Order against M/s Binoy Poddar in the matter of Nageshwar Investment Ltd

1. In the wake of unusual price movement noticed in the shares of various companies including Nageshwar Investment Limited (hereinafter referred to as the company) listed on Calcutta Stock Exchange Association Limited (hereinafter referred to as CSE), during April 2005 to November 2005 (hereinafter referred to as the investigation period), Securities and Exchange Board of India (hereinafter referred to as SEBI) conducted an investigation into the buying, selling and dealing in the shares of such companies. It was inter alia, observed that some of the stock brokers with the connivance of various clients executed substantial trades (in the form of cross deals/synchronised trades) in the shares of the company which prima facie resulted in the manipulation of the share price of the company. SEBI, inter alia, observed that various stock brokers prima facie violated the provisions of 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). On the basis of the preliminary analysis of trading data, SEBI, vide an ad-interim ex-parte order dated November 30, 2005 inter alia directed various stock brokers, including M/s Basant Periwal & Co. (Member,

CSE) not to buy, sell or deal in securities, in any manner, either directly or indirectly, till further directions. Subsequently, the said ex-parte order was confirmed by SEBI, vide order dated May 31, 2006. The investigation had identified certain stock brokers, including M/s Binoy Poddar (hereinafter referred to as the Broker) based on their pattern of trading and the volumes contributed by them in the shares of the company during the investigation period. It was further observed that most of the trades of the said stock brokers were ‘client to client’ and have been executed on a single terminal of the same stock broker and the same inter alia led to the manipulation in the shares of the company. It was inter alia alleged that the trade practices of the Broker were prima facie in contravention of the provisions of Regulation 4(2)(a), 4(2)(e) and 4(2)(o) of the PFUTP Regulations and Clauses A(1) to A(4) and Clause B(4)(a) of the Code of Conduct specified in Schedule II of the Broker Regulations.

2. Thereafter, an enquiry proceeding was initiated by SEBI in terms of the provisions of the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (since repealed) to enquire into the aforesaid alleged violations committed by the Broker. Since the aforesaid Regulations was repealed with effect from the notification of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (hereinafter referred to as the Intermediaries Regulations), the Designated Authority (hereinafter referred to as the Enquiry Officer), submitted the Report dated March 20, 2009 in terms of the provisions of the Intermediaries Regulations recommending the suspension of the certificate of registration of the Broker for a period of six months. The Enquiry Officer further recommended that the period of prohibition already undergone by the Broker in terms of the aforesaid orders of SEBI be considered while imposing the said penalty. Pursuant to the submission of the Enquiry Report, a show cause notice dated March 25, 2009 was issued by SEBI to the Broker. A copy of the Enquiry report was also forwarded to the Broker alongwith the said show cause notice.

The Broker was also advised to inform whether it would like to avail of an opportunity of hearing. Thereafter, SEBI granted various opportunities to the Broker, vide letters dated June 23, 2009 and August 20, 2009. However, even after the receipt of the said letters, the Broker chose not to respond. Though, the Broker was specifically advised to inform in case it wished to avail a hearing, no response was received from it. In view of the deliberate attempt on the part of the Broker in not responding to the aforesaid notice/letters, I do not consider it necessary to grant another opportunity to the Broker and, proceed with the matter on the basis of the Enquiry report, the show cause notice dated March 25, 2009 (including the subsequent letters) issued to the Broker and other material available on record, in terms of the provisions of the Intermediaries Regulations.

3. The findings of the SEBI investigation which are not disputed before me are given below, in brief: a. the average share price of the company increased from Rs.12.70/- to Rs.42.95/-. b. the trades of the stock brokers, namely, M/s Shyam Lal Sultania, M/s Basant Periwal & Co., M/s P K Agarwal & Co. and the Broker accounted for around 57% of the total trading in the shares of the company at CSE. c. the Broker was found to have transacted in 20,29,155 shares of the company at CSE, the details of which are given below: % to Total no. % to No. of % to Total No. of shares Total of shares Total Buy shares Buy sold Sell traded & Sell bought 13,36,700 16.59% 6,92,455 8.59% 20,29,155 12.59% d. Out of the 20,29,155 shares, trades for 12,48,896 shares resulted out of cross deals, as mentioned below:

Cross deals Name of the stock Broker broker Qty % Broker 12,48,896 62%

4. From the extracts of the trade log received from CSE in respect of the trades of the Broker, I note that the Broker executed cross deals in the shares of the company during the price range, Rs.20.85 to Rs.55.20. Further, the Broker executed matched trades and was found to have placed both buy and sell orders of identical quantity and price in such a way that its buy orders matched with its corresponding sell orders resulting in trades. Though, the details of such trades were provided to the Broker it did not controvert the findings of the Enquiry Officer with regard to the same. In a cross deal, the stock broker would be aware of both the clients (buy and sell) and the execution of trades would be pursuant to such knowledge. The large number of cross deals executed by the Broker in the shares of the company cannot have been done without prior meeting of minds before its execution. The Broker had traded continuously in the shares of the company in both the buy and the sell positions during the investigation period. The fact that the Broker had executed various cross deals would indicate the level of its involvement in manipulating and inflating the share price of the company. The share price of the company had also increased during the period of such trades, as mentioned above. In the facts and circumstances, as explained in detail in the Enquiry Report and in this order, these trades were found to have been executed only with the intention of manipulating the share price of the company. Thus, the Broker was a necessary party in the execution of such pre planned trades. It cannot absolve itself from the liability. Needless to say, the said trades inter alia created misleading appearance of trading in the market and manipulation in the share price of the company artificial price increase in the shares of the company. The Enquiry Officer had given detailed findings in respect of the violations committed by the Broker. The Broker has not taken any effort to controvert such findings. Therefore, it is not necessary to reiterate the same in detail in this order.

5. Besides, the violation of the provisions of the PFUTP Regulations, by entering into such deceptive transactions which distorted the market mechanism, the Broker did not uphold the expected standards of integrity and fairness in its conduct as expected of a prudent intermediary functioning in the securities market. It also did not exercise due care while executing trades in the shares of the company. The Broker failed to act with due skill, care and diligence in the conduct of its business in respect of the transactions in the shares of the company during the period of investigation. In the facts and circumstances, I do not have any hesitation in concurring with the findings of the Enquiry Officer that the Broker violated the provisions of Regulations 4(2)(a), 4(2)(e) and 4(2)(o) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 and Clauses A(1) to A(4) and Clause B(4)(a) of the Code of Conduct prescribed for stock brokers specified under Schedule II of the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992, while dealing in the shares of the company during the investigation period. The said violations call for a deterrent penalty. I note that the Broker was prohibited from buying, selling or dealing in securities, in any manner, either directly or indirectly, as per the orders 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 as stated therein. Taking into account, the facts and circumstances of the case in its entirety and the period of prohibition already undergone by the Broker, I do not find any reason to disagree with the recommendation of the Enquiry Officer and accordingly, the present enquiry proceeding initiated against M/s. Binoy Poddar in respect of its dealings in the shares of Nageshwar Investment Limited during the period April

2005 to November 2005, is disposed of as ordered hereinbelow, in terms of the provisions of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.

6. 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 Securities and Exchange Board of India (Intermediaries) Regulations, 2008, hereby impose a penalty of suspension of the certificate of registration of the stock broker namely, M/s. Binoy Poddar (Registration No. INB 031152011), Member, Calcutta Stock Exchange Association Limited, for a period of six months. However, the same is set off against the period of prohibition already undergone by the said stock broker and no further penalty would be required to be undergone by the said stock broker.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Place: Mumbai Date: October 26, 2009