BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 73 of 2011
Date of decision: 21.6.2011 Networth Stock Broking Ltd.
2nd Floor, D C Silk Mills Compound,
Kondivita Road, Andheri (E),
Mumbai – 400 059.
……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. P. N. Modi, Advocate with Mr. Neville Lashkari, Advocate for the Appellant.
Mr. Shiraz Rustomjee, Advocate w ith Mr. Mihir Mody, Mr. Faiz Khan,
Advocates for the Respondent.
CORAM : Justice N. K. Sodhi, Presiding Officer
P. K. Malhotra, Member
Per : Justice N. K. Sodhi, Presiding Officer (Oral)
Since we are remanding the case to the Securities and Exchange Board of
India (for short the Board) for proceeding afresh in the matter, it is not necessary
for us to state all the facts in detail nor is it necessary to deal with all the
contentions raised on both sides. The appellant before us is a public limited
company which is registered as a stock broker with the Board. It had executed
trades on behalf of its clients, among ot hers, in the scrip of G. G. Automotive
Gears Limited (for short the company). The Board carried out investigations in
the scrip of the company for the peri od from August 1, 2002 to October 16, 2002
and it transpired that a group of four member brokers including the appellant and
their clients traded in the scrip in a ci rcular pattern intra-day for 40 days during
the period of investiga tion. The appellant had executed trades on behalf of
Ms. I. U. Goda. Proceedings were initiat ed against the brokers and their clients
separately around the same time. Show cause notice dated June 5, 2006 was
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issued to the four brokers including th e appellant alleging that “four member
brokers and their clients …… traded in a circular pattern in tra-day for 40 days
…… during the period of investigation.” The brokers and their clients involved
in circular trading alongwith the contri bution of each was mentioned in the show
cause notice in the form of a table whic h is reproduced hereunder for facility of
reference:-
S. No. Broker Name and
Code
Client Name No. of
Shares
Bought
No. of
Shares
sold
1 DPS Shares and
Securities Pvt. Ltd.
(Clg. No. 151)
- Anju Gandhi (A017)
- Atul Gandhi (A018)
- Harshad (H012)
- Soham Securities (S251)
- S
- S012
3500
28000
8125
40000
2500
18230
5000
30850
8125
48999
2500
18250
2 Unique Stockbro Pvt.
Ltd. (Clg. No. 170)
- Hitesh Shah (8654)
- Trusha Goda (9393)
66775
29890
67825
37750
3 Networth Broking
Limited (Clg. No.
197)
I U Goda (3217) 111250 98420
4 Action Financial
Services (India)
Limited (Clg. No.
444)
P B Chandrashekhar (406748) 120479 111030
The show cause notice further mentioned th at investigations had revealed that
“one Shri Shirish C. Shah had fraudulently traded on behalf of Ms. Indumati
Goda and her daughter-in-law, Ms. Trusha Goda.” On the basis of the allegations
made in the notice the appellant was allege d to have violated the code of conduct
prescribed for the stockbrokers and also Regulation 4 of the Securities and
Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices
relating to Securities Mark et) Regulations, 2003. The appellant filed its reply
denying the allegations and stated that it was not involved in any way in circular
trades in the scrip of the company though it admitted that it had executed trades
on behalf of Ms. I. U. Goda. On a cons ideration of the material collected during
the investigations and the enquiry, the enquiry officer submitted his report holding
the appellant guilty of the charges levell ed against it. A copy of the enquiry
report was then furnished to the appellant alongwith a notice calling upon it to
show cause why the same be not accepted. The appellant filed its reply denying
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that it had participated in circular trad ing. The whole time member considered
the entire material on the record and noted that during the investigation period, the
appellant had traded for its client Ms. I. U. Goda in the scrip of the company. He
then upheld the finding recorded by the enquiry officer that the appellant had
violated the aforesaid provisions and finally concluded as under:-
“As already established, the noticee has aided and abetted the
creation of misleading appearance of trading by its client in the
securities market. Thus it is cl ear that the noticee has failed to
comply with duties expected from a registered intermediary.”
Accordingly, by his order dated April 19 , 2011 he suspended the certificate of
registration of the appellant as a stock broker for a period of one month. It is
against this order that the present appeal has been filed.
- We have heard the learned counsel for the parties at length who have
taken us through the impugned order and the record. As already noticed above,
the appellant has been found gu ilty of aiding and abetting its client, namely
Ms. I. U. Goda for the creation of mi sleading appearance of trading in the
securities market by executing circular trades. Separate proceedings had been
initiated against the clients as well includ ing Ms. I. U. Goda and it is common
ground between the parties that she has been let off the charge of executing
circular trades. It must be remembered that every broker executes either a self
trade or a trade on behalf of his client(s). Admittedly, in the case before us the
appellant is said to have executed trades on behalf of Ms. I. U. Goda and the
finding recorded by the whole time member is that while executing trades on her
behalf, the appellant had aided and abette d her in creating misleading appearance
of trading in the scrip of the company. When Ms. Goda has been exonerated, we
wonder how the finding against the appell ant that it aided and abetted her in
executing false/circular trades can be upheld. It is clear fr om the record that
Ms. I. U. Goda has been exonerated of the charges on the ground that the
aforesaid Shirish Shah had fraudulently executed trades on her behalf by opening
bank accounts in her name. In this view of the matter, we cannot uphold the
finding recorded by the whole time member. 4
In the result, the appeal is allowed and the impugned order set aside. The
case is remanded to the respondent Bo ard for taking fresh proceedings in
accordance with law. Since the transactions that have been called in question
were executed way back in 2002 and the ma tter is quite old, we direct that the
proceedings be concluded expeditiously but not later than six months from the
date of receipt of this orde r. We make it clear that all contentions raised on both
sides are kept open and the Board shall decide the issu es afresh without being
influenced by any observation made by us in this order. No costs.
Sd/-
Justice N. K. Sodhi
Presiding Officer
Sd/-
P. K. Malhotra
Member
21.6.2011
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