BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

                                                 Appeal No. 209 of 2012  


                                  Date of decision: 19.11.2012  

1. Grishma Securities Private Limited
   92/04, Nirbhay Niwas,
   Bhaudaji Cross Road,
   10#, Matunga,
   Mumbai – 400 019.
2. Mihir Ghelani
   92/04, Nirbhay Niwas,
   Bhaudaji Cross Road,
   10#, Matunga,
   Mumbai – 400 019.
3. Ketan Shah
   92/04, Nirbhay Niwas,
   Bhaudaji Cross Road,
   10#, Matunga,
   Mumbai – 400 019.
4. Chandrika H. Gandhi
   92/04, Nirbhay Niwas,
   Bhaudaji Cross Road,
   10#, Matunga,
   Mumbai – 400 019.
5. Chhabil C. Shah
   92/04, Nirbhay Niwas,
   Bhaudaji Cross Road,
   10#, Matunga,
   Mumbai – 400 019. … … Appellants

Versus

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

…… R   

Mr. Somasekhar Sundaresan, Advocate with Mr. Abhishek Venkatraman,

Advocate for Appellants.

Mr. Shiraz Rustomjee, Senior Advocate with Mr. Mobin Shaikh, Advocate for the

Respondent.

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CORAM : P. K. Malhotra, Member & Presiding Officer (Offg.)
S. S. N. Moorthy, Member

Per : P. K. Malhotra

This appeal is filed by the appellants against the ad-interim ex-parte order

dated December 28, 2011, passed by the whole time member of the Securities and

Exchange Board of India (the Board) interalia, prohibiting the appellants from

buying, selling or dealing in any securities, in any manner, whatsoever, till further

orders. Appellant no. 1 is a company registered with the Board as a stock broker

since February 2000. Appellant no. 2 is the CEO and Compliance Officer and

appellant nos. 3 to 5 are directors of the appellant company.

2. The Board carried out investigations into the Initial Public Offering (IPO)

of Tijaria Polypipes Ltd. (the company) and prima-facie found that certain

individuals traded in the shares of the company on first day of listing i.e. October

14, 2011 and provided an exit to both qualified institutional buyers and retail

investors who were allotted shares in the IPO. According to initial investigations

carried out by the Board, these buyers in the IPO were creating artificial volumes

in the scrip of the company to attract genuine investors. It is also alleged that the

individuals who provided an exit to the qualified institutional buyers and retail

allottees include Jivraj Bachubhai Zala (Zala), Lopa Saumil Bhavnagari (Lopa)

and Chetan Dave (Dave) and the appellant company acted as brokers through

whom Zala and Dave entered trades in the shares of the company and had links

with Lopa who allegedly traded in the shares of the company. The appellants

allowed Zala to trade in the shares of the company on October 14, 2011 without

meetimagin ments, Zala’s aroblions fand

securities belonging to other clients, falsified its client ledger etc. Pending

investigations, the Board passed the impugned order against various entities

including the appellants. The said order was also a show cause notice to the

appellants and they were afforded opportunity to file their objections, if any, and

were also afforded opportunity of personal hearing.

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3. The appellants availed of this opportunity and filed their written

submissions also. The grievance of the appellants in the appeal is that inspite of

their replies and personal hearing, the Board failed to pass any further order and

under the garb of ex-parte ad-interim order, the appellants are out of their business

for almost ten months. It is submitted that the appellants are suffering grave and

irreparable harm and prejudice on account of the wrongful and unjustified

continuation of the impugned order and inability of the appellants to continue their

business in the securities market is causing serious commercial and reputational

harm and prejudice to the appellants. It is further submitted that there is nothing in

the impugned order or the proceedings, initiated to even remotely suggest that the

working of the appellants is to the detriment of the market. It is, therefore, prayed

that the directions in the impugned order against the appellants be set aside.

4. During pendency of the appeal, the whole time member of the Board has

passed order dated November 5, 2012 under Section 11 and 11B of the Securities

and Exchange Board of India Act, 1992 (the Act) confirming the directions issued

vide ad-interim ex-parte order dated December 28, 2011 against the appellants.

Learned counsel for the appellants has placed on record copy of the order dated

November 5, 2012 and also two more orders, one dated November 2, 2012 in

respect of some other brokers and entities who dealt in the scrip and against whom

the directions issued vide the ad-interim ex-parte order dated December 28, 2011

was revoked and another dated November 5, 2012 under which directions in the

ex-parte ad-interim order against Lopa has been confirmed.

5. Learned counsel for the appellants strenuously argued before us that while

confirming the ex-parte ad-interim order dated December 28, 2011, the whole time

member has failed to consider the submissions made before him and the order is

discriminatory, in as much as, he has revoked the interim order against other

brokers who had dealt in the scrip of the company but the same is continued

against the appellants without any justification. It was further submitted by him

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that by now, the appellants are already out of the market for eleven months and

there is no justification to continue with the interim order. The Board may

continue with its investigation but, in the facts of the case, the interim order needs

to be vacated.

6. Learned senior counsel for the Board supported the order passed by the

Board and submitted that while passing the order dated November 5, 2012, the

whole time member of the Board has duly considered the submissions made by the

appellants. The case of the appellants stands on a different footing as compared to

the case of other brokers against whom interim order has been revoked. The

investigation in the matter is already over and the Board is likely to issue show

cause notice to the appellants within next two weeks. Keeping in view the role

played by the appellants in manipulating the IPO of the company, the restraint

must continue against the appellants and there is no justification to intervene in the

proceedings initiated by the Board.

7. We have given our thoughtful consideration to the arguments advanced by

counsel on both sides and also perused the documents placed on record. We have

also taken note of the fact that investigation in the matter is already over and the

Board is likely to issue show cause notice to the appellants within next two weeks.

Therefore, we are not inclined to interfere with the continuation of the proceedings

by the Board against the appellants. In so far as continuation of interim order

against the appellants is concerned, what we have to see is whether a prima-facie

case for continuing the interim order against the appellants is made out. Perusal of

the order dated November 5, 2012 passed by the whole time member shows that

he has considered the submissions made by the appellants. A prima-facie view is

also expressed as to why those reasons are not acceptable when the proceedings

are still continuing. After dealing with the submissions, the whole time member

has given reasons in paragraph 14 of the order as to why interim order already

issued need to be continued which are reproduced below for ease of reference :-

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“14. notethat ma allMr.JZalato e
heavily in the scrip, on the day of listing, allowing him to take
huge exposures and incurring heavy losses to the tune of 9.95 crore, without collecting margins, despite the fact that he was a “walk -in- cliand was laround 5
lakh. The said client had allegedly provided exit to certain retail
allottees and QIBs and the losses incurred by him was partly off-
set through funds from TPL received through layered fund
transfers. His client ledger was allegedly manipulated to
indicate that he had sufficient funds to trade, whereas funds
were actually received much later after the trading day.
Grishma had allegedly utilized the funds/securities of other
clients for making the margin payments of Mr. Jivraj Zala
towards his trades. The interim order had mentioned that
GrishmcliMr. ivraj a had indulged in structured
trades/trade reversals with Ms. Lopa. The submissions of
Grishma, its directors and CEO do not give any plausible
reasoning/explanation for their actions, at this stage. I also note
that investigation in the matter has been completed and
appropriate action as deemed appropriate, in accordance with
law, would be initiated against Grishma, its directors and the
CEO. In the light of above facts and circumstances, I am
therefore of the considered view that no intervention is called
for, at this stage, in either vacating the interim directions or
modifying it, with respect to Grishma, its directors and CEO. ”

8. We are of the view that the whole time member has passed the order dated

November 5, 2012 after considering the submissions made by the appellants and

has recorded sufficient reasons for continuation of the impugned order. Simply

because interim order has been revoked against other brokers, it cannot be a

ground for revoking the interim order against the appellants. It depends on the

role played by them in manipulation of the scrip of the company. It is not in

dispute that Section 11/11B of the Act empowers the Board to restrain any person

from accessing the securities market and prohibit any person associated with the

securities market to buy, sell or deal in securities either pending investigation or

enquiry or on completion of such investigation or enquiry in the interest of

investors or securities market. The appellant company has acted as broker to Zala

and Dave in the trading of the scrip of the company done on October 14, 2011

which has allegedly manipulated the market and induced gullible investors to

invest in the shares of the company. This conduct is under investigation. After

considering the response received from the appellants the whole time member of

the Board has come to the prima-facie conclusion that appellants have failed to act

in accordance with the provision of the regulations in its dealings with its clients.

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The investigation is over and the Board is likely to issue a show cause notice

within next two weeks. The whole time member has brought on record sufficient

justification for continuation of interim order against the appellants. We are

convinced that no case for intervention by the Tribunal at this stage is made out.

In the result, the appeal fails and the same is dismissed with no order as to

costs.

Sd/-
P. K. Malhotra
Member &
Presiding Officer (Offg.)

Sd/-  
                                                                     S. S. N. Moorthy         
                 Member  

19.11.2012
Prepared & Compared by
ptm