Order against M/s. Murari Lal Goenka 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 M/s Murari Lal Goenka (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, M/s Murari Lal Goenka (hereinafter referred to as the Broker) and M/s P K Agarwal & Co collectively executed substantial trades in the shares of the company at CSE during the relevant period which together accounted for approximately 93% of the total volume in the said shares. The trades of M/s Murari Lal Goenka in the shares of the company involved 2,36,700 shares which accounted for 29% of the total volume in the shares of the company traded at CSE during the relevant period. He executed trades between the period June 24, 2005 and November 07, 2005. The Broker had allegedly executed synchronized trades and cross deals in the shares of the company, which accounted for 11% and 88% respectively of its total trades in the shares of the company during the investigation period. The Broker traded when the share price of the company was in the range of Rs.257.90/- to Rs.271.00/-. The above trades of the Broker were prima facie found to be in violation of the provisions of the PFUTP Regulations and Broker Regulations.

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 was 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 was 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) in his report dated November 19, 2008 found that the Broker inter alia violated the provisions of Regulation 4(2)(o) of PFUTP Regulations and clause A (2) of the Code of Conduct specified under Schedule II of the Broker Regulations. The Enquiry Officer 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.

3. Subsequently, SEBI, issued a notice dated November 24, 2008 to the Broker to show cause as to why action should not be taken against it as recommended by the Enquiry Officer or as 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. The Broker in his reply dated December 04, 2008 submitted that, it had followed all the required and prescribed prudent norms, care and diligence before executing any trade on behalf of the clients and did not compromise on those norms at any point in time. Further, the Broker requested

SEBI to drop the proceeding and not impose any penalty. The Broker did not specify whether he wished to avail the personal hearing.

4. I have considered the Enquiry Report, the show cause notice of SEBI dated November 24, 2008 issued to the Broker, his reply dated December 04, 2008 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 2,36,700 shares accounting for 39% of the total volume at CSE for the relevant period. The trade details of the Broker in the shares of the company at CSE during the relevant period are as follows:

Trade Data % to No. of % to No. of Total shares Total shares % to Total Total no. of Buy & bought Buy sold Sell shares Sell 1,20,600 30% 1,16,100 29% 2,36,700 29%

5. The investigation conducted by SEBI observed that the trades of the Broker had substantial effect in raising the share price of the company from Rs.257.90 to Rs.271.00 for the period between June 24, 2005 and November 07, 2005. Majority of the trades of the Broker were in the nature of cross deals. The Broker also executed matched/ synchronized trades with two other stock brokers namely M/s P K Agarwal & Co, Ahilya Commercial Private Limited. Details of such cross/ synchronized trades are given below: Cross and Matched transactions Name of the Ahilya Commercial P.K Agarwal & stock Broker Private Limited Co. broker Qty % Qty % Qty % Broker 2,07,800 88% 22,550 9% 6350 2%

The table above indicates that about 99% of the trades of the Broker in the shares of the company were cross/synchronized transactions. The investigation conducted by SEBI further observed that majority of the trades of the Broker in the shares of the company during the period was on behalf of the client namely, Mrigtrishna Consultants Private Limited (MCPL). The transactions of the Broker on behalf of the said client constituted around 84% of the Broker’s buy transactions.

6. The investigation conducted by SEBI observed that MCPL actively traded in the shares of the company and purchased 1,01,250 shares during the period. MCPL was found to be sole trader in the shares of the company on the days it traded at CSE. The purchases were being made at a higher price for every successive trade, than the previous traded price. The said trades executed for MCPL by the Broker were also instrumental in inflating the share price from Rs.258.20 to Rs.271/-. The trade details (enclosed with the show cause notice issued by the Enquiry Officer) indicated that the Broker executed cross/synchronized trades in the shares of the company continuously and consistently over a long period. The Broker did not deny the execution of the said trades. 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 securities market. It also resulted in the manipulation of the share price of the company. The trades of the Broker cannot be viewed as inconsequential, as most of the trades (about 88%) of the Broker in the shares of the company were 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 logical conclusion that they 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 price of 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. Thus, I would like to mention the following facts, in brief:

i. Average share price of the company at CSE had increased from Rs.7.75- to Rs.270/- (a rise of 3384%) during the period of investigation. 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 2,36,700 shares of the company which accounted for 39% of the total volume of the shares of the company traded. iv. Out of 236,700 shares, trades involving 28,550 shares (11%) were executed by way of synchronized trades and 207,800 shares (88%) by way of cross deals. The major client of the Broker in both the synchronized and cross deals was Mrigtrishna Consultants Private Limited. The said client was purchasing the shares of the company through the Broker. v. The Broker traded when the share price was around Rs.257.90/- and at Rs.271/-.

These facts are not disputed before me.

7. 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 PFUTP Regulations and Clause A (2) of the Code of Conduct for stock brokers specified in Schedule II of the Broker Regulations, as found by the Enquiry Officer. 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 this case a fit one to impose further penalty, beyond the thirty three months of prohibition already undergone by the Broker in terms of the aforesaid interim orders of Securities and Exchange Board of India, for the reasons stated above.

8. 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 stock broker (M/s Murari Lal Goenka ) guilty of violation of the law and regulation that apply in this regard, as described above in this order, do not deem it necessary to impose any further penalty on M/s Murari Lal Goenka (Registration No. INB030904314), Member, Calcutta Stock Exchange Association Limited.

9. Accordingly, the present enquiry proceedings against M/s Murari Lal Goenka stands disposed of.

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