BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 121 of 2011

Date of Decision : 25.07.2011

CFL Securities Ltd.
Bhupen Chambers,
Dalal Street, Fort,
Mumbai – 400 023.

…Appellant

Versus

Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai – 400 051.

…Respondent

Mr. D.P. Desai, Advocate for the Appellant.
Dr. (Mrs.) Poornima Adva ni, Advocate with Mr. Ajay Khaire, Advocate for the
Respondent.

CORAM : Justice N.K. Sodhi, Presiding Officer
P.K. Malhotra, Member
S.S.N. Moorthy, Member

Per : Justice N.K. Sodhi, Presiding Officer (Oral)

This appeal is directed against the order dated June 9, 2011 passed by the
whole time member of the Securities and Exchange Board of India (for short the
Board) suspending the certificate of registration of the appellant as a stock broker for
a period of two months which period was to commence on the expiry of 21 days from
the date of the order.

2. The appellant is a stock broker registered with the Board and a member of the
   National Stock Exchange of India Ltd. (NSE ). The Board carried out investigations
   into the dealings in the scrip of Jags onpal Pharmaceuticals Ltd. (for short the
   company) for the period from August, 2000 to December, 2000 and from July, 2001
   to October, 2001. The scrip of the company is listed on the aforesaid stock exchange.
   Investigations revealed that the appell ant had traded in the scrip during the
   investigation periods and ha d executed synchronized and matched trades with its 2
   counter party brokers which trades, according to the Board, were artificial in nature
   and led to increase in artificial volumes. E nquiry proceedings were initiated against
   the appellant and a show cause notice was i ssued alleging violation of the provisions
   of Regulation 4 of the Securities and Ex change Board of India (Prohibition of
   Fraudulent and Unfair Trade Practic es relating to Securities Market)
   Regulations, 1995 and the Code of Conduct prescr ibed for stock brokers in
   Schedule II read with Regulation 7 of the Securities and Exchange Board of India
   (Stock Brokers and Sub-Brokers) Regul ations, 1992. The enquiry officer after
   affording an opportunity of hearing to the appellant came to the conclusion that the
   charge levelled against the appellant stood established on the basis of its trading
   pattern as reflected in the trade and order logs. Enquiry officer recommended that the
   certificate of registration of the appellant as a stock broker be suspended for a period
   of two months. On receipt of the enquiry report, the whole time member served the
   appellant with a fresh notice to show cause why the enquiry report be not accepted
   and its certificate of registration not susp ended as recommended. The appellant filed
   its reply and on considerati on of the material collected during the course of the
   investigations and the enquiry and taking note of the findings by the enquiry officer,
   the whole time member by the impugned order agreed with the findings of the
   enquiry officer that the appe llant had executed structured trades and was guilty of
   creating artificial volumes in the scrip of the company. Hence this appeal.
3. We have heard the learned counsel fo r the parties who have taken us through
   the record and the impugned order. To be fair to the learned counsel for the appellant,
   he has not seriously challenged the findings recorded by the enquiry officer and the
   whole time member. In other words, the appell ant has not disputed before us that it
   had executed structured and matched trades while trading in the scrip of the company.
   Such trades are artificial in nature and do not transfer the beneficial ownership in the
   traded scrip. Matched and s ynchronized trades only create artificial volumes which
   tend to lure the lay investors into trading. Such trades adversely affect the market and
   the Board rightly takes a serious view in the matter. In the case before us, the
   appellant had executed matched trades not only in the scrip of the company but in the 3
   scrip of seven other companies during the periods of investig ation. The learned
   counsel for the Board pointed out that after taking note of the trades executed by the
   appellant in other scrips which were also matched and synchronised, its certificate of
   registration has been suspended for different periods. This fact could not be disputed
   by the learned counsel for the appellant an d rather it has been admitted in the
   memorandum of appeal that the certificate of registration of the appellant had been
   suspended for executing similar trades in other scirps as well. It is, thus, clear that the
   trades executed by the appellant in the scrip of the company were not isolated trades
   and that it had been executin g synchronized and artificial tr ades in other scrips as
   well. In these circumstances, the period of two months for which the certificate of
   registration of the appellant has been susp ended cannot be said to be excessive. The
   learned counsel for the appellant conte nded that the whole time member while
   suspending the certificate has observed that the suspension shall come into force after
   the expiry of 21 days from the date of th e order. He wants this period to commence
   from the date of the order itself. We don’t think that the whole time member erred in
   allowing the appellant 21 days time to approa ch this Tribunal in appeal. Since the
   appellant has already surrendered its certificate of registration and is out of the market
   since long, the prayer now made on behalf of the appellant is accepted and it is
   directed that the period of two months for which the ce rtificate of registration has
   been suspended shall commence from the da te of the impugned order. With this
   modification, the appeal is disposed of with no order as to costs. Sd/- Justice N.K. Sodhi
   Presiding Officer Sd/- P.K. Malhotra Member Sd/- S.S.N. Moorthy Member </code></pre>25.07.2011
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