Order in respect of H B Securities Ltd. in the matter of Ceat Ltd.

WTM/RKA/ IVD/03/ 2014

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under section 12(3) of the Securities and Exchange Board of India Act, 1992 read with regulations 28(2) and 38(2) of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 in respect of H.B. Securities Ltd. in the matter of Ceat Ltd. Appearances: For Noticee: Mr. Praveen Gupta, Director Mr. Prashant Mishra, Advocate

For SEBI: Mr. Santosh Kumar Shukla, Join Legal Advisor Mr. Santosh Kumar Sharma, General Manager Ms. Srishti Ambokar, Assistant General Manager Mr. Parag K. Sinha, Assistant Legal Advisor Mr. Suraj Chaudhary, Officer, Legal

1. Securities and Exchange Board of India (hereinafter referred to as "SEBI") conducted investigation into trading and dealing in the shares of Ceat Ltd. (hereinafter referred to as "Ceat") during the period from January 2000 to March 2000 and March 2001 to May 2001 (hereinafter referred to as "investigation period"). During the investigation period, the shares of Ceat were listed on National Stock Exchange of India Limited (hereinafter referred to as "NSE"), Bombay Stock Exchange Limited (hereinafter referred to as "BSE"), Delhi Stock Exchange, Ahmedabad Stock Exchange, Calcutta Stock Exchange and Madras Stock Exchange. 2. It was noted that during the period from January 2000 to February 2000, the price of the scrip of Ceat moved in a range touching a low of ₹48.45 on January 5, 2000 and a high of ₹ 76.80 on February 4, 2000, with the volumes touching a high of 2,59,750 shares on January 14, 2000 and low of 12,000 shares on February 10, 2000. Further, during the period from March 7, 2001 to May 01, 2001, the price of the scrip moved in the range touching a low of ₹ 19.30 on April 30, 2001 and a high of ₹ 26 on March 7, 2001 with the volume touching a high of 6,10,203 shares on April 10, 2001 and a low of 2,225 shares on March 29, 2001. 3. The investigation revealed that H.B.

Securities Ltd. (hereinafter referred to as "the noticee"), member of NSE and a stock broker having SEBI registration No. INB230607337, executed structured/synchronised trades in the scrip of Ceat and indulged into circular trades on behalf of its clients who were allegedly related to each other and also to the noticee. Pursuant to the investigations, the proceedings were initiated against the noticee under 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 Proceedings Regulations") (since repealed) to enquire into the violations / contraventions alleged to have committed by the noticee. 4. While the proceedings were pending, the Enquiry Proceedings Regulations were repealed on May 26, 2008, vide the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (hereinafter referred to as "the Intermediaries Regulations"). Accordingly, the Enquiry Officer/Designated Authority continued with the proceedings and submitted his Report (hereinafter referred to as "the Report") dated November 26, 2009 in terms of regulation 27 read with 38(2) of the Intermediaries Regulations and regulation 13(1) of Enquiry Proceedings Regulations.

5. In the Report, the DA found that the noticee had traded in the scrip on behalf of its clients and had entered into matched / synchronised / structured transactions with other stock brokers on behalf of its clients who were related to each other and to the noticee. Further, such transactions recurred again and again for a considerably long period and that the shares traded by the noticee were moving in circular and synchronised manner between select few entities to generate artificial volumes in the scrip of Ceat. Thus, the DA found that the noticee actively participated in creating false and misleading appearance of trading in the scrip of Ceat as it executed those transactions on behalf of its related / connected entities with fraudulent intentions and that quite a number of transactions were executed without intention of genuinely transferring beneficial ownership. The DA therefore concluded that the noticee violated the provisions of regulation 4(b), (c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as "the PFUTP Regulations, 1995") and also failed to exercise due skill and care as is required of a stock broker and thereby violated clause A(2), (3) and (4) of Code of Conduct specified under Schedule II read with regulation 7 of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 (hereinafter referred to as "Stock Brokers Regulations").

Based on the findings recorded in the Report, the DA recommended that the certificate of registration of the noticee as a stock broker and member of NSE be suspended for a period of one month. 6. After considering the Report, a show cause notice (hereinafter referred to as "the SCN") dated November 30, 2009 was issued to the noticee under regulation 28(1) of the Intermediaries Regulations calling upon it to show cause as to why action as recommended by the DA should not be taken against it or a higher penalty as deemed fit by the Board should not be imposed upon it. A copy of the Report was also forwarded to the noticee along with the SCN. The noticee submitted its reply to the SCN vide letter dated January 27, 2010. An opportunity of personal hearing was granted to the noticee on November 27, 2013 before me when authorised representative of the noticee appeared and made oral submissions. Vide letter dated December 10, 2013, the noticee made written submissions after personal hearing. The submissions of the noticee are inter alia as under: (a) The DA has disregarded the issues in the Report such as i. Several crucial documents relied upon in the proceedings were not provided despite the noticee's various requests; ii.

The investigation period has remained un-defined till date. The Report mentions that the trading pattern of Ceat for the time period January 5, 2000 to February 22, 2000 was examined. The period from March 2001 to May 2001 is thus beyond the period of investigation. (b) Investigation Order and appointment of Enquiry Officer were not valid. (c) The entire proceedings suffer from inordinate delays which are against the principles of natural justice. The show cause notice issued by the DA (pre-enquiry SCN) and proceedings commenced by the same were bad in law. This SCN was otherwise time barred since it has been issued more than 3 years after the alleged contraventions. The pre-enquiry SCN was completely vague, ambiguous, unspecific and full of contradictions. (d) At the time of the transaction in question, the PFUTP Regulations, 1995 were existing and applicable. These regulations were repealed on July 17, 2003. Since no proceedings were initiated under the PFUTP Regulations, 1995 before its repeal, the present proceedings were not saved under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as "PFUTP Regulations, 2003").

Therefore, the present proceedings cannot proceed. (e) Details of trades executed by the noticee for the period from January 2000 to March 2000 and from March 2001 to May 2001 are incomplete inasmuch as they do not mention either the dates and time of transaction or any details of counterparty brokers / counterparties, rendering the said table vague and unreliable. (f) Allegations of relationship / nexus between separate, independent entities are based on conjectures and surmises. All the entities alleged to be having a nexus / relationship have independent boards, where decisions are taken purely on professional basis. It is impractical and out of context to interpret that the companies become related to one another just because there are common subscribers to the Memorandum of Association (hereinafter referred to as "MOA") or two or more companies have common address. Any interconnection between the different entities as alleged is denied as being against the law. (g) With regard to the transactions in question, there have been either no proceedings or even no allegations against counterparty stock brokers.

SEBI has either not taken action against many of the counterparty clients and where the actions have been initiated against its clients RRB and Har Sai, both have been exonerated vide SEBI order dated September 24, 2010. (h) The allegation that all the clients mentioned in the table were direct clients and maintained running accounts with the noticee and thus the insinuation that their funds were at the disposal of the noticee is baseless and without any document on record to substantiate it. (i) The allegations of there being any “modus operandi” adopted by the noticee for conducting structured deals is based on nothing but conjectures and surmises. It is once again reiterated that the transactions were genuine and not structured or matched. All the transactions were payment and delivery based transactions. (j) There are no allegations that the transactions of the noticee had caused injury or loss to any investor, or that any malicious motive or undue benefit was attached to the transactions (k) It is wrong to suggest that there were too many transactions over too long a period. Material on record shows that the impugned transactions of the noticee took place between March 14, 2001 and April 27, 2001 on 8 days, out of which, transactions on April 10, 2001 wherein UBS Warburg was the counterparty broker were accepted to be genuine.

Out of total 31 buy / sell orders of the noticee, 12 transactions pertaining to UBS Warburg were accepted to be genuine trades, effectively leaving 19 trades. (l) Synchronised trading in itself is not culpable. Mere matching of order in terms of price, quantity and time cannot lead to a conclusion of manipulative trade. Further, the transactions were conducted on the screen of the exchanges where there is no way of knowing the identity of the buyer and seller or other trading members representing their clients. The SCN and the Report do not show any price manipulation on account of the transactions of the noticee nor any spurt in volume triggered by the trades of the noticee conducted on behalf of its clients. There is no material on record to show any fraudulent / manipulative intent on the part of the noticee or collusion / understanding with any of the entities listed out in the SCN. 7. I have carefully considered the Report, the SCN issued pursuant thereto, the oral / written submissions and the reply and other relevant material that are available on record. Before dealing with the charges against the noticee on merits, I note that in its replies in response to the SCN dated November 30, 2009, the noticee has reiterated its certain preliminary objections / contentions which it had made before the DA.

I find that in para. 13 of the Report, the DA has very clearly found that the investigation period in the matter were not confined to the period January 05, 2000 to February 22, 2000. The proceedings relate to the transactions of the noticee that relate to the cause of action in the matter and they include its transactions undertaken by it during March 2001 to May 2001 also. Further, in para. 12 of the Report, the DA has confirmed that all the copies of all relevant documents that have been relied upon in the proceedings had been furnished to the noticee. I, therefore, do not find merit in these contentions of the noticee.

8. The noticee has further contended that the investigation order and appointment of Enquiry Officer were not valid. I note that the provisions of section 11 and 11 C of the SEBI Act confer sufficient powers on the SEBI to undertake investigations inter alia in relation to transactions in securities, contraventions of rules, regulations by any intermediary or persons associated with the securities market, etc. By virtue of provisions of section 19 of the SEBI Act, the Whole Time Member has authority to appoint the Investigating Authority in accordance with the provisions of the SEBI Act. Similarly, the Enquiry Officer under the Enquiry Proceedings Regulations and the DA under the Intermediaries Regulations are appointed by the Whole Time Members under the respective Regulations read with section 19 of the SEBI Act. In this case, I note that the investigation period was till May 2001. The investigation was completed in November 2003 and the Enquiry Officer was appointed immediately thereafter in terms of regulation 5(1) of the Enquiry Proceedings Regulations read with section 19 of SEBI Act.

I do not find any infirmity in the appointment of the Investigating Officer, Enquiry Officer and the DA as contended by the noticee. 9. I note that the transaction in question relate to the period January 05, 2000 to February 22, 2000 and March 2001 to May 2001. When the contravention in question occurred the PFUTP Regulations, 1995 were in force. The PFUTP Regulations were repealed with effect from July 17, 2003 when the PFUTP Regulations, 2003 were notified. The investigations in the matter continued till November 2003 when the PFUTP Regulations, 2003 were in force. When the Enquiry Officer in the matter was appointed on November 11, 2003 under the Enquiry Proceedings Regulations, the PFUTP Regulations, 1995 were repealed and PFUTP Regulations, 2003 were in force. I further note that in terms of saving provisions contained in regulation 13(2) of the PFUTP Regulations, 2003, any violation of regulations 3, 4, 5 and 6 of the PFUTP Regulations, 1995 shall be investigated and proceeded against in accordance with the procedure laid down in the PFUTP Regulations, 2003. Regulation 13(3) of the PFUTP Regulations, 2003 provides that any investigation pending at the time of its commencement shall be continued and disposed of in accordance with the procedure laid down in the PFUTP Regulations, 2003. In my view, the investigations continued after the repeal of PFUTP Regulations, 1995 and the proceedings initiated before the Enquiry Officer in this case are clearly saved by virtue of the saving provisions of regulation 13 of the PFUTP Regulations, 2003 and can be proceeded with under the provisions of PFUTP Regulations 2003. I, therefore, reject the contention of the noticee in this regard.

10. I note that the settlement number, name of noticee's client, counterparty client, counterparty broker, etc. are mentioned in the Report and the DA has examined as to how the trades were structured / matched trades with specific examples. I, therefore, do not agree with the contention of the noticee in this regard.

11. I now proceed to deal with the contentions of the noticee on merits. It is undisputed fact that during the period January 05, 2000 to February 22, 2000 and March 2001 to May 2001 the noticee had traded in the scrip of Ceat on behalf of the following clients: i. Har Sai Investments (hereinafter referred to as "Har Sai") ii. H.B. Stockholdings Ltd. iii. RRB Securities Ltd. (hereinafter referred to as "RRB") iv. Share Shoppe v. Nagdevi Trading & Investment vi. Gloria Investment Ltd. vii. Chinar Financial Services Pvt. Ltd. (hereinafter referred to as "Chinar") viii. Alakhnanada Capital Serives Pvt. Ltd. (hereinafter referred to as "Alaknanda"). 12. I note that the addresses of Har Sai and H.B. Stockholdings Ltd. are same. The address of Har Sai Investments and the address of head office of the noticee is the same. Further, the subscribers to the MOAs of the noticee, Har Sai and H.B. Stockholdings Ltd. are common. Further, the addresses of RRB and Share Shoppe are same as that of the noticee. Chinar and Alaknanda share a common addresses and one of the directors of Alaknanda, namely, Mukesh Choudhary and one of the directors of Chinar, namely, Sanjay Choudhary have a common address. Mr. Lalit Bhasin is a common director in Har Sai, RRB and the noticee. The subscribers to MOA of Alaknanada were also the subscribers to the MOA of Har Sai Investments and they both have a common address and common director. These facts taken as basis to determine the inter se connection/relation amongst the above said clients of the noticee and connection of noticee with them are summarised as under: Common address, common subscribers to MOA Har Sai H.B. Stockholdings Ltd. Common address & director, Common Common director common subscribers to MOA address & Common subscribers to MOA dire ctor, common RRB Noticee Share Shoppe subscriber Common address, Common address s to MOA common director Chinar Alaknanda Common address, common address of directors

13. I find that the above facts establishe the connection between the noticee and its clients. In this regard, I note that Hon'ble SAT has, in many cases such as Classic Credit Ltd. vs. SEBI (SAT Appeal no. 68/2003, Order dated December 8, 2006), Classic Credit Ltd. vs. SEBI (SAT Appeal no. 76/ 2003, Order dated January 9, 2007) and Veronica Financial Services Ltd. Vs SEBI (SAT Order dated August 24, 2012), held that connection/relations can be established on the basis of factors including the common addresses, common directors/ shareholders, etc. I, therefore, do not agree with the contentions of the noticee with regard to connections between noticee and its clients. 14. Coming to the merits of the case, I note that there is no allegation or charge against the Noticee that it indulged in price manipulation in the scrip of Ceat. I further note that charge against the noticee is that it actively participated in creating false and misleading appearance of trading in the scrip of Ceat as it executed synchronized / matched, structured and circular transactions on behalf of its related / connected entities with fraudulent intentions and that quite a number of transactions were executed without intention of genuinely transferring beneficial ownership. The charge has been made out in the Report on the basis of following transactions- A. Synchronised / matched/structured transactions (i) Trades with counterparty broker UTI Securities Exchange Ltd. 15. I note from the Report that noticee executed 5 trades on 3 days i.e. on March 14/15, 2001 and on April 27, 2001 for a total of 1,67,479 shares on behalf of its 3 connected clients, namely, Alakhnanda, Chinar and Har Sai who were on the buy side with the counterparty broker UTI Securities Exchange Ltd. (UTI Securities) trading for RRB, Har Sai and UTI Bank Ltd. Capital Market Division (UTI Bank) on sell side. These trades are described in the following Table:

Date Buy Sell Traded Time difference Broker Client Broker Client quantity (in seconds) 14/03/2001 HB Securities Alaknanda UTI Securities Har Sai 35,000 02 15/03/2001 HB Securities Chinar UTI Securities RRB 39,393 01 15/03/2001 HB Securities Chinar UTI Securities RRB 24,543 03 15/03/2001 HB Securities Chinar UTI Securities RRB 44,543 00 27/04/2001 HB Securities Har Sai UTI Securities UTI Bank 24,000 18 Total 1,67,479 (ii)Trades with counterparty broker HDFC Securities Pvt. Ltd. 16. The noticee executed following 2 trades on behalf of the client Chinar on the buy side with counterparty broker HDFC Securities Pvt. Ltd. (HDFC Securities) trading for HDFC Bank on the sell side:- Date Buy Sell Traded Time difference Broker Client Broker Client quantity (in seconds) 21/03/2001 HB Securities Chinar HDFC Securities HDFC Bank 25,000 06 21/03/2001 HB Securities Chinar HDFC Securities HDFC Bank 23,588 15 Total 48,588 (iii)Trades with counterparty broker Fincap Portfolio Ltd. 17. The noticee executed following 8 trades on behalf of Alakhnanda and Chinar on the sell side with counterparty broker Fincap Portfolio Ltd. (Fincap) trading for Ivory and Har Sai on the buy side:-

Date Buy Sell Traded Time difference Broker Client Broker Client quantity (in seconds) 20/03/2001 Fincap Ivory HB Securities Alaknanda 5,000 06 20/03/2001 Fincap Ivory HB Securities Alaknanda 5,000 14 20/03/2001 Fincap Ivory HB Securities Alaknanda 5,000 24 20/03/2001 Fincap Ivory HB Securities Alaknanda 10,000 36 20/03/2001 Fincap Har Sai HB Securities Chinar 25,000 00 20/03/2001 Fincap Har Sai HB Securities Chinar 25,000 00 20/03/2001 Fincap Har Sai HB Securities Chinar 5,000 01 17/04/2001 Fincap Har Sai HB Securities Alaknanda 1,000 08 Total 81,000 (iv) Trades with counterparty broker CFL Securities Ltd. 18. The noticee executed following 4 trades on behalf of its connected client Alakhnanda on the buy side with counterparty broker CFL Securities Ltd.(CFL) who was trading on its own account on the sell side:- Date Buy Sell Traded Time difference Broker Client Broker Client quantity (in seconds) 12/04/2001 HB Securities Alaknanda CFL Own trades 24,215 05 12/04/2001 HB Securities Alaknanda CFL Own trades 24,215 03 12/04/2001 HB Securities Alaknanda CFL Own trades 300 19 12/04/2001 HB Securities Alaknanda CFL Own trades 485 34 Total 49,215 B. Rotation of shares amongst the select group of connected entities. 19. The DA has found that the noticee indulged in circular trades in the scrip on behalf of its related/connected clients and such transactions recurred again and again. As per the Report, the shares which were sold by Har Sai the connected client of the noticee came back to Har Sai in the following manner-

Date Sell Buy Traded quantity Broker Client Broker Client 01/03/2001 HB Securities Har Sai Fincap Alaknanda 65,000 02/03/2001 HB Securities Har Sai B. K. Khullar & Co. RRB 50,000 07/03/2001 Alaknanda HB Securities Chinar 65,000 Chinar HB Securities RRB 65,000 15/03/2001 UTI Securities RRB HB Securities Chinar 1,12,543 20/03/2001 HB Securities Chinar Fincap Har Sai 55,000 29/03/2001 RRB Masters Chinar RRB Masters Har Sai 55,000

20. I note that the basis of charge against the noticee is merely on the basis of the alleged synchronized / matched, structured and circular transactions on behalf of its related/connected clients. With regard to the above alleged synchronised /matched, structured transactions of the noticee the following material facts that are available on record and also mentioned by the noticee in its submissions:- (a) In the four trades of March 14 and 15, 2001, wherein Alaknanda and Chinar the connected clients of the noticee trading through it were on buy side and its other two connected clients, namely, Har Sai and RRB trading through UTI Securities were on sell side, there is no allegation that the noticee and its clients were connected with counterparty broker UTI Securities. Further, with regard to the buy order of Har Sai for 24,000 shares through the noticee on April 27, 2001 also no connection or relationship has been alleged between Har Sai and counterparty client UTI Bank or counterparty broker UTI Securities. I further note that with regard to these five transactions, SEBI has discharged the Har Sai and RRB vide order dated September 24, 2010 and has not initiated any proceedings against Alakhnanda and Chinar.

(b) With regard to the two trades of March 21, 2001, wherein Chinar the connected client of the noticee trading through it was on buy side and HDFC Bank trading through HDFC Securities was on sell side, there is no allegation that the noticee and its client Chinar were connected with counterparty broker HDFC Securities or counterparty client HDFC Bank. Further, Chinar, HDFC Bank or HDFC Securities have not been charged with regard to these trades in any proceedings. (c) With regard to the eight trades of March 20, 2001 (7 trades) and April 17, 2001 (1 trade) wherein Fincap was counterparty broker also there is no allegation of connection between the noticee and Fincap or between buying client Ivory and selling client Alaknanda or between the noticee and Ivory or between Fincap and Har Sai, Chinar and Alaknanda. It is further noted that out of the said eight trades, four trades which happened on March 20, 2001 and April 17, 2001 between Har Sai as buying client of Fincap and Chinar and Alaknanda the selling clients of noticee were impugned in the proceedings that was disposed of by order dated September 24, 2010. By that order, SEBI has discharged the Har Sai with regard to its said transactions.

Further, no proceedings have been initiated against other trading clients namely, Alakhnanda, Chinar, Ivory and counterparty broker Fincap. (d) I note that in respect of the 4 trades, wherein the noticee placed buy orders for its connected client Alaknanda and the counterparty broker CFL traded on its own account there is no allegation that the noticee or its client Alaknanda was connected with CFL Further, no proceedings have been initiated against Alaknanda for these trades. It is noted that these trades of noticee with CFL constituted 5.05% of the market gross volume of the trading day i.e. April 12, 2001 and 0.82% to the market gross for the period March 2001 to May 2001. I further note that SEBI had initiated proceedings against CFL for its trading in shares of Ceat including these trades with noticee the proceedings culminated in the order dated February 21, 2011 whereby SEBI suspended the certificate of registration of the stock broker for a period of two weeks. I, however, note that in that order CFL has been found to have indulged in fictitious trades and had traded not for the genuine purpose of purchase or sell but for the purpose of temporary funding arrangements for the pay-in obligations to the stock exchange.

In that order there is no finding with regard to CFL acting in league or concert with noticee and/or Alaknanda. I further note that while in that order the basis of action against CFL is predominantly the temporary funding arrangements, in the present proceedings the DA has exonerated the noticee in that regard. 21. In my view, the structured /synchronised trades on screen based order matching system are per se not illegal. However, any attempt to manipulate the price or volume through pre-meditated and coordinated trading between connected parties through such trades would be illegal being covered under the prohibitions contained under the SEBI Act and the PFUTP Regulations. I note that this position has been upheld by Hon'ble Securities Appellate Tribunal (SAT) in several matters such as - Ketan Parekh vs. Securities and Exchange Board of India decided on July 14, 2006, wherein Hon'ble SAT held as under- " A synchronised transaction will, however, be illegal or violative of the Regulations if it is executed with a view to manipulate the market or if it results in circular trading or is dubious in nature and is executed with a view to avoid regulatory detection or does not involve change of beneficial ownership or is executed to create false volumes resulting in upsetting the market equilibrium.

Any transaction executed with the intention to defeat the market mechanism whether negotiated or not would be illegal. Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties….."

22. Further, in M/s Grishma Securities Pvt. Ltd. Appeal No. 117 of 2006 Date of Decision: 04.08.2010, Hon'ble SAT held that- "Synchronized trades per se are not illegal ………. Synchronized trades, however, can be executed with a view to manipulate the price or the volumes of the traded scrip or both or with some other ulterior purpose and whether a synchronized trade has been executed with a manipulative intent or not will have to be gathered from the intention of the parties for which there would seldom be any direct evidence. Their intention will have to be gathered from the surrounding circumstances including the pattern of trading, the frequency of the trades and their volumes, the explanations furnished by the parties and brokers etc." 23. In the recently decided case of HB Stockholdings Limited Vs. SEBI - Appeal No. 114/2012, Hon'ble SAT has, vide its order dated August 27,2013, held that -"It may be noted that synchronization of trades is not per se illegal. It is actionable only if it is illegitimate and is the outcome of a mischievous meeting of minds among certain parties……" 24. As regards proof of such charge, it is settled position that showing foolproof evidence in such cases would not be possible as the intention of the parties concerned would be within their special knowledge.

In the screen based trading the manipulative or fraudulent intent can be inferred from various factors such as conduct of the party, pattern of transactions, etc. Such intention may be demonstrated from the attending circumstances as observed by Hon'ble SAT in the above mentioned Ketan Parekh case as following :- "The nature of transactions executed, the frequency with which such transactions are undertaken, the value of the transactions, ........., the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn." 25. From the above it is clear that matching of trades between connected clients per se can not be culpable. However, when the shares are transacted and circulated amongst the connected entities acting in a league under a premeditated manipulative plan without intending to transfer the beneficial ownership of shares traded, such transactions can be fraudulent.

Such fraudulent and manipulative intent can be ascertained on the basis of facts and circumstances, pattern of trading, relation amongst the parties, etc. It is also to be kept in mind that in order to prove the allegation of fraudulent or unfair trade practices higher degree of preponderance of probability is required. 26. In this case, it is noted from the above alleged structured transactions that though the time difference between the buy and sell trade has been examined in the Report it is silent about the exact quantity and price of buy and sell order each so as to determine the synchronization amongst the orders. 27. With regard to the alleged circular trades, from such transactions examined in the Report, I note that Har Sai had sold total 1,15,000 shares on March 1 and 2, 2001 to the connected entities and received back total 1,10,000 shares in two different transactions on March 20, 2001 and on March 29, 2001 from connected entities who had bought and sold amongst themselves. I however note that the information with regard to the transaction of connected entities Alaknanda, Chinar and RRB between those days is incomplete in the Report.

Further, there is no allegation of the connection of the noticee and its clients with counterparty brokers. The material available on record does not establish that these transactions recurred again and again for a considerable long period and that the trading clients were not intending to transfer the beneficial ownership of the traded shares as alleged in the Report. 28. The Report is unclear as to how the above transactions were structured with fraudulent intentions and which transactions were executed without intention of genuinely transferring beneficial ownership. I find that there is no sufficient evidence or material on record to clearly establish connivance or collusion of the noticee with counterparty broker or clients. In absence of any evidence and unambiguous findings in the Report in regard to any pre-mediated plan or device of the trading parties, it is difficult to hold the noticee guilty with regard to these transactions. 29. It is also important to note that no allegation of connection of the noticee with counterparty brokers and clients except for its clients namely, Har Sai, RRB, Chinar and Alaknanda.

Further, with regard to the transactions as alleged in this case, the mischievous meeting of minds amongst the contracting parties need to be established on a high degree of probability. In this case, where the actions have been initiated against the connected clients of the noticee, they have been discharged vide order dated September 24, 2010 and no proceedings have been initiated against other parties to the transactions except in case of CFL wherein the basis of action was not the pre-mediated connivance of the noticee. I further note that in the order dated September 24, 2010, it has been found by SEBI that the material available on record also does not establish that the trading clients were not taking deliveries. It has been further found, in the said order, that the material available was not sufficient to establish either that the transactions were calculated to create false and misleading appearance of trading in the shares of Ceat or that those transactions were not intended to effect the transfer of beneficial ownership.

30. Considering the above facts and circumstances, I am of the view that preponderance of probability, in this case, is in favour of the noticee. I, therefore, give the noticee the benefit of doubt and do not consider it necessary to take any action against it as contemplated in the SCN.

31. The SCN dated November 30, 2009 issued to M/s. H B Securities Ltd. is accordingly disposed of.

DATE: JANUARY 21st, 2014 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA