.
Further, during the second personal hearing on February 23, 2010 the
authorized representative of the Noticee was asked whether he wished to
seek or inspect any further documents in this matter. In reply to the same,
the authorized representative of the Noticee submitted that he had seen
all the documents and did not wish to seek any further documents. Thus, it
is clear that the Noticee had all the relevant material to defend his case.
During the said personal hearing, the authorized representative of the
Noticee had undertaken to submit a detailed reply to the SCN by March
26, 2010. However, he failed to do so.
15. The Hon’ble SAT in the matter of Ketan Parekh v. Securities and
Exchange Board of India (Appeal no. 2 of 2004, Date of Decision-
14.07.2006), has held that
“…Any transaction executed with the intention to defeat the market
mechanism whether negotiated or not would be illegal. Whether a
transaction has been executed with the intention to manipulate the market
or defeat its mechanism will depend upon the intention of the parties
which could be inferred from the attending circumstances because direct
evidence in such cases may not be available. The nature of the
transaction executed, the frequency with which such transactions
are undertaken, the value of the transactions, whether they involve
circular trading and whether there is real change of beneficial
ownership, the conditions then prevailing in the market are some of
the factors which go to show the intention of the parties. This list of
factors, in the very nature of things, cannot be exhaustive. Any one factor
may or may not be decisive and it is from the cumulative effect of these
that an inference will have to be drawn.” (emphasis supplied)

of 11
16. I have carefully examined the allegations against the Noticee and the
material available on record. I find from the Investigation Report (IR) that
the Noticee had traded for a huge volume of shares in AEL during the
period under investigation. I find from trade and order logs contained in
Annexure 1 of the IR that during the period from July 09, 2004 to July 27,
2004 the Noticee (client code-218N003) had executed a large number of
trades which were reversal in nature, on BSE. It is observed that for a
large number of trades accounting for 52910 shares, the Noticee had
acted as both the buying and the selling client. For such trades, the
Noticee’s buy orders had matched with his own sell orders and the time
difference between the buy and sell orders was within 10 seconds. The
Noticee had also executed reversal trades with another client, namely Shri
Suamil Bhavnagari (Client Code-087V001), who was trading through the
same broker i.e. the Noticee had bought from and sold to the same
counterparty client thereby reversing his trades. I find from Annexure 3 of
the IR that during the same period, the Noticee had also executed a large
number of reversal trades with another counterparty client, namely Shri
Mahesh Panchal (Client Code-T010) who was trading through another
broker. It is seen that the time difference between the buy and sell order
for each of the trades between the Noticee and the said two counterparty
clients was less than 60 seconds.
17. I further observe from Annexure 5 and 9 of the IR that during the periods
from July 28, 2004 to January 14, 2005 and from August 01, 2005 to
September 05, 2005 respectively, the Noticee had executed a large
number of reversal trades with the client Shri Mahesh Panchal (Client
Code-T010), on BSE. The Noticee and the said client had acted as the
counterparty client for each other’s trades and had created a huge volume
i.e. they purchased from and sold to each other thereby reversing their
trades between themselves. Further, the time difference between the buy

of 11
order and the sell order for all such trades was less than 60 seconds. I
further find from Annexure 14 of the IR that the Noticee had also executed
reversal trades in similar fashion with Shri Panchal and another client, Shri
Rajanikant Mishra (Client Code-R510) for a huge volume of shares during
the period from August 01, 2005 to September 05, 2005 on NSE. The
Noticee created huge volume in the scrip by trading in the
abovementioned fashion.
18. The abovementioned trading pattern of the Noticee by which he created a
very large volume in the scrip clearly proves that the Noticee had
executed trades which did not result in transfer of beneficial ownership but
merely created artificial volume in the scrip. The same is also supported
by the fact that the Noticee had executed trades for which he was both the
buyer as well as the seller (i.e. buying from and selling to oneself) and the
time gap between the orders for such trades was few seconds only.
Taking into consideration the test laid down in the abovementioned SAT
Order, I conclude that the trades of the Noticee were fictitious which
created false and misleading appearance of trading and price
manipulation in the scrip of AEL.
19. Apart from the above, I find from records that the Noticee in his letter
dated September 01, 2009 had repeatedly submitted that he had not
received relevant records/documents for replying to the SCN. Vide letter
dated February 10, 2010 the Noticee was provided documents which he
required for replying to SCN. During the personal hearing, the proceedings
of which are available on record, the Noticee, was asked whether he
wished to seek or inspect any further documents in this matter. In
response to the same, the Noticee replied that he had seen all the
documents and did not wish to seek any further documents in this regard.
The Noticee had also undertaken to submit a detailed reply to the SCN by
March 26, 2010. However, he has failed to do so even after a lapse of

of 11
long time. The Hon’ble SAT in the matter of Classic Credit Ltd v. SEBI
(Date of Decision: 06/12/2006, Appeal No. 68/2003) has held - “… … …
the appellants did not file any reply to the second show cause notice. This
being so, it has to be presumed that the charges alleged against them in
the show cause notice were admitted by them.” Thus, by not replying to
the SCN after receiving the required documents, the Noticee can be said
to have admitted the allegations mentioned in the SCN.
20. In view of the aforesaid observations and findings, I conclude that the
allegations of violation of the provisions of Regulations 4 (1), 4 (2) (a), (b),
(e) & (g) of the PFUTP Regulations by the Noticee stand established
which makes the Noticee liable for monetary penalty under Section 15HA
of the SEBI Act.
21. The provisions of Section 15HA of the SEBI Act read as follows :
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.
22. While imposing monetary penalty it is obligatory to consider the factors
stipulated in Section 15J of the SEBI Act which reads as under:
15J - Factors to be taken into account by the adjudicating officer
While adjudging quantum of penalty under section 15-I, the adjudicating
officer shall have due regard to the following factors, namely:-
(a) the amount of disproportionate gain or unfair advantage, wherever
quantifiable, made as a result of the default;
(b) the amount of loss caused to an investor or group of investors as a result
of the default;
(c) the repetitive nature of the default.

of 11
23. I observe that from the material available on record it is difficult to quantify
any gain or unfair advantage accrued to the Noticee as a result of the
default. From the records, the extent of loss suffered by the investors as a
result of the default of the Noticee is also not computable.
Order
24. In view of the above, after considering all the facts and circumstances of
the case and exercising the powers conferred upon me under Section 15-I
(2) of the SEBI Act read with Rule 5 of the Adjudication Rules, I hereby
impose a monetary penalty of ` 5,00,000/- (Rupees Five Lakh Only) under
Section 15HA of the SEBI Act on the Noticee. In my view, the penalty is
commensurate with the default committed by the Noticee.
25. The above penalty amount shall be paid by the Noticee through a duly
crossed demand draft drawn in favour of ‘SEBI – Penalties Remittable to
Government of India’ and payable at Mumbai, within 45 days of receipt of
this order. The said demand draft should be forwarded to the Division
Chief, Investigation Department (ID-1), Securities and Exchange Board of
India, Plot No. C4-A, ‘G’ Block, Bandra Kurla Complex, Bandra (E),
Mumbai – 400 051.
26. 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: September 26, 2011 SANDEEP DEORE
Place: Mumbai ADJUDICATING OFFICER

Adjudication Order against Shri Nitin Ramanlal Patel.pdf

Recommended

Recommended

More Related Content

Similar to Adjudication Order against Shri Nitin Ramanlal Patel.pdf

Similar to Adjudication Order against Shri Nitin Ramanlal Patel.pdf (20)

More from Hindenburg Research

More from Hindenburg Research (20)

Recently uploaded

Recently uploaded (20)

Adjudication Order against Shri Nitin Ramanlal Patel.pdf