Order in respect of Harvic Management Services (India) Ltd. in the matter of Sawaca Communication Ltd

WTM/PS/83/IVD/ID-9/MARCH/2011 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER IN THE MATTER OF SAWACA COMMUNICATION LIMITED In respect of Harvic Management Services (India) Limited Date of Hearing: October 22, 2010 Appearances For Noticee: Mr. Hemang Jangla, Director Mr. Kalpesh Chawla, Director For SEBI: Mr. G. Ramar, General Manager Mr. Siva Govindo Patra, Manager Mr. Pradeep Kumar, Legal Officer 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 shares of Sawaca Communication Limited (hereinafter referred to as ‘SCL’) for the period of October 04, 1999 to December 30, 1999 (hereinafter referred to as ‘investigation period’). During the investigation period, the price of the scrip increased from `19.35 as on October 01, 1999 to `106 as on January 04, 2000 at BSE. The price rise was accompanied by significant increase in the volumes in the scrip of SCL.

2. During the course of investigation, it was inter alia found that Harvic Management Services (India) Limited (hereinafter referred to as the ‘noticee’) while acting as a sub-broker to B.M. Gandhi Securities Private Limited, member, BSE, traded for its client and in its own account in the scrip of SCL, placed large buy orders and created artificial appearance of market in the scrip.

3. 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 ‘Enquiry Regulations’), by appointing an Enquiry Officer under Regulation 5(1) of the Enquiry Regulations. SEBI appointed the Enquiry Officer, to enquire into the alleged violation of the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘PFUTP Regulations’) and the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 (hereinafter referred to as ‘Broker Regulations’). The Enquiry Officer submitted his Report dated February 18, 2005, in terms of Regulation 13 (1) of the Enquiry Regulations recommending a penalty of cancellation of the certificate of registration of the noticee as a sub broker for violating the provisions of Regulation 15 read with Schedule II of the Broker Regulations and Regulation 4 of the PFUTP Regulations.

4. Subsequently, a show cause notice (hereinafter referred to as ‘SCN’) dated March 31, 2005 under Regulation 13(2) of the Enquiry Regulations was issued to the noticee asking it to show cause as to why an appropriate action including the penalty recommended by the Enquiry Officer, should not be imposed. The noticee was advised to reply to the SCN, together with the documents that it may choose to rely upon in support of its reply within fifteen days of the receipt thereof. It was also informed that in case of failure, it would be presumed that it had no explanation to offer and that SEBI shall be free to take such action in the manner as it deemed fit. Vide this SCN, the noticee was also asked to explain as to why consequential action under Regulation 3(2) of the SEBI (Criteria for Fit and Proper Person) Regulations, 2004, should not be taken against it. A copy of the Enquiry Report was also forwarded to the noticee along with the SCN.

5. The noticee replied to the SCN vide its letter dated April 11, 2005. Before proceeding further, an opportunity of personal hearing was granted to the noticee on September 06, 2007. Due to change of the appropriate authority, a further opportunity of personal hearing was granted to the noticee before me on October 22, 2010. On the date fixed for personal hearing, Mr. Hemang Jangala and Mr. Kantilal Chawala, two of the directors of the noticee appeared and made oral submissions.

6. I have carefully considered the Enquiry Report, the SCN issued to the noticee and its reply. The main submission of the noticee, in brief are:

- It had executed the trades in its capacity as sub-broker and on behalf of the client Mr. Mahendra Shah. - It had no knowledge of the relation between Mahendra Shah and SCL, further, it was not aware that Mahendra Shah was dealing through other brokers except Mayekar Investment. - Had made diligent efforts to comply with its duty under the provisions of Broker Regulations. - It had never received any shares by way of preferential allotment from SCL. - The shares of SCL sold by it were collected as margin from Mahendra Shah. The beneficial ownership of these shares was with Mahendra Shah. - The trading in the scrip of SCL on behalf of Mahendra Shah between August, 1999 to May, 2000 aggregated to `75 lakh as against the total transaction volume of `28.79 crore of all the scrips traded on behalf of Mahendra Shah - It has not been supplied with various documents like investigation report, statements of various persons, log sheets etc.

7. At the outset, I note the submission of the noticee that it has not been supplied with various documents. It is seen that all the documents relied upon by SEBI have been provided to the noticee. However, I note that no document, which has not been provided to the noticee, is being relied upon in the present proceedings. I have carefully considered the Enquiry Report, the SCN issued to the noticee and its reply. I note that the Enquiry Officer has found the noticee guilty of violation of the provisions of Regulation 4 of the PFUTP Regulations and the Code of Conduct for sub-brokers as specified in Schedule II read with Regulation 15 of the Broker Regulations.

8. I have seen the trading details of the noticee as brought out in the Enquiry Report (Table A) and note that it contributed to a total volume of 15,45,100 shares while trading in the scrip of SCL during the investigation period. Table A Name of brokers/ sub - brokers Purchase Sale Gross Net B.M. Gandhi 6,21,800 6,89,900 13,11,700 -68,100 Bipin Diwani 71,800 1,07,000 1,78,800 -35,200 M.S. Investment 0 54,600 54,600 -54,600 Total 6,93,600 8,51,500 15,45,100 -1,57,900 It is seen from the Enquiry Report that the noticee while trading for its client Mahendra Shah through broker B.M. Gandhi Securities Private Limited contributed to about 13% of the gross volume in the scrip of SCL. Further, the noticee had also traded in its own account in the scrip of SCL during the investigation period through M/s Bipin Diwani, a sub-broker to Vyomit Shares Stock & Investment Private Limited. and M.S. Investment. The table below shows the settlement-wise trading details of the noticee. Table B Dealings of noticee through B.M. Gandhi for Bipin Diwani M.S. Investment Mahendra Shah Settlement No. Gross Net Gross Net Gross Net 28 11,200 7,000 29 86,300 18,500 31,600 0 8,000 -8,000 30 1,07,600 -6,000 3,800 1,600 31 1,61,500 -35,300 65,500 -35,500 25,000 -25,000 32 1,51,000 0 13,300 2,700 33 2,57,600 -5,600 23,400 -4,000 34 44,300 5,100 11,200 0 35 62,500 -7,300 36 32,400 -600 6,600 -6,600 37 13,500 -13,500 10,000 10,000 38 65,500 -12,300 20,000 -10,000 15,000 -15,000 39 57,200 0 40 1,12,400 -17,800 41 71,900 -38,100 42 11,600 -11,600

43 700 -700 44 57,600 57,000 45 6,900 -6,900 Total 13,11,700 -68,100 1,78,800 -35,200 54,600 -54,600 9. The Enquiry Report has recorded that the noticee had entered about 158 orders for shares more than 5,000 in number. A perusal of the data for the same shows that same contains only buy and sell orders of the noticee for shares over and above 5,000. No other details like execution, etc. can be seen from this data. Considering this, it is difficult to conclude that noticee was entering orders in order to influence the price of the scrip of SCL.

10. Further, from the table A and B above, I note that the noticee had traded through multiple brokers/ sub-brokers and contributed significantly i.e. about 16% to the total trading volume in the scrip of SCL. The noticee has submitted that they were trading through other brokers in order to avoid the exposure risk and due to the limit to trade imposed by its broker.

Incidentally, the noticee has admitted that the shares sold by it through other brokers/ sub-brokers was of Mahendra Shah (as beneficial ownership was with him), collected from him as margin for trading. I note that the noticee has failed to clarify as to why it was trading the shares of its clients in its own account.

11. Before concluding, I note that the certificate of registration of the noticee was cancelled on March 31, 2004 and no useful purpose will be served by issuing further direction to the noticees. Therefore, I hereby dispose of the present Enquiry proceedings initiated against the noticee without passing any further order.

12. 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.

13. 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 dispose of the Enquiry proceedings as mentioned above, against Harvic Management Services (India) Limited.

DATE : 18/MARCH/2011 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA