BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

                          Appeal No. 194 of 2010  

                                Date of decision: 10.1.2011 

Mansukh Stock Brokers Ltd.
(Formerly known as ‘Uttam Financial Services Ltd’)
Mansukh House, Plot No. 16,
Opp. Mother Dairy, Pandav Nagar,
New Delhi – 110 092.

……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. Prakash Shah, Advocate for the Appellant.
Mr. Kumar Desai, Advocate with Ms. Harshada Nagare, Advocate for the
Respondent.
CORAM : Justice N. K. Sodhi, Presiding Officer
Samar Ray, Member
P. K. Malhotra, Member
Per : Justice N. K. Sodhi, Presiding Officer (Oral)
The appellant before us is Mans ukh Stock Brokers Limited which was
formerly known as Uttam Financial Services Limited. It is a member of the
Bombay Stock Exchange Ltd. Mumbai and registered as a stockbroker with the
Securities and Exchange Board of India (f or short the Board). The Board carried
out investigations in the tr ading of the scrip of K Sera Sera Productions Limited
(hereinafter referred to as the company). Investigations revealed that a handful of
stock brokers including the appellant execut ed circular trades in the scrip of the
company. Some of the brokers like th e appellant executed trades in their
proprietary accounts while others who were a part of the ci rcular trading had
executed trades on behalf of their clients. Adjudication proceedings were initiated
against all the brokers and their clients. The appellant was served with a show
cause notice alleging that it had alongwith other stock brokers executed circular
trades in the scrip of the company thereby violating Regulation 4 of the Securities

2
and Exchange Board of India (Prohibi tion of Fraudulent and Unfair Trade
Practices relating to Securities Market) Regulations, 2003 and the code of conduct
prescribed in schedule II read with Regul ation 7 of the Securities and Exchange
Board of India (Stockbrokers and Sub- brokers) Regulations, 1992. It may be
mentioned that separate proceedings were initiated against all the stock brokers
who indulged in circular trading. The appe llant filed its reply and denied all the
allegations. On a consideration of the ma terial collected during the course of the
investigations and the enquiry, the adju dicating officer found that the appellant
alongwith several other brokers executed circular trades and violated the aforesaid
provisions of law. Accordingly, by his order dated August 31, 2010 he imposed a
monetary penalty of 8 lacs on the appellant. 7 lacs was imposed for
executing circular trades and another ` 1 lac for violating the code of conduct. It
is this order which is now under challenge before us.

2. We have heard the learned counsel for the parties who have taken us
   through the record. The data as culled out from the trade and order logs reveals
   that the appellant alongwith other stock brokers had executed circular trades. For
   instance, on June 18, 2004, one S.P.J. Stock Brokers Private Limited sold 5,000
   shares of the company to the appellant who purchased them in its proprietary
   account. After purchase, the appellant sold these shares to another broker by the
   name of Sanchay Fincom Limited. Sancha y Fincom then sold these shares to
   another broker, Vijay Bhagwandas. Vija y Bhagwandas then sold the shares to
   Harikishan Hiralal another broker and Hari kishan Hiralal finally sold the shares
   back to S.P.J. Stock Brokers Private Ltd. All these trades were executed between
   11:15 hrs and 11:38 hrs i.e. with in a matter of seconds. It is, thus, clear that the
   circle which started with S.P.J. Stock Brokers Pvt. Ltd. got completed when the
   shares reached back to the same broker through others including the appellant.
   This is not a solitary instance. Trades between these brokers had been executed in
   more than 200 circles. The anonymous tr ading system does not permit trades to
   be executed in circles and whenever such trades are executed, it could only be the
   result of manipulation which implies a prior understanding between the brokers 3
   and the clients. Such circular trades are ar tificial in nature as they do not transfer
   the beneficial ownership in the shares traded and are meant only to create
   volumes on the screen of the trading system which, in turn, lures the lay investors
   to jump into the fray and start trading. We are, therefore, satisfied that the
   charges levelled against the appellant sta nd established on the basis of the record
   before us.
3. The learned counsel for the appellan t has pointed out that adjudication
   proceedings had been initiated against S. P. J. Stock Brokers Private Limited as
   well which had started the circle referred to hereinabove. That broker has been
   awarded a penalty of 50,000/- for executing circular trades and another sum of 25,000/- for violating the code of conduc t. We are unable to understand why
   this differentiation. The appellant as we ll as S. P. J. Stock Brokers Private
   Limited were a part of the same ma nipulative trading and there being no
   difference in their conduct, they cannot be treated differently in the matter of
   imposition of penalty. What is surprising is that the adjudicating officer was the
   same who passed the orders in the ca se of all these brokers. In these
   circumstances, we cannot but reduce the penalty to ` 75,000/- on the appellant as
   was imposed on S. P. J. Stock Brokers Private Limited. While upholding the
   findings of the adjudicating officer, we modify the impugned order to the extent
   stated above. The appeal stands disposed of accordingly with no order as to costs.
   Sd/-
   Justice N. K. Sodhi
   Presiding Officer
   Sd/-
   Samar Ray
   Member
   Sd/-
   P. K. Malhotra
   Member
   10.1.2011
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