Order in respect of Kamal Kumar Dugar in the matter of Cyberscape Multimedia Ltd

IN THE MATTER OF CYBERSCAPE MULTIMEDIA LIMITED In respect of Kamal Kumar Dugar & Co. (SEBI Registration No. INB 3671512) Date of hearing: December 10, 2010 Appearances For Noticees: Mr. Kamal Kumar Dugar Mr. Vinay Chauhan, Advocate For SEBI: Mr. G. Ramar, General Manager Mr. Lamber Singh, Assistant General Manager Mr. Pradeep Kumar, Assistant Legal Adviser ORDER Under Regulation 28 (2) of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted an investigation into the buying, selling and dealing in the scrip of Cyberspace Multimedia Limited (hereinafter referred to as ‘Cyberspace’) for the period September 18, 2000 to December 08, 2000. During this period, the price of the scrip of Cyberspace increased from `8.00 on September 18, 2000 to `60.00 on December 8, 2000. The scrip of Cyberspace during the relevant period was listed on Bangalore Stock Exchange (hereinafter referred to as ‘BgSE’), Bombay Stock Exchange (hereinafter referred to as ‘BSE’) and Calcutta Stock Exchange (hereinafter referred to as ‘CSE’).

2. The investigation prima facie revealed that persons connected with the company, its directors, major shareholders and their affiliates had tried to manipulate the price of the scrip. The brokers of CSE were found trading on BSE through the brokers of BSE. It was further revealed that some clients have placed large buy-orders majority of which were deleted after a few orders got executed. By adopting this methodology, the entities had tried to create buying depth in the scrip which attracted other investors in the scrip.

3. Kamal Kumar Dugar & Co. (hereinafter referred to as the ‘noticee’), registered with SEBI as a stock broker, bearing registration no. INB 3671512, and who is a member of CSE, was found trading in the scrip. The noticee appeared to be off-loading shares allotted to the family members/ entities of the proprietor of the noticee in the private placement prior to Initial Public Offer (hereinafter referred to as ‘IPO’). The noticee was found to have played certain role in creating artificial buying depth in the market thus enabling the persons/ entities of the family of the proprietor of the noticee to off-load the shares allotted to them in the private placement prior to IPO.

4. Based on the findings of the investigations, SEBI vide order dated November 07, 2003 read with subsequent order dated December 28, 2004, appointed an Enquiry Officer under Regulation 5(1) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as ‘Enquiry Regulations’), to enquire into the alleged violation of the provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’), SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘PFUTP Regulations’) and Regulation 7 read with Clause A (1), (2), (3), and (4) of the Code of Conduct specified under Schedule II of the SEBI (Stock Brokers and Sub-Broker) Regulation, 1992 (hereinafter referred to as ‘Broker Regulations’). The Enquiry Officer submitted his report dated March 31, 2005 in terms of Regulation 13(1) of the Enquiry Regulations recommending thereby the dropping of proceedings as against the noticee.

5. Subsequently, a Show Cause Notice (hereinafter referred to as ‘SCN’) dated September 28, 2010, under Regulation 13(2) of the Enquiry Regulations was issued by SEBI to the noticee, intimating it that SEBI is not in agreement with the penalty as recommended by the Enquiry Officer since the same is not commensurate with the alleged violations committed by it and desires to impose a higher penalty. The noticee was asked to show cause as to why the penalty higher than that recommended by the Enquiry Officer should not be imposed on it. The noticee was advised to reply to the SCN, together with the documents that it may choose to rely upon in support of his reply within twenty one days from the receipt thereof. It was also informed that in case of failure, it would be presumed that it had no explanation to offer and SEBI shall be free to take such action in the manner as it deemed fit. A copy of the Enquiry Report was also forwarded to the noticee along with the said SCN.

6. The noticee replied to the SCN vide its letters dated October 18, 2010 and November 02, 2010 and sought a personal hearing. Mr. Kamal Kumar Dugar, proprietor of the noticee and Mr. Vinay Chauhan, Advocate, appeared before me on December 10, 2010, and reiterated the submissions made vide letter November 02, 2010, along with other submissions. Thereafter, the noticee vide its letter dated December 17, 2010 sent its written submissions, which were taken on record. The submission of the noticee are as under:

a. All trading in the scrip was genuine and independent. No reasons have been specified as to the nature/ cause of disagreement with the findings of Enquiry Report. b. It had transacted in the subject scrip and in other scrips in the ordinary course of business and had not facilitated anybody in offloading the shares. c. Nothing on record to show that it was involved in the sales carried out by other entities in any manner. d. The data provided is incomplete and lacks material particulars. e. No material to show that it had contributed to the misleading volume and price rise in the scrip. f. The impugned transactions pertain to year 2000 and the SCN has been forwarded after a lapse of almost six years.

7. I have carefully considered the Enquiry Report, the SCN issued to the noticee and the reply received from it. The noticee has submitted that the data provided to it is incomplete. It is seen that all the details that have been relied upon are 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. Having considered all these, the issues that arise for my consideration is: Whether the noticee has indulged in acts which were in violation of Regulation 4 of PFUTP Regulations and Regulation 7 read with Clause A (1),(2),(3) and (4) of the Code of Conduct specified under Schedule II of the Broker Regulations?

8. Whether the noticee has indulged in acts which were in violation of Regulation 4 of PFUTP Regulations and Regulation 7 read with Clause A (1),(2),(3) and (4) of the Code of Conduct specified under Schedule II of the Broker Regulations?

a. I note that the entities related to the proprietor of the noticee were allotted shares by Cyberspace in the private placement before the IPO of Cyberspace. The noticee had major trading at CSE, where it brought 19,99,185 shares and sold 19,79,685 shares on CSE in its own account. I note the argument of the noticee that it was engaged in the jobbing transactions in the scrip.

b. I note that while trading in the scrip of Cyberspace, the noticee was counterparty to the most of the trades of Surendra Kumar Dugar, the brother of proprietor of the noticee and other brokers of CSE namely Mr. Ashok Kumar Poddar, Shraddha Stock Broking and S.P. Rackhecha & Co. The noticee has argued that its transactions were with atleast 25 brokers other than those mentioned in the SCN. The noticee has denied that Ashok Kumar Poddar was his family broker as alleged in the SCN.

c. I have seen the instances of trading of the noticee in the scrip of Cyberspace from the available records and note that the same do not show as to how the trades were manipulative in nature. The data only shows the details of the trade in the scrip. However, the same does not show anything which shows that the trading by the noticee had contributed to artificial volumes or price rise in the scrip of Cyberspace.

d. Having seen this, I am of the considered view that the charge as against the noticee of creating artificial market in the scrip so as to enable the entities/ family related to the proprietor of the noticee to off-load 12,23,880 shares out of 14,90,000 shares allotted to them in the private placement prior to IPO cannot sustain.

9. I note that pursuant to the notification of the SEBI (Intermediaries) Regulations, 2008, the Enquiry Regulations have been repealed and in terms of Regulation 38(2) of the SEBI (Intermediaries) Regulations, 2008, notwithstanding such repeal, any enquiry commenced under the Enquiry Regulations, shall be deemed to have been commenced under the corresponding provisions of SEBI (Intermediaries) Regulations, 2008.

10. In the facts and circumstances of the matter, 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 against Kamal Kumar Dugar & Co. (SEBI registration no. INB 3671512) without imposing any penalty or direction.

DATE : 23/AUG/2011 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA