In respect of M/s Prashant J Patel in the matter of trading in the shares of Roofit Industries Limited

1. Pursuant to the investigations conducted for the periods - October 6, 1999 to December 12, 1999, November 8, 2000 to February 6, 2001 and February 7, 2011 to May 8, 2001 into the dealings in the shares of M/s. Roofit Industries Limited (hereinafter referred to as ‘the company’), SEBI found that certain entities, that were related to each other and to the promoters/directors of the company, have traded in the shares of the company through a set of stock brokers by entering into structured and synchronised deals with each other. M/s. Prashant J Patel (proprietor, Mr. Prashant J. Patel), a stock broker registered with SEBI and a trading member of the National Stock Exchange of India Limited (NSE), was one of such stock brokers.

2. After the conclusion of the investigation, proceedings were initiated against M/s. Prashant J Patel (hereinafter referred to as ‘the noticee’) under the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (since repealed) for alleged contravention of the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘the PFUTP Regulations’) and the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as ‘the Stock Brokers Regulations’). After repeal of the Enquiry Proceedings Regulations, the proceedings against the noticee were continued under Chapter V of the SEBI (Intermediaries) Regulations, 2008 (hereinafter referred to as ‘the Intermediaries Regulations’).

3. On completion of the proceeding, the Designated Authority submitted his report dated June 30, 2009 (‘the Report’).

Findings and recommendation of the Designated Authority:

4. In this Report, the Designated Authority observed that the following entities that were related to each other and to the promoters /directors of the company had traded in the shares of the company through various BSE/NSE stock brokers during the period of investigation : a. Akira Investment Private Limited (Akira), b. Alkan Projects Private Limited (Alkan), c. Habiscus Investments Private Limited (Habiscus), d. Mayfair Paper & Boards Private Limited (Mayfair Paper), e. Mayfair Realtors Private Limited (Mayfair Realtors), f. M'Belle International Private Limited (M'Belle), g. Onlooker Investments Private Limited (Onlooker) and h. Vynex Chemical Engineering Private Limited (Vynex). 5. Out of the aforesaid entities, Vynex, Mayfair Paper and Mayfair Realtors are promoters and the others are promoter group entities. The aforesaid entities were in need of funds and they had approached Mr. Deven Mehta (a director in Amgis Holdings Private Limited [AHPL-a trading member of NSE]. Mr. Deven Mehta is also a director in Pals Overseas Private Limited [POPL-a trading member of BSE) and is related to M/s. Ami Impex (a client of the noticee). The promoters/promoter related entities were thereafter introduced by Mr. Deven Mehta to the noticee and other three stock brokers, namely, Goldcrest Capital Markets Limited (a trading member of NSE and BSE), M/s. Bharat J Patel (a trading member of BSE) and Express Securities Private Limited (a trading member of BSE). The noticee has admitted that Mr. Deven Mehta approached it for funds on behalf o f promoters/promoter related entities.

6. The promoters/promoter related entities delivered the shares of the company in spot transactions to the stock brokers including the noticee in advance and the stock brokers made payments to them much before the pay-out. Those stock brokers in turn immediately sold those shares on the stock exchange through synchronised/matched trades to the promoters/promoter related entities. The promoters/promoter related entities got back their shares by entering into synchronised/matched purchase trades through POPL and AHPL (wherein Mr. Deven Mehta is a director). The cycle of such transactions continued settlement after settlement, during the period of investigation.

7. The noticee had traded in the shares of the company in the stock exchange for its clients, namely, M/s. Ami Impex, M/s. Hinduja Fin Corp, Pat Fin Cons. Serv Limited (Pat Fin), M/s. Bharat Trading and M’Belle International Limited during the investigation period. The proprietor of the notice, Mr. Prashant J Patel is the brother of Mr. Bharat J Patel (proprietor of M/s. Bharat J Patel, another stock broker who traded in the shares of the company during the relevant period). Mr. Bharat J Patel was a director in Pat Fin, a client of the noticee. The details of the shares purchased and sold by the noticee for the said clients during the investigation period are as under : A. Total Trades

Sett.No. Client Buy Qty. Sell Qty. 2000048 Ami Impex 0 5000 2001003 Ami Impex 100000 100000 2000046 Bharat Trading 22000 22000 2001011 Ami Impex 70000 0 2001014 Hinduja fin Corp 224800 0 2001014 Pat Fin 0 225000 2001015 Ami Impex 0 12250 2001015 Hinduja fin Corp 40000 0 2001015 Pat Fin 400 40200 2001016 Ami Impex 0 60 2001016 Hinduja fin Corp 120000 78000 2001016 M'Belle International 20 120020 2001018 Ami Impex 0 5000

B. Synchronised / matched trades The noticee has been found to have executed synchronised and matched trades only with another stock broker, AHPL who was placing buy orders for the promoters/promoter related entities during the investigation period as mentioned in the table below.

Date Trade Time Trade Qty Trade Buy Tm Name Buy Client Buy Order Sell Tm Sell Sell Order Entry Price Name Entry Name Client Time Time Name 14-Nov-00 10:00:26 21965 253 AHPL M(Habiscus = 10:00:26 noticee Bharat J 10:00:23 9017 & 12948 = Patel Onlooker) 14-Nov-00 10:00:43 25 253 AHPL Onlooker 10:00:43 noticee Bharat J 10:00:23 Patel 24-Nov-00 10:01:58 5000 258.9 AHPL Onlooker 10:01:58 noticee Ami 10:01:58

17-Jan-01 10:26:53 50000 124 noticee Ami 10:26:53 AHPL A(S J 10:26:53 17-Jan-01 10:33:13 48185 122 noticee Ami Impex 10:33:13 AHPL A(S J 10:33:08 23-Jan-01 09:57:16 50000 125 AHPL O(S. J. Impex = 09:57:16 noticee Ami 09:56:56 481868 & M'belle= 1814) 23-Jan-01 09:57:27 50000 125 AHPL A S. J. Impex 09:57:27 noticee Ami 09:56:56 15-Mar-01 15:33:52 10000 109.75 noticee Ami Impex 15:33:52 AHPL M'Belle 15:33:42 15-Mar-01 15:34:04 10000 109.75 noticee Ami Impex 15:34:04 AHPL M'Belle 15:33:42 15-Mar-01 15:49:18 2500 109.50 noticee Ami Impex 15:49:18 AHPL M'Belle 15:49:13 15-Mar-01 15:49:29 5000 109.50 noticee Ami Impex 15:49:29 AHPL M'Belle 15:49:13 15-Mar-01 15:49:37 7500 109.50 noticee Ami Impex 15:49:37 AHPL M'Belle 15:49:13 15-Mar-01 15:49:47 5000 109.50 noticee Ami Impex 15:49:47 AHPL M'Belle 15:49:13 15-Mar-01 15:49:56 5000 109.50 noticee Ami Impex 15:49:56 AHPL M'Belle 15:49:13 24-Apr-01 15:10:26 25000 109.00 AHPL Akira 15:10:26 noticee Hinduja 15:10:20 24-Apr-01 15:10:47 25000 109.00 AHPL Akira 15:10:47 noticee Hinduja 15:10:43 24-Apr-01 15:12:22 28000 109.50 AHPL Akira 15:12:22 noticee Hinduja 15:12:20 2-May-01 13:52:43 5000 107.00 AHPL Akira 13:52:43 noticee Ami 13:52:43 8. The Designated Authority has found that all the above buy and sell orders were not only synchronised in terms of time but also matched in terms of price and quantity and with the same counterparty stock broker (AHPL). The occurrence of numerous synchronised trades over many days cannot be a coincidence and is an indication that the orders were entered with prior understanding between the trading parties.

9. The stock brokers including the noticee who had made payments to the promoters/promoter related entities immediately entered into synchronised trades in the stock exchanges so that they could get protection of the Settlement Guarantee Fund (SGF) of the stock exchange, in case of any default. By entering into synchronised / matched deals, the trading parties ensured that the promoters/promoter related entities did not lose control over their shares. The transactions are only financing transactions wherein the return of money to the financier is assured by the availability of the SGF and are not genuine investment trades. The transactions done by the noticee were only with the purpose of recovering the money already paid to the selling entity and to return the shares to the promoters/promoter related entities. 10. The aforesaid transactions have happened only because the trades were placed in synchronised manner between the entities known to each other. If it were not so, it would have been impossible to execute trades for 25,000 to 50,000 shares immediately in a scrip where average daily volume during the investigation period was only around 3000 shares. Such trading volumes were artificial. The trades created a false or misleading appearance of trading which would lead investors into believing in heightened investor interest in the scrip. These trades were mostly financial adjustment trades and not genuine investment trades. 11. In view of the above, the Designated Authority has found the noticee guilty of contravening regulation 4(b) and (d) of the PFUTP Regulations and clauses A (1) and (4) of the Code of Conduct for stock brokers as specified in Schedule II read with regulation 7 of the Stock

Brokers Regulations. The Designated Authority has recommended that the certificate of registration granted to the noticee as trading member of NSE, be suspended for a period of one week. Post Report Notice and hearing: 12. After considering the Report, SEBI issued a show cause notice dated July 2, 2009 (SCN) enclosing therewith a copy of the Report to the noticee and called upon it to show cause as to why action as recommended by the Designated Authority should not be taken against it or a higher penalty should not be imposed as deemed fit by the Competent Authority. The noticee filed an application for a consent order in terms of SEBI Circular dated April 20, 2007. After the said application was rejected by SEBI, the noticee filed its reply dated January 17, 2012 to the SCN. After seeking adjournment, the noticee was represented in the personal hearing before me on February 7, 2012 when Mr. Vinay Chauhan along with Mr. Vishal Patel, authorised representative of the noticee appeared and made submissions on behalf of the notice. The noticee has inter alia made the following submissions in its reply :

a. The long delay in completion of the enquiry proceedings has caused injustice and has resulted in violation of principles of natural justice. b. The noticee did not indulge in any proprietary trades during the relevant time and the transactions were executed by the noticee based on the instructions of its clients, M/s Ami Impex, M/s Hinduja Fin Corporation and Pat Fin, which were executed on the order matching mechanism of the exchange at the prevalent market price and were delivery based. The noticee had only earned brokerage for the trades. c. The noticee was not aware that the alleged eight entities related to the promoters of the company were trading in the shares of the company. d. The Designated Authority has exonerated the noticee from the charge of involving in financing transactions in the scrip of the company. e. If the trades were to be synchronised / matched, there would be no reason to have a gap of upto 31 seconds in executing trades. In respect of all sale transactions, it had received delivery of shares in the pool account on behalf of clients and in respect of purchase transactions, it had received funds from the clients and deliveries were made. f. Simply by placing sell orders at the price, quantity and time indicated by the client, which has matched with the orders of counterparty allegedly related to its client cannot lead to any adverse inferences. g. The Designated Authority has concluded that he had a key role to play in the funding against sale of shares and recovery of the same through the alleged misuse of the exchange mechanism without establishing a cogent link between itself and the alleged promoter/group entities.

h. There was nothing in the trading behaviour of the clients to excite suspicion as to something amiss in their trading pattern. i. The noticee denied that the settlement guarantee fund was used as an insurance policy for securing a financing transaction by misusing the settlement mechanism. j. The Investigating Officer has found that the frequency of transactions executed by the noticee as compared to the market volume was minimal and therefore recommended that directions under section 11D of the SEBI Act may be issued to cease and desist from executing such transactions. k. The Designated Authority has also concluded that the market volume contributed by the noticee was very minimal to affect the price/volume of the scrip of the company. l. In the matter of Sunearth Ceramics Limited, wherein the same facts as in the present case were involved, SEBI vide order dated February 1, 2010 observed that stock broker therein had no manipulative intent and was merely executing orders for clients and that only warning was issued. m. The noticee requested for opportunity to cross examine the clients and promoters/directors of the company whose statements have been relied upon in the proceedings. n. The noticee denied violating the provisions of the PFUTP Regulations and Code of Conduct for stock brokers as found by the Designated Authority.

13. During hearing before me the learned advocate of the noticee submitted that the matter is more than 11 years old and even the SCN in these proceedings was issued on July 02, 2009. The long delay in completion of these proceedings has caused grave injustice to it and resulted in gross violation of the principles of natural justice. Citing the observations of the Hon’ble SAT in the matters of Libord Finance Ltd. vs. SEBI and Shri Ashok K Chaudhary vs. SEBI, he submitted that due to the long delay any action against the noticee at this stage would not serve any purpose and would not help anyone besides depriving the noticee of its right to defend against the action proposed to be taken. He further submitted that all the trades done by the noticee were for its clients and that SEBI did not take any action against the clients. He also submitted that in the investigation report, the number as also the frequency of transactions executed by the noticee, as compared to the market volume, was found to be minimal. The Investigating Authority had, therefore, recommended that directions under section 11D of the SEBI Act may be issued against the noticee to cease and desist from entering into such transactions. However, in the same facts and circumstances the Designated Authority in his Report has made different recommendation to impose a penalty of suspension for a period of one month. The learned advocate requested that in view of such mitigating factors, a lenient view may be taken and the penalty as recommended by the Designated Authority against the noticee be reduced to a warning.

14. It its reply to the SCN the noticee had sought for cross examination of its clients and promoters/directors of the company. The notice did not press this request during hearing. In my view, since the statements of these persons are not relied upon in the proceedings before me, their cross-examination by the noticee is not required. Consideration of issues and findings: 15. I have considered the Report, the oral as well as written submissions of the noticee and other relevant material available on record. Before dealing with the issues involved in the matter it is necessary to refer to the relevant regulations the contravention of which has been charged in the SCN and Report. The said regulations are reproduced hereunder :-

PFUTP REGULATIONS “Prohibition against market manipulation. 4. No person shall - (a) …. (b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market (c) ….. (d) enter into purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the market price of securities …..” CODE OF CONDUCT UNDER THE STOCK BROKERS REGULATIONS “A. General (1) Integrity: A stock broker shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business. ….. (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 stock broker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness.” 16. The noticee has admitted its trades as found in the Report and mentioned hereinabove. According to the noticee, it had placed sell orders at the price, quantity and time indicated by its clients and those orders matched with orders of counter party in the order matching system of the stock exchange and those trades were not synchronised/ structured. I find that the above mentioned sell orders of the noticee matched with the buy orders of only one counter party stock broker i.e. AHPL (who was trading on behalf of the promoters/promoter related entities). Placing of the sell orders with same counter parties for same quantity of shares at the same price within nil or too negligible time difference repeatedly over a period of time are clear indication that those trades of the noticee were synchronised / structured. In this regard, the following observations of the Hon’ble SAT in its order dated July 14, 2006 in the matter of Ketan Parekh vs. Securities and Exchange Board of India, is worth mentioning: :

“The word ‘synchronise’ according to the Oxford dictionary means “cause to occur at the same time; be simultaneous”. A synchronised trade is one where the buyer and seller enter the quantity and price of the shares they wish to transact at substantially the same time. This could be done through the same broker (termed a cross deal) or through two different brokers.Every buy and sell order has to match before the deal can go through. This matching may take place through the stock exchange mechanism or off market. When it matches through the stock exchange, it may or may not be a synchronised deal depending on the time when the buy and sell orders are placed. ……………….. It would, therefore, follow that a synchronised trade or a trade that matches off market is per se not illegal. Merely because a trade was crossed on the floor of the stock exchange with the buyer and seller entering the price at which they intended to buy and sell respectively, the transaction does not become illegal. A synchronized transaction even on the trading screen between genuine parties who intend to transfer beneficial interest in the trading stock and who undertake the transaction only for that purpose and not for rigging the market is not illegal and cannot violate the regulations.

As already observed ‘synchronisation’ or a negotiated deal ipso facto is not illegal. A synchronised transaction will, however, be illegal or violative of the Regulations if it is executed with a view to manipulate the market or if it results in circular trading or is dubious in nature and is executed with a view to avoid regulatory detection or does not involve change of beneficial ownership or is executed to create false volumes resulting in upsetting the market equilibrium. Any transaction executed with the intention to defeat the market mechanism whether negotiated or not would be illegal. Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available. The nature of the transaction executed, the frequency with which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether there is real change of beneficial ownership, the conditions then prevailing in the market are some of the factors which go to show the intention of the parties.

This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn.”

17. I also note that in the appeal filed by AHPL (counterparty to the noticee) against the SEBI Order dated July 31, 2007 (which also dealt with the above mentioned synchronised trades of the noticee), the Hon’ble SAT vide its Order dated December 27, 2010, inter-alia, made the following observations: “Coming to the facts of the present case, we have already noticed that 76 matched trades were executed between the appellant and Goldcrest and another 18 with Patel (the noticee). ………….. It is not in dispute that the aforesaid five clients of the appellant were in need of funds and they were introduced by the appellant to counter party brokers namely, Goldcrest, Patel and some others for the purpose. Having raised funds from Goldcrest and Patel by executing spot transactions, the clients used those funds and purchased shares of the company through the appellant and the selling brokers were again Goldcrest and Patel. This cannot be a mere coincidence unless it was so planned….The fact that the appellant introduced the clients to Goldcrest and Patel is borne out from the statement of Deven Mehta ……….. …. In the absence of prior meeting of minds and knowing the mechanism of the trading system, matching trades as aforesaid cannot be too frequent an occurrence and can lead to only one conclusion that the trades had been manipulated by misusing the system. Normally, no direct evidence would be available to find out whether a broker was aware of the matching trades. The intention of the parties and the brokers will have to be gathered from the surrounding circumstances looking at the trading pattern, the frequency of trades and other related circumstances.” 18. In view of the above, I do not agree with the contentions of the noticee and hold that the above mentioned trades of the noticee were synchronised / structured.

19. I note that in their joint statement recorded on February 6, 2003 during the investigations, Mr. Prashant J Patel (the proprietor of the noticee) and Mr. Bharat J. Patel (proprietor of M/s. Bharat J Patel-another stock broker and member of BSE and who had also traded in the scrip) had explained the transactions on oath as under - • “Mr. Deven Mehta of M/s. Ami Impex approached Shri Bharat J. Patel, Director of M/s. Pat Fin stating that he was representing his investment companies viz. M/s. M’Belle International, M/s. Onlooker, M/s. Akira and M/s. Mayfair and that these investment companies had a block of shares of M/s. Roofit and that he was in need of funds and whether we could provide him funds against these shares. M/s. Pat Fin had liquidity at that point of time and we felt that we could fund him against the sale of shares of M/s. Roofit”. • “From April 9, 2001 onwards till May 2001, shares of M/s. Roofit were transferred from the accounts of the investment companies represented by Mr. Deven Mehta to the account of M/s. Pat Fin (where Mr. Bharat J Patel is the director) and M/s. Superior Financial Consultancy Services Pvt. Ltd. (where Mr. Bharat J Patel is the director).” • ”Immediately on receipt of the shares from the investment companies of Mr. Deven Mehta, payment was being made by M/s. Pat Fin to these investment companies but mainly to M’Belle.

The cheques for these payments were being collected by Mr. Deven Mehta. These transactions were in the nature of a spot transaction” • “On receipt of the shares by M/s. Pat Fin and by M/s. Superior on the request of M/s. Pat Fin, sale transactions were effected through the terminal of M/s. Bharat J Patel and M/s. Prashant J Patel, as per the order instructions given by Mr. Deven Mehta”. 20. I also note from the aforesaid statements that the noticee was aware of the relationship between M/s. Ami Impex and Mr. Deven Mehta and that Mr. Bharat J Patel (the brother of the noticee’s proprietor) was a director in Pat Fin during the relevant point in time. Though the noticee had not itself given finance to the promoters/promoter related entities, the above statement taken together with the aforesaid synchronised/structured trades of the noticee, clearly establish that the noticee was fully aware and was actively involved in the financial adjustment trades which were not genuine investment trades, as found by the Designated Authority in the Report. I, therefore, am not convinced with the contentions of the noticee in this regard.

21. As found during investigations and also by the Designated Authority in these proceedings, in the whole scheme, the promoters / promoter related entities transferred their shares through off market spot transactions to the stock brokers (including the noticee) and their related entities (Pat Fin with respect to the noticee) for receiving finance and thereafter received back those shares (in the market transactions also through the above stated synchronised / structured trades by the noticee). Thus, there was no change in the beneficial ownership of the shares. In view of these findings, I am of the view that the trades of the noticee were not genuine and have been executed in the stock exchange for an ulterior purpose. Further, the noticee by indulging in such non-genuine trades has also created a false and misleading appearance of trading for the shares of the company during the investigation period. Even if it is assumed that the deliveries were made by the noticee as claimed, it will not help the case of the noticee as it was involved in the aforesaid non-genuine transactions. Further, while indulging in those trades, the noticee failed to maintain high standards of integrity expected of it in the conduct of its stock broking business. I, therefore, find that the noticee has contravened the provisions of regulation 4 (b) and (d) of the PFUTP Regulations and Clause A (1) and (4) of the Code of Conduct specified for the stock brokers under the Stock Brokers Regulations.

22. I note that in the matter of Sunearth Ceramics Limited, the only charge against the stock broker was violation of Clause A (2) of the Code of Conduct for stock brokers as specified in the Stock Brokers Regulations, whereas in the present case, the charge against the noticee is violation of PFUTP Regulations and the Code of Conduct. In my view, every case has to be considered in the light of specific facts and circumstances of that case. Even a small difference in the facts and circumstances may give a different result. Therefore, I am not inclined to agree with the arguments made on behalf of the noticee in this regard.

23. I note from the records that the proceeding before the Designated Authority were prolonged due to inordinate delay on the part of noticee in submitting reply to the show cause notice and its numerous requests for adjournment of date of hearing. The noticee had also sought postponement of the proceedings on numerous occasions during the pre and post-enquiry stage. The noticee had filed application for consent order in the matter after the post-enquiry notice was issued to it. Thus, I find that there has been no wanton delay on the part of SEBI in the matter. The noticee was aware of the proceeding and the charges / allegations levelled against it at different stages and it had contributed to the delay in disposal of this case. I, therefore, do not agree that the principles of natural justice are violated in this case. I also find that the recommendations, if any, of the Investigating Authority on nature of penalty is not binding on the Designated Authority. 24. I also note that AHPL was found to have executed matched/synchronised trades with the noticee as well as with Goldcrest. AHPL had executed 76 matched trades with Goldcrest and 18 trades with the noticee. I have also considered the other mitigating factors submitted by learned advocate of the noticee. After considering such factors and the facts and circumstances of the case, I am of the view that the penalty as recommended by the Designated Authority is commensurate with the contraventions found in this matter.

25. I, therefore, in exercise of the powers conferred upon me by virtue of section 19 of the Securities and Exchange Board of India Act, 1992 read with regulation 28(2) and 38(2) of the SEBI (Intermediaries) Regulations, 2008, hereby suspend the certificate of registration of the noticee, M/s. Prashant J Patel (SEBI Registration No. INB 230649816), trading member of the National Stock Exchange of India Limited, for a period of one week.

26. This Order shall come into force immediately on expiry of twenty one days from the date of this Order.

27. A copy of this Order shall also be forwarded to NSE.

Date: April 24, 2012 RAJEEV KUMAR AGARWAL Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA