Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited

WTM/SM/IVD/ID10/19211/2022-23 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under Section 12 (3) of the Securities and Exchange Board of India Act, 1992 read with Regulation 27 of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008. In respect of Sr. No. Name of the Noticee SEBI Registration No./PAN No. 1. Bharat J. Patel INZ000275413/(PAN: AAAPP6652R)

In the matter of fictitious transactions in the scrip of Global Telesystems Limited BACKGROUND 1. The present proceeding is originating from the Enquiry Report dated June 30, 2021, submitted by the Enquiry Officer in terms of regulation 26 of the SEBI (Intermediaries) Regulations, 2008 (hereinafter referred as “Intermediaries Regulations”), wherein the Enquiry Officer /Designated Authority (hereinafter referred to as “DA”), based on various factual findings and observations so recorded in the said Enquiry Report, has recommended that a regulatory direction in the nature of ‘censure’ may be issued to Shri Bharat J. Patel (hereinafter referred to as “BJP/Noticee”) directing the Noticee to be more careful in future with respect to the dealings and conduct in the securities market and to adopt due diligent measures such as proper checks and balances in his operations as a stock broker in order to avoid any regulatory lapse. The Noticee is a registered trading member of the BSE Ltd. (hereinafter referred to as “BSE”). Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited

2. The aforesaid Enquiry Report was submitted pursuant to a proceeding initiated based on the findings of certain facts unearthed in the course of an investigation conducted by the Securities and Exchange Board of India (hereinafter referred to as “SEBI”) upon receipt of a complaint dated October 18, 2002 (hereinafter referred to as “Complaint”) from Tata Finance Ltd. (hereinafter referred to as “TFL”) inter alia alleging that certain fictitious and backdated transactions of sale and purchase of shares of Global Telesystems Ltd., (hereinafter referred to as “GTL”) and Global E- Commerce Services Ltd., (an unlisted company which was merged with GTL in 2001 and hereinafter referred to as “GECS”, ) were executed between Niskalp Investment and Trading Ltd. (now known as Niskalp Infrastructure Services Ltd. and hereinafter referred to as “Niskalp”) and TFL, respectively with the help of three stock brokers viz. Prashant J Patel (hereinafter referred to as “PJP”), JHP Securities Pvt. Ltd. (hereinafter referred to as “JHP”) and the Noticee during the period September 2000 to December 2000 (hereinafter referred to as “relevant period”). 3. In view of the aforesaid finding of facts, a DA was appointed to inquire into and to submit a report pertaining to the aforesaid alleged acts of the Noticee and to ascertain if these acts were in violations of the provisions of regulations 6(a) and 6(d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulation, 1995 (hereinafter referred to as “PFUTP Regulations, 1995”) r/w regulation 13(1) to 13 (3) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulation, 2003 (hereinafter referred to as “PFUTP Regulations, 2003”), regulations 4(1) & 4(2)(p) of the PFUTP Regulations 2003, Clauses A (1), (2), (3), (4) and (5) of the Code of Conduct specified in Schedule II to regulation 7 of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as “Stock Brokers Regulations”)

Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited and SEBI circular No. SMDRP/POLICY/CIR-32/99 dated September 14, 1999, allegedly committed by the Noticee. 4. The DA issued a show cause notice dated October 23, 2009 to the Noticee under regulation 25(1) and regulation 38(2) of the Intermediaries Regulations, 2008 [as it stood at the relevant point of time] advising the Noticee to submit his replies, if any, together with the supporting documents, if any that he may choose to rely upon to substantiate his contentions, failing which it shall be presumed that he has no reply to submit and the matter shall be proceeded on the basis of the material available on record. Accordingly, the Noticee vide letters dated November 14, 2009 and June 30, 2010 submitted his replies. 5. The background facts necessary for the present proceedings are narrated in brief, hereunder: i. TFL had come out with a Rights Issue of 9% Cumulative Convertible Preference Shares (“CCPS”) aggregating to INR 90.93 Crore in March, 2001. The rights issue of the TFL opened on March 30, 2001 and closed on April 30, 2001. In terms of SEBI (DIP) Guidelines, 2000 (hereinafter referred to as “DIP Guidelines”), TFL was required to furnish the financial statements of its subsidiary companies in its ‘letter of offer/offer document’. Niskalp being one of the subsidiary companies of TFL, its financial statements were also required to be incorporated in the offer document. ii. Niskalp during the relevant period had suffered huge losses on account of erosion in the value of its investments (to the tune of INR 190 Crore due to fall in the stock market) and also due to payment of an interim dividend (@45% for the year 2000-01 resulting into cash outflow of INR 10.81 Crore).

Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited iii. It was noticed that in order to ensure that Niskalp’s accounts did not reflect the aforesaid losses and the fact that its (Niskalp) losses and provisioning for ‘non-performing assets’ (for short ‘NPA’) as on September 30, 2000 were better compared to the quarter ending December 31, 2000, the financials of Niskalp were disclosed only for the period ending September 30, 2000 in the said offer document instead of disclosing the same upto the period ending December 31, 2000, whereas financials of other subsidiaries of TFL were disclosed till the quarter ending on December 31, 2000. iv. It was further noticed that to show a better picture of the financials of Niskalp and to make it look profitable, backdated and fictitious transactions in the shares of GTL and GECS were engineered and effected in the month of March, 2001 in complicity with the aforesaid three brokers including the Noticee in this proceeding for sale/ purchase of 2,88,400 shares of GTL and 16,35,100 shares of GECS (an unlisted company during the relevant period) in complicity with two unregistered entities viz. Pat Financial Consultants Pvt. Ltd. (hereinafter referred to as “PFCPL/PAT”) and Superior Financial Consultancy Services Pvt. Ltd. (hereinafter referred to as “SFCSPL/SUPERIOR”), which were the entities connected to the above registered intermediaries. v. It was further noticed that 2,88,400 shares of GTL and 16,35,100 shares of GECS were shown to have been sold by Niskalp in the month of September, 2000 and the said transactions were further reversed in the month of November- December 2000. Moreover, the above transactions were executed on paper only and not followed by either actual delivery of securities and payment of consideration thereof between the parties, details of which would be discussed in the later part of the order. vi. Based on the above noted sale of GTL and GECS shares, Niskalp was shown to have booked a profit of INR 26.04 Crore (INR 16.50 Crore in Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited

GTL and INR 9.54 Crore in GECS shares) as on September 30, 2000, thereby converting the actual loss of INR 14.59 Crore into a fictitious book profit of INR 11.45 Crore as on September 30, 2000. vii. The aforesaid dealings in shares between Niskalp and TFL were not genuine and were carried out with a view to project a better picture of Niskalp’s financial condition in the offer document of the Rights Issue of TFL. Thus, the above fictitiously generated profit in the hands of Niskalp was deliberately disclosed in the offer document of TFL for the Rights Issue. 6. On the basis of the aforesaid factual details, the DA, after considering the replies filed by the Noticee, has inter alia observed the followings in his report: “17. In view of the above observations and the facts and circumstances of the case, I hold that Noticee, as a stock broker, had not exercised due skill, care, and diligence and also failed to abide with the statutory requirements of various provisions of law. Therefore, the Noticee has violated the provisions of Clauses A (1), (2), (3), (4) and (5) of the Code of Conduct specified for Stock Brokers contained in Schedule II referred to in Regulation 7 of the Stock Broker Regulations.

Further, as brought out in the Report, the relevant transactions in GTL did not take place on the floor of BSE on September 20, 25, 27 & 28, 2000 under the client codes of TFL & Niskalp. Therefore, it has been concluded in the Report that the transactions in GTL were fictitious and the Noticee had also issued the contract notes in respect of these transactions which were not undertaken on the floor of BSE. In view of the same, I hold that Noticee has violated the provisions of Regulations 6 (a) and 6 (d) of the PFUTP Regulations, 1995. Further, in my view, as the relevant transactions took place during the period 2000-2001, the alleged violations of the provisions of Regulations 4 (1) and 4 (2) (p) of the PFUTP Regulations, 2003, as mentioned in the SCN issued to the Noticee, is not sustainable as the impugned transactions in GTL had taken place prior to the notification of the PFUTP Regulations 2003. 18. Although the above observations/ findings point out to misconduct on the part of the Noticee and Noticee has violated the provisions of law, as aforesaid, I note that the relevant Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited transactions in GTL claimed to have been executed by the Noticee occurred in the year 2000/2001 i.e almost 20 years back.

I am of the view that with the passage of time in the present matter, no meaningful purpose will be served if major enforcement actions are recommended/initiated on the Noticee at this stage. Therefore, in view of the overall facts and circumstances of the case and also considering the fact that the matter is more than 20 years old, I, in terms of the provisions of Regulation 26 of the Intermediaries Regulations recommend that a regulatory censure may be issued to the Noticee viz. Bharat J. Patel, Stock Broker, (SEBI Regn no: INZ000275413) to be more careful in future with respect to the dealings and conduct in the securities market and to adopt due diligent measures such as proper checks and balances in his operations as a stock broker in order to avoid any regulatory lapse.” 7. After considering the Enquiry Report, a Show Cause Notice dated September 02, 2021 (hereinafter referred to as “SCN”) enclosing therewith the Enquiry Report of the DA, was issued to the Noticee under regulation 27(1) of the Intermediaries Regulations, 2008 calling upon to show cause as to why action as recommended by the DA or any other action including passing of appropriate other directions, as deemed appropriate by the Competent Authority, should not be taken against them.

The SCN further advised the Noticee to submit his reply, if any within 21 days of receipt of the said SCN. 8. I note that the SCN was delivered to the Noticee and the proof of delivery is on record. Since the Noticee had not filed any reply to the SCN within the stipulated time, a reminder letter dated October 07, 2021 was sent to the Noticee informing him that if no reply is received from him, it shall be presumed that he has no reply to submit and SEBI shall proceed in the matter based on the material available on record in accordance with law. In response to the aforesaid letter, an email request (from email bharatjpatel1763@gmail.com) dated October 13, 2021 was forwarded on behalf of the Noticee seeking grant of atleast 4 weeks’ time for filing reply to the SCN. I note that despite seeking the said extension of time, the Noticee did not file the reply. Nonetheless, in conformity with the principles of Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited natural justice, an opportunity of personal hearing was provided to the Noticee on May 19, 2022, and the same was communicated to the Noticee vide letter dated April 04, 2022. In response to the said hearing notice, it was informed vide email (received from bharatjpatel1763@gmail.com) dated May 18, 2022 that the Noticee has expired on May 29, 2021 and his Death Certificate dated June 07, 2021 was furnished in this regard.

On the scheduled day, the hearing was held through video conferencing wherein the Authorized Representative on behalf of the Noticee appeared and reiterated that the Noticee has passed away on May 29, 2021. CONSIDERATION OF ISSUES 9. I have carefully perused the SCN including the Enquiry Report issued to the Noticee and the materials/details available on the record. After considering the allegations levelled against the Noticee in the instant matter as spelt out in the SCN, the issues which arise for my consideration and adjudication in the present proceeding are as under: - I. Whether the Noticee indulged in backdated and fictitious transactions in the scrip of GTL on behalf of his clients viz. Niskalp and TFL and issued fictitious contract notes to his clients viz. Niskalp and TFL pertaining to the said backdated and fictitious transactions. II. If the answer to Issue no. 1 is in affirmative, then whether the Noticee has violated the provisions of regulations 6(a) and 6(d) of the PFUTP Regulations, 1995 read with regulations 13(1) to 13 (3) of the PFUTP Regulations 2003 and Clauses A (1), (2), (3), (4) and (5) of the Code of Conduct specified in Schedule II to regulation 7 of the Stock Brokers Regulations.

10. Before I proceed to examine the charges vis-à-vis the evidences available on record, it would be appropriate at this stage to refer to the relevant provisions

Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited of the law, which are alleged to have been violated by the Noticee and the same are reproduced below for ease of reference: THE (PFUTP) REGULATIONS, 1995 Prohibition on unfair trade practice relating to securities. 6. No person shall - (a) in the course of his business, knowingly engaged in any act, or practice which would operate as a fraud upon any person in connection with the purchase or sale of, or any other dealing in, any securities; (d) indulge in falsification of the books, accounts and records (whether maintained manually or in computer or in any other form); ……. THE (PFUTP) REGULATIONS, 2003 Repeal and savings 13. (1) The Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 is hereby repealed. (2) Notwithstanding repeal of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, any violation of Regulations 3, 4, 5 and 6 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 shall be investigated and proceeded against in accordance with the procedure laid down in these regulations. (3) Notwithstanding repeal of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, any investigation pending, at the commencement of these regulations shall be continued and disposed of in accordance with the procedure laid down in these regulations. THE STOCK BROKERS REGULATIONS, 1992 Stock brokers to abide by Code of Conduct. 7. The stock broker holding a certificate shall at all times abide by the Code of Conduct as specified in Schedule II. Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited

SCHEDULE –II Code of Conduct for Stock Brokers 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. (3) Manipulation : A stock-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. (4) Malpractices: A stock-broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors interest or which leads to interference with the fair and smooth functioning of the market. A stockbroker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness. (5) Compliance with statutory requirements: A stock-broker shall abide by all the provisions of the Act and the rules, regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to him.

I. Whether the Noticee indulged in backdated and fictitious transactions in the scrip of GTL on behalf of his clients viz. Niskalp and TFL and issued fictitious contract notes to his clients viz. Niskalp and TFL pertaining to the said backdated and fictitious transactions. 11. The background in which the charges have been levelled against the Noticee in the SCN pertained to deliberate dissemination of untrue, false and misleading information pertaining to financial statements of Niskalp (one of the subsidiaries of TFL) in the letter of offer made by TFL for its Rights Issue. The said misrepresentation was allegedly caused by falsification of the books of accounts of Niskalp, by backdating the transactions of sale of shares Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited of GTL and GECS in September 2000 and then making reversal of these trades in December 2000. In this regard, the SCN records that to achieve the above objective, transactions in the shares of GTL and GECS were fictitiously entered and in the process, it was shown that in the month of September 2000, 2,88,400 shares of GTL were sold by Niskalp to the TFL through the aforesaid three brokers including the Noticee.

Out of 2,88,400 shares of GTL, the Noticee is alleged to have purchased and sold a total of 1,56,400 shares of GTL on September 27 and 29, 2000, on behalf of TFL and Niskalp (hereinafter collectively referred to as “trading clients”). These 2,88,400 shares of GTL were again shown to have been purchased back by Niskalp from TFL on December 13 and 14, 2000 (hereinafter the trading dates i.e., September 27, 29, December 13 and 14, 2000 are collectively referred to as “relevant dates”) through the Noticee. The details of aforesaid purchase and sale of GTL shares as contained in the SCN, are as under: Name of Date of Quantity Name of Quantity Name of the Broker Transaction sold Seller Purchased Purchaser Bharat J 27.09.2000 56400 Niskalp 56400 TFL Patel 29.09.2000 100000 Niskalp 100000 TFL Total 156400 156400 13.12.2000 130000 TFL 130000 Niskalp 14.12.2000 158400 TFL 158400 Niskalp Total 288400 288400

12. In respect of the aforesaid transactions executed by the Noticee on the behest of TFL and Niskalp, it is noted that the Noticee has claimed that these transactions were not executed on the floor of the stock exchanges but were off-market transactions and accordingly, he has issued the contract notes to his trading clients. However, the documents ascertained during the investigation revealed that the aforesaid contention of the Noticee is belied for Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited the following facts/reasons as evident from the details available on record and submissions made by the Noticee himself: i. It is admitted by the Noticee during the course of recording of his statement that in the process of sale and purchase of shares in the scrip of GTL, neither shares were transferred from the demat account of Niskalp to the account of TFL nor any funds were received in the bank account of Niskalp from the account of TFL so far as the aforesaid transactions in the scrip of GTL are concerned. In this regard, it is observed from the demat statement of Niskalp that during the relevant period there was no entry showing any off-market transfer/movement of shares of GTL between the trading clients particularly w.r.t the number of shares of GTL transacted /mentioned in the contract notes issued by the Noticee. ii.

The Noticee had merely claimed that the transactions in GTL were done through off-market transactions but he could not produce any evidence to support his aforesaid claim. Also, the Noticee mentioned that he had issued the contract notes to his trading clients in respect of these transactions in ‘Form A’ instead of ‘Form B’. I note that when it was pointed out to the Noticee during the investigation that ‘Form A’ contract notes are generally issued only for market transactions, the Noticee was not able to offer any valid explanation in this regard. iii. Further, the Noticee mentioning the settlement numbers in the contract notes, raising bills, raising service tax, turnover charges etc. related to aforesaid off-market transactions casts suspicion over the veracity of the contract notes issued by the Noticee and also raises suspicion over the genuineness and veracity of the said transactions in GTL. iv. It is observed that the aforesaid brokers including the Noticee had never done any business on behalf of TFL before the aforesaid transactions in the shares of GTL during the relevant period indicating that the said Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited trading for TFL by him was executed outside his normal conduct or course of business. v. It was also confirmed by the Noticee that no brokerage was received from the trading clients even though the contract notes issued to them mentioned the details of the brokerage charged by the Noticee from the trading clients. vi.

Another contention of the Noticee that Niskalp being the subsidiary company of TFL, the relevant purchase and sale transactions in GTL shares by the above mentioned clients were netted /settled between the trading clients and only the adjustment entries were passed in their respective books. This contention is again equally misplaced because the Noticee, as a registered stock broker, was expected to carry out minimum level of due diligence before recording the transactions in his books in the form of journal entries. In the instant matter, when the trade logs and demat statements of the trading clients did not show any evidence of the transactions that took place in the scrip of GTL during the relevant period, the Noticee, as a matter of abundant caution, should have checked /verified the records of the trading clients in order to ascertain if the above transactions in GTL shares have actually taken place through physical mode i.e., the Noticee ought to have checked both delivery and payment status w.r.t these transactions before issuing the contract notes to the respective trading clients. vii.

It is observed that the shareholding in GTL by Niskalp during the relevant period was pledged with HDFC Bank by Niskalp and therefore, the shares could not have been transferred or sold by Niskalp without the approval of HDFC Bank. There is no material/details available on record or produced by the Noticee either during Investigation or before me to show that it had sought approval from the HDFC Bank in this regard. Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited

13. In view of the aforesaid deliberations and in the absence of any material to controvert the allegations, I find that the Noticee has grossly failed to to demonstrate that the aforementioned transactions in GTL shares ever took place at all between the trading clients on the relevant dates, by way of off-market transactions during the relevant period. Hence, I am constrained to conclude that these transactions in the scrip of GTL claimed to have been executed by the Noticee through off market transactions on the relevant dates i.e., September 27 & 29, 2000 and December 13 & 14, 2000 are fictitious book entries as these trades did not take place through off-market during the relevant period, contrary to the claims made by the Noticee that these transactions were executed by it in the off-market transactions on the relevant dates. 14. Further, the journal entries in the books of account of the Noticee cannot be regarded as sufficient proof of the contemporaneous character of the said dealings, especially when the Noticee has admitted to have not received any written communication from TFL confirming the above transactions.

There is no doubt that, if these transactions had actually been carried out on the date as mentioned on the contract notes, these transactions would have been recorded in TFL’s books and would have been surely reflected in its published financial results for the quarters ended September and December 2000, which is evidently not the case here. This indicates that the contract notes issued by the broker were indeed backdated and no physical/demat delivery of shares was ever made through the Noticee and the fictitious consideration for the said sale and re-purchase dealings in GTL shares was adjusted between the trading clients mutually by way of journal entries in the books of Niskalp. The aforesaid findings are further strengthened from the undisputed fact that the said transactions relating to sale and repurchase of shares of GTL do not even feature in the Internal Audit Reports pertaining to investment transactions of Niskalp during the above period. This further Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited establishes the fact that the transactions actually took place somewhere in March 2001 but were backdated to September 2000 in the books of Niskalp just to window dress the account of Niskalp.

Additionally, the Reserve Bank of India vide its report dated November 20, 2000 has confirmed that the said transactions executed through the Noticee for the trading clients, were backdated. 15. Having established in the preceding paragraphs that the trades for 1,56,400 shares and reversal trades for 2,88,400 shares of GTL claimed to have been carried out through off-market transactions on the relevant dates done through/ facilitated by the Noticee, were fictitious and backdated, I now move on to examine the genuineness of the contract notes issued by the Noticee pertaining to the aforesaid fictitious and backdated transactions. I note that the Noticee had issued the contract notes to his trading clients in ‘Form A’ even though the relevant transactions in GTL did not take place on the stock exchange platform on the relevant dates as established above. Therefore, in the first place, there was no requirement on the part of the Noticee to have issued the contract notes to the trading clients in respect of the non-existent transactions in GTL shares. Secondly, the Noticee would not have issued the contract notes in Form ‘A’ which is generally issued with respect to trades carried out on the exchange platform as the trades were claimed to have been executed in off market by the Noticee.

As already mentioned above, contrary to the contentions of the Noticee that it had executed the trades in the scrip of GTL through off market transactions on the relevant dates, there is no movement of shares of GTL in demat account of Niskalp as evident from the demat statement for the relevant period vindicating the allegation that the relevant trades in GTL shares for and on behalf of the trading clients were never executed by the Noticee on the relevant dates. It is also observed upon the perusal of the contract notes issued to the trading clients that the Noticee had also mentioned therein the trade no., order details, client code details, Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited settlement no, settlement date, brokerage charged details etc. in order to put up an appearance of genuineness for the said transactions in GTL shares, which however were never executed through the off market transactions. 16. I also find that Noticee has made contradictory statements regarding the genuineness of the contract notes in question.

On one hand, in his reply dated June 30, 2010, the Noticee has mentioned that he had executed the transactions in GTL on the dates mentioned in the contract notes issued by him to his trading clients whereas on the other hand, the Noticee, at the time of recording of his statement before the Investigating Officer during the course of investigations mentioned that he had merely entered the journal entries in the ledger account of Niskalp and issued the contract notes to the trading clients based on the specific instructions received by him from Shri Shilotri. The aforesaid contradiction in the statement made by the Noticee clearly shows that the Noticee has been referring to the journal entries made by him in his books as the actual execution of the transactions in the scrip of GTL between the trading clients whereas, as discussed above, the transactions in GTL during the relevant period did not take place at all, which is evident from the physical/demat and exchange records. Hence, I find that the Noticee had issued fictitious contract notes for the trades which did not take place on off market.

In view of the above observations, I hold and conclude that the contract notes issued by the Noticee were also fictitious documents as the same were issued in respect of non-existent transactions that have been misleadingly claimed to have been executed in off market transactions on the relevant dates. 17. To put the aforesaid deliberation in perspective, I find it appropriate to capture the legislative and regulatory scheme and mandate of the PFUTP Regulations, 1995 and the Stock Brokers Regulations, 1992. Regulation 6 of the PFUTP Regulations, 1995 clearly mandates that no person shall in the course of his business, knowingly engage in any act, or practice which would Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited operate as a fraud upon any person in connection with the purchase or sale of, or any other dealing in, any securities and indulge in falsification of the books of accounts and records (whether maintained manually or in computer or in any other form. Also, regulation 7 of the Stock Brokers Regulations, 1992 casts an obligation on a stock broker that he shall at all-time abide by the Code of Conduct as specified in Schedule II.

Similarly, Clauses A (1) and (2) of the said Code of Conduct mandate that a stock broker shall maintain high standards of integrity, promptitude and fairness and shall act with due skill, care and diligence in the conduct of all his business. Further, Clause A (3) casts an obligation on a broker that he shall not indulge in manipulative, fraudulent or deceptive transactions in securities. Additionally, Clause A (5) puts accountability on a broker that he shall abide by all the provisions of the SEBI Act and the rules, regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to it. 18. In view of the above stated regulatory and legal position, after considering factual matrix of the matter, I am convinced that the Noticee was instrumental in backdating the transactions in GTL shares, who intentionally has also issued the contract notes to its trading clients on September 27 & 29, 2000 and December 13 & 14, 2000 in which the Noticee has knowingly mentioned certain fictitious details such as the trade no., client code, brokerage details etc. in order to give a color of genuineness to the said transactions, which actually did not take place on off market on the relevant dates.

Further, I have no hesitation in holding that the contract notes issued by the Noticee were also fictitious as the same were issued in respect of non-existent transactions in the scrip of GTL. Therefore, I note that the Issue No. 1 i.e., whether the Noticee indulged in backdated and fictitious transactions in the scrip of GTL on behalf of his clients viz. Niskalp and TFL and issued

Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited fictitious contract notes to his clients viz. Niskalp and TFL pertaining to the said backdated and fictitious transactions, has to be answered in affirmative. II. Whether the Noticee has violated the provisions of regulations 6(a) and 6(d) of the PFUTP Regulations, 1995 read with regulations 13(1) to 13 (3) of the PFUTP Regulations 2003 and Clauses A (1), (2), (3), (4) and (5) of the Code of Conduct specified in Schedule II to regulation 7 of the Stock Brokers Regulations. 19. Having already concluded beyond any doubt that the Noticee has actively indulged in aiding and abetting in backdating the aforesaid fictitious transactions in the scrip of GTL on behalf of its trading clients viz. Niskalp and TFL and has issued false and fabricated contract notes to them in respect of the said backdated and fictitious transactions, I have no hesitation in holding that the aforesaid conducts of the Noticee has clearly resulted in the contravention of the provisions of regulation 6(a) and 6(d) of the PFUTP Regulations, 1995 read with regulations 13(1) to 13 (3) of the PFUTP Regulations 2003 by the Noticee.

20. Looking holistically at the alleged conduct of the Noticee which is a registered market intermediary, I find that the Noticee, as a stock broker, has not exercised due skill, care, and diligence and by no standard, the aforesaid conduct of the Noticee can be said to be fair and honest and the said misconduct on his part overwhelmingly proves that the Noticee has not maintained high standards of integrity, promptitude and fairness in his conduct. The Noticee has also failed to abide by the statutory requirements of various provisions of securities laws. Further, the endeavor of the Noticee to justify his misconduct by submitting that he was merely acting on behalf of his clients i.e., TFL and Niskalp on oral instructions of Shri Shilotri (as TFL and Niskalp are holding and subsidiary companies), is just an afterthought lame excuse to evade the possible outcome of the proceedings. It may also Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited be noted that the scope of the instant proceeding is not to analyze the actual impact and consequences of the conduct of the Noticee but to examine as to whether or not, the Noticee has acted in a manner expected of a market intermediary and the answer to the same manifestly goes against the Noticee.

In view of the aforesaid discussion, I have no hesitation to hold that the Noticee has miserably failed to adhere to the Code of Conduct as mandated under Clauses A ( l ), (2), (3), (4) and (5) of Code of Conduct for brokers specified in Schedule II of regulation 7 of the Stock Brokers Regulations, 1992. 21. Before summarizing my observations and discussions in the foregoing paragraphs, I must note here that an entity which is granted registration to operate as a stock broker is required to act in a manner and to comply with all applicable regulatory requirements so as to uphold the integrity of the securities market. As the arena of securities market is fundamentally vast and complex, the Stock Brokers Regulations have prescribed broad checks & balances and acceptable behavior so as to maintain the integrity of the securities market. The Code of Conduct spells out the general duties of the stock broker to maintain high standards of integrity, promptitude and fairness and exercise due skill, care and diligence in the conduct of all his business so as to act in fair and transparent manner to keep intact the integrity of securities market.

22. I note that adherence to the Code of Conduct is an ongoing requirement but the conduct displayed by the Noticee in executing the afore-discussed fictitious and backdated transactions on behalf of TFL and Niskalp supposedly on the basis of oral instruction passed on by an unauthorized person and thereafter in issuing fictitious contract notes to his clients, is certainly cannot be said to be in the best interest of the securities market. Hence such misconduct has certainly amounted to serious violation of regulation 6(a) and (d) of the PFUTP Regulations, 1995 read with regulation 13(1) to 13(3) of the PFUTP Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited

Regulations, 2003 and Clauses A ( l ), (2), (3), (4) and (5) of Code of Conduct for brokers specified in Schedule II of regulation 7 of the Stock Brokers Regulations, 1992. Under the circumstances, I find that the Noticee has not acted in a manner which is conducive to the integrity of the securities market nor has it acted with due skill, care and diligence to exhibit high standards of integrity, promptitude and fairness in his conduct as stock broker. Under the circumstances, I hold the Noticee guilty of violating the aforesaid provisions of securities law. Therefore, such activities of the Noticee as registered stock broker cannot be condoned and deserve appropriate remedial measure to prevent such wrong doings from recurring to the detriment of the interest of the securities market. 23. However, having made the aforesaid observations and having held the Noticee guilty of all the allegations labelled against him in the SCN at the same time I am aware of the fact that the aforesaid fictitious transactions in relation to the Rights Issue of TFL that took place/were executed during the period 2000-01.

Admittedly, the Noticee has participated and fully cooperated in the Investigation proceedings which is evident from the fact that the Noticee has recorded his statement before the Investigating Officer as and when asked by SEBI in this regard. In addition to the above, I note that all the subscribers to the said Rights Issue were provided opportunities by TFL to withdraw their subscriptions, on two separate occasions i.e., on April 30 and November 30, 2001. I am also mindful of the fact that a separate proceeding was initiated against PAT and SUPERIOR (two unregistered entities which were admittedly the entities that were connected to the aforesaid three registered intermediaries/ brokers including the Noticee) for their dubious role in carrying out similar fictitious and backdated transactions involving 16,35,100 shares of GECS (an unlisted company during the relevant period) in complicity with the same trading clients pertaining to the same Rights Issue of TFL. After hearing them out and considering their responses, the Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited allegations made against them were found to be established and therefore, vide a separate order, they have already been restrained and prohibited from accessing and otherwise dealing in the securities market for a specific period of time by SEBI.

Aggrieved by the aforesaid order, PAT and SUPERIOR have preferred Appeal No. 222 of 2016 before the Hon’ble Tribunal, which came to be disposed of by the Hon’ble SAT vide its order dated May 30, 2018. While disposing of the appeal, the Hon’ble Tribunal have inter alia held as under; “28. In the result, we pass the following order: - a) ………………………………………………………………………. b) For the reasons stated above, both appeals are allowed by quashing the directions issued by SEBI against the respective appellants, however, appellants in Appeal No. 222 of 2016 are warned to be careful in future while dealing in securities.” (emphasis supplied) 24. Thus, I note that that the proceedings against PAT and SUPERIOR were disposed of by the Hon’ble Tribunal with a warning to be careful in their future dealings in securities market. I find that the above findings of the Hon’ble Tribunal have not been challenged by any person before any court of law and have not been reversed or modified. Consequently, the aforesaid findings by the Hon’ble SAT have attained finality. 25. Keeping the aforesaid developments in mind, as well as considering the aforesaid mitigating factors and also the fact that the subscribers of the Rights Issue of TFL were given options twice to exit from the said Rights Issue by TFL if they wished to do so, and the fact that the proceedings with respect to PAT and SUPERIOR (who were involved in the similar fictitious and backdated transactions in the share of GECS in relation to the same Rights Issue of TFL) have been disposed of with a warning to them by the Hon’ble SAT.

In my view, the end of justice would be met if the Noticee is also warned Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited to be careful in his future dealings in the securities market. However, it is now brought to my notice that the Noticee has passed away on May 29, 2021 and a Death Certificate dated June 07, 2021, is available on record as noted in paragraph 8 above. ORDER 26. In view of the foregoing discussions and deliberations, in exercise of powers conferred upon me under Section 12 (3) and Section 19 of the Securities and Exchange Board of India Act, 1992 read with regulation 27(5) of the SEBI (Intermediaries) Regulations, 2008, I hereby direct that the extant proceedings against the Noticee i.e., Shri Bharat J. Patel, Stock Broker (SEBI Regn. no: INZ000275413) stand abated, for the reasons stated in paragraph 25 above. 27. The Order shall come into force with the immediate effect. 28. A copy of this order shall be served upon the Noticee. Sd/- DATE: SEPTEMBER 05, 2022 S. K. MOHANTY PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Final Order in respect of Bharat J. Patel in the matter of fictitious transactions in the scrip of Global Telesystems Limited