In the matter of Twenty First Century (India) Ltd in respect of Swadha Securities Pvt. Ltd

WTM/PS/13/IVD/ID-3/MAY/2010 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER IN THE MATTER OF TWENTY FIRST CENTURY (INDIA) LTD. In respect of Swadha Securities Pvt. Ltd. (SEBI Registration No. INB 031141238) Date of hearing: April 23, 2010 Appearances For Noticees: Mr. Naresh Kumar Jalan, Director, Swadha Securities Pvt. Ltd. For SEBI: Mr. G. Ramar, Deputy General Manager Mr. N. Sunil, Assistant General Manager Mr. Pradeep Kumar, Legal Officer ORDER Under Regulation 28(2) read with Regulation 38 (2) of Securities and Exchange Board of India (Intermediaries) Regulations, 2008

1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted investigations into the buying, selling and dealing in the shares of Twenty First Century (India) Ltd. (hereinafter referred to as ‘TFC’) for the period from November, 2001 to April, 2002, inter-alia, to ascertain whether there was any violation of the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘PFUTP Regulations’). During the period of investigation, the scrip of TFC was listed on Calcutta Stock Exchange (hereinafter referred to as ‘CSE’),

2. Investigation revealed, significant increase in the price and volume of the scrip. The price of the scrip of TFC increased from Rs.2.50 in November, 2001 to a high of Rs.53 as on January 12, 2002, i.e. an increase of about 2,000%. Subsequently, the price of the scrip came down to Rs.3.50 as on April 30, 2002. As per the findings of investigation conducted by SEBI, the rise in price of the scrip was not supported by improvement in the fundamentals or any corporate actions of TFC. It was revealed that the trading was highly concentrated within top 10 stock brokers who had traded in the scrip. The said stock brokers were found to be engaged in self trades which led to increase in volumes. This trading had accounted for 81.25% of gross purchases, 82.63% of gross sales, 2.18% of net purchases and 2.37% of net sales. It was revealed that inspite of such trading concentration, the net purchase and sales was very small. Because of this, the brokers had no delivery positions to the exchange on most of the days.

3. From the data provided by CSE, it was revealed that the trades were structured in nature and the brokers were found engaged in cross deals for their clients. Such cross deals were nearly 90% to 97% of the total trades entered by the said brokers. During the course of investigations, it was inter alia revealed that the broker viz. Swadha Securities Pvt. Ltd. (hereinafter referred to as ‘noticee’) registered with SEBI as stock broker, bearing SEBI registration no. INB 031141238 had indulged in various cross deals and off-market trades while trading for its clients, which created artificial volume and price rise in the shares of TFC.

4. Based on the findings of investigation, SEBI initiated enquiry proceedings as against the noticee in terms of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as ‘Enquiry Regulations’), by appointing an Enquiry Officer under Regulation 5(1) of Enquiry Regulations vide order dated March 11, 2008, read with subsequent orders dated December 10, 2008 and February 24, 2009. SEBI appointed the Enquiry Officer, to enquire into the alleged violation of the provisions of the PFUTP Regulations and the Code of Conduct specified under Schedule II of SEBI (Stock Brokers and Sub-Broker) Regulations, 1992 (hereinafter referred to as ‘Broker Regulations’). As the Enquiry Regulations were repealed with effect from the notification of SEBI (Intermediaries) Regulations, 2008, the Enquiry Officer/ Designated Authority (hereinafter referred to as the ‘Enquiry Officer’) submitted his Report dated

February 19, 2010, in terms of Regulation 27 of SEBI (Intermediaries) Regulations, 2008, recommending thereby prohibition to take up any new assignment for a period of three weeks to noticee for violating Regulation 4(a) and (b) of PFUTP Regulations read with Regulation 13 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, Clauses B 4(a) and (b) of the Code of Conduct specified under Schedule II of the Broker Regulations and SEBI Circular No. SMDRP/Policy/Cir-32/99 dated September 14, 1999.

5. Subsequently a show cause notice dated February 23, 2010 (hereinafter referred as SCN’) under Regulation 28 of SEBI (Intermediaries ) Regulations, 2008, was issued by SEBI to the noticee, asking it to show cause as to why the appropriate penalty including penalty as recommended by the Enquiry Officer should not be imposed. The noticee was advised to reply to the SCN, within twenty one days from the date of receipt thereof. It was also informed that in case of failure, it would be presumed that it had no explanation to offer and SEBI shall be free to take such action in the manner as it deemed fit. A copy of the Enquiry Report was also forwarded to the noticee along with the SCN.

6. The noticee replied to the SCN vide its letter dated March 15, 2010 and sought personal hearing. Accordingly, an opportunity of personal hearing was granted to the noticee before me on April 23, 2010 at Kolkata. On the date fixed Mr. Naresh Kumar Jalan, Director, Swadha Securities Pvt. Ltd. appeared before me as the authorized representative of the noticee and reiterated the submissions made vide letter dated March 15, 2010. The submissions of the noticee in brief are:

- The Enquiry proceedings relates to the period from November, 2001 to April, 2002. For this period, similar enquiries have already been conducted by SEBI in the matters of Offshore Finvest Ltd., M.P. Investment and Financial Consultancy Services Ltd., Akshay Fiscal Services Ltd., Ashika Credit Capital Ltd. and Shardaraj Tradefin Ltd. For these it has already been penalized.

- It would be unjustifiable and against the principles natural justice if it is penalized for the same offence during the same period again and again. - It has taken all steps to rectify the mistakes and further ensured that such mistakes will not be repeated.

7. I have carefully considered the Enquiry report, the SCN issued to the noticee, the reply dated March 15, 2010 and the material available on record. The Enquiry Officer has found the noticee guilty of violating the provisions of PFUTP Regulations, Broker Regulations and the SEBI circular. I note that the noticee has not challenged the findings of Enquiry Officer on merits and has only made a plea that he has already been penalized for a similar offence in respect of other scrips.

8. I observe that the total purchases and sales by the noticee was 14,70,800 shares and 14,47,500 shares respectively, constituting about 8.23% and 8.10% respectively of the total market volume in the scrip of TFC. I note that the nine out of total ten clients of the noticee, who were found to be active in the scrip, had taken registration with it, only during August, 2001 to January, 2002. I have seen the trades of noticee as brought out in the Enquiry Report which were in the nature of cross deals. I note that such cross deals were for 14,10,800 shares amounting to 96.87% of the total trading of the noticee and 7.89% of the total volume in the scrip of TFC. When compared this to the net purchase by the noticee, it comes to 23,300 shares, constitution only 0.13% of the total net purchases in the scrip. I note from the findings of Enquiry Officer that such transactions took place repeatedly over a period of time and the timings for the orders so placed also matched at most of the instances. In view of this, I agree with the findings of Enquiry Officer that the noticee had assisted these deals. I note that the cross deals are against the normal trading pattern and same in the present case has led to an artificial increase in the price and volume of the scrip. In view of this, I find the noticee guilty of violating the provisions of Regulations 4(a) and (d) of PFUTP Regulations.

9. I note that the noticee has not placed any argument on the findings of Enquiry Officer regarding the violation of SEBI circular SMDRP/POLICY/CIR-32/99 dated September 14, 1999. I find that the noticee had executed off-market transaction for 2,30,000 shares in the scrip of TFC for Bhairav Tradlink Ltd. and thereby has violated the circular as stated above.

10. Further, the noticee has not raised any objection on the findings of enquiry officer over the incomplete KYC forms. In view of this, the violation of Clause B 4(a) and (b) of the Code of Conduct prescribed for Stock Brokers in Schedule II under Regulation 7 of Broker Regulations also stands established as against the noticee.

11. I note the submission of noticee that it has already been punished for its conduct during the relevant period of time in different scrips, hence, in the present matter a lenient view may be taken. The details as brought out before me are:

• Enquiry proceedings in the matter of Offshore Finvest Ltd., wherein the findings and allegations of Enquiry Officer were similar as in the present case. Chairman, SEBI while upholding the findings of Enquiry Officer had suspended the registration of noticee for a period of six months. Noticee challenged this order of SEBI, before Hon’ble Securities Appellate Tribunal (hereinafter referred to as ‘SAT’), which after considering the facts and circumstances of the case had reduced the period of suspension to seven days.

• Enquiry proceedings in the matter of M.P. Investment & Financial Consultancy Services Ltd., in this also the findings and allegations of Enquiry Officer were similar as in the present case. Whole Time Member, SEBI while upholding the findings of Enquiry Officer had suspended the registration of noticee for a period of one month. Noticee challenged this order of SEBI, before SAT, which after considering the facts and circumstances of the case had reduced the period of suspension to seven days.

• Enquiry proceedings in the matters of Akshay Fiscal Ser. Ltd., Ashika Credit Capital Ltd. and Shardaraj Tradefin Ltd., where the findings and allegations of the Enquiry Officer were similar in nature as in the present matter. The Enquiry Officer in these proceedings had recommended a major penalty of six months. Whole Time Member, SEBI after considering the facts and circumstances had imposed a penalty of censure on the noticee.

I have considered the argument of the noticee and note that the examples as quoted by the noticee relate to different scrip’s, the investigation period for these also differs as all the above said matters relates to the investigation period from July, 2001 to October, 2001. However, the present proceedings relates to the investigation period from November, 2001 to April, 2002. In view of this, the punishment already suffered by noticee can not be considered for the present matter.

12. During hearing, the noticee was asked about its current status and business, to which, the noticee replied that it is not an active broker at present and is not doing any business. I note that the enquiry officer has recommended prohibition to take up any new assignment for a period of three weeks to noticee. Considering this and the violation found to have been committed by the noticee in the present proceedings, I do not consider this a fit case to impose the penalty as recommended by the Enquiry Officer. In the interest of justice and equity, I dispose of the present Enquiry proceedings as ordered herein below.

13. I note that pursuant to the notification of the Intermediaries Regulations, the Enquiry Regulations have been repealed and in terms of Regulation 38(2) of the Intermediaries Regulations, notwithstanding such repeal, any enquiry commenced under the Enquiry Regulations, shall be deemed to have been commenced under the corresponding provisions of Intermediaries Regulations.

14. Taking into consideration, the facts and circumstances of the case, I, in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 28(2) of Securities and Exchange Board of India (Intermediaries) Regulations, 2008, hereby warn the noticee, Swadha Securities Pvt. Ltd. (SEBI Registration No. INB 031141238) (PAN: AAFCS 4387J), to be careful and cautious in the conduct of its business and to adhere to and comply with all the statutory provisions while carrying out its activities in the securities market.

DATE : 19.05.2010 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA