Order in respect of M/s Baba Bhoothnath Trade and Commerce Pvt Ltd.

ORDER Under section 12(3) of the SEBI Act read with regulation 28(2) of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008. In respect of M/s Baba Bhoothnath Trade and Commerce Pvt Ltd., SEBI Registration Number (INB011311734 and INB231411738), Stock Broker (NSE and BSE) In the matter of trading in the shares of M/s. Taksheel Solutions Ltd Appearances: For the Noticees: 1. Mr. Vinay Chouhan 2. Mr. Prashant Ingle 3. Mr. Rajesh Kedia 4. Ms. Rashmi Singhania For SEBI: 1. Mr. Santosh Kumar Shukla, Joint Legal Adviser 2. Mr. S. Prabhakar, Assistant General Manager 3. Mr. Peeyush Gaurav Soni, Assistant Legal Adviser

1. Taksheel Solutions Ltd ('TSL''), a company incorporated under the Companies Act, 1956, came out with an Initial Public Offerings (IPO) of 55,00,000 shares during the period September 29, 2011-October 04, 2011. The issue price was fixed at 150/- The shares allotted by TSL in its IPO were listed on the Bombay Stock Exchange Ltd. ("BSE") and National Stock Exchange Ltd. ("NSE") on October 19, 2011. 2. The Securities and Exchange Board of India (SEBI), observed huge volatility in the price and volume of the scrip of TSL on the day of listing, and conducted a preliminary investigation in respect of trading in the scrip The preliminary investigation prima facie revealed that TSL through layered transactions, diverted a part of the IPO proceeds in a circuitous route to certain entities including Baba Bhoothnath Trade and Commerce Pvt Ltd., ("hereinafter referred to as "the Noticee"). The Noticee is a stock broker registered with SEBI and is a member of BSE and NSE both.

3. SEBI vide an ad-interim ex-parte order dated December 28, 2011 (hereinafter referred to as "interim order") inter alia prohibited Noticee from buying, selling or dealing in any securities, in any manner whatsoever, in the proprietary account, till further directions. Subsequently, while the investigation in the matter was pending, the interim order was confirmed against the Noticee vide order dated May 11, 2012 (hereinafter referred to as "confirmatory order"). 4. Pursuant to the investigations, SEBI initiated proceedings against the Noticee under the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (hereinafter referred to as the "Intermediaries Regulations"). While initiating the said proceedings it was also decided that the directions issued vide the interim order read with the confirmatory order would continue against the Noticee till disposal of the proceedings. The Designated Authority (hereinafter referred to as “DA”) appointed in these proceedings submitted his Report dated August 30, 2013 under regulation 27 of the Intermediaries Regulations. In the Report, the DA inter alia observed as under:- a. On October 19, 2011 (i.e. the day of listing of shares of TSL), the Noticee bought 1,10,000 shares of TSL in its proprietary account and squared off its entire position and suffered a loss of 64.21 lac.

b. On October 19, 2011, TSL placed Inter-Corporate Deposits (ICD) of 23 crore with Silverpoint Infratech Pvt Ltd (SIP) out of the IPO proceeds, as investment. SIP, through circuitous route, transferred amounts out of the said 23 crore to Rose valley Merchandise Pvt Ltd., Shreya Multitrade Pvt Ltd and the Noticee to absorb the losses incurred by them due to their trades in the scrip of TSL on the day of listing.

c. On October 19, 2011, Noticee had a net obligation of 1.97 crore, which included the obligation of its clients for 1.32 crore and its loss of 64.21 lac suffered as a result of its proprietary trading in the shares of TSL. The settlement obligation of Noticee with regard to its proprietary trades in the scrip of TSL on October 19, 2011 arose on October 21, 2011. On October 20, 2011, SIP transferred 45 lac to the Noticee and the said amount was utilised on October 21, 2011 to meet the settlement obligation for the trades carried out by the Noticee in the shares of TSL. d. It cannot be a mere coincidence that Noticee incurred a loss on account of its trading in TSL shares and at the same time it received funds (although indirectly) from TSL itself. The whole chain of events appears to be a pre-planned scheme, which leads to hold that SIP was used as a channel to transfer the IPO proceeds to Noticee to trade in the scrip of TSL on the day of listing. This view is further substantiated as there is no broker client relationship between SIP and the Noticee.

e. It is clear that the Noticee had no investment interest and only created a false market in TSL shares. Its trading resulted in artificial trading volume. This aspect supported by the fact that it received IPO proceeds from TSL clearly establishes that the activities of Noticee were fraudulent in nature. 5. The DA has not accepted the contentions of the Noticee that it had received the funds from SIP as a loan pursuant to an agreement entered into between the Noticee and SIP on October 12, 2011 and that its transaction were carried out in the ordinary course of business. The DA has found that the agreement is sham and was created post facto only to give a colour of genuineness of the funds transferred by SIP to Noticee which were used to meet the losses incurred by the Noticee while dealing in TSL's scrip in a fraudulent manner. In this regard, the DA has noted that the said agreement stipulated that SIP will provide the loan not exceeding 50 lac to the Noticee and has given following reasons for his conclusions:- a. Exact amount of loan was not specified in the agreement. b. Agreement also did not mention the rate of interest, loan tenure and the purpose of the loan. c. The Stamp Paper used for the agreement did not have the date of its issue from the stamp vendor and the agreement was not notarised.

6. The DA has also rejected the contention of the Noticee that it has repaid the amount of 45 lac to SIP with interest of 1,55,342 (@ of 18% p.a.) at the end of the quarter i.e. December 31, 2011. According to DA, the repayment does not dilute the fact that at the relevant time the Noticee was financed indirectly by TSL from IPO proceeds. Further, according to the DA, the repayment of loan also does not make the fraudulent trades genuine. The DA has also not found merit in the contention of the Noticee that it had utilised only 8.93 lac towards its trade obligations. 7. Based on the above, the DA has found that Noticee has violated section 12A (a), (b) and (c) of SEBI Act, 1992 read with regulation 3(a), (b), (c) (d) and regulation 4(1), 4(2) (a), (d) and (e) of SEBI (Prohibition of the Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 ("PFUTP Regulations") and clauses A(3), A(4) and A(5) of the Code of Conduct for Stock Brokers as specified under Schedule II read with regulation 7 of SEBI (Stock Brokers and Sub -Brokers) Regulations, 1992 ("Stock Brokers Regulations").

The DA has recommended that the certificate of registration granted to the Noticee as a stock broker be suspended for a period of one month. 8. After considering the Report, a Show Cause Notice (SCN) dated September 12, 2013 was issued to the Noticee 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 should not be imposed upon it. The Noticee, vide its letter dated October 10, 2013 (received on October 22, 2013) filed its reply to the SCN. After seeking adjournment of dates of personal hearing in the matter, the Noticee appeared for personal hearing on December 12, 2013 when Shri Vinay Chauhan, Advocate and Shri Prashant Ingle appeared and made oral submissions on behalf of the Noticee. After the personal hearing, the Noticee also filed its written submissions vide letter dated December 16, 2013. The Noticee has inter alia made the following submissions: (a) Admittedly there is absolutely nothing in the Report to indicate as to how Noticee's buying and selling of shares of TSL is fraudulent. There is no allegation that the Noticee: (i) indulged in any synchronized trading or in self trades; or (ii) placed the orders at higher prices in order to ramp up the prices ;or (iii) placed the orders at lower prices in order to depress the prices; or (iv) provided exit to allottees of IPO shares.

(b) In the absence of the same, it is incomprehensible as to how Noticee's trading has been branded as “fraudulent” and how it has been concluded that it had no investment interest and it created false market. (c) Invariably, the Noticee undertakes jobbing trades wherein it buys and sells the same quantity on the same day and squares off its position. In the present case, it did the same thing on October 19, 2011 when it traded in the scrip of TSL. (d) Further, it is not the first time that the Noticee had traded in the scrip on the day of its listing. It had, in the past also, traded in various other scrips on the day of their listing, wherein it had made profits as well as losses. For instance PG Electroplast, Tijaria Polypies Ltd., etc. (e) Its transactions were genuine delivery and payment based trades and cannot be said to result in creating false market without any basis. In the present matter, there is nothing on record to demonstrate that Noticee's trading was for the purposes of creating false market. (f) Admittedly, there is no flow of funds from the bank account of TSL to Noticee's bank account.

Based on fund transfer of 45 lacs from SIP to the Noticee, inference of Noticee being funded by TSL has been drawn. The Noticee has no connection either with TSL or its directors, nor has the same been alleged. It is not clear whether the following issues have been finally adjudicated by SEBI : (i) that there is diversion of IPO funds by TSL;

(ii) that ICD Agreement between SIP and TSL has no plausible basis; (iii) that the funds transferred by TSL to SIP are the IPO proceeds only; (iv) that the amount transferred by SIP to the Noticee is from the IPO proceeds only, etc. (g) In the absence of final adjudication on the aforesaid issues, returning concrete adverse findings qua the Noticee, would be akin to jumping the gun and would be totally unjustified. (h) Neither it has been alleged nor has anything been brought on record as to what would be the motive or intention of TSL to fund the Noticee and why it needed to fund it as alleged. There is nothing in the trading pattern of the Noticee to indicate that by virtue of trading in the scrip the Noticee could have benefited TSL in any manner. (i) TSL may have diverted the IPO proceeds as alleged in violation of law. But the same has got nothing to do with the Noticee. It had no role to play in the decision of TSL’s management to transfer funds to SIP and it was not aware of the same. The Noticee has absolutely no connection either with TSL or its directors, nor has the same been alleged.

(j) Why TSL transferred the funds to SIP, whether the transfer of funds by TSL to SIP was in violation of provisions of law or not in consonance with the objects as disclosed by them in the Prospectus or whether TSL had diverted the IPO proceeds, etc. are the issues which have to be answered by TSL. Based on the perception that TSL has diverted the IPO proceeds in violation of law, the burden of the same cannot be laid on the Noticee, since it is innocent and bona fide recipient of funds by way of loan from SIP. (k) There is nothing on record to indicate that the Noticee was and how it could be aware about the antecedents of funds transferred by SIP to it. It may be noted that as a borrower, the Noticee was not concerned with the source of funds of SIP i.e. the Lender. (l) The independent loan transaction of the Noticee with SIP has erroneously been given the flavour of “fraud” in the Report. (m) The picking of holes by the DA in the Loan Agreement dated October 12, 2011 is incorrect as the Agreement clearly specified the maximum amount of loan of 50 lac and the date of issue of Stamp Paper along with name of Stamp Vendor is apparent on the backside of the stamp paper which DA ignored.

Further, there is no legal requirement of getting the Loan Agreement notarized as conceived by the DA. Further, the parties to the agreement have honoured their obligations and there is no dispute as to its validity or tenability, etc. The Noticee had borrowed the funds i.e. 45 lacs from SIP and had also repaid the same along with interest @ of 18% ( 155,342/) after deduction of TDS of 15,534/. (n) The above facts and circumstances amply demonstrate and establish Notice's bona fide in the matter.

(o) The dichotomy pertaining to the alleged funding of 45 lacs by SIP and the loss of 64.21 lacs suffered by the Noticee has been totally ignored in the Report. If the loss was for an amount of 64.21 lacs and the Noticee was party to the alleged mischief, then, why SIP would transfer only 45 lacs. (p) With respect to utilisation of 45 lac received from SIP for the purposes of meeting its pay in obligation the Noticee has submitted that in view of the following sequence of the events the findings of the DA are contrary to the factual position:- (i) The total pay in obligation for the trades of the Noticee on October 19, 2011, was 1, 96,65,752 which was to be settled by the Noticee on October 21, 2011. (ii) The Noticee made an early pay in to NSE to the extent of 1.88 crore (i.e. 50,00,000 on October 19, 2011 and 1.38 on October 20, 2011) from its HDFC bank Account No -00990610013598. (iii) On October 20, 2011, the Noticee received 45 lac (HDFC Account No.- 00080340041918) from SIP, which was transferred to the Noticee's settlement account (HDFC 00990610013598) on October 21, 2011. (iv) Stock Exchange reversed the early pay in of 1.88 crore made by the Noticee on October 19, 2011 and October 20, 2011. Same is a normal process followed by exchange wherein early pay in is made by stock brokers (v) Thus, as on October 20, 2011, the Noticee had an obligation to pay 8,65,752 lac only which it had settled on October 21, 2011.

9. I have carefully considered the SCN, the replies and submissions of the Noticee and other relevant material available on record. In this case, it is admitted fact that on the day of listing i.e. October 19, 2011, the Noticee had traded in 1, 10,000 shares of TSL and had squared off its position whereby it had incurred a loss of 64.21 lac. SIP had received 23 crore from TSL on October 20.2011. On October 20, 2011, the Noticee received 45 lac from SIP (in its HDFC account number 00080340041918). In the Report, the DA has found the Notcee guilty in this back ground.

10. On a careful consideration of the Report, I note that these proceedings are limited with respect to:- (a) alleged fraudulent trading of the Noticee in the shares of TSL; and (b) alleged dealing in fraudulent manner by Noticee for discharge of its settlement obligations out of a part of the IPO proceeds of TSL that were allegedly diverted by TSL to the Noticee via SIP. 11. I note that there is no allegation or charge with regard to the above trades of the Noticee being fraudulent synchronised or circular, etc. trades. Further, there is no charge against the Noticee that it indulged in price manipulation in the scrip. In the Report, though it has been alleged that the Noticee created false market in TSL's shares and its trades resulted in artificial trading volume, there is no examination of any material or basis in the Report for coming to this conclusion and the charge in this regard is not made out at all. I, therefore, discharge the Noticee with regard to this allegation. 12. It is further alleged that the Noticee dealt in the scrip of TSL in fraudulent manner since, in order to meet its settlement obligation with regard to its above mentioned trades in the shares of TSL, it utilised the IPO proceeds transferred to it by TSL through SIP. I note that there is no allegation in the SCN that the Noticee is anyway connected or related to TSL or SIP or its management. I, however, am of the view that it is not always necessary to establish a connection/ relation amongst the entities involved in a transaction as alleged in this case and the meeting of minds of concerned entities for any concerted plan or action can also be deduced on the basis of facts and circumstances including nature, trend and, pattern transactions/dealings of the case.

13. In this case, the following sequence of events :- (a) TSL transfers 23 crore out of its IPO proceeds to SIP by placing ICD with it on October 19, 2011 i.e. on the day of listing of its shares; (b) Noticee undertakes proprietary trading in the scrip of TSL and incurs loss of 64.21 lac on October 19, 2011; (c) SIP transfers 45 lac to the Noticee's HDFC account No:00080340041918 on the very next day i.e. October 20, 2011; (d) The Noticee then transfers 45.93 lac ( 45,00,000 received from SIP + 93,000) from its above bank account to its settlement bank account No: 00990610013598 with HDFC Bank on the settlement day i.e. October 21, 2011;

strongly indicate that the Noticee received the said 45 lac from SIP out of the IPO proceeds of TSL and also raise suspicion about Noticee’s dealings in allegedly fraudulent manner.

14. It is to be kept in mind that since the charge is of dealing in fraudulent manner the transaction in question needs to be corroborated by attendant facts and circumstances that suggest higher degree of probability as compared to any other alleged civil default. In this case, the above mentioned facts and circumstances and sequence and pattern thereof are admitted by the Noticce. The Noticee has, however, claimed that it had received the above funds ( 45 lac) pursuant to a loan agreement dated October 12, 2011 between itself and SIP. I have perused the copy of the agreement dated October 12, 2011 submitted by the Noticee and note that the said agreement executed between SIP and the Noticee on the Stamp Paper of the same date i.e. October 12, 2011 has only three clauses that are reproduced as following:- "1. The party of the first part will provide loan amount not exceeding Rs.50,00,000/- (fifty lacs) as & when needed to the party of the second part for carrying on its business without any security or with security. 2. The loan amount will be repayable on demand by the party of the first part. However, the party of the second part may return any surplus fund; it may have any time to reduce its interest cost. 3. The rate of interest and other terms or conditions may be agreed by both the parties at the time of loan amount given by the party of the first part".

15. It is noted that there is a close proximity amongst the date of agreement, the date of transaction and date of transfer of fund. I find that the said loan agreement is apparently an open ended agreement inasmuch as it does not contemplate a definite tenure, rate of interest and other terms and conditions except the maximum amount that SIP agreed to provide to the Noticee when needed by it. The above mentioned agreement contemplates providing of loan by SIP on demand from the Noticee. In this case, the Noticee has failed to provide any evidence that it had demanded the amount of 45 lac from SIP as per the loan agreement. It is also pertinent to mention that, in this case, there is no client-broker relationship between SIP and the Noticee and there has not been any previous history of loan transaction between them. It is admitted position that the transfer of 45 lac from SIP to the Noticee on October 20, 2011, which happened the very next day of receipt thereof by SIP from TSL, is the solitary fund transaction between SIP and the Noticee.

16. Admittedly, the Noticee had 1,96,65,752 as its pay-in obligation for its trades carried out on October 19, 2011 which was to be settled on October 21, 2011. This amount included the obligation of its clients for 1.32 crore and its loss of 64.21 lac on account of its trading in the shares of TSL. According to the Noticee, as on October 20, 2011, it had paid total 1,88,00,000 as early pay-in to the exchange and it had net pay in obligation for 8,65,752 only for the settlement day on October 21, 2011. It is curious to note that if as on October 20, 2011 the Noticee was well aware that its net pay-in obligation for all those trades was only 8,65,752, then why it received 45 lac loan on October 20, 2011 from SIP without any demand from it.

17. The Noticee has attempted to establish its bona fide on the basis of the fact of repayment of 45 lacs to SIP with interest of 1,55,342/ (interest @ of 18% p.a.) at the end of the quarter i.e. on December 31, 2011. If at all the Noticee was to utilise only 8,65,752 out of said 45 lac and return the balance without utilising the same, then purpose of receipt of 45 lac as loan remains unexplained by the Noticee despite specific question asked to it during the personal hearing before me. If at all the Noticee was to return unutilised amount why it waited till December 31, 2011 and pay interest thereon. The financial transaction in this case, in my view, does not make any commercial sense to any prudent person much less to a stock broker who understands his settlement obligation better than any common person. It is also noted that this repayment was made after SEBI passed the interim order in the matter on December 28, 2011. These facts clearly indicate the refund of monies in this case by the Noticee as an afterthought.

18. In these facts and circumstances, I, therefore, am not convinced that the said fund transfer of 45 lac to the Noticee from SIP was a genuine loan transaction and find that the loan agreement was merely a device to camouflage the transfer of funds received by SIP from TSL. The loan agreement, in this case, even if it is assumed to be executed on October 12, 2011 as claimed by the Noticee, was executed only to give a colour of genuineness to the transfer of funds by SIP (received from TSL) to the Noticee, part of which was used to meet the settlement obligations of the Noticee while dealing in TSL's scrip and remaining was to be used for unexplained purpose. I do not find merit in the contention of the Noticee regarding the dichotomy pertaining to the above fund transfer of 45 lac by SIP as against the loss of 64.21 lacs incurred by the Noticee while trading in the shares of TSL on the date of listing. In this case the fact remains that the Noticee received 45 lac from SIP out of the 23 crore that was transferred to it by TSL from the IPO proceeds though it could utilise only 8,65,752 out of the said 45 lacs to meet its settlement obligations.

19. In my view, the fund transfer in the above discussed manner and trading of the Noticee in the shares of TSL on the day of listing cannot be just a coincidence. The facts and circumstances of this case suggest strong probability that there existed a premeditated plan between TSL, SIP and the Noticee to divert the part of IPO proceeds and utilise the same to meet the settlement obligations of the Noticee for trading in the shares of TSL on the date of listing. Considering the above facts and circumstances, I am of the view that preponderance of probability in this case is not in favour of the Noticee and this charge against the noticee as alleged in the SCN is established.

20. I, therefore, observe that the Noticee dealt in the shares of TSL in a fraudulent manner in terms of regulation 2(1)(c) of the PFUTP Regulations and violated the provisions of section 12A (a), (b) and (c) of SEBI Act read with regulation 3(a),(b),(c) (d) and regulation 4(1), 4(2) (a), (d) and (e) of PFUTP Regulations and also the provisions of clauses A(3), A(4) and A(5) of the Code of Conduct for Stock Brokers as specified under Schedule II read with regulation 7 of the Stock Brokers Regulations.

21. I note that the noticee was prohibited from buying, selling or dealing in any securities, in any manner whatsoever, in the proprietary account vide the interim order and said directions were confirmed vide the confirmatory order. Thus, the Noticee has already suffered the debarment of two years for its dealings in the scrip of TSL. I further note that the SCN against the Noticee does not contain any charge as to the trades carried out by the Noticee being synchronized or circular or done with an intent to artificially increase the price or volume of the scrip. Considering these facts and circumstances, I am satisfied that the suspension of certificate of registration of the Noticee for a period of 15 days would be commensurate with the violations found in the matter.

22. I, therefore, in exercise of powers conferred upon me by virtue of section 19 read with section 12(3) of the Securities and Exchange Board of India Act, 1992 and regulation 28(2) of the SEBI (Intermediaries) Regulations, 2008, hereby suspend the certificate of registration of the Noticee, i.e., M/s Baba Bhoothnath Trade and Commerce Pvt Ltd. having SEBI Registration Number (INB011311734 and INB231411738), Stock Broker (NSE and BSE) for a period of 15 days.

23. This order shall come into force immediately on expiry of twenty one days from the date of this order. On and from the date of operation of this order, the directions issued vide the interim order dated December 28, 2011 read with the confirmatory order dated May 11, 2012 would not continue further against the Noticee.

24. A copy of this order shall be served upon Baba Bhoothnath Trade and Commerce Pvt. Ltd., BSE and NSE in accordance with regulation 30 of the SEBI (Intermediaries) Regulations, 2008 and also to the depositories for ensuring compliance of this Order.

Date: December 31st, 2013 RAJEEV KUMAR AGARWAL Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA