Order against P. K. Agarwal and Co. 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 investigations 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 shares 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 Pramod Kumar Agarwal (Trade Name: P.K. Agarwal & Co., 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 said directions were subsequently vacated by SEBI, vide order dated August 11, 2008. Pramod Kumar Agarwal (Trade Name: P.K. Agarwal & Co. shall hereinafter be referred to as the Broker. The investigation had identified certain stock brokers, including 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 were executed on a single terminal of the same stock brokers and that the same was also responsible for the manipulation in the shares of the company. The Broker failed to co-operate with the investigating authority and thus alleged to have contravened the provisions of Regulation 27 (ix) of the Broker Regulations and Clause A (5) of the Code of Conduct prescribed for stock brokers under Schedule II thereof.

Thereafter, an enquiry proceeding (vide order dated January 4, 2007) 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 July 2, 2009 in terms of the provisions of the Intermediaries Regulations, recommending the cancellation of the certificate of registration of the Broker. Pursuant to the submission of the Enquiry Report, a notice dated July 07, 2009 was issued by SEBI to the Broker advising it to show cause as to why the penalty recommended by the Enquiry Officer or as it considered appropriate should not be imposed against it. A copy of the Enquiry report was also forwarded to the Broker along with the said show cause notice.

The Broker was also advised to inform whether it would like to avail of an opportunity for hearing. Though, the said notice was acknowledged by the Broker, it failed to submit any reply. Thereafter, SEBI granted various opportunities to the Broker, vide letters dated August 20, 2009 and October 14, 2009. However, even after receiving all such notices, the Broker had chosen not to respond. Thereafter, an opportunity of hearing was granted to the Broker by SEBI on November 20, 2009. Despite the receipt of the letters dated November 6, 2009 and November 17, 2009 intimating the Broker of the said hearing, it failed to appear before me.

2. Clearly in this case, the Broker had deliberately chosen not to appear before SEBI at any stage either during the investigation or in this enquiry proceeding. In view of the continued failure on the part of the Broker in responding to SEBI, I do not consider it necessary to provide another opportunity to the Broker and the present enquiry proceeding is disposed of on the basis of the available material on record, in terms of the provisions of the Intermediaries Regulations. The findings of SEBI investigation in respect of the dealings in the shares of the company during the investigation period 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 Binoy Poddar, M/s Shyam Lal Sultania, M/s Basant Periwal & 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 19,80,451 shares of the company at CSE, as given below:

Trading Data % to No. of Total No. of % to Total shares Buy at shares Sell at Total no. % to Total bought CSE sold CSE of shares Buy & Sell 98,800 1.23 18,81,651 23.35 19,80,451 12.29 d. Out of the above 19,80,451 shares traded by the Broker, trades in respect of 18,87,650 shares were carried out through cross/synchronised trades, as mentioned below: Cross and Matched transactions M/s P K Agarwal & M/s Basant Periwal & Name of the stock Co. Co. broker Qty % Qty % M/s P K Agarwal & Co. 17,08,050 86% 1,79, 600 9% e. The Broker had a played a role in raising the price of the scrip from Rs.12.40/- to Rs.50.65/-.

3. I note that SEBI, vide order dated October 26, 2009 found the stock broker M/s. Basant Periwal & Co. guilty of executing cross/synchronised transactions. It was also found that the said stock broker was involved in executing synchronised transactions with the Broker. I note that the Broker had not taken any effort to respond to the letters/notices at various stages of this proceeding. Besides, the Broker failed to co-operate with the investigating authority despite receipt of the summons issued during the investigation. The details of such summons and its status were explained in detail in the Enquiry report. At the cost of repetition the said details are tabulated herein below:

Date of Mode of Proof of delivery of Status of Summons Delivery summons compliance 9.3.2006 By hand Delivered on Not submitted delivery 10.3.2006 documents and not Received by the appeared in person Broker – stamped acknowledgment 28.3.2006 By hand Delivered on Not submitted delivery 29.3.2006. documents and not Received by the appeared in person Broker acknowledgement 26.4.2006 By hand Delivered on Not submitted delivery 26.4.2007. documents and not Received by the appeared in person Broker acknowledgment 11.7.2006 By hand Delivered on Not submitted delivery 12.6.2006 documents and not Received by the appeared in person Broker acknowledgment 25.7.2006 By hand Delivered on Not submitted delivery 25.7.2006 documents and not Received by the appeared in person Broker acknowledgment 4.8.2006 By hand Delivered on Not submitted delivery 4.8.2006 documents and not Received by the appeared in person Broker acknowledgment 17.8.2006 By hand Delivered on Not submitted delivery 17.8.2006 documents and not Received by the appeared in person Broker acknowledgment

4. The receipt of all aforesaid summons were acknowledged by the Broker, but yet he failed to comply with the requirements contained in them. The Enquiry Officer had given elaborate and specific observations/findings in respect of each of the summons. I note that the Broker repeatedly neglected to respond/comply with the summons from the Regulator. Non compliance of summons sent by the Investigating Authority during the course of investigation cannot be taken lightly. The Enquiry Officer had given detailed findings in respect of the violations committed by the Broker. I also note that the Broker has not taken any steps to controvert such findings. In view of the above, I conclude that the Broker had failed to co-operate with the investigating authority, in terms of Regulation 27(ix) of the Broker Regulations and thus liable for appropriate action under the Intermediaries Regulations. Further, in terms of Clause A(5) of the Code of Conduct prescribed for stock brokers under Schedule II thereof, a stock broker shall inter alia abide by all the provisions of the Act and Regulations framed by SEBI from time to time as may be applicable to him. The Broker had deliberately failed to do so. In such circumstances, the Broker deserves to be penalised commensurate to his violations in accordance with the relevant provisions.

5. Taking into consideration, all the facts and circumstances of the case, I do not find any reason to disagree with the recommendations of the Enquiry Officer and accordingly, the present enquiry proceeding initiated against M/s. P. K. Agarwal & Co 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 herein below, 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 suspend the certificate of registration of the stock broker, namely, Pramod Kumar Agarwal (Trade Name:

P.K. Agarwal & Co (Registration No. INB 031072912), Member, Calcutta Stock Exchange Association Limited for a period of five years.

7. The period of prohibition already undergone by the said stock broker vide Securities and Exchange Board of India orders dated November 30, 2005 and May 31, 2006 shall be set off against the aforesaid penalty.

8. This order shall come into force immediately on expiry of twenty one days from the date of this order.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Place: Kolkata Date: November 20, 2009