Order against M/s. P. K. Agarwal and Co 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 P. K. Agarwal & Co. (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 and M/s P. K. Agarwal & Co. (hereinafter referred to as the Broker) 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 M/s P. K. Agarwal & Co in the shares of the company involved 2,02,450 shares which accounted for 25% 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 synchronised trades and cross deals in the shares of the company, which accounted for 30% and 66% respectively of its total trades in the shares of the company during the period. The trades of the Broker were in the range of Rs.7.75/- to Rs.51.10/- during the period between December 20, 2004 and March 09, 2005. The above trades of the Broker were prima facie found to be in violation of the provisions of the PFUTP Regulations and Broker Regulations.

3. Thereafter, vide order dated February 18, 2007 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 for the purpose of brevity) in his report dated November 19, 2008 found that the Broker by failing to cooperate with the investigating authority, the Broker became liable for action in terms of Regulation 27 (ix) of the Broker Regulations and further recommended for the suspension of the certificate of registration of the Broker for a period of two months.

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 any reply nor sought for a personal hearing, till date. 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 material 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 relevant period. The trades of the Broker alone stands at 2,02,450 shares accounting for 25% of the total volume for the corresponding period. The investigation conducted by SEBI observed that the Broker traded (during December 20, 2004 to March 09, 2005) in the shares of the company when the price was in the range of Rs.7.75/- and Rs.51.10/-. The trade details of the Broker in the shares of the company are given below: Trading Data % to No. of % to No. of % to Total no. Total shares Total shares Total of Buy & Member Name bought Buy sold Sell shares Sell Broker 1,10,900 27% 91,550 23% 2,02,450 25%

6. 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 Ahilya Commercial Private Limited and M/s. Murari Lal Goenka. Details of such cross/ synchronized trades are given below: Cross and Matched transactions M/s Ahilya M/s Murari Name and address of the Broker Commercial Lal Goenka stock broker Pvt. Ltd. Qty % Qty % Qty % 1,33,10 Broker 0 66% 55,000 27% 6,350 3%

The above table indicates that about 96% of the trades of the Broker in the shares of the company were either cross deals or synchronized transactions. Though the trade details were provided to the Broker along with the show cause notice issued by the Enquiry Officer, he failed to respond. The Broker did not deny the execution of the said trades. The Broker did not even file the reply to the show cause notice dated November 24, 2008. The Enquiry Officer observed in his report that the Broker neither submitted any reply nor appeared for hearing. 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 66%) of the Broker in the shares of the company were cross deals. Besides, 30% of the trades of the Broker were synchronized in nature. Thus, most of the trades (about 96%) 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 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. 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 invetsigation. 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 2,02,450 shares of the company which accounted for 25% of the total volume of the shares of the company traded. iv. Out of 2,02,450 shares, trades involving 61,350 shares (30%) were executed by way of synchronized trades and 1,33,100 shares (66%) by way of cross deals. v. The Broker traded when the share price was around Rs.7.75/- and at Rs.51/-.

These facts are undisputed before me.

7. I note that the Broker despite receiving a number of summons under Sections 11 C (3) & 11 C (5) of the Securities and Exchange Board of India Act, 1992 requiring him to appear before the Investigating Authority in person and to furnish the information and documents specified in the annexure to the summons, had failed to appear before the Investigating Authority in person and also failed to furnish the information and documents asked for. The details of the said summons are tabulated below:

Sr. Date of Date to appear Status of Compliance No Summons on 1 03-May-2006 12-May-2006 Received but not complied with 2 23-May-2006 29-May-2006 Received but not complied with 3 30-May-2006 06-Jun-2006 Received and replied vide letter dated June 16, 2006 and sought time but not complied with 4 19-Jun-2006 26-Jun-2006 Received but not complied with 5 27-Jun-2006 04-Jul-2006 Received but not complied with 6 05-Jul-2006 12-Jul-2006 Received but not complied with 8. Even after giving adequate opportunities for furnishing the information called for and failure on the part of the Broker to comply with the same and non appearance before the investigating authority would lead to the inference that the Broker was deliberately suppressing some material information in respect of his trading in the shares of the company. This disobedience on the part of the intermediary registered with SEBI cannot be taken lightly, especially considering the nature of trades executed by the Broker while dealing in the shares of the company during the relevant period. In terms of Regulation 27(ix) of the Broker Regulations, the failure of the Broker to co-operate with the investigating authority of SEBI makes him liable for an action as specified in the provisions of Securities and Exchange Board of India (Intermediaries) Regulations, 2008.

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 him in the interim orders of Securities and Exchange Board of India, 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 him guilty of violating the laws laid down as described in this order, do not deem it necessary to impose any further penalty on M/s P. K. Agarwal & Co. (Registration No. INB031072912), Member, Calcutta Stock Exchange Association Limited.

11. Accordingly, the present enquiry proceedings against M/s P. K. Agarwal & Co. stands disposed of.

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