Adjudication Order in respect of Ms. E Stocks Inc in the matter of Adani Exports Ltd.pdf

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BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. VSS/AO- 86/2009]
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF
INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR
HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING
OFFICER) RULES, 1995
In respect of
M/s. E Stocks Inc
(PAN. AAAFE9913C)
FACTS OF THE CASE IN BRIEF
1. Securities and Exchange Board of India (hereinafter referred to as
“SEBI”) conducted investigation into trading in the scrip of Adani
Exports Ltd. (hereinafter referred to as ‘AEL’) for the period from
November 27, 2003 to December 23, 2003 (hereinafter referred to
as ‘period of investigation’) due to sharp rise in price and volume
of the scrip on National Stock Exchange of India Ltd. (hereinafter
referred to as ‘NSE’) and Bombay Stock Exchange Ltd. (hereinafter
referred to as ‘BSE’).
2. The role of the brokers, sub-brokers and their clients who had
traded in the scrip was scrutinized. It was observed during the
investigation that certain entities had indulged in synchronization of
deals/reversal trading/fictitious trading in the shares of AEL in such

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a manner that led to creation of artificial volume and impacted the
price of the scrip. The entities found to have been involved in the
alleged manipulation and against whom adjudication proceedings
were initiated are as under:-
Entities traded on BSE
Sl.
No.
Name of Broker Name of Sub-broker Name of Client
1 ASE Capital Rajender J Shah V&S Intermediaries
2 ASE Capital ESS ESS
Intermediaries
Samir P Shah
3 ASE Capital Rajesh N Jhaveri Falguni Shah
4 Naman Securities --- ESS ESS Intermedieries
5 Mangal Keshav E Stocks INC Dilip Champalal Jain
6 Vijay Bhagwandas --- Own/director’s account
7 Sanchay Fincom --- Tejas Ghelani
Entities traded on NSE
Sl.
No.
Name of Broker Name of Sub-broker Name of Client
1 Grishma Securities --- Rajesh N Jhaveri
2 Mangal Keshav E Stocks INC Dilip Champalal Jain
3 ASE Capital --- Manoj T Shah
4 Sanchay Finvest --- Tejas Ghelani
5 M.G. Capital (**) --- Bela H Kayastha
6 Inventure Growth (**) --- Mangiram S Sharma
(**)Administrative warning issued.
3. It was alleged that one of the entities, viz., M/s. E Stocks Inc
(hereinafter referred to as “Noticee/E Stocks/Sub-broker”), sub-
broker in NSE and BSE affiliated to Mangal Keshav Securities Ltd.
(hereinafter referred to as ‘MKSL/Broker’), member NSE and BSE,
who traded in the scrip of AEL on behalf of Mr. Dilip Champalal Jain
(hereinafter referred to as ‘Dilip/Client’) on both the exchanges
had violated the provisions of regulations 4(1), 4(2)(a), 4(2)(b),
4(2)(e), 4(2)(g) and 4(2)(n) of SEBI (Prohibition of Fraudulent and
Unfair Trade Practices Relating to Securities Markets) Regulations,
2003 (hereinafter referred to as “PFUTP Regulations”) and
clauses A(1), A(2), D(1), D(4) and D(5) of Code of Conduct for sub-
brokers as specified in Schedule II read with regulation 15 of SEBI

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(Stock Brokers and Sub Brokers) Regulations (hereinafter referred
to as “Brokers Regulations”), and therefore, liable for monetary
penalty under sections 15HA and 15HB of Securities and Exchange
Board of India Act, 1992 (hereinafter referred to as “SEBI Act”).
APPOINTMENT OF ADJUDICATING OFFICER
4. Mr. Piyoosh Gupta was appointed as Adjudicating Officer vide
order dated December 14, 2005 under section 15 I of SEBI Act
read with rule 3 of SEBI (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules, 1995
(hereinafter referred to as ‘Rules’) to inquire into and adjudge the
alleged violations of the provisions of SEBI Act, PFUTP
Regulations and Brokers Regulations.
5. Consequent upon the transfer of Mr. Piyoosh Gupta, the
undersigned has been appointed as the Adjudicating Officer vide
Order dated November 19, 2007
SHOW CAUSE NOTICE, HEARING AND REPLY
6. Show Cause Notice No. EAD/EAD-5/PG/68676/2006 dated May
31, 2006 (hereinafter referred to as “SCN”) was issued to the
Noticee under rule 4(1) of the Rules to show cause as to why an
inquiry should not be held against the Noticee and penalty be not
imposed under sections 15HA and 15HB of SEBI Act for the
alleged violation specified in the said SCN.
7. The Noticee vide letter dated June 27, 2006 replied to the SCN
submitting, inter alia, the following :

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a) It had traded in the scrip in the capacity as a sub-broker of
MKSL in both NSE and BSE, on behalf of its clients at the price,
time and quantity indicated by the clients. It had not carried out
even a single trade in its proprietary account in the scrip.
b) It carried out all the trades on behalf of the client in normal
course of business de hors of any concerted understanding with
its client or counter party brokers or counter party clients with a
view to indulge in circular/synchronized/reversal of trades. At the
relevant time, it was not aware about the counter party broker
and counter party client since all the trades were carried out
through the opaque screen based mechanism of the stock
exchange. It had no means to know the same also.
c) There is not even any indirect evidence to show meeting of minds
between it and the client, the counter party brokers/clients and
also the fact that when the client was trading through it, it was
aware about the manipulative intent of the client and with that
awareness it had traded at the relevant time.
d) It had no link / connection / nexus with M/s Vijay Bhagwandas &
Co. (hereinafter referred to as ‘VBC’), Tejas Ghelani and
Sanchay Fincom Ltd. (hereinafter referred to as ‘Sanchay
Fincom’), whatsoever. It had no relationship with the client
except that of a sub-broker client relationship.
e) It did not suspect anything amiss in the trading behaviour of the
client at the relevant time for the following reasons:
• the client had a good track record in terms of meeting his
payment and delivery obligations.
• the volume / turnover of the client was insignificant part of
our total volume / turnover during the relevant time.
• had no knowledge that the client was acting along with
others to carry out his manipulative designs and had no
way to find out the same.

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• all the transactions were carried out at prevalent market
prices.
f) The client has indulged in the alleged synchronized reversal of
trades without its knowledge and participation/involvement.
Therefore, in the absence of any awareness or knowledge
about the manipulative intent of the client and any
circumstances to excite our suspicion, no sinister motives and
intention to create artificial volume can be attributed to E Stocks
simply based on the trading data of the client in the scrip.
8. In the interest of natural justice and in order to conduct an inquiry
as per rule 4(3) of the Rules, the Noticee was granted an
opportunity of hearing on December 29, 2008 vide notice dated
December 8, 2008. No one appeared for the hearing. Another
opportunity of hearing was granted to the Noticee on February 17,
2009 vide notice dated January 30, 2009. However, the Noticee
vide fax letter dated February 17, 2009 requested for another date
of hearing. Accordingly, another date for hearing was granted to
the Noticee on April 2, 2009 vide Notice dated March 5, 2009. Mr.
Neyaz Ahmed Khan, partner, E Stocks, appeared for the hearing
and reiterated the submissions made vide letter dated June 27,
2006 and made written submissions vide letter dated April 1, 2009.
CONSIDERATION OF ISSUES AND FINDINGS
9. I have carefully perused the submissions of the Noticee and the
documents available on record. The Noticee has traded as a sub-
broker, through MKSL, on behalf of Dilip, in the scrip of AEL on
both BSE and NSE. The issues that arise for consideration in the
present case are :

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a) Whether the Noticee had violated regulations 4 (1), 4(2)(a),
4(2)(b), 4(2)(e), 4(2)(g) and 4(2)(n) of PFUTP Regulations
in relation of the scrip of AEL?
b) Whether the Noticee had violated clauses A(1), A(2), D(1),
D(4) and D(5) of Code of Conduct for Sub-Brokers as
specified in Schedule II read with regulation 15 of Brokers
Regulations?
c) Does the violation, if any, on the part of the Noticee attract
monetary penalty under sections 15HA and 15HB of SEBI
Act?
d) If so, what would be the monetary penalty that can be
imposed taking into consideration the factors mentioned in
section 15J of SEBI Act?
10. Before moving forward, it will be appropriate to refer to the relevant
provisions of PFUTP Regulations and Brokers Regulations, which
reads as under:
PFUTP Regulations
4. Prohibition of manipulative, fraudulent and unfair trade practices
(1) Without prejudice to the provisions of regulation3, 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;
(c) …
(d) …
(e) any act or omission amounting to manipulation of the price
of a security;
(f) …

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(g) entering into a transaction in securities without intention of
performing it or without intention of change of ownership of
such security.
(h) …
(i) …
(j) …
(k) …
(l) …
(m) …
(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;
(o) ….
Brokers Regulations
General Obligations and inspections.
15. (1) The sub-broker shall-
(a) ……
(b) abide by the Code of Conduct as specified at Schedule II.
(c) ……
SCHEDULE II
Code of Conduct for Sub-Brokers
A. GENERAL
(1) INTEGRITY: A sub-broker, shall maintain high standards of integrity,
promptitude and fairness in the conduct of all investment business.
(2) EXERCISE OF DUE SKILL AND CARE: A sub-broker, shall act with
due skill, care and diligence in the conduct of all investment business.
……
……
D. SUB-BROKERS VIS-A-VIS REGULATORY AUTHORITIES.
(1) GENERAL CONDUCT: A sub-broker shall not indulge in
dishonourable, disgraceful or disorderly or improper conduct on the stock
exchange nor shall he wilfully obstruct the business of the stock exchange.
He shall comply with the rules, bye-laws and regulations of the stock
exchange.
(2)……
(3) ……
(4) MANIPULATION: A sub-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.
(5) MALPRACTICES : A sub-broker shall not create false market either
singly or in concert with others or indulge in any act detrimental to the
public interest or which leads to interference with the fair and smooth
functions of the market mechanism of the stock exchanges. A sub-broker
shall not involve himself in excessive speculative business in the market
beyond reasonable levels not commensurate with his financial soundness.

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11. On perusal of the SCN, reply of the Noticee and other documents
available on record, I find the following:
In respect of trades executed on NSE
• The price of the scrip increased from Rs.250.10 (on December
12, 2003) to Rs.448.80 (on December 19, 2003) in a span of 5
trading days.
• The total traded quantity of the scrip on NSE during the period of
investigation was 38,91,856 shares.
• During the period of investigation, the Noticee along with other
brokers and clients entered into 228 synchronized/reversal trades
involving 2,96,943 shares (7.63% of the market gross during the
period of investigation). The details are as under:
S.
No.
Buy broker
name (sub-
broker)
Buying
client
Selling Broker
name (sub-
broker)
Selling
client
No. of
trades
Synchron
ized
quantity
No. of
days
traded
% Range of
synchronize
d deals to
qty traded
in the day
1. Grishma Sec Rajesh
Jhaveri
ASE Capital Manoj T
Shah
105 143440 11 22% to
42%
2. Mangal Keshav
(E Stocks INC)
Dilip C.
Jain
Sanchay
Finvest
Tejas
Ghelani
23 54654 9 2% to 16%
3. ASE Capital Manoj T
Shah
M G Capital Bela H
Kayastha
33 31450 3 28% to 29%
4. Mangal Keshav
(E Stocks INC)
Dilip C
Jain
Inventure
Growth
Mangiram
S Sharma
22 22399 10 2.98% to
8.44%
5. Inventure
Growth
Mangiram
S Sharma
Sanchay
Finvest
Tejas
Ghelani
10 18750 5 2.98% to
18.39%
6. Inventure
Growth
Mangiram
S Sharma
Kotak Sec. Mangiram
S Sharma
24 16250 7 1.39% to
8.44%
7. Grishma Sec. Rajesh
Jhaveri
M G Capital Bela H
Kayastha
11 10000 1 34.70%
TOTAL 228 296943
• Out of a total of 2,96,943 shares, 77,053 shares were traded by
the Noticee in 45 structured deals and reversal of trades. These
trades constituted 1.98% of total market volume in the shares of
AEL on NSE during the period of investigation.
• Out of these 45 structured/synchronized/reversal trades, the
Noticee trading through MKSL entered into 23 such deals with
Sanchay Finvest Ltd. (hereinafter referred to as ‘Sanchay

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Finvest’), trading on behalf of Tejas Ghelani, for 54,654 shares
during the period from December 8, 2003 to December 18, 2003
(majority of trades) and December 23, 2003 (2 trades). Out of
these 9 trading days, on 2 days, the synchronized/reversal trades
contributed to more than 10% of the day’s quantity traded, on 5
days, contribution was more than 5% of the day’s quantity traded.
These trades accounted for 1.40% of the gross quantity traded
during the entire period of investigation.
• Out of 45 structured/synchronized/reversal trades, the Noticee
executed 22 such trades with Inventure Growth Securities Ltd.
(hereinafter referred to as ‘Inventure’), trading on behalf of
Mangeram S Sharma, for 22,399 shares during the period from
November 27, 2003 to December 12, 2003. Contribution of these
trades to day’s quantity traded ranged from 2.98% to 8.44%.
These trades accounted for 0.58% of the gross quantity traded
during the period of investigation. Time difference between
placement of buy and sell orders in these trades was 0 to 2
seconds.
• Out of total of 45 synchronized trades on NSE by the Noticee,
more than 90% of the orders were placed with time difference of
less than 3 seconds and many of them were with zero time
difference. The order, limit prices and quantities were also
matched with those of the counter party broker/client in all these
trades. The quantity, rate matched and reversal of trades were
always with the same client.
• These clients had nil delivery positions.
In respect of trades executed on BSE
• The price of the scrip increased from Rs.209.55 (on November
27, 2003) to Rs.443.10 (on December 23, 2003) in a span of 19

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trading days. The scrip touched a highest price of Rs.478.00 on
December 19, 2003.
• The total traded quantity in the shares of AEL on BSE during the
period of investigation was 11,32,400 shares.
• Out of 11,32,400 shares, 3,42,780 shares (30.27%) were traded
in circular/synchronized/reversal trades involving certain brokers,
sub-brokers and clients. The details are as under:
Date Bought
Qty
Bought by
Client (sub-
broker/Broker)
Bought From
Client (Broker)
Sold
Qty
Sold by Client (sub-
broker/Broker)
Sold To Client
(Broker)
27.11.03
to
23.12.03
74450 ESS (ASE
Capital)
ESS (Naman
Sec.)
74500 ESS (ASE Capital) ESS (Naman
Sec.)
27.11.03
to
23.12.03
57475 Falguni Shah
(through Rajesh
N Jhaveri/ ASE
Capital)
V & S
Intermediaries
(through R J Shah
/ ASE Capital)
57490 Falguni Shah
(through Rajesh N
Jhaveri/ ASE Capital)
V & S
Intermediaries
(through R J
Shah / ASE
Capital)
27.11.03
to
23.12.03
23340 Dilip Champalal
Jain (through M/s
E Stocks/Mangal
Keshav)
Own A/c (Vijay
Bhagwandas)
25200 Dilip Champalal Jain
(through M/s E
Stocks/Mangal
Keshav)
Own A/c (Vijay
Bhagwandas)
27.11.03
to
23.12.03
16050 Dilip Champalal
Jain (through M/s
E Stocks/Mangal
Keshav)
Tejas Ghelani
(Sanchay Fincom)
14300 Dilip Champalal Jain
(through M/s E
Stocks/Mangal
Keshav)
Tejas Ghelani
(Sanchay
Fincom)
• A total of 349 synchronized/reversal trades were executed
amongst the Noticee, Sanchay Fincom and VBC for 78,890
shares (6.97% of the total market volume during the period of
investigation).
• Out of 349 trades, the Noticee and Sanchay Fincom executed
128 synchronized/reversal trades on 5 trading days during the
period from December 9, 2003 to December 18, 2003. It
generated a total volume of 30,350 shares accounting for 5.67%
of the total market volume during the same period.
• The Noticee and VBC executed 221 synchronized/reversal trades
for 48,540 shares.

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• The synchronized/reversal trades of the Noticee accounted for
more than 14% of the daily volume on 4 days and between 6 to
8.7% on other trading days till December 19, 2003.
• For most trades, buy and sell orders were placed within a time
difference of 0 to 3 seconds of each other. The order limit prices
and quantities were also matching with those of the counterparty
broker in all the trades. The reversal of trades took place within
half an hour or one hour after execution of first set of trades.
• The Noticee, VBC and Sanchay Fincom executed/entered into
reversal in trade transactions on 9th
, 10th
, 17th
, 18th
and 19th
December, 2003.
12. In this regard, it would be pertinent to refer to the observations and
decisions of the Hon’ble SAT in the following matters:
(a) The Hon’ble SAT, in Ketan Parekh Vs. Securities & Exchange
Board of India (Appeal No. 2 of 2004), observed that, “A
synchronized transaction even on the trading screen between genuine
parties who intend to transfer beneficial interest in the trading stock
and who undertake the transaction only for that purpose and not for
rigging the market is not illegal and cannot violate the regulations. As
already observed ‘synchronisation’ or a negotiated deal ipso facto is
not illegal. A synchronised transaction will, however, be illegal or
violative of the Regulations if it is executed with a view to manipulate
the market or if it results in circular trading or is dubious in nature
and is executed with a view to avoid regulatory detection or does not
involve change of beneficial ownership or is executed to create false
volumes resulting in upsetting the market equilibrium. 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

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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.”
(b) In the case of Ashok K Chaudhary v SEBI, Appeal No 69 of
2008, dated November 5, 2008, the Hon’ble SAT observed that
“such large number of reverse trades cannot take place through the
mechanism of the system. These have obviously been manipulated.
Moreover, reverse trades are fictitious trades meant to increase
volumes on the screen of the trading system as there is no change of
beneficial ownership in the traded shares”.
(c) The Hon’ble SAT, in Nirmal Bang Securities Pvt. Ltd Vs
Chairman, SEBI, Appeal no. 54-57/2002, dated October 31,
2003 observed as follows: - “BEB has been charged for
synchronized deals with First Global. I have examined the data
provided by the parties on this issue. I find many transactions between
BEB and FGSB. There are many instances of such transactions. I find
the scrip; quantity and price for these orders had been synchronized
by the counter party brokers. Such transactions undoubtedly create an
artificial market to mislead the genuine investors. Synchronized
trading is violative of all prudential and transparent norms of trading
in securities. Synchronized trading on a large scale can create false

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volumes. The argument that the parties had no means of knowing
whether any entity controlled by the client is simultaneously entering
any contra order elsewhere for the reason that in the online trading
system, confidentiality of counter parties is ensured, is untenable. It
was submitted by the Appellants that it was not possible for the broker
to know who the counter party broker is and that trades were not
synchronized but it was only a coincidence in some cases.
Theoretically this is OK. But when parties decide to synchronize the
transaction the story is different. There are many transactions giving
an impression that these were all synchronized, otherwise there was
no possibility of such perfect matching of quantity price etc. As the
Respondent rightly stated it is too much of a coincidence over too
long a period in too many transactions when both parties to the
transaction had entered buy and sell orders for the same quantity of
shares almost simultaneously.”
13. I find that the investigation did not establish any link (a) between
the Noticee and its client (b) between the Noticee and other brokers
who had traded in the scrip (c) between the Noticee and clients of
other brokers who had traded in the scrip (d) between Noticee and
the company/directors of AEL.
14. However, the method and the manner in which the trades were
executed are the most important factors to be considered in these
circumstances. The motive, thereafter, automatically falls in line.
Trades like cross deals and synchronized trades are executed on
the trading screen of a stock exchange and with proper delivery
versus payment system. Clearly in almost all the deals, the orders
are placed so as to ensure a matching of the buy and the sell
quantity and the buy and the sell price with the counter party. The
buy and the sell orders are placed at almost the same time

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between the counter brokers, with a difference of a few seconds.
This proximity in the inputting of orders at the same price and for
the same quantity, results in getting them matched, such that there
is almost perfect matching in all the trades, with all the three
parameters, viz., quantity, price and most importantly, the time
required to conclude the trades, which to a large extent indicates
synchronization in the logging in of the orders, albeit executed on
the screen of the stock exchange.
15. This is what has transpired in the present case. A large number of
trades got matched regularly. The phenomenal regularity with
which the Noticee had indulged in such trades, leads one to
conclude, that these transactions were effectively meant to
manipulate the market. It is my considered belief that frequency of
such trades ensured consistent matching of the orders purely for
the purpose of projection of the volumes of the scrip in a way that
was not the market determined volumes but with a sinister motive
to induce other persons to invest in the said scrip.
16. In case an entity is alleged to have manipulated the market or
distorted the market equilibrium in terms of the PFUTP and their
acts are corroborated up to a certain extent by the investigation
findings, then the underlying intention of the said entity is brought
out. Furthermore, price manipulation does not only involve the
manipulation in the prices of the scrip but also includes building up
of volumes. This is evident from the finding that the Noticee had
indulged in 45 and 349 synchronized/reversed trades and created
an artificial volume of 77,053 and 78,890 shares in the said scrip, in
NSE and BSE respectively.

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17. The fact is that had the aforesaid discussed trades been executed
in the normal course of business, the possibility of such perfect
matching would not have been possible. The buy and sell prices of
one entity were close to the buy/sell rates of the other entity in all
the settlements, such that the trades of these entities were always
matched. The transactions as pointed out in the tables earlier and
spread over a short period of time are definitely done with some
inbuilt component of ‘intent’ involved. Greater the number of such
synchronized trades, the larger is the chances of trades not being
genuine in nature, which is bound to affect the market equilibrium.
A trade can be executed on the screen and still be manipulative in
nature. Considering the number of such trades, it is clear that there
has been a gross mis-use of the screen based trading system. It is
also to be stated that “intention” is inherent in all cases of
synchronized trading involving large scale price manipulation and
the same was also brought out in the earlier cited case of Nirmal
Bang Securities (P) Ltd. vs SEBI by the Hon’ble SAT whereby it
was observed that “Intention is reflected from the action of the
Appellant. Choosing selective time slots does not appear to be an
involuntary action.”
18. I have considered the submissions of the Noticee denying the
allegations. It cannot be a mere coincidence that every time, the
sub-broker acted in complete ignorance and on behalf of its client,
as claimed by the Noticee. The sub-broker by participating in the
trading in this manner involved in the execution of
synchronized/reversal transactions created artificial liquidity in the
scrip and played a role in the manipulation of the trading. In my
view, the Noticee through the said artificial trades interfered with
the market equilibrium and thereby affected the manipulation of
price and volume of the said scrip. The trades executed herein by

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the Noticee were not the real trades as there was no intention to
change the beneficial ownership. When the trades were inherently
non genuine, I do not feel that it is necessary to prove that investors
had, in fact, got induced and bought and/or sold on the basis of
these trades. Similar views were expressed by the Hon’ble SAT in
its order dated 14.7.2006 in Ketan Parekh Vs. SEBI wherein it had
observed that “When a person takes part in or enters into transactions
in securities with the intention to artificially raise or depress the price he
thereby automatically induces the innocent investors in the market to buy
/sell their stocks. The buyer or the seller is invariably influenced by the
price of the stocks and if that is being manipulated the person doing so is
necessarily influencing the decision of the buyer / seller thereby inducing
him to buy or sell depending upon how the market has been manipulated.
We are therefore of the view that inducement to any person to buy or sell
securities is the necessary consequence of manipulation and flows
therefrom. In other words, if the factum of manipulation is established it
will necessarily follow that the investors in the market had been induced to
buy or sell and that no further proof in this regard is required. The
market, as already observed, is so wide spread that it may not be humanly
possible for the Board to track the persons who were actually induced to
buy or sell securities as a result of manipulation and law can never
impose on the Board a burden which is impossible to be discharged. This,
in our view, clearly flows from the plain language of Regulation 4(a) of
the Regulations.
19. I find that the Noticee has executed 394 (349 on BSE and 45 on
NSE) synchronized/reversal trades on behalf of its client involving
1,55,943 shares. These trades contributed more than 10% of the
days quantity traded on 2 days on NSE and it was more than 14%
of the daily volume on 4 days on BSE. I also find from the Trade
Book of E Stocks for AEL for the period from November 27, 2003 to

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December 23, 2003 (which was submitted by the Noticee along
with written submissions dated April 1, 2009) that Dilip had traded
1,80,238 shares out of which 1,55,943 was synchronized/reversed,
which works out to 86.52%. Further, apart from Dilip, only one
other client by name Mr. Nilesh Shah had traded in the scrip. Mr.
Shah’s total trading volume was only to the extent of 150 shares in
4 trading days. Thus, it is clear that during the investigation period,
effectively, only 1 client had traded in the scrip through the Noticee
in this manipulative manner. Such a trading pattern should have
alerted the sub-broker. The sub-broker had failed to notice the
manipulative trading pattern of the client and allowed him to
execute such unlawful transactions. This brings out the fact that
the Noticee had aided and abetted the client and participated in the
sinister game plan of the client.
20. In order to establish the fraudulent nature of trades indulged in by
the Noticee, reference may also be made to the definition of fraud
laid down in regulation 2 (1) (c) of the PFUTP, which reads as
follows:
"2 (1)(c) "fraud" includes any act, expression, omission or concealment
committed whether in a deceitful manner or not by a person or by any
other person with his connivance or by his agent to deal in securities,
whether or not there is any wrongful gain or avoidance of any loss, …
…”
21. Regulation 4(2)(a) of PFUTP Regulations prohibits a person from
indulging in an act which creates false or misleading appearance of
trading in the securities market. Regulation 4(2)(b) of PFUTP
Regulations prohibits dealings in a security intended to operate as
a device to inflate, depress or cause fluctuations in the price of
such security for wrongful gains. Regulation 4(2)(e) of PFUTP
prohibits any act or omission amounting to manipulation of the price
of a security. Regulation 4(2)(g) of PFUTP Regulations prohibits

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from entering into a transaction in securities without intention of
performing it or without intention of change of ownership of such
security. Regulation 4(2)(n) of PFUTP Regulations prohibits circular
transactions in respect of a security entered into between
intermediaries in order to provide a false appearance of trading in
such security. As detailed above, the acts of the Noticee clearly
created false and misleading appearance of trading in the shares of
AEL and it did not act in a bonafide manner. The facts of the case
highlight the Sub-Broker's involvement, by executing continuous
synchronized/reversal trades in a substantial manner, in the
manipulation of price/volume of the shares of AEL which led to
creation of artificial volume and misleading appearance of trading in
the said shares on account of collusive activities with the entities as
discussed in the preceding paragraphs. As the transactions
executed by the Noticee in AEL were synchronized, there does not
appear to be any genuine trading interest in the scrip except that
the sub-broker has earned his brokerage by executing the
transactions for its clients. All these, resulted in violation of the
provisions of regulations 4(1), 4(2)(a), (b), (e), (g) and (n) of the
PFUTP Regulations.
22. In terms of Clauses A(1), A(2), D(1), D(4) and D(5) of Code of
Conduct for Sub-Brokers prescribed under the provisions of
Brokers Regulations, a sub-broker shall not, inter alia, create false
market or indulge in any act detrimental to the investors’ interest or
which leads to the interference with the fair and smooth functioning
of the securities market. A sub-broker shall also maintain high
standards of integrity, promptitude and fairness and shall act with
due skill, care and diligence in the conduct of his business. A sub-
broker shall not indulge in dis-honourable, disgraceful or disorderly
or improper conduct on the stock exchange. It also mandates that

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the sub-broker shall not, inter alia, indulge in manipulative
transactions with a view to distort the market equilibrium. The
trades (including the synchronized/reversal trades) of the sub-
broker as explained hereinabove in detail would establish that the
same created a misleading appearance of trading, artificial volume
and price in the scrip. It further shows that the sub-broker had failed
to exercise due skill, care and diligence and not maintained high
standards of integrity, promptitude, fairness in the conduct of
business as a sub-broker. Moreover, the transactions of the
Noticee were synchronized and there does not appear to be any
genuine trading interest in the scrip except that the sub-broker has
earned brokerage by executing the transactions for its client.
23. I have carefully perused the case laws cited by the Noticee in
support of its contentions. I find that the facts of the present case
are different from the facts of the cases relied upon by the Noticee.
Moreover, my findings detailed in the earlier paragraphs clearly
establish the role played by the Noticee in the manipulation, in
collusion with the other entities.
24. Generally, synchronized trades/cross deals/circular trades are the
instruments/tools employed by some unscrupulous elements in the
securities market to manipulate the market and deceive the
general/genuine investors in the market place. The pattern of
trading, behaviour of the entities, apparent irregularities and the
available trading data, etc., prove manipulation which always
depends on inferences drawn on a mass of factual detail. When all
of these are considered together, they can emerge as ingredients
to prove the manipulative scheme designed and executed by such
manipulators with intent to tamper with free market forces.

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25. In view of the foregoing, I find that the submissions of the Noticee
are not convincing and the same do not hold good. I am of the
view that the facts of the present case clearly bring out an element
of fraud and unfair trade practices indulged in by the Noticee on
behalf of its client. Therefore, I hold that the charges leveled
against the Noticee are proved and that the allegation of violation of
provisions of regulations 4(1), 4(2)(a), (b), (e), (g) and (n) of PFUTP
Regulations and clauses A(1), A(2), D(1), D(4) and D(5) of Code of
Conduct for Sub-brokers as stipulated in Brokers Regulations by
the Noticee stands established.
26. The Hon’ble Supreme Court of India in the matter of SEBI Vs. Shri
Ram Mutual Fund [2006] 68 SCL 216(SC) 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…”.
27. Thus, the aforesaid violations by the Noticee make it liable for
penalty under Section 15HA and Section 15HB of SEBI Act, 1992
which 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.
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.”

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28. While determining the quantum of penalty under section 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:-
(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.”
29. It is difficult, in cases of such nature, to quantify exactly the
disproportionate gains or unfair advantage enjoyed by an entity and
the consequent losses suffered by the investors. I have noted that
the investigation report also does not dwell on the extent of specific
gains made by the clients or sub-broker. Suffice to state that
keeping in mind the practices indulged in by the Noticee and its
client, gains per se were made by the Noticee and its client in that
they traded in the scrip in a manner meant to create artificial
volumes and liquidity which is an important criterion, apart from
price, capable of misleading the investors while making an
investment decision. In fact, liquidity/volumes in 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, anyone could have been carried away by the
unusual fluctuations in the volumes and been induced into investing
in the said scrip. Besides, this kind of activity seriously affects the
normal price discovery mechanism of the securities market. People
who indulge in manipulative, fraudulent and deceptive transactions,
or abet the carrying out of such transactions which are fraudulent
and deceptive, should be suitably penalized for the said acts of
omissions and commissions. Considering the continuous effort of

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the Noticee and its client in this aspect where the
synchronized/reversal trades were carried out over a short period of
time, it can safely be surmised that the nature of default was also
repetitive.
ORDER
30. After taking into consideration all the facts and circumstances of the
case, I impose a penalty of Rs.40,000/- (Rupees forty thousand
only) under section 15HA and Rs.10,000/- (Rupees ten thousand
only) under section 15HB of SEBI Act, {i.e. a total penalty of
Rs.50,000/- (Rupees fifty thousand only) on the Noticee which will
be commensurate with the violations committed by it.
31. The Noticee shall pay the said amount of penalty by way of
demand draft in favour of “SEBI - Penalties Remittable to
Government of India”, payable at Mumbai, within 45 days of receipt
of this order. The said demand draft should be forwarded to Ms.
Pradnya Saravade, Officer on Special Duty, Investigations
Department, SEBI, SEBI Bhavan, Plot No. C – 4 A, “G” Block,
Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.
32. In terms of rule 6 of the Rules, copies of this order are sent to the
Noticee and also to the Securities and Exchange Board of India.
Date: June 01, 2009 V.S.SUNDARESAN
Place: Mumbai ADJUDICATING OFFICER

Adjudication Order in respect of Ms. E Stocks Inc in the matter of Adani Exports Ltd.pdf

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