Order agaisnt Shilpa Stock broker, in the matter of Enour Software Ltd

WTM/39/12/2005/IVD SECURITIES AND EXCHANGE BOARD OFINDIA ORDER Under regulation 13 (4) of Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 against M/s.Shilpa Stock Broker Pvt. Ltd, Member, INB 011057438 The Stock Exchange, Mumbai, in the matter of M/s. Eonour Software Ltd 1.0Background 1.1In January 1996, M/s. Eonour Software Limited (hereinafter referred to as “ESL”) had come out with a public issue of 12, 50, 000 shares of Rs. 10/- each at a premium of Rs.20/- per share aggregating to Rs.375 lac. Shares of ESL were listed at The Stock Exchange, Mumbai (hereinafter referred to as “BSE”), Madras Stock Exchange, Madhya Pradesh Stock Exchange, and Ahmedabad Stock Exchange. 1.2The scrip of ESL was listed at BSE on 13th March 2000 and the first trade was reported only on 12th June 2000 at a price of Rs.520/- which went up to Rs.634.75 by 7th July 2000. A total of 2, 22, 600 shares were traded at BSE during1st December 1999and31st July 2000. The maximum quantity traded on an exchange on a particular day during the said period was on22nd June 2000with number of shares traded being 11, 700 shares.

1.3Securities and Exchange Board of India (hereinafter referred to as “SEBI”) had conducted an investigation into the trading of the scrip of ESL. 1.4Brokers mentioned in following Table-1 were the top ten brokers in terms of gross quantity traded during the period June 2000 to December 2000 at BSE. These brokers were selected on the basis of their Gross Purchases, Gross sales and Gross position. Table -1 Name of Broker Purchases % of Total Sales % ofTotal Gross Shilpa Stock Brokers P Ltd 45900 20.62 45600 20.49 91500 Bhupendra M. Bheda 43500 19.54 43500 19.54 87000 Joindre Capital Ltd. 42900 19.27 42900 19.27 85800 M. J. Doshi 20700 9.30 20700 9.30 41400 Indo Share & Fintrade Ltd 15300 6.87 15300 6.87 30600 Anantrai A. Parekh 15100 6.78 15100 6.78 30200 Suresh Rathi Sec. P. Ltd. 10800 4.85 10800 4.85 21600 J. N. Jhaveri 9700 4.36 9700 4.36 19400 Dinesh J. Shah 9200 4.13 6700 3.01 15900 GSB Capital Markets Ltd. 6800 3.05 6800 3.05 13600 Others 2700 1.21 5500 2.47 8200 Total 222600 100.00 222600 100.00 445200 1.5From the records submitted by the brokers of BSE mentioned in Table - 1, it was seen that most of the clients of these brokers were linked to each other in some way or the other and had predominantly traded in the scrip of ESL and that most of these clients had not paid margin/deposits to the brokers for the trades executed by them but had traded through them in substantial quantities.

Further, they were squaring off their positions not only at the end of settlement but also almost on the same day. It was observed during1st June 2000and31st December 2000that deliveries in the scrip were less than 5% of the total trading volume of the scrip of ESL on BSE. The total quantity traded by the clients / entities is given in Table -2 as under Table -2 Sr.No Name of the Entity Purchases Sales Gross 1. F. T. Traders 67900 65300 133200 2. Prashant Investment 46400 46400 92800 3. M/s. K. N. Traders 33500 33300 66800 4. Jem Fiscal Ltd. 17600 17600 35200 5. K. P Investment 17200 17200 34400 6. Hakeem Auto Ltd. 3100 2200 5300 Total 185700 182000 367700 1.5It can be seen from table – 1 that the gross quantity traded i.e., buy and sell in the scrip at BSE during June 2000 to December 2000 was 4, 45, 200 lac shares, out of which 3, 67, 700 lac shares were traded by the entities named in the table - 2, which constituted approximately 83% of the trading in the scrip. 1.6Investigations revealed that M/s. Shilpa Stock Broker Pvt. Ltd (hereinafter referred to as “SSBPL”) traded in the scrip of ESL on behalf oftwo clients mentioned in the above Table - 2 i.e.,M/s.

K N Traders (hereinafter referred to as KNT”) and M/s. Hakeem Auto Ltd (hereinafter referred to as “HAL”). 1.7SSBPL not showing due skill, care and diligence while dealing with KNT and HAL was alleged to be in violation of Code of Conduct as specified under Schedule II read with regulation 7 of Securities and Exchange Board of India (Stockbrokers and sub-brokers) Regulations, 1992 (hereinafter referred to as “Brokers Regulations”). Further, the trades done by SSBPL on behalf of KNT and HAL were alleged to be in violation of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as “FUTP Regulations”) and SSBPL by trading on behalf of KNT and HAL had aided and abetted market manipulation done by KNT and HAL which is a violation of regulation 4 (b) and (d) of FUTP Regulations. 2.0Enquiry Proceedings 2.1In view of the above irregularities committed by SSBPL, Chairman, SEBI vide order dated18th February 2002, appointed an Enquiry Officer to enquire into the affairs of SSBPL. Enquiry Officer after conducting enquiry, submitted a report dated 31st March 2004 finding SSBPL guilty of violating Clause A (2) of Code of Conduct laid down under Schedule II of Broker Regulations and recommended that a minor penalty of warning be imposed on SSBPL.

3.0Show cause notice and hearing 3.1Subsequent to the said Enquiry Report, as per regulation 13 (2) of Securities and Exchange Board of India (Procedure for Holding Enquiry By Enquiry Officer and Imposing Penalty) Regulations, 2002, a show cause notice dated 13th April 2004 was issued to SSBPL. SSBPL vide letter dated17th June 2004responded to the show cause notice inter alia as follows 3.1.1 “More than 85% volumes were in the normal scrips such as Tisco, Infosys, Global Tele, Zee etc., and therefore we could not suspect. 3.1.2The BSE had send us the letter about the investigation into the transaction of ESL and we have stopped the business and discontinued the terminal immediately. 3.1.3We have not done any single transaction in out proprietary account or in any personal account of Directors. 3.1.4However, after going through the SEBI and BSE we have taken various steps to improve our vigilance and we assure you that we are taking all necessary steps so that such thing does not occur in future.” 4.0Consideration of issues and findings 4.1I have carefully considered the Enquiry Report, show cause notice issued to SSBPL and submissions made by SSBPL in response to the show cause notice.

4.2As admitted by SSBPL had traded on behalf of KNT and HAL and these clients were involved in market manipulation. SSBPL not being diligent enough allowed KNT and HAL in indulging acts calculated to create a false and misleading appearance of trading in the scrip of ESL, which resulted in building up of artificial volumes and price in the scrip of ESL. 4.3I note that number of clients connected to each other were able to indulge in circular trading i.e., buy and sell transactions with each other, squaring off positions and reversing trades either on the same day or same settlement, making the net receivables and deliverable positions either nil or in negligible quantities and created a false and misleading appearance of trading on the securities market in the scrip of ESL which include that clients of SSBPL was very few and specific and as such it was not difficult for SSBPL to watch carefully their trading style. 4.4Being a registered intermediary, SSBPL is under positive obligation to be more diligent while dealing with clients, which SSBPL failed in the instant case resulting in violation of clause A (2) of Code of Conduct specified for brokers under Schedule II read with regulation 7 of Brokers Regulations.

5.0Order 5.1Therefore I agree with recommendation of enquiry officer and in exercise of powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992 read with regulation 13 (4) of Securities and Exchange Board of India (Procedure for holding Enquiry by Enquiry Officer and imposing penalty) Regulations, 2002, I hereby impose a minor penalty of warning on M/s. Shilpa Stock Broker Pvt. Ltd. I direct it to be more diligent in complying with the Securities and Exchange Board ofIndiaAct, Rules and Regulations framed there under. I further direct M/s. Shilpa Stock Broker Pvt. Ltd to note that any instances of violations or non-compliance of the Act, Rules and Regulations in future shall be dealt with more stringently. Place: Mumbai Madhukar Date:27 December 2005 Whole Time Member Securities and Exchange Board ofIndia