Order against Milan Mahindra Securities Pvt. Ltd. in the matter of SSI Ltd

WTM/PS/ 39 /IVD/ID-1/SEPT/2010 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER IN THE MATTER OF S.S.I. Ltd. In respect of Milan Mahindra Securities Pvt. Ltd. (SEBI Registration No. INB 010994835) ORDER Under Regulation 28(2) read with Regulations 38 (2) of Securities and Exchange Board of India (Intermediaries) Regulations, 2008 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted investigation into the buying, selling and dealings in the shares of SSI Ltd. (hereinafter referred to as ‘SSI’) for the period from October 01, 1999 to June 09, 2000. The trading details of persons who had traded in the scrip were collected and analyzed along with the data of volumes contributed by the entities traded during the relevant period. During the investigation period, price of the scrip increased from Rs.650 as on October 01, 1999 to Rs.5380 as on March 10, 2000. Thereafter, the price started declining from Rs.4950 as on March 13, 2000 to Rs.2700 as on June 09, 2000.

2. During the course of investigation, it was inter alia revealed that the broker Milan Mahindra Securities Pvt. Ltd. (SEBI Registration No. INB 010994835) (hereinafter referred to as ‘noticee’) registered with SEBI, had executed various matched and reversal trades in the nature of synchronized deals.

3. Based on findings of the investigation, SEBI initiated enquiry proceedings as against the noticee in terms of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as ‘Enquiry Regulations’), by appointing an Enquiry Officer under Regulation 5(1) of Enquiry Regulations. SEBI appointed the Enquiry Officer, to enquire into the alleged violation of the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as the ‘PFUTP Regulations’) and SEBI (Stock Broker and Sub

Brokers) Regulations, 1992 (hereinafter referred to as ‘Broker Regulations’). The Enquiry Officer submitted his Report dated February 21, 2006, in terms of Regulation 13 (1) of the Enquiry Regulations recommending a penalty of suspension of certificate of registration for a period of three months for violating the provisions of Regulation 4(b) of PFUTP Regulations and Clause A (3) and (4) of Code of Conduct as specified in Schedule II of Regulation 7 of Broker Regulations.

4. Subsequently, a show cause notice (hereinafter referred to as ‘SCN’) dated December 18, 2006, under Regulation 13(2) of the Enquiry Regulations was issued to noticee asking it to show cause as to why the appropriate penalty including penalty recommended by Enquiry Officer, should not be imposed. The noticee was advised to reply to the SCN, together with the documents that it may choose to rely upon in support of its reply within fifteen days of the receipt thereof. It was also informed that in case of failure, it would be presumed that it had no explanation to offer and SEBI shall be free to take such action in the manner as it deemed fit. A copy of the Enquiry Report was also forwarded to the noticee along with the SCN.

5. The SCN issued to the noticee returned undelivered. Thereafter various attempts were made to deliver the SCN to noticee, but the SCN remained undelivered. Before proceeding further an opportunity of personal hearing was granted to the noticee on May 21, 2010 and July 26, 2010. The hearing notice for these dates remained undelivered as well.

6. I note that, a press notification was issued as a mode of substituted service on noticee, with an advice that in absence of any reply, the matter would be proceeded ex-parte. I note that the stipulated period mentioned in the publication had expired on the date of hearing. I have seen the service report and find that the principles of natural justice have been duly complied with, and it appears that the noticee is not interested in submitting its stand in the present proceedings. In view of this, I am compelled to proceed with the matter ex-parte, on the basis of material available on record, having complied with the principles of natural justice.

7. I have carefully considered the findings of investigation, Enquiry Report, SCN issued to the noticee and material available on record. I note that the Enquiry Officer has found the noticee guilty of violation of provisions of Regulations 4(b) of PFUTP Regulations and Clauses A (3) and (4) of the Code of Conduct as specified in Schedule II of Brokers Regulations. Considering all this, the issue arises for my consideration is: Whether noticee has violated Regulations 4(b) of PFUTP Regulations and Clauses A (3) and (4) of the Code of Conduct as specified in Schedule II of Brokers Regulations?

8. Whether noticee has violated Regulations 4(b) of PFUTP Regulations and Clauses A (3) and (4) of the Code of Conduct as specified in Schedule II of Brokers Regulations?

a. As already discussed above, the scrip of SSI witnessed high fluctuations during the relevant period. It is seen that the noticee had traded in the scrip of SSI for its clients stated to be the Ketan Parekh entities. In most of such trades the counterparty was Triumph International Finance India Ltd. and Triumph Securities Ltd.

b. From the tables of matched trades stated to be executed by the noticee with Triumph International Finance India Ltd. and Triumph Securities Ltd., I observe that it is not clear as to how these trades were violative of normal market practices. The details available on record are also not enough to substantiate the charge that the said trades were syncronised or of reversal in nature with the counterparties. Further, it is not possible to conclude that the trades of noticee were responsible for increasing or decreasing the prices of the scrip.

c. Considering the same, I do not find sufficient evidence on record to show that the noticee has entered into transactions in violation of Regulation 4(b) of PFUTP Regulations and Clauses A (3) and (4) of the Code of Conduct as specified in Schedule II of Brokers Regulations. Taking in view of this, I do not consider this a fit case to impose the penalty of suspension as recommended by the Enquiry Officer. In the interest of justice and equity, the enquiry proceedings initiated against the noticee is disposed of as ordered herein below.

9. I note that pursuant to the notification of the Intermediaries Regulations, the Enquiry Regulations have been repealed and in terms of Regulation 38(2) of the Intermediaries Regulations, notwithstanding such repeal, any enquiry commenced under the Enquiry Regulations, shall be deemed to have been commenced under the corresponding provisions of intermediaries Regulations.

10. In the facts and circumstances of the matter, I, in exercise of the powers conferred upon 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, hereby dispose of the Enquiry proceedings against Milan Mahindra Securities Pvt. Ltd. (SEBI Registration no. INB 010994835) without imposing any penalty or direction.

DATE: 3RDSEPTEMBER, 2010 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA