BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved On: 20.03.2019
Date of Decision : 26.04.2019
Appeal No. 282 of 2018
Vijay J. Thakkar
88, Krishnadham Society,
Vasana Road,
Next to Axis Bank Street,
Vadodara- 390 015
…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. J. J. Bhatt, Advocate with Ms. Rinku Valanju, Advocate i/b
R.V. Legal for the Appellant.
Mr. Gaurav Joshi, Senior Advocate with Mr. Abhiraj Arora,
Ms. Misbah Dada and Mr. Vivek Shah, Advocates for the
Respondent.
CORAM: Justice Tarun Agarwala, Presiding Officer
Dr. C.K.G. Nair, Member
Justice M. T. Joshi, Judicial Member
Per: Dr. C.K.G. Nair
1.

This appeal has been filed challenging the order of the
Adjudicating Officer (“AO” for short) of the Securities and
Exchange Board of India (“SEBI” for short) passed on June 29,
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2018.

By the said order a penalty of ` 16 lakh has been
imposed under Section 15HA of the Securities and Exchange
Board of India Act, 1992 (“SEBI Act” for short) and ` 6 lakh
under Section 15HB of the SEBI Act; the former for violation of
the Securities and Exchange Board of India (Prohibition of
Fraudulent and Unfair Trade Practices relating to Securities
Market) Regulations, 2003 (“PFUTP” Regulations” for short)
and the latter for violation of the SEBI (Stock Brokers and SubBrokers) Regulations, 1992 (“Brokers Regulations” for short).

2.

The appellant is a sub-broker registered with SEBI. SEBI
conducted an investigation into certain alleged irregularities in
trading of the shares of M/s SKS Logistics Limited (“SKS” for
short) during the period June 01, 2004 to October 29, 2004. The
investigation revealed certain irregularities in the form of
circular/ synchronized trading by the appellant in connivance
with certain clients and, therefore, became instrumental in
creating artificial volume in the scrip of SKS. A show cause
notice was issued on March 09, 2010 directing the appellant to
show cause as to why an inquiry should not be held and penalty
not imposed under Section 15HA and 15HB of the SEBI Act for
alleged violation of the provisions of Regulation 4(1), 4(2)(a)
and 4(2)(g) of PFUTP Regulations and Regulation 15(1)(b) read
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with Clauses A(1), A(2), D(1), D(4) and D(5) of Code of
Conduct for Sub-Broker specified under Schedule II of Brokers
Regulations.

3.

Subsequently, after providing personal hearing etc. an
order was passed on August 28, 2014 by which a total penalty
of ` 22 lakh was imposed on the appellant. An appeal was filed
against this order before this Tribunal. Vide order dated
February 09, 2016 this Tribunal set aside the order impugned
therein and remanded the matter back to the AO of SEBI for
passing afresh order on merits and in accordance with law.
After providing a fresh opportunity of hearing and considering
the matter afresh the order dated June 29, 2018, impugned in
this appeal was passed by the AO.

4.

The relevant provisions of the PFUTP Regulations and
Code of Conduct are reproduced as below for convenience.
“PFUTP Regulations
4.

Prohibition of manipulative, fraudulent
and unfair trade practices
(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
4
to be a fraudulent or an unfair trade
practice if it involves fraud and may
include all or any of the following,
namely:(a)
(b)
(c)
(d)
(e)
(f)
(g)
indulging in an act which creates
false or misleading appearance
of trading in the securities
market;
……..
……..
……..
……..
……..
entering into a transaction in
securities without intention of
performing it or without
intention
of
change
of
ownership of such security;”
“CODE OF CONDUCT
BROKERS- Regulation 15
FOR
STOCK
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.
D: Sub-Brokers vis-a-vis Regulatory Authorities
(1) General Conduct: A sub-broker shall not
indulge in dishonourable, disgraceful or
disorderly or improper conduct on the stock
exchange nor shall he willfully obstruct the
business of the stock exchange. He shall
comply with rules, bye-laws and regulations
of the stock exchange.

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(4) Manipulation: A sub-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.
(5) Malpractices: A sub-broker shall not create
a false market either singly or in concert
with others or indulge in any act detrimental
to the investor’s interest or which leads to
interference with the fair and smooth
functioning of the market mechanism of the
stock exchanges. A stockbroker shall not
involve himself in excessive speculative
business in the market beyond reasonable
levels not commensurate with his financial
soundness.”
5.

The learned counsel Shri J. J. Bhatt appearing on behalf of
the appellant submitted that the AO has not reconsidered the
facts of the matter as directed by this Tribunal, because, the
same amount of penalty of ` 22 lakh has been imposed again;
the fact that the penalty imposed on three clients involved in the
same violation as ` 1 lakh each has not been considered
particularly when the appellant as a sub-broker has only
executed the trades of the clients as per their instructions; the
appellant as a sub-broker has responsibility to implement the
orders given by his clients and accordingly implemented such
orders only; the appellant does not know any of the counterparties to the trades as alleged in the impugned order; no proof
of any connection has been provided in the impugned order; the
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total volumes of trade involved is only 18000 shares on which
the appellant got only the brokerage and the appellant has not in
any way violated any regulations or Code of Conduct as alleged
in the impugned order.

6.

The learned counsel also relied on the order of this
Tribunal in the matter of Kapil Chatrabhuj Bhuptani V/s
Securities and Exchange Board of India (Appeal No. 95 of
2013 decided on 10.10.2013) wherein it was held that
synchronized trading is itself would not tantamount to any
wrongdoing unless mischievous meeting of minds amongst
certain parties is proved.

7.

Shri Gaurav Joshi, learned senior counsel appearing for
respondent SEBI submitted that it is a clear case of market
manipulation as is evident from the order. The price of the scrip
of SKS increased from ` 19.9 on August 05, 2004 to ` 39.10 on
August 20, 2004. On 7 out of these 12 trading days price of the
SKS shares hit the upper circuit. Further from September 20,
2004 the price increased from ` 34.75 to ` 68.40 on October 12,
2004. The daily volumes increased from around 9000 shares
during the first period to around 31000 shares during the second
period. Similarly, the quantity traded in a circular fashion by
7
the parties involved was in the range of 11% to 71% of the total
quantity traded in the market during September-October 2004.
The entire scheme was executed by a group of brokers/ subbrokers and clients and the trading was done in a circular and
synchronized manner. In respect of the appellant the instances
of this circular trading on 6 days is clearly shows at pages 8 and
9 of the impugned order. Further, since as a sub-broker the
appellant was expected to be more vigilant and proactive in
following the Regulations and Code of Conduct a higher penalty
is imposed on the appellant viz a-viz that of the clients in the
matter.

8.

There is enough evidence to support the stand that the
appellant was a part of the group who manipulated the market in
the scrip of SKS. The trading done by the client of the appellant
through the appellant; the timing, the synchronization and the
circular nature as explained at pages 8 and 9 of the impugned
order clearly demonstrate the manipulation in the scrip to raise
its price from around ` 35 to ` 61 in a few trading days during
September- October 2004 which is not a matter of ordinary
course of business/ trading.

Accordingly, we find no merit in
the submissions of the learned counsel for the appellant that he
had no role in the matter. However, we find some merit in his
8
submission that the penalty imposed on the client involved is
only ` 1 lakh while that on the appellant under PFUTP
Regulations is ` 16 lakhs which is disproportionate.

9.

It was held in our order in Vijay J. Thakkar V/s SEBI
(Appeal No. 381 of 2014 decided on February 09, 2016) that
“inordinate delay in passing the impugned order has caused
serious prejudice to the appellant deserves acceptance” because,
vide order dated April 13, 2012 the AO of SEBI had imposed
penalty of ` 1 lakh only under Section 15HA of SEBI Act on
the three clients for indulging in synchronized/ circular trades in
the same scrip while passing the impugned order dated August
28, 2014 the AO has not considered the orders dated April 13,
2012 relating to the clients in deciding upon the quantum of
penalty. However, we do not want to equate the role of a subbroker with that of a client while holding that some degree of
parity between the two needs to be brought in particularly when
the alleged charges are based on the same facts in the same
matter. We agree with the view that a sub-broker has a greater
responsibility of due diligence than that of a client.

Still
proportionality is all the more relevant particularly when a
separate amount of penalty of ` 6 lakh has also been imposed on
the appellant for violation of Code of Conduct for sub-brokers.

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Accordingly, while upholding the impugned order on merit, we
are of the view that this is an appropriate case of reducing the
amount of penalty imposed on the appellant given the overall
factual matrix involved.

10. Accordingly, we reduce the penalty of ` 16 lakh imposed
on the appellant to ` 5 lakh under Section 15HA of the SEBI
Act and reduce the penalty of ` 6 lakh imposed on the appellant
under Section 15HB of the SEBI Act to ` 3 lakh. Appellant is
directed to pay the total amount of penalty ` 8 lakh, within four
weeks from today.

11. Appeal is partially allowed with no order on costs.

Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C.K.G. Nair
Member
Sd/Justice M. T. Joshi
Judicial Member
26.04.2019
Prepared & Compared By: PK