Adjudication Order in respect of Naman Securities and Finance.pdf

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BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. VSS/AO- 96/2009]
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
NAMAN SECURITIES AND FINANCE PRIVATE LIMITED
(SEBI Registration No.: INB 230828238 and INB 010808234)
(PAN: AAACN1917G)
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

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investigation that certain entities had indulged in synchronization of
deals/reversal trading/fictitious trading in the shares of AEL in such
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 Markets
Ltd.
Rajender J Shah V&S Intermediaries
Ltd.
ESS ESS
Intermediaries Pvt.
Ltd.
Samir P Shah
Ltd.
Rajesh N Jhaveri Falguni Shah
4 Naman Securities and
Finance Pvt. Ltd.
--- ESS ESS Intermediaries
Pvt. Ltd.
5 Mangal Keshav
Securities Ltd.
E Stocks Inc Dilip Champalal Jain
6 Vijay Bhagwandas &
Co.
--- Own/director’s account
7 Sanchay Fincom Ltd. --- Tejas Ghelani
Entities traded on NSE
Sl.
No.
Name of Broker Name of Sub-broker Name of Client
1 Grishma Securities
Pvt. Ltd.
--- Rajesh N Jhaveri
2 Mangal Keshav
Securities Ltd.
E Stocks Inc Dilip Champalal Jain
Ltd.
--- Manoj T Shah
4 Sanchay Finvest Ltd. --- 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., Naman Securities and
Finance Private Limited (hereinafter referred to as
“Noticee/Naman/Broker”), member NSE and BSE, who traded in
the scrip of AEL on behalf of ESS ESS Intermediaries Private
Limited (hereinafter referred to as ‘ESS/Client’) on BSE had

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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), A(3), A(4) and A(5) of Code of Conduct for Stock
Brokers as specified in Schedule II read with regulation 7 of SEBI
(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/68679/2006 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

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imposed under sections 15HA and 15HB of SEBI Act for the
alleged violation specified in the said SCN.
7. The Noticee in its reply dated June 30, 2006 has denied all the
allegations submitting, inter alia, the following :
a) Naman was trading on behalf of ESS pursuant to and in
consonance with the instructions, price, time and quantity
indicated by the Client. ESS was its client since November 28,
2000 and it has dealt in various scrips, including AEL, on behalf
of ESS.
b) Naman or its director had not carried out any significant trade in
its own name in the scrip of AEL.
c) 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 trades.
d) At the relevant time, the Noticee 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.
e) At the relevant time, the Noticee was not aware that its client
through its director Samir P Shah was placing contra orders and
indulging in executing synchronized trades.
f) There is no evidence to show meeting of minds between Naman
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. It has not been shown how it could
have known that its client was placing contra order through its
director and that it was indulging in circular trading.

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g) Naman or its directors are not related to the promoters/directors
or management of AEL. It had no link/connection/nexus with ESS
or its director. As far as its relationship with ESS is concerned, it
was limited to that of a client and broker and nothing beyond it.
h) Naman was used as a medium by the Client, as it transpires
now, to carry out its sinister designs of manipulation.
i) 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
its 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.
• all the transactions were carried out at prevalent market
prices.
j) The alleged synchronized/reversal trades were 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 their
suspicion, no sinister motives or intention to create artificial
volume can be attributed to Naman simply based on the trading
data of the clients in the scrip.
k) It has submitted that it has not violated the Code of Conduct for
Stock Brokers as prescribed in Brokers Regulations nor the
alleged provisions of the PFUTP Regulations.
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

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opportunity of hearing on December 29, 2008 vide notice dated
December 8, 2008. However, the Noticee vide letter dated
December 24, 2008 requested for another date of hearing.
Accordingly, another opportunity of hearing was granted to the
Noticee on February 17, 2009 vide notice dated January 30, 2009.
Mr. Rakesh Pujara, Authorised Representative of the Noticee
appeared for the hearing and reiterated the submissions made vide
letter dated June 30, 2006.
CONSIDERATION OF ISSUES AND FINDINGS
9. I have carefully perused the submissions of the Noticee and the
documents available on record. The Noticee has executed trades
on BSE, as a broker, on behalf of ESS, in the scrip of AEL. The
issues that arise for consideration in the present case are :
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?
b) Whether the Noticee had violated clauses A(1), A(2), A(3), A(4)
and A(5) of Code of Conduct for Brokers as specified in
Schedule II read with regulation 7 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

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(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;
(c) …
(d) …
(e) any act or omission amounting to manipulation of the price
of a security;
(f) …
(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
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 at 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

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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.
11. On perusal of the SCN, reply of the Noticee and other documents
available on record, I find the following:
• The price of the scrip on BSE increased from Rs.209.55 (on
November 27, 2003) to Rs.443.10 (on December 23, 2003) in a
span of 19 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)
• The Noticee has traded on BSE on behalf of ESS. ESS is a
broker of Ahmedabad Stock Exchange and sub-broker of ASE

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Capital Markets Ltd., member BSE. The counterparty to the
trades of the Noticee was also ESS, which was trading as a sub-
broker of ASE Capital Markets Ltd. on behalf of its director Mr.
Samir P Shah. Thus, the client of the Noticee was trading from
both sides.
• The Noticee and ASE Capital Markets Ltd. (hereinafter refereed
to as ‘ASE’) generated a total volume of 1,50,294 shares which
accounted for 13.27% of the total market volume. Out of this,
transactions for 1,48,950 shares were traded only on behalf of
ESS which accounted for 13.15% of the market volume.
• The Noticee and ASE executed 710 synchronised/reversal trades
on 17 out of 19 trading days during the period of investigation.
Out of this on 9 trading days, its contribution on account of
reversal of trades to day’s quantity traded was more than 25%
and it was more than 20% on 4 days.
• The contribution of the Noticee and ASE towards creation of
artificial volume was 43.45% of the total artificial volume on BSE.
• 154 orders were placed by the Noticee and its counterparty
broker. The time difference between placements of buys and sells
orders were 0 second in 34 orders. 54 orders were placed with a
time difference of 1 second. 26 orders were with a time difference
of 2 seconds. 26 orders were with a time difference of 3 seconds
and 14 orders were with a time difference of more than 3
seconds. Thus, more than 90% of buy and sell orders were
placed with nil or negligible time difference over a period of 17
days.
• On all days, the delivery position of the Broker in the shares of
AEL, traded on behalf of ESS, was nil.
• The Noticee entered into reversal of trades on 9th
, 10th
, 11th
, 12th
,
15th
, 16th
, 17th
and 23rd
December, 2003.

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• The order limit prices and quantities were matching with those of
the counterparty broker in almost all the trades. The reversal of
trades took place within half an hour or one hour after execution
of first set of trades.
12. The Hon’ble SAT in Ketan Parekh Vs. Securities & Exchange
Board of India (Appeal No. 2 of 2004) held that in order to find out
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. In the case of Ashok K Chaudhary v SEBI,
Appeal No 69 of 2008, dated November 5, 2008, the Hon’ble SAT
observed that large number of reverse trades raises a presumption
of manipulative transactions. In Nirmal Bang Securities Pvt. Ltd Vs
Chairman, SEBI, Appeal No. 54-57/2002, dated October 31, 2003,
the Hon’ble SAT observed that where there are too many
transactions over a period of time giving an impression that these
were all synchronized, 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.
13. The Hon’ble SAT, in Triumph International Finance Ltd. Vs Securities
and Exchange Board of India, Appeal No. 35 of 2002, dated May 4,
2007 observed as follows: - “The question that arises for consideration
is – could it be said that the appellant was innocent and whether such
large number of trades could have matched on the screen without the
knowledge and active involvement of the appellant as a broker. The
answer has to be in the negative. It is the broker who plays a pivotal role

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in synchronizing the trades with the counter broker and matches the same
through the exchange mechanism by punching the buy and sell orders
simultaneously. It is true that the brokers act on the advice of their clients
but it is they who actually implement the game plan. …. It is inconceivable
that such large number of trades could have matched on the screen
without the appellant as the buyer’s broker being a party to the game
plan. Since the buy and sell orders were punched into the system
simultaneously in such large numbers and they all matched, we cannot
believe that it was a coincidence and the only inference that can be drawn
is that there was a prior meeting of the minds before the trades were
executed and this disturbs the true price discovery mechanism of the
exchange. The appellant is only feigning innocence which plea in the
circumstances cannot be accepted.”
14. Though the investigation did not establish any direct link between
the Noticee and its client, I find that the client of the Noticee is also
a sub-broker of ASE, which is a member of BSE. The counterparty
to the trades of the Noticee was also ESS, which had traded as a
sub-broker of ASE on behalf of its director Mr. Samir P Shah. Thus,
the client of the Noticee and ASE are one and the same.
Accordingly, the total trading volume of ESS has been considered
for analyzing the manipulative role.
15. 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

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orders are placed at almost the same time 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.
16. 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.
17. In case an entity is alleged to have manipulated the market or
distorted the market equilibrium in terms of the PFUTP Regulations
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 710 synchronized/reversed trades and
created an artificial volume of 1,48,950 shares in the said scrip in
BSE. Its contribution on account of reversal of trades to day’s

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quantity traded was more than 25% on 9 trading days and it was
more than 20% on 4 trading days.
18. 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 earlier and spread over a
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.”
19. I have considered the submissions of the Noticee denying the
allegations. It cannot be a mere coincidence that every time, the
broker acted in complete ignorance and on behalf of its client, as
claimed by the Noticee. The 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

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thereby affected the manipulation of price and volume of the said
scrip. The trades executed herein by 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.
20. I find that the Noticee has executed 710 synchronized/reversal
trades on behalf of its client involving 1,48,950 shares. These
trades contributed more than 25% of the days quantity traded on 9
days and it was more than 20% of the daily volume on 4 days. I

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also find that the Noticee had traded 1,50,294 shares out of which
1,48,950 was synchronized/reversed, which works out to 99.12%.
90% of the orders were placed with nil or negligible time difference.
Further, ESS was a broker of Ahmedabad Stock Exchange and
also a sub-broker of ASE. When such an entity, who is a registered
intermediary with SEBI, acts as a client of the Noticee and indulges
in such a manipulative trading pattern, the same should have
alerted the broker. The facts reveal that the Broker had failed to
notice the manipulative trading pattern of such a client and allowed
it 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.
21. 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 Regulations, 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, …”
22. 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
Regulations prohibits any act or omission amounting to
manipulation of the price of a security. Regulation 4(2)(g) of
PFUTP Regulations prohibits from entering into a transaction in
securities without intention of performing it or without intention of

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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 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 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.
23. In terms of Clauses A1 to A5 of the Code of Conduct prescribed
under the provisions of Brokers Regulations, a stock 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. The 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. It also mandates that a broker shall not,
inter alia, indulge in manipulative transactions with a view to distort
the market equilibrium. The trades (including the
synchronized/reversal/fictious trades) of the Broker as explained
hereinabove in detail would establish that the same created a

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misleading appearance of trading, artificial volume and price in the
shares of AEL. It further shows that the 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 stock broker. Moreover, the transactions of the
Noticee in AEL were synchronized and there does not appear to be
any genuine trading interest in the scrip except that the broker has
earned his brokerage by executing the transactions for its clients.
24. 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.
25. 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.
26. 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

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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), A(3), A(4) and A(5) of Code of
Conduct for Brokers as stipulated in Brokers Regulations by the
Noticee stands established.
27. 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…”.
28. 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.”
29. 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:-

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(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.”
30. 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 broker/s. 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
the Noticee and its client in this aspect where the
synchronized/reversal trades were carried out over a period of time,
it can safely be surmised that the nature of default was also
repetitive.

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ORDER
31. After taking into consideration all the facts and circumstances of the
case, I impose a penalty of Rs.1,00,000/- (Rupees one lakh only)
under section 15HA and Rs.50,000/- (Rupees fifty thousand only)
under section 15HB of SEBI Act, {i.e. a total penalty of
Rs.1,50,000/- (Rupees one lakh fifty thousand only) on the Noticee
which will be commensurate with the violations committed by it.
32. 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.
33. 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 18, 2009 V.S.SUNDARESAN
Place: Mumbai ADJUDICATING OFFICER

Adjudication Order in respect of Naman Securities and Finance.pdf

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Adjudication Order in respect of Naman Securities and Finance.pdf