Order in respect of Allwin Securities Limited in the matter of Sun Infoways Limited

[SEBI Registration No. INB 011233534] Date of hearing: October 25, 2012 Appearances For Noticee: Mr. Pawankumar Mallawat, Director For SEBI: Mr. B. Rajendran, General Manager Mr. Satyajit K. Jaware, Manager Mr. Pradeep Kumar, Assistant Legal Adviser Mr. Mitrajit Dey, Assistant Legal Adviser ORDER Under Regulation 28(2) read with Regulation 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 dealings in the scrip of Sun Infoways Limited (hereinafter referred to as 'SIL') for the period from February 05, 2001 to May 02, 2001, inter-alia to ascertain violations if any, of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as 'PFUTP Regulations').

2. The trading details of the persons who had traded in the scrip were collected and analyzed along with the data of volumes contributed. During the period of investigation, there was consistent fall in the price of the scrip of SIL accompanied by low delivery. The price of the scrip of SIL had fallen from ₹342 as on February 05, 2001 to a low of ₹60.75 as on April 30, 2001 before finally closing at ₹73.75 on May 02, 2001. Prior to this period of investigation, SEBI had earlier also conducted an investigation in the scrip of SIL, for the period from February, 2000 to August, 2000, wherein the price of the scrip had increased from ₹10 in February, 2000 to ₹696 in August, 2000 and appropriate actions were initiated against the persons/ entities found in default.

3. The investigation for the period of February 05, 2001 to May 02, 2001 prima facie revealed that circular/ reversal trades were executed by certain brokers forming part of few groups in the scrip of SIL. Such circular/ reversal trades created artificial volume to the tune of 5,43,500 shares (gross) in 37 days out of 50 trading days. It was found that the circular trading in the scrip had generated 26% to 97% of the daily volumes on the days when such trading was observed. The circular/ reversal trades had resulted into an increase in the price of the scrip in the beginning of the investigation period till March 02, 2001 and the price of the scrip had stayed in the range of ₹342 to ₹296 (opening price). Thereafter, the trading of these entities in the scrip reduced drastically, the volume of trades in the scrip became negligible and the price of the scrip also started declining. The 'last traded price' (LTP) analysis for the entire period shows that the price of the scrip varied in the range from -14% to 11.54%.

4. During the investigation period, three different groups were found trading in the scrip of SIL in a circular manner. Out of these, the group consisting of eight (8) brokers/ sub-brokers (namely N.C. Jain, Opulant Stock Broking, Bharti Thakkar India Sec. Pvt. Limited, ISJ Securities/ Vintel Securities, Sripal Jain, Angel Broking Limited, Joindre Capital Service/ Alwin Securities, Reneissance Securities Limited/ Mellennium Securities) and their clients including sub-broker i.e. Allwin Securities Limited (hereinafter referred to as the 'noticee'), trading through broker Joinder Capital Services Limited for its clients namely Mr. Heerachand Salecha and Ms. Kamlesh Jain were found trading amongst themselves in circular manner, which led to the creation of artificial volumes in the market. The total volume generated by the said group by way of circular trades was 3,42,800 shares (gross) i.e. about 37.52% of the total quantity traded during the period of investigation. The trading pattern of the said group (identified as 'Group 1' in the Enquiry Report), consisting of the brokers and clients has been illustrated hereunder:

Table - A Broker Name/ Sub- Dealt for client No. of days traded Buy Sell Gross (buy+ sell) broker during the period/ No. of days Circular/ Circular / Gross Circular traded circular trades reversal reversal qty. (% to total trading were executed qty. qty. of the broker) (Group I) Angel Broking Ltd. Heerachand Salecha 14/12 34,200 31,300 65,500 (86.41%) NC Jain Proprietary trading 6/6 26,500 26,500 53,000 (83.33%) Opulent Broking Ramsudhakaran 7/6 27,100 27,100 54,200 (90.03%) Bharti Thakkar Govind Chhichani 5/5 26,500 26,500 53,000 (100%) Shripal Jain Proprietary trading 5/5 21,400 20,700 42,100 (98.36%) ISJ Securities/ Chetan Haridas 17/9 8,100 7,100 15,200 (37.25%) Vintel Securities Mapara Joindre Capital 1.Heerachand 14/9 5,600 8,900 14,500 (34.65%) Services/ Alwin Salecha Securities 2.Kamlesh Jain Renaissance/ Abhayraj Shukla 13/8 22,500 23,300 45,800 (75.83%) Millennium Securities Total circular trading among Group I 1,71,400 1,71,400 3,42,800 5. Based on the findings of the investigation, SEBI initiated enquiry proceedings against the noticee in terms of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as the 'Enquiry Regulations'), by appointing an Enquiry Officer under Regulation 5(1) of the Enquiry Regulations vide order dated March 18, 2008, read with subsequent order dated December 10, 2008. SEBI appointed the Enquiry Officer, to enquire into the alleged violation of the provisions of the PFUTP Regulations read with SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as 'PFUTP Regulations, 2003') and the Code of Conduct specified under Schedule II of SEBI (Stock Brokers and Sub-Broker) Regulations, 1992 (hereinafter referred to as 'Broker Regulations').

As the Enquiry Regulations were repealed with effect from the notification of SEBI (Intermediaries) Regulations, 2008, the Enquiry Officer/ Designated Authority (hereinafter referred to as the 'Enquiry Officer') submitted his Report dated January 29, 2010, in terms of Regulation 27 of SEBI (Intermediaries) Regulations, 2008, recommending thereby prohibition from taking up any new assignment for a period of one week against the noticee for the violation of the provisions of Regulation 4(a), (b), (c) and (d) of PFUTP Regulations read with Regulations 4(1), 4(2) (a), (b), (e), (g) and (n) of PFUTP Regulations, 2003 and Clauses A(1), A(2) and D(1), (4) and (5) of the Code of Conduct prescribed for Sub Brokers specified under Schedule II under Regulation 15 of the Broker Regulations.

6. Subsequently, a show cause notice (hereinafter referred as 'SCN') dated May 21, 2010 under Regulation 28(1) of the SEBI (Intermediaries) Regulations, 2008, was issued by SEBI to the noticee, asking it to show cause as to why action, as recommended by the Enquiry Officer or as deemed fit by the Board, should not be taken against it. The noticee was advised to reply to the SCN within twenty one (21) days from the date of receipt thereof. The noticee was also informed that in case of failure to reply, it would be presumed that it had no explanation to offer and SEBI may proceed to take action as it deemed fit. A copy of the Enquiry Report was also forwarded to the noticee along with the SCN.

7. The noticee replied to the SCN vide its letter dated June 07, 2010. The noticee was also granted an opportunity of personal hearing before me on July 29, 2010. On the scheduled date, Mr. Pawan Mallawat, director of the noticee appeared before me and made submissions. Subsequently, while concluding the proceedings it appeared that the recommendation of the Enquiry Officer in respect of the charges leveled against the noticee does not commensurate with the gravity of the alleged violations. Considering this, a supplementary SCN was issued to the noticee on February 17, 2012, advising it to reply to the SCN within twenty one (21) days. The noticee replied to this supplementary SCN vide its letter dated March 01, 2012. Thereafter, an opportunity of personal hearing was granted to the noticee on October 25, 2012. On the date fixed for personal hearing, Mr. Pawan Mallawat appeared and made submissions.

8. The submissions of the noticee in brief are:

- It is not aware of the circular trading done by Ms. Kamlesh Jain and Mr. Heerachand Salecha. - The trades were executed in good faith with the intention of earning brokerage on transactions after complying with all the formalities including KYC. - It used to give and receive all deliveries directly to the demat account of the client. - In the client registration form it has been declared by the clients that they were not registered with any other broker/ sub-broker and because of the same nothing influenced their mind to doubt the genuineness/ integrity of these clients.

- When they observed abnormality in the trading pattern, the matter was reported to the principle broker i.e. Joindre Capital Services Limited and immediately the trading activities of both the clients were discontinued. - It agrees with the findings and plead that the same happened in the initial stage when they were ignorant about these type of happenings.

9. I have carefully considered the Enquiry Report, the SCNs issued, the replies received from the noticee, the submissions made during the hearing and all the materials/ documents available on record. I note that, there is no dispute that the noticee had entered the trades in the scrip of SIL on the dates mentioned by the Enquiry Officer. The relevant provisions of PFUTP Regulation, 1995 and Brokers Regulations have been reproduced below:

PFUTP Regulations, 1995 "Prohibition against Market Manipulation 4. No person shall - (a) effect, take part in, or enter into, either directly or indirectly, transactions in securities, with the intention of artificially raising or depressing the prices of securities and thereby inducing the sale or purchase of securities by any person; (b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market; (c) indulge in any act which results in reflection of prices of securities based on transactions that are not genuine trade transactions; (d) enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress, or cause fluctuations in the market price of securities; (e) ...." Code of Conduct prescribed for Stock Brokers as specified under Schedule II under Regulation 7 of the Broker Regulations "A. General. (1) Integrity: A stock-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business. (2) Exercise of due skill and care : A stock-broker shall act with due skill, care and diligence in the conduct of all his business. (3) Manipulation : A stock-broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains. (4) Malpractices: A stock-broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors interest or which leads to interference with the fair and smooth functioning of the market. A stockbroker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness. (5) Compliance with statutory requirements: A stock-broker shall abide by all the provisions of the Act and the rules, regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to him." 10. Now, the issue that remains for my consideration is whether the noticee had any role in the creation of artificial volumes in the scrip of SIL by executing trades in circular manner?

a. I note that the noticee had traded in the scrip of SIL for its clients namely Ms. Kamlesh Jain and Mr. Heerachand Salecha through broker Joindre Capital Services Limited for fourteen (14) days during the period of investigation. Out of the said fourteen (14) days on nine (9) days the trades of the noticee had resulted in circular/ reversal trades. As per the table-A above, it is seen that the volume contributed by the group consisting of the noticee was 3,42,800 shares (gross) which constitutes about 37.52% of the total trading volume in the scrip during the relevant period. From the same table, I also note that the total number of shares on the buy and sell side of the group as a whole has remained the same i.e., 1,71,400 shares. Out of this, the noticee had purchased 5,600 shares and sold 8,900 shares for its clients.

b. I observe from the available records that the majority of the trades of the noticee were matched within the group with Angel Broking Limited (4 days), ISJ Securities Limited (8 days), Reneissance Securities Limited (2 days), Opulant Stock Broking (1 day) and Sripal Jain (1 day). I have seen the pattern of circular trading that was being followed by the noticee and the other brokers in the group, while trading in the scrip of SIL. An instance of such trading pattern i.e., as on April 20, 2001, also discussed in the Enquiry Report is being reproduced below on sample basis: Table - B Buy Sell Quantity Broker Client Broker Client Angel Broking Ltd. Heerachand Salecha Joindre Capital Heerachand Salecha 1,000 Services Ltd. (Allwin Securities) ISJ Securities Chetan Haridas Angel Broking Ltd. Heerachand Salecha 1,000 (Vintel Securities) Joindre Capital Heerachand Salecha ISJ Securities Chetan Haridas 1,000 Services Ltd. (Allwin Securities) (Vintel Securities)

From table B above, I note that the same number of shares were being rotated in a circular manner among the group of brokers. It is seen that the trades were so well organized that the same number of shares went back to the original seller at the end of the day. I observe from the Enquiry Report that the noticee had executed circular/ reversal trades on nine (9) days when it traded in the scrip of SIL and contributed to 1.59% of the market traded quantity (gross). I note that the group had repeatedly bought and sold the shares amongst themselves through circular trades in a pattern of A to B to C to D to E to F to A with slight changes in the quantity circulated in each cycle.

c. I have seen the trade order log data in the scrip of SIL and note that the orders of most of the trades entered by the noticee with the counterparties, matched with startling proximity in terms of the timings of entering of orders, the price and the quantity. An instance of the same has been reproduced below: Table - C Date Buy Order Sell Order Trade Time Membe Client Time Rate Qty. Member Client Time Rate Qty. Time Qty Price differe r (Sub-nce broker) 16/02/01 Joindre Heerachand 13:22:42 331.25 900 Shripal Own 13:22:34 331.25 900 13:22:43 100 331.25 0:00:08 Capital (Noticee) 16/02/01 Joindre Heerachand 13:22:42 331.25 900 Shripal Own 13:22:34 331.25 900 13:22:43 100 331.25 0:00:08 Capital (Noticee) 16/02/01 Joindre Heerachand 13:22:42 331.25 900 Shripal Own 13:22:34 331.25 900 13:22:43 100 331.25 0:00:08 Capital (Noticee) 16/02/01 Joindre Heerachand 13:22:42 331.25 900 Shripal Own 13:22:34 331.25 900 13:22:43 100 331.25 0:00:08 Capital (Noticee) 16/02/01 Joindre Heerachand 13:22:42 331.25 900 Shripal Own 13:22:34 331.25 900 13:22:43 100 331.25 0:00:08 Capital (Noticee) 16/02/01 Joindre Heerachand 13:22:42 331.25 900 Shripal Own 13:22:34 331.25 900 13:22:43 100 331.25 0:00:08 Capital (Noticee) 16/02/01 Joindre Heerachand 13:22:42 331.25 900 Shripal Own 13:22:34 331.25 900 13:22:43 100 331.25 0:00:08 Capital (Noticee) 16/02/01 Joindre Heerachand 13:22:42 331.25 900 Shripal Own 13:22:34 331.25 900 13:22:43 100 331.25 0:00:08 Capital (Noticee) 16/02/01 Joindre Heerachand 13:22:42 331.25 900 Shripal Own 13:22:34 331.25 900 13:22:43 100 331.25 0:00:08 Capital (Noticee) 16/02/01 Joindre Heerachand 13:30:51 331.5 500 ISJ Sec. Vintel 13:30:48 331.5 500 13:30:51 100 331.50 0:00:03 Capital (Noticee) Sec. 16/02/01 Joindre Heerachand 13:30:51 331.5 500 ISJ Sec. Vintel 13:30:48 331.5 500 13:30:51 100 331.50 0:00:03 Capital (Noticee) Sec. 16/02/01 Joindre Heerachand 13:30:51 331.5 500 ISJ Sec. Vintel 13:30:48 331.5 500 13:30:51 100 331.50 0:00:03 Capital (Noticee) Sec. 16/02/01 Joindre Heerachand 13:30:51 331.5 500 ISJ Sec. Vintel 13:30:48 331.5 500 13:30:51 100 331.50 0:00:03 Capital (Noticee) Sec. 16/02/01 Joindre Heerachand 13:30:51 331.5 500 ISJ Sec. Vintel 13:30:48 331.5 500 13:30:51 100 331.50 0:00:03 Capital (Noticee) Sec. 16/02/01 Joindre Heerachand 13:34:48 330.5 600 Opulant Ramsud 13:34:47 330.5 600 13:34:48 100 330.50 0:00:01 Capital (Noticee) hakaran 16/02/01 Joindre Heerachand 13:34:48 330.5 600 Opulant Ramsud 13:34:47 330.5 600 13:34:48 100 330.50 0:00:01 Capital (Noticee) hakaran 16/02/01 Joindre Heerachand 13:34:48 330.5 600 Opulant Ramsud 13:34:47 330.5 600 13:34:48 100 330.50 0:00:01 Capital (Noticee) hakaran 16/02/01 Joindre Heerachand 13:34:48 330.5 600 Opulant Ramsud 13:34:47 330.5 600 13:34:48 100 330.50 0:00:01 Capital (Noticee) hakaran 16/02/01 Joindre Heerachand 13:34:48 330.5 600 Opulant Ramsud 13:34:47 330.5 600 13:34:48 100 330.50 0:00:01 Capital (Noticee) hakaran 16/02/01 Joindre Heerachand 13:34:48 330.5 600 Opulant Ramsud 13:34:47 330.5 600 13:34:48 100 330.50 0:00:01 Capital (Noticee) hakaran d. The above details clearly indicate synchronization in placing of the orders as these appear to have been entered with pre-conceived motive and prior arrangement that the orders would be picked up by a particular entity of the group on the opposite side.

I note that large number of trades got matched regularly and during most instances, within seconds from each other. The occurrence of such synchronized deals in a circular manner persistently cannot be said to be a co-incidence as the shares were being rotated intra-day within a closed group and there was no change in the beneficial ownership of the shares. Such pattern creates a false impression of active trading in the scrip.

e. At this stage, I note the argument of the noticee that it had acted on the instructions of its clients and did not act in concert with any other client/ broker. However, from the trading pattern available on record, it can be reasonably inferred that the noticee was part of the group which gave a misleading appearance of active trading in the scrip. Thus, the execution of the circular trading in a synchronized manner repeatedly for several days by the noticee and the group reveals that they were having certain nexus with each other and were acting in tandem as a group. In this regard, I place my reliance on the order of Hon’ble Securities Appellate Tribunal in the matter Ajmera Associates Pvt. Limited Vs. SEBI (order dated December 13, 2010), the relevant extract of the same has been brought out below: “…Since the trading system maintains complete anonymity, brokers always plead that they were ignorant about the counterparty or his broker. In such a situation one has to look to the trading pattern and if the trades match too often or if the matching of the trades is noticed day after day and trade after trade one can infer that the matching was done not by the system but by manipulating the same.

Similarly, if two or more market players start trading in circles and do not allow the shares to go out of the circle, it could be reasonably inferred that both traders and their brokers are colluding to execute such artificial trades which give a misleading appearance of trading in the market without change of beneficial ownership in the scrip…” I observe that the trading pattern followed by the noticee and the group is clearly in the nature of circular trades since they were the entities who traded amongst themselves by executing synchronized trades with the intention that the orders of a particular entity get matched with the other. I note that it is absolutely most unlikely that persons unknown to each other could trade continuously by placing orders in a circular manner and contribute significantly to the total volumes in the market. I observe that the standard of proof required in a proceeding of present nature is at variance with the standard of proof required in the cases of criminal nature and it is sufficient if the preponderance of probabilities suggests towards the indulgence of the noticee.

In this view also, any plea to delink the broker from the collective nexus would not be correct approach.

f. Considering the number of shares involved in the present proceedings executed by the noticee for its client and also the pattern of trading, I am of the view that these numbers were good enough for the noticee to raise some suspicion on the trading pattern of its clients. Therefore, it can be concluded that the noticee had aided and abetted its client in the creation of artificial volume in the scrip of SIL in violation of the provisions of Regulation 4(b) and (d) of the PFUTP Regulations.

11. I further note that if stock brokers are not careful and allow their systems to be misused, manipulations cannot be eliminated from the market. Circular/ reversal trades are contrary to normal trading practices and creates false market. The noticee has dealt in the scrip of SIL in a manner detrimental to the interest of investors. Such acts threaten the market integrity and orderly development of the market and call for regulatory intervention to protect the interest of investors as the same pose serious threat to the price discovery mechanism of the stock exchange and the safety of the securities market mechanism. The noticee, by indulging in the trading pattern discussed above has failed to perform its duties as specified in the code of conduct for sub brokers in the Broker Regulations. In view of the above, I find that the noticee has violated Clauses A(2) and D(4) of the Code of Conduct prescribed for Sub-Brokers in Schedule II under Regulation 15 of the Broker Regulations.

12. As regards the submission of the noticee regarding delay in the proceedings, I note that the delay cannot justify an exoneration.

13. 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.

14. In view of the foregoing, taking into consideration, the facts and circumstances of the case, 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 prohibit the noticee, Allwin Securities Limited (SEBI Registration No. INB 011233534) from taking up any new assignment (i.e. not to take up any new clients) for a period of two weeks.

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

DATE : 30/JANUARY/2013 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA