Order aginst the broker Basant Kumar Chirimar in the matter of M/s Sharadraj Trade Finance Ltd

For Securities and Exchange Board of India: Mr. Jayanta Jash, General Manager Mr Vijayakrishnan G, Deputy Legal Adviser Mr. Mrityunjaya Behera, Assistant General Manager Mr. T. Vinay Rajneesh, Legal Officer

1. The Securities and Exchange Board of India (hereinafter referred to as SEBI) had conducted investigations into the alleged excessive speculative transactions in some of the finance/investment, bio-tech and info-tech companies which were listed at the Calcutta Stock Exchange Association Limited (hereinafter referred to as CSE). Sharadraj Trade Finance Limited (hereinafter referred to as the company) was one such company whose shares witnessed widespread speculative trading at CSE. In view of the alleged irregularities, the trading in the shares of the company during the period between July 2001 and October 2001 (hereinafter referred to as the investigation period) was subjected to investigation by SEBI to find out the possible violations of the provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as SEBI Act) and the Regulations framed thereunder.

2. The investigation conducted by SEBI revealed that there was unusual price variation in the shares of the company during the investigation period. The share price decreased from Rs.67.50/- to Rs.29.60/- during the above period. It was also observed that almost the entire volume in the shares of the company during the period of investigation was generated by three stock brokers namely, Swadha Securities Private Limited, M/s Ballabh Dass Daga and M/s Basant Kumar Chirimar (Members of CSE). M/s Basant Kumar Chirimar had traded for 5,10,000 shares of the company which accounted for 25% of the total volume in the said shares at CSE during the investigation period. It was alleged that the aforesaid stock brokers executed matched/synchronized trades at their own terminals. It was inter alia alleged that M/s. Basant Kumar Chirimar had dealt in the shares of the company in a manner prima facie contravening the provisions of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as the PFUTP Regulations) and the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as the Stock Brokers Regulations). In order to enquire into the alleged violations said to have been committed by M/s Basant Kumar Chirimar, an Enquiry Officer was appointed by SEBI, vide order dated September 18, 2004 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 (hereinafter referred to as the Enquiry Regulations). M/s Basant Kumar Chirimar is hereinafter referred to as the stock broker.

3. The Enquiry Officer found that the stock broker inter alia contravened the provisions of Regulation 4 (a) and 4(b) of the PFUTP Regulations and Clauses A (1), A(2) and A(4) of the Code of Conduct prescribed for stock brokers under Schedule II of the Stock Brokers Regulations. The Enquiry Officer, further, vide his Enquiry Report dated December 19, 2006 recommended that the certificate of registration of the stock broker be suspended for a period of six months. Thereafter, SEBI, vide notice dated December 28, 2006 furnished a copy of the Enquiry Report to the stock broker and advised it to show cause as to why action as recommended by the Enquiry Officer or as may be deemed appropriate not be taken against it. Though, the said letter was acknowledged by the stock broker on the same day it had failed to file its submission. As no reply was received from the stock broker, another reminder was sent to it on May 02, 2007. Thereafter, SEBI granted an opportunity of hearing to the stock broker on May 23, 2008. The stock broker failed to appear for the hearing. Subsequently, vide letter dated August 4, 2008, the stock broker requested SEBI to provide it with an opportunity of hearing.

Thereafter, SEBI, vide letter dated July 25, 2008 advised the stock broker to inform as to whether it required another opportunity of hearing. Subsequently, SEBI granted various opportunities to the Broker, vide letters dated October 1, 2008, November 11, 2008 and January 20, 2009 to furnish its reply. All the aforesaid letters were acknowledged by the stock broker, no submissions were made by the stock broker in respect of the show cause notice dated December 28, 2006. Finally, Mr. Aditya Chirimar appeared before me on behalf of the stock broker on August 05, 2009 and requested to take a lenient view. He also stated that he had appeared before the Enquiry Officer in the matter on behalf of the stock broker and made submissions. He stated that he had no additional submissions apart from what he made before the Enquiry Officer. Mr. Aditya Chirimar further stated that the stock broker has stopped undertaking stock broking business. The present proceedings had been initiated under the provisions of Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. The said Regulation was repealed with effect from the notification of Securities and Exchange Board of India (Intermediaries) Regulations, 2008. Therefore, I dispose of the present proceedings under the provisions of Securities and Exchange Board of India (Intermediaries) Regulations, on the basis of the available material on record and the oral submissions made by Mr. Aditya Chirimar on behalf of the stock broker on August 05, 2009.

4. After having examined the aforesaid documents and the submissions made on behalf of the stock broker, the following issues would arise for consideration:

a) Whether the stock broker had contravened the relevant provisions of the PFUTP Regulations? b) Whether the stock broker had contravened the Code of Conduct prescribed for stock brokers under the Stock Brokers Regulations? c) If the stock broker is found guilty of contravening the aforesaid Regulations, what would be the quantum of penalty to be imposed on it?

5. I note that SEBI had conducted investigation into the dealing in the shares of the company for the period July 2001 and October 2001 after noticing widespread speculative transactions in the shares of the company at CSE. The investigation conducted by SEBI observed that the average price of the shares of the company at CSE was in the range of Rs.62/- to Rs.67/- during the settlement nos. 2002115-25. Thereafter, the price declined from Rs.67.50/- to Rs.29.60/-, a decrease of nearly 50% during settlement nos. 2002126 to 2002129. The trade details furnished by CSE for the relevant period indicated that during the said period {settlement nos. 2002126 to 2002129} almost the entire trade volume in the shares of the company was contributed by three stock brokers namely, Swadha Securities Private Limited, M/s Basant Kumar Chirimar and M/s. Ballabh Dass Daga. The table below indicates the volumes contributed by the aforesaid three stock brokers along with the total volumes traded at CSE in the shares of the company, during the investigation period.

Settlem Date stock brokers’ total CSE’s % of High Low Av Net ent trade volume total stock (Rs.) (Rs) Price Deliver No. trading broke (Rs) y of Buy Sell Total data rs’ selecte Qty Qty volum d e to stock CSE broker s 2002115 2.7.01- 12000 12000 24000 24000 100 63.50 63.50 63.50 0 6.7.01 2002116 9.7.01- 8000 8000 16000 17000 94 63.50 60.00 61.75 0 13.7.01 2002117 16.7.01- 87000 87000 174000 249000 70 66.10 63.20 64.65 0 20.7.01 2002118 23.7.01- 34000 34000 68000 68000 100 66.20 66.00 66.10 0 27.7.01 2002119 30.7.01- 167700 167700 335400 335400 100 66.00 60.00 63.00 0 3.8.01 2002120 6.8.01- 130000 130000 260000 260000 100 67.00 65.00 66.00 0 10.8.01 2002121 13.8.01- 86100 86100 237000 237000 100 66.50 66.00 66.25 0 17.8.01 2002122 20.8.01- 8000 8000 16000 16000 100 67.00 67.00 67.00 0

Settlem Date stock brokers’ total CSE’s % of High Low Av Net ent trade volume total stock (Rs.) (Rs) Price Deliver No. trading broke (Rs) y of Buy Sell Total data rs’ selecte Qty Qty volum d e to stock CSE broker s 24.8.01 2002123 27.8.01- 30800 30800 61600 61600 100 67.00 67.00 67.00 0 31.8.01 2002124 3.9.01- 87400 87400 174800 174800 100 67.50 67.00 67.25 0 7.9.01 2002125 10.9.01- 31500 31500 63000 63000 100 67.50 67.50 67.50 0 14.9.01 2002126 17.9.01- 16000 16000 55400 55400 100 67.50 49.00 58.25 0 21.9.01 2002127 24.9.01- 86000 86000 172000 172000 100 45.20 38.80 42.00 0 28.9.01 2002128 1.10.01- 35000 35000 210000 210000 100 47.50 37.20 42.35 0 5.10.01 2002129 8.10.01- 24000 24000 52000 52000 100 34.50 29.60 32.05 0 12.10.01 Total 1919200 1995200 96%

From the above table, it can be noted that the volume at CSE in the shares of the company was 19,95,200 shares and the selected stock brokers had contributed a volume of 19,19,200 shares, which was 96% of the total volumes at CSE during the investigation period.

6. I note that the stock broker’s trades involved 5,10,000 shares (both buy & sell volume) of the company which accounted for nearly 25% of the total trading in the said shares at CSE during the investigation period. The stock broker had transacted in the settlements between 2002115 and 2002129, as stated below: Settlement No. Date of Transaction Buy Qty Sale Qty 2002115 7/2/2001 10000 10000 2002117 7/18/2001 16000 16000 7/19/2001 16000 16000 2002118 7/24/2001 10000 10000 2002119 8/1/2001 10000 10000 8/2/2001 10000 10000 2002120 8/6/2001 5000 5000 8/8/2001 10000 10000 8/10/2001 1000 1000 2002121 8/14/2001 10000 10000 8/16/2001 35000 35000 2002123 8/27/2001 8800 8800 2002125 9/11/2001 31500 31500 2002126 9/18/2001 11700 11700 2002128 10/3/2001 40000 40000 10/4/2001 30000 30000 255000 255000

Thus, out of the fourteen settlements between 2002115 and 2002128, the stock broker had traded in ten settlements (Settlement No. 2002115, Settlement No. 200217 to Settlement No. 2002121 and Settlement Nos. 2002123, 2002125, 2002126 and 2002128). Further, out of the total volume of 19,19,200 shares (contributed by the aforesaid three stock brokers), the stock broker had dealt in 5,10,000 shares of the company at CSE. I note that, the Enquiry Officer, based on the trading pattern, had come to a finding that the trading in the shares of the company by Swadha Securities Private Limited, M/s Ballabh Dass Daga and the stock broker had resulted in the fall in the share price of the company from Rs.63.50/- to Rs.37.20/-. The Enquiry Officer, after examining the trade and order log pertaining to the stock broker, had also observed that the entire volumes of transactions were executed by way of matching transactions by which the order quantity, price and time were matched with both buying and selling clients belonging to the stock broker and that all the trades were cross deals between the clients of the stock broker. He further observed that all those matched trades were executed on a single terminal of the stock broker. The details of such trades were provided to the stock broker along with the show cause notice dated October 04, 2004 issued under Regulation 4 of the Enquiry Regulations. The stock broker did not dispute the execution of trades in the shares of the company.

7. It is not in dispute that the trades of the stock broker were in the nature of cross deals. Some of the cross deals executed by the stock broker in the shares of the company during the investigation period are given below: Trade Trade Traded Traded Buy/ Order No Order Order Order Dt Time Qty Rate(Rs.) sell time Qty price(Rs.) (shares) (shares) B 420657606 10.07.34 8000 63.50 18/7/01 10.07.35 8000 63.50 S 420657604 10.07.10 8000 63.50 S 511647936 10.36.10 8000 63.50 19/7/01 10.36.10 8000 63.50 B 511647939 10.36.18 8000 63.50 B 511647942 10.36.18 8000 63.50 19/7/01 10.36.19 8000 63.50 S 511647937 10.36.00 8000 63.50 S 390852441 2.49.57 10000 44.00 3/10/01 2..50.41 10000 44.00 B 390852445 2..50.40 10000 44.00 S 390852446 2..50.48 10000 44.00 3/10/01 2..50.48 10000 44.00 B 390852442 2..50.04 10000 44.00 B 390852448 2..51.15 10000 44.50 3/10/01 2..51.15 10000 44.50 S 390852443 2..50.12 10000 44.50 S 390852444 2..50.32 10000 44.50 3/10/01 2..51.15 10000 44.50 B 390852449 2..51.27 10000 44.50 S 390553058 11.40.31 10000 44.00 4/10/01 12.37.13 10000 44.00 B 390853212 12.37.12 10000 44.00 B 390553214 12.37.22 10000 44.00 4/10/01 12.37.23 10000 44.00 S 390853059 11.40.45 10000 44.00

By these trades, the Broker was able to artificially depress the price of the shares of the company during the investigation. It is pertinent to note that, almost the entire trades in the shares of the company at CSE during the investigation period were executed by the stock brokers (including the stock broker) mentioned above in this order. What is more important is that the trades of the stock broker were cross deals. The stock broker was aware of the nature of the trades executed by its client (buy and sell). The stock broker should have doubted the intention of its client as there was not much trading interest in the shares of the company apart from the trades executed by the above mentioned stock brokers. Besides, the stock broker was executing cross deals almost regularly during the investigation period continuously at lower price. The trades of the stock broker also created misleading appearance of trades in the shares of the company in the securities market. The said trades were also not genuine. The cross deals were executed at a pre-determined price fixed by the parties to the trades. The stock broker became a necessary party by placing orders on both sides (buy and sell).

8. I further note that the stock broker had also admitted during the personal hearing before the Enquiry Officer that the trades executed by it in the shares of the company were client to client trades which had been executed on its terminal. Relevant observation made in the Enquiry Report in this regard is quoted below;

“Qus: It is alleged that most of the trades in scrip Sharad Raj TradeFin Ltd. (STFL) executed by you during the period under scrutiny are client to client trades which have been executed on a single terminal of the broker. Please explain. Reply: Yes, I agree with the above statement.”

The findings of the Enquiry Officer have not been disputed by the stock broker before me.

9. The stock broker by indulging in cross/synchronized transactions had indulged in creating false and misleading appearance of trading in the shares of the company at CSE. By executing number of cross deals, the stock broker could artificially depress the share price of the company. In the facts and circumstances, I have no hesitation in holding the stock broker guilty of having contravened the provisions of Regulation 4 (a) and 4(b) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995. The stock broker was responsible for the creation of a false market in the shares of the company by indulging in such activities. By entering into such manipulative transactions, the stock broker did not uphold the expected standards of integrity and fairness in its conduct. It also did not exercise due care while executing such transactions. Needless to say, the stock broker failed to act with due skill, care and diligence in the conduct of its business in respect of the transactions in the shares of the company during the period of investigation. By doing so, the stock broker had contravened the relevant provisions of law. Thus, the stock broker has contravened Regulation 7 read with Clauses A(1), A(2) and A(4) of the Code of Conduct prescribed for stock brokers under the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992. The violations committed by the stock broker call for a penalty.

10. I note that the Enquiry Officer had recommended a penalty of suspension of the certificate of registration of the stock broker for a period of six months. The stock broker did not dispute the findings of the Enquiry officer. Taking into consideration the facts and circumstances of the case in its totality, I am of the considered view that the ends of justice would be met if the certificate of registration of the stock broker be suspended for the period as ordered herein under.

11. In view of the foregoing, 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, suspend the certificate of registration of the stock broker namely, M/s Basant Kumar Chirimar (Registration no. INB 030513217), Member, Calcutta Stock Exchange Association Limited for a period of one month.

12. 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: Mumbai Date: August 12, 2009