Order against M/s. Ahilya Commercial Pvt. Ltd. in the matter of M/s. Coronet Industries Ltd

1. In the wake of unusual price movement noticed in the shares of various companies (with low market capitalization) including Coronet Industries Limited (hereinafter referred to as the company) listed on Calcutta Stock Exchange Association Limited (hereinafter referred to as CSE), during December 2004 to November 2005, Securities and Exchange Board of India (hereinafter referred to as SEBI) conducted a preliminary analysis of the trade data in respect of buying, selling and dealing in the shares of such companies. It was inter alia found that the average share price of the company increased from Rs. 7.75 /- to 270/- (an increase of 3384%) during the period between December 20, 2004 and November 24, 2005 (hereinafter referred to as the investigation period). It was prima facie observed that some of the stock brokers inter alia with the connivance of various clients executed substantial trades in the shares of the company during the investigation period and thereby prima facie created misleading appearance of trading in securities and manipulation in the share price of the company. SEBI, inter alia, observed that various stock brokers prima facie violated the provisions 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 Securities and Exchange Board of India (Stock Brokers and Sub- Brokers) Regulations, 1992 (hereinafter referred to as the Broker Regulations). Thereafter, in order to protect the interest of investors, SEBI, vide an ad-interim ex-parte order dated November 30, 2005 inter alia directed various stock brokers including Ahilya Commercial Private Limited (Member, CSE) not to buy, sell or deal in securities, in any manner, either directly or indirectly, till further directions. Subsequently, after affording an opportunity of hearing to the aggrieved persons, SEBI, vide order dated May 31, 2006, confirmed the directions passed vide the ad-interim order dated November 30, 2005, as stated therein.

2. The investigation conducted by SEBI during the relevant period found that primarily three stock brokers namely, Ahilya Commercial Private Limited (hereinafter referred to as the Broker), M/s Murari Lal Goenka and M/s P K Agarwal & Co collectively executed substantial trades in the shares of the company at CSE during the relevant period and that their cumulative trades accounted for approximately 93% of the total volume in the shares of the company at CSE. The trades of the Broker in the shares of the company involved 3,11,900 shares which accounted for 39% of the total volume in the shares of the company traded at CSE during the relevant period. It was observed that the Broker had executed synchronized trades and cross deals in the shares of the company, which accounted for 25% and 69% respectively of its total trades in the shares of the company, during the period of investigation. The Broker traded when the share price was in the range between Rs.22.80/-and Rs.262.00/- and its period of trades was February 23, 2005 to September 05, 2005. It was also alleged that the Broker failed to cooperate with the investigating authority of SEBI. The above acts of the Broker were prima facie in violation of the provisions of the PFUTP Regulations and Broker Regulations.

3. Thereafter, vide order dated September 20, 2006 read with a subsequent order dated November 23, 2007, SEBI 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). When the proceedings were pending before the Enquiry Officer, SEBI vide order dated August 11, 2008, for the reasons stated therein, vacated the directions passed vide interim orders dated November 30, 2005 and May 31, 2006, as against the stock brokers. In the meanwhile, the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 was repealed with effect from the notification of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008. Though, the 2002 Regulations were repealed as stated above, anything done and any action taken under the 2002 Regulations (mentioned above) before the publication of the 2008 Regulations (mentioned above) in the Official Gazette are deemed to have been done or taken or commenced under the corresponding provisions of the 2008 Regulations. The Enquiry Officer/Designated Authority (hereinafter referred to as the Enquiry Officer), vide report dated November 19, 2008 recommended the suspension of the certificate of registration of the Broker for a period of one month. The Enquiry Officer, keeping in view the interim orders of SEBI (mentioned above), further recommended to set off the said period of one month against the period of prohibition already undergone by the Broker.

4. Subsequently, SEBI, issued a notice dated November 24, 2008 to the Broker to show cause as to why action should not be taken against him as recommended by the Enquiry Officer or as it considered appropriate. A copy of the Enquiry Report was also forwarded to the Broker along with the said notice. The Broker was also advised to inform SEBI, whether he desired to avail an opportunity of hearing. However, the Broker neither submitted a reply to the said show cause notice nor sought for a personal hearing in the matter. Sufficient time was given to the Broker to file its reply/submission. However, the Broker failed to do so. In the facts and circumstances, I do not consider it appropriate to grant another opportunity to the Broker and I dispose of the present proceedings on the basis of the available material on record.

5. I have considered the Enquiry Report, the show cause notice of SEBI dated November 24, 2008 issued to the Broker and other materials available on record. The investigation conducted by SEBI observed that the trades of certain stock brokers (including the Broker) in the shares of the company accounted for approximately 93% of the total volume in the shares of the company at CSE during the investigation period. As stated earlier, the trades of the Broker alone stands at 3,11,900 shares which accounted for 39% of the total volume at CSE during the relevant period. The trade details of the Broker in the shares of the company at CSE during the relevant period are as follows: Trading Data No. of % to No. of shares Total shares % to Total Total no. of % to Total bought Buy sold Sell shares Buy & Sell 1,34,600 33% 1,77,300 44% 3,11,900 39%

6. The investigation conducted by SEBI observed that the Broker traded (during February 23, 2005 to September 05, 2005) in the shares of the company when the price was in the range of Rs.22.80/- and Rs.262.00/-. The investigation conducted by SEBI revealed that majority of the trades of the Broker were cross deals. The trades of the Broker had matched and synchronized with two other stock brokers namely M/s P K Agarwal & Co and M/s. Murari Lal Goenka. Details of such cross/synchronized trades are given below:

Cross and Matched transactions Name of the stock M/s Murari Lal M/s P.K Agarwal Broker broker Goenka & Co. Qty % Qty % Qty % Broker 2,14,500 69 22,550 7 55,000 18

The above table indicates that about 94% of the trades of the Broker in the shares of the company were cross/synchronized transactions. The investigation conducted by SEBI further observed that the majority of the trades of the Broker were on behalf of two clients namely, Mrigtrishna Consultants Private Limited (MCPL) and P. Textiles & Co. The transactions of these two clients constituted 75% of the Broker’s buy transactions (32% of the entire transactions). The trades of Mrigtrishna Consultants Private Limited amounted to 34% of the Broker’s buy volumes. MCPL was found to be sole trader in the shares of the company on the days it traded at CSE. The said client traded in the shares of the company through the Broker, when the price was in the range of Rs 221.10 to Rs. 262. Besides, out of 69% of the Broker’s cross deals, the aforesaid two clients accounted for around 45%. Similarly, the trades of the other client viz. P. Textiles & Co constituted 41% of the Broker’s buy volumes (14% of CSE buy volume). The said client traded through the Broker when the share price was between Rs 200.40 and Rs 261.50. A perusal of the trade details (as shown below) indicate that the Broker executed trades in the shares of the company continuously and consistently over a long period. The said trade details of the Broker (as given in the show cause notice issued by the Enquiry Officer) are given below:

Date Previous Closing Exchange Volume % day Price volume created by Increase Closing (Rs) (number the Broker in share price(Rs) of ( number of price shares) shares) 15/Mar/05 57.20 64.40 400 200 12.58 16/Mar/05 64.40 71.90 600 300 11.64

17/Mar/05 71.90 79.30 400 200 10.29 18/Mar/05 79.30 87.25 500 250 10.02 21/Mar/05 87.25 97.65 400 200 11.92 24/Mar/05 97.65 109.90 400 200 12.54 28/Mar/05 109.90 125.10 1000 500 13.83 29/Mar/05 125.10 142.80 400 200 14.14 4/Apr/05 142.80 160.00 1000 500 12.04 5/Apr/05 160.00 170.00 1000 500 6.25 6/Ap/-05 170.00 182.0 1000 500 7.05 7/Apr/05 182.00 200.40 7000 7000 7.69 11/Apr/05 200.40 221.10 10000 10000 10.33 21/Apr/05 221.10 230.70 6000 6000 4.34 6/May/05 230.70 236.80 4800 4800 2.65 11/May/05 236.80 250.25 12,000 12,000 5.67

** D0588=Broker; D0923= M/s P.K. Agarwal & Co.

7. The above mentioned trade details were provided to the Broker along with the show cause notice issued by the Enquiry Officer. The Broker did not deny the execution of the said trades. The Broker did not even file its reply to the show cause notice dated November 24, 2008. Majority of the trades of the Broker in the shares of the company were either ‘synchronized’ or ‘cross deals’ in nature. Needless to say, the trades of the Broker created misleading appearance of trading in the shares of the company in the securities market. It also resulted in the manipulation of the share price. The trades of the Broker cannot be viewed as inconsequential, as most of the trades (about 69%) of the Broker in the shares of the company were cross deals. Besides, 25% of the trades of the Broker were synchronized in nature with other stock brokers. Thus, most of the trades (about 94%) of the Broker in the shares of the company were either synchronized or cross deals. The totality of the facts of the case and the modus operandi under which the Broker had executed his trades would lead to the only conclusion that the said trades were the culmination of a pre-determined and well executed plan of action. The foregoing facts are sufficient enough to establish that the Broker was a necessary party to the transactions which ultimately resulted in the creation of misleading appearance of trading in the securities market and manipulation in the shares of the company. I also note the observation of the Enquiry Officer that the Broker had not made any efforts to find out the real reasons for unreasonable prices solely with the object of enhancing his brokerage or commission. The facts in this case are briefly summarized as follows:

i. Average share price of the company at CSE had increased from Rs.7.75- to Rs.270/- (a rise of 3384%) during the investigation period. ii. Three stock brokers including the Broker collectively executed trades involving 7,51,050 shares in the company which accounted for approximately 93% of the total volume in the shares of the company. iii. The Broker executed trades involving 3,11,900 shares of the company which accounted for 39% of the total volume of the shares of the company traded. iv. Out of 3,11,900 shares, trades involving 77,550 shares (25%) were executed by way of synchronized trades and 214,500 shares (69%) by way of cross deals. v. The Broker traded when the share price was around Rs.22.80/-and at Rs.262/-.

These facts are not in dispute before me.

8. In terms of the provisions of the Code of Conduct specified under the Broker Regulations, a stock broker shall act with due skill, care and diligence in the conduct of his business. The facts of the case make it obvious that the Broker had failed to comply with his duties as expected from a SEBI Registered intermediary. Therefore, I do not have any hesitation to hold that the Broker inter alia violated Regulation 4(2)(o) of the FUTP Regulations and Clauses A(2) of the Code of Conduct specified in Schedule II of the Broker Regulations, as observed by the Enquiry Officer. The Broker failed to controvert the above findings.

9. In the present case, I, note that the Broker was prohibited from buying, selling or dealing in securities, in any manner, either directly or indirectly, in terms of the order of SEBI dated November 30, 2005 read with a subsequent order dated May 31, 2006. The said prohibition continued till August 11, 2008, when the directions imposed vide aforesaid orders was subsequently vacated by SEBI, for the reasons stated therein. It is in this background, the Enquiry Officer recommended to set off the said period of prohibition (November 30, 2005 to August 11, 2008) against the recommended period of penalty. Therefore, considering the totality of the facts and circumstances of the case, the period of prohibition already undergone by the Broker in terms of the interim orders of SEBI and also the recommendation of the Enquiry Officer, I do not consider it necessary to impose a further penalty, beyond the thirty three months of prohibition already imposed on it in the interim orders of SEBI, for the reasons stated above.

10. In view of the foregoing, I, in exercise of the powers conferred on 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, while finding the Broker (Ahilya Commercial Private Limited) guilty of violation of the law and regulation in this regard, as described above in this order, do not deem it necessary to impose any further penalty on Ahilya Commercial Private Limited (Registration No. INB031093439), Member, Calcutta Stock Exchange Association Limited.

11. Accordingly, the present enquiry proceedings against Ahilya Commercial Private Limited stands disposed of.

K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Place: Mumbai Date: April 28, 2009