Order against Ahilya Commercial Private Limited in the matter of Bakra Pratisthan Ltd

For Ahilya Commercial Private Limited: Mr. Rajiv Choudhary, Compliance Officer

For the Securities and Exchange Board of India: Mr. Jayanta Jash, General Manager Mr. Vijayakrishnan G., Deputy Legal Adviser

1. In view of the unusual price movement noticed in the shares of some illiquid companies including that of Bakra Pratisthan Limited (hereinafter referred to as the company) listed at the Calcutta Stock Exchange Limited (hereinafter referred to as CSE) during the period between January 2004 and March 2005 (hereinafter referred to as the investigation period), Securities and Exchange Board of India (hereinafter referred to as SEBI) initiated investigation into the dealings in the shares of such companies. The investigation conducted by SEBI in respect of the company inter alia observed that its share price had increased from Rs.18.50/- (on January 15, 2004) to Rs.380/- (on March 15, 2005). It was noticed that certain stock brokers including Ahilya Commercial Private Limited (hereinafter referred to as the Broker) had traded substantially in the shares of the company and their cumulative trades accounted for 85% of the total volumes in the said shares at CSE during the investigation period. It was alleged that the trades of the Broker were in contravention of Regulation 4(2)(a), (e) and (o) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as the PFUTP Regulations) and Clauses A(1) to A(4) and B(4)(a) of the Code of Conduct specified for stock brokers under Schedule II of the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 (hereinafter referred to as the Broker Regulations).

2. Thereafter, SEBI, vide order dated February 18, 2007 read with subsequent orders dated November 19, 2007 and November 18, 2009 appointed an Enquiry Officer under the provisions of Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (since repealed) and Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (hereinafter referred to as the Intermediaries Regulations) to enquire into the aforesaid alleged violations committed by the Broker. The Enquiry Officer/Designated Authority (hereinafter referred to as the Enquiry Officer) submitted the Report dated March 26, 2010 recommending the suspension of the certificate of registration of the Broker for a period of fifteen days. Thereafter, SEBI issued a notice dated April 1, 2010 to the Broker advising it to show cause as to why the penalty as recommended by the Enquiry Officer or as considered appropriate by SEBI should not be imposed against it. A copy of the Enquiry Report was also forwarded to the Broker. The Broker was also advised to inform SEBI, whether it desired to avail an opportunity of hearing. As the Broker had failed to respond to the said show cause notice, a reminder dated May 4, 2010 was issued by SEBI to the Broker. Thereafter, the Broker vide letter dated nil (received by SEBI on May 6, 2010)

stated that it had already given its reply to the Enquiry Officer and further requested for a personal hearing. The Broker was given an opportunity of hearing on July 2, 2010 when Mr. Rajiv Choudhary, compliance officer of the Broker represented it and stated that the trades of the Broker were done as per the instruction of its clients.

3. I have considered the Enquiry Report, aforesaid reply of the Broker, the submissions made by the representative of the Broker as stated above and other material available on record. According to the Enquiry Officer, the Broker was guilty of contravening Regulations 4(2)(a), (e) and (o) of the PFUTP Regulations and Clauses A(1) to A(4) and B(4)(a) of the Code of Conduct specified for stock brokers under Schedule II of the Broker Regulations. The trades of the Broker accounted for 14.27% (5,04,650 shares) of the total volume in the shares of the company during the investigation period. All the trades of the Broker were in the nature of cross deals as it was placing both the buy and sell orders from its terminal at the same price and quantity. The details of such trades were mentioned in detail in the Enquiry Report. The Broker was involved in cross deals for six months. The share price had increased during such period and the same had been mentioned in the tables in the Enquiry Report. The Enquiry Officer had examined the said trades and found that the same were in violation of the provisions of the PFUTP Regulations.

Though, a copy of the Enquiry Report was provided to the Broker, the findings therein were not controverted by it. The Broker was found to have acted as both buyer and seller in respect of the orders placed by it. Needless to say, the said trades of the Broker had caused the artificial price increase. A cumulative analysis of the facts of the case, clearly indicate that the Broker did not act in a bonafide manner. On the contrary, it establishes the involvement of the Broker in creating misleading appearance of trading in the shares of the company and in the price manipulation. The only contention of the Broker before me was that it had carried out the trades on behalf of its clients and that it had no manipulative intention while carrying out such instructions, would not absolve it of its involvement, in the facts and circumstances of the case. As stated above, the Broker had carried out cross deals involving substantial volume for a period of six months. The price of the scrip had also increased during such trades. As the Broker was placing orders for both the buyer and the seller, it cannot state that it was not aware of the nature of such trades.

The price increase in the shares of the company was not supported by any fundamentals of the company. It was noted that for the years ended March 31, 2005, March 31, 2004 and March 31, 2003, the company had incurred loss (before tax) of Rs.0.51 lakh, Rs.0.66 lakh and Rs.0.17 lakh, respectively and that as on March 31, 2005, it had a negative Earning Per Share (EPS) of 0.05. In such a financial background, the share price of the company could not have increased but for the manipulation as had happened in the present case where the Broker was a necessary party. The very fact that the Broker had traded substantially in the shares of the company which was otherwise illiquid would establish that it had indulged in an act which had created false and misleading appearance of trading in the securities. From the facts and circumstances of the case, it is obvious that the object of the Broker was to manipulate the price and order matching mechanism. Further, it has to be inferred that the Broker had encouraged the clients to deal in the securities solely with the object of enhancing its brokerage.

The only conclusion that can be arrived at is that the acts of the Broker were in contravention of Regulations 4(2)(a), (e) and (o) of the PFUTP Regulations.

4. In terms of the provisions of Clauses A(1) to (4) of the Code of Conduct prescribed under the Broker Regulations, a stock broker shall not inter alia create false market or indulge in any act detrimental to the investors’ interest or which leads to the interference with the fair and smooth functioning of the securities market. It is also a requirement that a stock broker shall not inter alia indulge in manipulative transactions with a view to distort the market equilibrium. In the present case, the trades of the Broker (as explained in detail above) created a misleading appearance of trading in the shares of the company. It also manipulated the share price of the company by vitiating the price discovery mechanism in the securities market. It sufficiently establishes that the Broker was a party to the manipulation. Further, it has to be inferred that that the Broker had encouraged sales/purchases in the shares of the company with the sole object of generating brokerage/commission. Thus, the violation of Clauses A(1) to (4) and B(4)(a) of the Code of Conduct in Schedule II of the Broker Regulations stands established. The involvement of the Broker in the manipulation of the shares of the company cannot be viewed leniently. The submission of the Broker was that it had filed its reply before the Enquiry Officer. I note that the Enquiry Officer had considered the same and arrived at the findings therein. The Broker did not make any efforts to dispute the findings of the Enquiry Officer despite the opportunities afforded to it. In the facts and circumstances of the case, I am unable to disagree with the findings and recommendation of the Enquiry Officer and dispose of the present enquiry proceeding initiated against the Broker in the matter of Bakra Pratisthan Limited, as ordered herein below.

5. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 28(2) of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008, hereby suspend the certificate of registration of the stock broker, Ahilya Commercial Private Limited [Registration No. INB 031093439], Member, The Calcutta Stock Exchange Limited, for a period of fifteen days.

6. As the certificate of registration of the aforesaid stock broker is suspended by the Securities and Exchange Board of India, vide order dated July 8, 2010, for a period of three weeks in respect of its dealings in the shares of Offshore Finvest Limited during the period January 2004 - February 2005, the penalty ordered in paragraph 5 above would run concurrently with the said penalty.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

PLACE: MUMBAI DATE: JULY 8, 2010