Order in respect of M/s Jayantilal Khandwala & Sons Pvt. Ltd. in the matter of M/s Shree Rama Multi Tech Ltd

WTM/RKA/IVD9/36/2012 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: SHRI RAJEEV KUMAR AGARWAL, WHOLE TIME MEMBER 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 Jayantilal Khandwala & Sons Pvt. Ltd. in the matter of M/s Shree Rama Multi Tech Ltd. Date of Hearing: February 23, 2012 Appearances For Noticee: Shri Jatin Khandwala For SEBI: Shri Santosh Kumar Sharma, General Manager Shri Santosh Kumar Shukla, Joint Legal Adviser Shri Siva Govindo Patra, Assistant General Manager Shri Durgesh Kumar Thakur, Assistant Legal Adviser 1. M/s Jayantilal Khandwala & Sons Pvt. Ltd. (JKSL) is a stock broker registered with SEBI (Registration number: INB010998038) and a member of the Bombay Stock Exchange Limited (BSE). SEBI had conducted investigation in respect of the trading in the shares of M/s Shree Rama Multi-Tech Ltd., (the Company) for the period June 2000 to September 2000 (investigation period). It was inter alia, observed that the JKSL had common clients with another stock broker namely; Khandwala Finance Limited (KFL) having SEBI registration number (INB23600030), a trading member of the National Stock Exchange Limited (NSE) and most of its clients were associated with the management of the Company. Further, Shri Paresh Khandwala was a common director in both JKSL and KFL and thus the two stock brokers are said to be connected to each other. KFL, subsequently, got merged with Khandwala Securities Limited (KSL) and its membership of NSE was transferred to KSL. 2. The investigations had revealed that during relevant period JKSL mainly traded in the scrip of the Company on behalf of its clients namely East West Polyart, Ideal Sec. Ltd, Asha Patel, Satellite Management Ser. Ltd. and Nirjay Sec. who were common clients with more than one trading member. JKSL was one of the active trading members during period under consideration. Other brokers such as M/s Porecha Global Sec. and M/s Arun Porecha, who were among the top trading members, purchased shares of the Company on behalf of UTI. JKSL traded on behalf of retail clients and it mainly contributed to the volumes on BSE.

3. It was observed that JKSL's purchases for its clients were very high. In some of the Settlements, JKSL even contributed more than 70% of the purchases at BSE. In settlement no. 19, 23, 24 and 25 JKSL contributed more than half of the volume in the trading of the scrip at BSE. During June 05, 2000 to September 29, 2000, out of 57.39 lakh shares traded at BSE, JKSL purchased, 12,47,091(21.6%) shares and sold 17,18,443 (29.65%) shares of the Company. Further, JKSL dealing on behalf of its above mentioned common clients with KFL swept the sell orders in a short span of time and put buy orders frequently at a price substantially higher than the last traded price and which had led to price rise in the scrip of the Company. Same set of common clients were putting the buy orders, simultaneously at a price higher than the ruling price/ last traded price, through JKSL at BSE and through KFL at NSE. It was also observed that major/ huge sell orders put by JKSL in the scrip of the Company during the period under consideration were getting matched with the buy orders put by M/s Porecha Global Sec. and M/s Arun Porecha on behalf of UTI, within a span of few seconds.

It was prima facie observed that JKSL created false volume in the scrip of the Company, artificially increased the price of the scrip and off-loaded the shares to UTI in coordinated manner. Further, contract notes issued by JKSL to its clients did not have the Trade Number, Trade Time and the price at which the transactions took place. 4. In view of the above, SEBI initiated proceedings under section 12(3) of SEBI Act read with regulation 5(1) of SEBI (Procedure for Holding Enquiry and Imposing Penalty) Regulations, 2002 (hereinafter referred to as 'the Enquiry Proceedings Regulations') (since repealed) and appointed an Enquiry Officer to enquire into the alleged violation by JKSL. After completing the enquiry, the Enquiry Officer in his Report dated August 25, 2006 found that- a. JKSL had common clients with KFL in respect of transactions in question. Since JKSL has failed to prove its submission that its major clients were not associated with the management of the Company, the Enquiry Officer has found that major clients of JKSL were associated with the management of the Company. b. For the period June 05, 2000 to September 29,2000, out of 57.93 lakh shares traded at the BSE, JKSL contributed 12.47 lakh shares towards purchases and 17.18 lakh towards sales.

In percentage terms, this works out to 21.6% of the purchases and 29.65% of the sales. JKSL has contributed large volumes in the scrip of the Company at BSE during the investigation period. c. JKSL used to put buy orders, with manipulative intentions, at a price higher than that of the ruling price/ last traded price. In settlement number 19 on 31.07.2000, when the scrip was last traded 73 JKSL swept the sell orders from 73.25 to 78 by its buy orders for 10000 shares, which led to a price movement of 6.8%. Further, after 2 more trades, JKSL swept the sell orders at the price from 76.30 to 79.30 per share. The scrip price on the day closed at 79.30 i.e., at 8% upper circuit. Similarly, on 17.07.2000, when the last traded price was 74.80, the buy order of JKSL swept the sell orders at the price from 74.80 to 80 within a span of 1 second. This influenced the price by 6.9%. The Enquiry Officer noted more such instances in the annexure to the show cause notice issued by him to JKSL. The Enquiry Officer further noted that these trades influenced the price of the scrip at the BSE. d. Same set of clients were putting orders, simultaneously, at a price higher than the ruling price/ last traded price in the scrip, with JKSL at BSE and KFL at NSE.

The simultaneous buy orders definitely influenced the price and mind set of general investors. For example, on June 27, 2000 at 15:06:49, the last traded price was 60. JKSL swept the sell orders at BSE for client Satellite Mgt. at a price from 60.65 to 65 within a span of 3 minutes. At 15:08:11, KFL entered buy orders at NSE for the same client Satellite Mgt. and swept the sell orders in the scrip of the Company at a price from 59.55 to 65. JKSL had admitted that the clients were putting simultaneous orders both at BSE and NSE so that the clients could buy requisite quantity at best possible price. e. Intra adjustments also took place between JKSL and KFL. Holding that the same client was dealing at both the exchanges i.e. BSE & NSE, the Enquiry Officer has found that JKSL tried to manipulate the price with a concerted action with KFL and these kinds of trades were circular in nature. f. Huge sell orders placed by JKSL got matched with the huge buy orders put by M/s Porecha Global Sec. and M/s Arun Porecha on behalf of the institutional client (UTI) within a span of few seconds. The Enquiry Officer noted several such matched transactions as observed during the investigations and found that unless some coordinated and concerted piece of action was there, such kind of consistent matching of transactions was not possible.

In his Report, the Enquiry Officer noted some of such transactions as under:

Member Buy Rate Qty. Avg. qty. Date & time /sell 567 B 82 200000 22222 03.8.2000 13:52:52 JKSL S 82 200000 20000 03.08.2000 13:52:53 567 B 74.80 50000 5000 04.08.2000 15:15:41 JKSL S 74.80 50000 5000 04.08.2000 15:20:55 4 B 89 200000 22222 08.09.2000 14:53:13 JKSL S 89 200000 20000 08.09.2000 14:53:13 g. Some of the common clients such as Satellite Mgt. and Ideal specifically traded in the scrip of the Company during the relevant period. Thus, these matched transactions were synchronized/ structured deals. h. The large number of buy orders placed by JKSL at a price higher than the ruling price/last traded price created artificial depth and influenced the price of the scrip. The synchronized / structured deals were in gross abuse of the trading system and they hampered efficient price discovery in the scrip. i. By doing synchronized transactions, influencing /manipulating the price, creating artificial depth and executing circular, non-genuine trades, JKSL has aided and abetted the management of the Company. Entering into such synchronized trades is a misuse of the stock exchange mechanism and the same tampers with the free, fair and transparent price discovery system of the stock exchange.

Such practices where the transactions are put in with a premeditated understanding, in effect, distort and interfere in the price mechanism of the stock exchange and lead to the creation of the false market. j. The contract notes issued by JKSL did not disclose the factual position in relation to the trade number, trade time and price at which the transactions took place. JKSL failed to issue contract notes in the form and manner specified. The JKSL issued third party cheques towards credit balance lying in its clients' account. 5. The Enquiry Officer has found that all the charges alleged in the show cause notice against the JKSL stand established and thereby it had violated provisions of regulation 4 (a),(b),(c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (PFUTP Regulations)(since repealed) and Clause A of the Code of Conduct for stock brokers specified in Schedule II read with regulation 7 of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as 'the Stock Brokers Regulations').

Based on these findings the Enquiry Officer has recommended that certificate of registration granted to JKSL may be suspended for a period of two years. 6. After considering the Report, a show cause notice dated August 30, 2006 (SCN) was issued to JKSL (the noticee) under regulation 13(2) of the Enquiry Proceedings Regulations calling upon it to show cause as to why the appropriate penalty including penalty as recommended by the Enquiry Officer should not be imposed on the noticee. 7. The noticee submitted its reply vide letter dated September 20, 2006. The noticee has inter alia made following submissions in its reply:- a. The noticee reserves right to seek and obtain inspection/copy of documents referred to and relied upon in the SCN /investigation report and cross-examination of persons connected with the matter on whose statements SEBI is relying upon. b. The SCN dated August 30, 2006 does not comply with regulation 6(2) of the Enquiry Proceedings Regulations as the order appointing the Enquiry Officer was not annexed with it. Further the relevant findings of the Enquiry Officer have also not been enclosed and this is in gross violation of principles of natural justice.

Therefore, the SCN is illegal and requires to be withdrawn. c. The allegation that majority of its clients are associated with the management of the Company is based on presumption and assumptions. It is a settled principle of law that the person making an allegation has to prove the same. Since SEBI is making an allegation, it is for SEBI to establish the same. d. The noticee's clients were putting simultaneous buy orders both at BSE through the noticee and at NSE through KFL so as to buy requisite quantity of shares at best possible price. e. All trades entered into the automated trading mechanism of the stock exchange will definitely have a bearing on the volumes and price. The trades of the clients of the noticee were within the price band of the day and they cannot influence the price and the volume. All the trades were executed as per the accepted principles of trading with the exchange. The Report has overlooked the fact that these trades were screen based where the price discovery is achieved by a matching of 'best buy' and 'best sell' orders. f. SEBI has erred in equating volumes with violations.

Volumes alone cannot and should not be basis for justifying violation unless it is established beyond doubt and with credible evidence that such volumes did result in a violation, as specified in the relevant regulation. g. It is common knowledge that if a buy order is for a larger quantity of shares vis-à-vis the quantity available for sale, the buy orders will have to be placed at a price higher than the ruling price/ last traded price in order to fulfill a substantial portion of the buy orders. h. The price of the scrip can be influenced due to enumerable factors and to assume that only trades of its clients were instrumental in influencing the price of the scrip is improper. The allegation in this regard is based on assumption and presumptions. Its clients' transactions alone cannot be said to have influenced the price of the scrip. i. It is incomprehensible how buy trades of its clients can tantamount to circular trades. Similarly, it is inexplicable how buy trades of its clients can depress the share price. This inconsistent approach clearly denotes non-application of mind with the predetermined objective of holding the noticee guilty. j. SEBI has failed to prove by any credible evidence that the transactions put by noticee's clients were executed in concert.

Further, neither the counter party member nor its clients were known to it. Hence, it can in no way be liable for any act of synchronizations. k. Along with the contract notes it had sent an annexure to the clients disclosing therein the trade number, trade time and the price at which the transactions took place. Further, the noticee submitted that third party cheques were issued under the specific instruction of the clients.

l. The Report has failed to take into account the existence of any mens rea or motive on the part of its clients in allegedly causing a rise in the volume and price of the scrip. A genuine transaction by itself cannot attract the provisions of PFUTP Regulations, 1995 even if such a transaction had resulted in variation of market price or volume. The said Regulations are attracted only if made with an intention of artificially raising or depressing the price of the securities so as to induce any other person to sell or purchase the securities. m. The Report has failed to establish this vital requirement of intention to increase the price of the scrip. Though mens rea may not be an essential ingredient for breaches of provisions of the SEBI Act and the regulations framed there under, knowledge of the alleged violations and active participation therein, is and should be, considered relevant in the matter. n. The Report has further failed to demonstrate any instance of any investor having being adversely affected by the transactions put by the noticee. Mere possibility cannot be and should not be used as a basis for concluding any violations on the part of the noticee. 8. An opportunity of personal hearing was also granted to the noticee on February 23, 2012 before me when Shri Jatin Khandwala appeared for the noticee and denied all the allegations and reiterated the submissions made in the replies of the noticee. He also submitted that in calculation of percentage of sales and purchases with total volume at the BSE, shares bought and sold by UTI have not been taken into consideration. Hence calculation of percentage of volume as alleged in the Report is not correct. UTI's traded volumes should also be taken into account and thus the percentage of volume traded by noticee is lower than that alleged in the Report. 9. I have carefully considered the Report, the SCN issued pursuant thereto, oral and written submissions of the noticee and other materials that are available on record and shared with the noticee.

10. Before dealing with the contentions of the noticee on merit of the case, I proceed to deal with preliminary contentions raised by it. I note in the present proceedings, the Enquiry Officer had relied upon the extract of investigation report and the statement dated February 06, 2003 of Shri Jatin Khandwala, director of the noticee. Copies of these documents were furnished to the noticee by the Enquiry Officer. The noticee has not made any request before me for inspection of any specific document. During the hearing also Shri Jatin Khandwala, director of the noticee did not press for inspection of documents relied upon in the matter. I note that copies of all the documents relied upon have been provided to the noticee in terms of the provisions of Enquiry Proceedings Regulations. No request of cross-examination of any person whose statement is relied upon by SEBI has been made by the noticee. Nevertheless, I note that SEBI has relied upon the statement of the director of the noticee itself. No statement of a person, whose cross-examination could be relevant, has been relied upon by SEBI in the matter.

I, therefore, find that all the prescribed procedures and the principles of natural justice have been adhered to in these proceedings. 11. I note that in terms of regulation 6(2) of the Enquiry Proceedings Regulations, while issuing the notice of enquiry to the noticee under regulation 6(1), the Enquiry Officer is required to annex to the notice - (a) copies of all documents relied upon by SEBI, and (b) extract of relevant portion of documents containing the findings of investigation. 12. I have perused the notice dated January 27, 2004 issued by the Enquiry Officer under regulation 6(1) of the Enquiry Proceedings Regulations and note that alongwith said notice the Enquiry Officer had enclosed :- (i) findings of investigations with respect to the noticee, and (ii) a copy of statement dated February 06, 2003 of Shri Jatin Khandwala, director of the noticee. I, therefore, find that this notice issued by the Enquiry Officer was fully in compliance of regulation 6 of the Enquiry Proceedings Regulations. 13. I have also perused and considered the SCN dated August 30, 2006 that has been issued under regulation 13 of the Enquiry Proceedings Regulations after submission of the Report by the Enquiry Officer.

I find that the contention of the noticee that this SCN was in contravention of regulation 6, is misconceived and incorrect since this SCN was issued in terms of regulation 13 and not under 6 as contended by the noticee. Further, neither regulation 6 nor regulation 13 requires furnishing copy of order of appointment of Enquiry Officer, as contended by the noticee. I note that in terms of said regulation 13 a copy of the Report dated August 25, 2006 was furnished to the noticee alongwith the SCN dated August 30, 2006. The noticee had received the same and had filed its para-wise response thereto vide its reply dated September 20, 2006. Therefore, it is incorrect on the part of noticee to contend that it was not given relevant findings of the Report. I find that the SCN dated August 30, 2006 was in full compliance with regulation 13 of the Enquiry Proceedings Regulations and there is no violation of principles of natural justice as contended by the noticee. 14. Now I proceed to deal with the charges laid against the noticee in the SCN and the Report. Before dealing with charges, it is necessary to refer to the relevant regulations the contravention of which has been charged in the Report and the SCN.

The said regulations are reproduced hereunder:- 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 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 …..” CODE OF CONDUCT UNDER THE STOCK BROKERS 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 stock-broker 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. 15. It is an admitted fact that Shri Paresh Khandwala was a common director of the noticee and KFL. It is also not disputed that both the stock brokers had common clients who were putting simultaneous buy orders in the scrip of the Company through the noticee at BSE and through KFL at NSE during the period June 2000 to September 2000. I, therefore, note that both the stock-brokers are connected entities. Further, both the stock brokers have followed similar trading pattern at BSE and NSE for the common clients for buying the shares and offloading the same to UTI.

These facts, taken together and circumstances in which the same pattern of transactions for common clients took place, suggest that in these transactions both the stock brokers acted in concert while dealing in the scrip on behalf their common clients. However, from the material and documents relied upon in the enquiry proceedings, I note that those documents do not establish that the clients of the noticee were associated with the management of the Company and that intra adjustment took place between the noticee and KFL. 16. I note that the noticee has not disputed the alleged transactions except for calculation of the percentage of its volume contribution to the market volume in the scrip at BSE during the relevant period. The Enquiry Officer has considered the noticee's purchases in the scrip during the relevant period as shown in the following table:

Settl Period Qty UTI Purchases 329 % of 329 329 % of Cross No. Traded at Purchases at Purchases purchase Sales 329 Deals Exchange Exchange with Sales minus UTI Total with purchases volume Total Volume A B C=(A‐B) D %of D E %of E w.r.t C w.r.t. A From To 13 19.06.2000 23.06.2000 345440 0 345440 49000 14% 0 0% 14 26.06.2000 30.06.2000 119307 0 119307 21590 18% 0% 16 10.07.2000 14.07.2000 200917 0 200917 55456 28% 1000 0% 17 17.07.2000 21.07.2000 297272 125000 172272 50345 29% 0% 18 24.07.2000 28.07.2000 557306 400000 157306 43000 27% 500 0% 19 31.07.2000 04.08.2000 1408844 900000 508844 356146 70% 338991 24% 43120 23 28.08.2000 31.08.2000 69444 0 69444 37439 54% 0 0% 24 04.09.2000 08.09.2000 915057 299000 616057 434833 71% 354662 39% 28534 25 11.09.2000 15.09.2000 1059805 800000 259805 131500 51% 807190 76% 5500 26 18.09.2000 22.09.2000 310160 200000 110160 37625 34% 212775 69% 7350 17. I note that while calculating the percentage of purchases of the noticee with total volume at BSE, the Enquiry Officer has excluded the purchases of UTI from the total volume during the relevant period.

In my view, since the total volume (A) in the scrip on BSE during the relevant period includes the purchases of UTI (B) also, the percentage of purchases of the noticee at BSE during the relevant period should be calculated with reference to total volume (A) without excluding purchases of UTI during the relevant period as shown at (F) in the following table: Settl Period Qty UTI Purchases Noticee's % of Actual % Noticee's % of Cross No. Traded Purchases at (329) Noticee's of (329)Sales 329 Deals at Exchange Purchases (329) Noticee's Sales Exchange minus UTI purchase (329) with purchases with Total purchases Total volume with total Volume minus UTI volume purchases A B C=(A‐B) D E= %of D F= % of D G H=%of I w.r.t. C w.r.t. A G w.r.t A From To 13 19.06.2000 23.06.2000 345440 0 345440 49000 14.18% 14.18% 0 0% 14 26.06.2000 30.06.2000 119307 0 119307 21590 18.10% 18.10% 0% 16 10.07.2000 14.07.2000 200917 0 200917 55456 27.60% 27.60% 1000 0% 17 17.07.2000 21.07.2000 297272 125000 172272 50345 29.22% 16.94% 0% 18 24.07.2000 28.07.2000 557306 400000 157306 43000 27.34% 7.72% 500 0% 19 31.07.2000 04.08.2000 1408844 900000 508844 356146 69.99% 25.28% 338991 24% 43120 23 28.08.2000 31.08.2000 69444 0 69444 37439 53.91% 53.91% 0 0% 24 04.09.2000 08.09.2000 915057 299000 616057 434833 70.58% 47.52% 354662 39% 28534 25 11.09.2000 15.09.2000 1059805 800000 259805 131500 50.61% 12.41% 807190 76% 5500 26 18.09.2000 22.09.2000 310160 200000 110160 37625 34.15% 12.13% 212775 69% 7350 Total 5283552 2724000 2559552 1216934 47.54% 23.03% 1715118 32.46% 84504

18. I note from above table that the noticee's settlement wise contribution during the investigation period is ranging from 7.72% (settlement no. 18) to 53.91% (settlement no. 23). In the other settlements as well, the volume contribution on account of trades of the noticee were approximately 12 %, 14%, 17%, 18%, 25%, 28% and 48%. Further, the noticee has contributed 23.03% of the gross volume traded at BSE during the investigation period. From above table, I find that the noticee's contribution in the total trade volume during the investigation period was significant and substantial. 19. From the trade log analysis, I note that in settlement no. 17 on 17.07.2000, buy orders of noticee put at 11:28:26 swept the sell orders ranging from 74.80 to 80 within a span of just few seconds. The last traded price was 74.80 at 11:26:57. The buy order placed by the noticee raised the price by 5.20 i.e. 6.9%. Similarly in settlement no. 19 on 31.07.2000 the noticee swept the sell orders in the scrip at 15:15:39 from 73.25 to 78 vide its buy order for 10000 shares, whereas the last traded price was 73 before execution of this order.

The above order brought the price movement of 4.75 i.e., 6.8%. Further, after two more trades the noticee again swept the sell orders from 76.3 to 79.3 vide its buy order at 15:17:08 whereas the last traded price of the scrip was 75. The price closed on 31.07.2000 at 79.3 at the upper circuit level i.e., 8%. I note that from settlement no. 13 to 26 there were several such instances of trades by the noticee. From this analysis I find that the noticee, in different settlements as found by the Enquiry Officer, frequently placed buy orders at substantially higher price than last traded price and swept all the sell orders. Though the price of the scrip can be influenced due to innumerable factors as contended by the notice, I find that in the facts and circumstances of the present case, the frequent and repeated buy orders of noticee at a price substantially higher than the last traded price has led to artificial price rise in the scrip of the Company during the investigation period. 20. Huge sell orders put by noticee's clients were matched with buy orders put up by Arun Porecha and Porecha Global Sec. who placed orders on behalf of UTI, within a span of few seconds.

Enquiry Officer has noted a few examples from several such matched transactions as under:

Member Buy/ Type Rate Qty. Av. qty. AUD Date & time Time sell Diff. 567 B L 82 200000 22222 A 03.08.2000 13:52:52 1 sec 329 S L 82 200000 20000 A 03.08.2000 13:52:53 567 B L 74.80 50000 5000 A 04.08.2000 15:15:41 5 min 329 S L 74.80 50000 5000 A 04.08.2000 15:20:55 14 sec 4 B L 89 200000 22222 A 08.09.2000 14:53:13 0 sec 329 S L 89 200000 20000 A 08.09.2000 14:53:13 4 B L 85 50000 50000 A 07.09.2000 14:42:22 2 sec

Member Buy/ Type Rate Qty. Av. qty. AUD Date & time Time sell Diff. 329 S L 85 50000 50000 A 07.09.2000 14:42:24 4 B L 85 50000 50000 A 06.09.2000 13:34:37 4 sec 329 S L 85 50000 50000 A 06.09.2000 13:34:41 329 S L 89 200000 20000 A 11.09.2000 15:23:03 1 sec 4 B L 89 200000 22222 A 11.09.2000 15:23:04 4 B L 89 200000 200000 A 12.09.2000 13:42:45 0 sec 329 S L 89 205000 25000 A 12.09.2000 13:42:45 329 S L 84.5 200000 20000 A 13.09.2000 14:24:39 1 sec 4 B L 84.5 200000 22222 A 13.09.2000 14:24:40 329 S L 83 200000 20000 A 14.09.2000 15:08:18 6 sec 4 B L 83 200000 22222 A 14.09.2000 15:08:18 21. I note from the above table that the clients of the noticee at BSE off loaded shares to UTI through M/s Porecha Global Sec. and M/s Arun Porecha in huge quantity without influencing the price of the scrip; in almost all cases with exactly same sell and buy order quantity; sell and buy orders put at the same price; sell and buy orders were placed at difference of 0 second difference at 2 instances and with a difference of less than equal to 6 seconds at 8 instances out of total 9 trades and all the buy and sell orders were entered fresh( A).

22. I have taken into account the following observations of Hon'ble Securities Appellate Tribunal (SAT) in its order dated December 13, 2010 in Appeal no. 190/2010 - Ajmera Associates Pvt. Ltd. Vs. SEBI : "... It is not in dispute that the trading system that we have on the stock exchanges is a blind trading system which maintains complete anonymity of the persons trading. The broker while executing an order (buy or sell) cannot possibly know at the time of placing the order through the system as to who the counter party is or even the counter party broker. In other words, the trading system does not permit the buyers and the sellers to have any interaction between them except through the trading system. A buy order placed on the system matches with a sell order and a trade comes to be executed and this matching is done by the system on a price time priority basis. Despite the anonymity of the system, we have seen market players and the intermediaries like the brokers executing manipulative trades by defeating the system and this is usually done by placing the buy and sell orders simultaneously for the same amount and at the same price.

Such matching orders usually result in trades in comparatively less liquid scrips. This being the system, it sometimes becomes difficult to find out whether the brokers who execute the trades of their clients and who are expected to carry out their directions are also a party to the mischief. If the broker knew at the time of executing the trade what the client was upto, then obviously he is a party to the mischief. Since the trading system maintains complete anonymity, brokers always plead that they were ignorant about the counter party 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....." 23. I am of the opinion that the above trades of the noticee are of too much of a coincidence in anonymous screen based trading system. Such transactions are possible only through coordinated and deliberate synchronization of orders by the involved parties. I find that such repeated matching of time, rate and quantity in anonymous screen based trading could be possible only with the involvement of the noticee.

I, therefore, agree with the findings of the Enquiry Officer that entering into such synchronized trades is a misuse of the stock exchange mechanism and the same tampers with the free, fair and transparent price discovery system of the stock exchange. Such practices where the transactions are put in with a premeditated understanding, in effect, distort and interfere in the price mechanism of the stock exchange. 24. It is settled position that mens rea is not an essential ingredient for civil actions for violations under the SEBI Act and regulations framed thereunder. 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 Ketan Parekh Vs. SEBI, Appeal no. 2/2004 decided on July 14, 2006 in the following words- "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. In the facts and circumstances of this case, there is a need to look into the matter holistically. In this case, it has been found that : i. The clients of the noticee with the involvement of the noticee repeatedly put buy orders at substantially high price than the prevailing market price, swept the prevailing pending sell orders in short durations and artificially raised the price of the scrip. ii. Subsequently, the clients of the noticee with its involvement off loaded shares to UTI at such artificially raised price without influencing the price on account of selling huge quantity of shares, in synchronized manner with a premeditated understanding. iii. The noticee and its connected entity KFL acting in concert adopted similar trading pattern at BSE and NSE, respectively for the common clients for buying the shares and offloading the same to UTI. 26. In the present case, conduct of the noticee, pattern of transactions undertaken by it in concerted manner and overall facts and circumstances as noted above, are sufficient to infer that the noticee was privy and party to the device/artifice adopted in the transactions.

The noticee effected transactions with intention of artificially raising price of the scrip that had potential to induce the sale or purchase of the scrip by others. The noticee also indulged in synochronised trades that are non-genuine transactions in the facts and circumstances of this case. I, therefore, find that the noticee violated regulation 4(a) and (c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 read with regulation 13(2) SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and Clause A(1), (2), (3), (4) and (5) of the Code of Conduct specified in Schedule II read with regulation 7 of the Stock Brokers Regulations. 27. There is no dispute about change of beneficial ownership of the shares traded by the noticee. The trades in questions are not artificial. There is no evidence on record to suggest circular trading and creation of artificial volume by the noticee in respect of the alleged transactions. Thus, I find that allegations that transaction under consideration is in violation of regulations 4(b) and (d) of PFUTP Regulations, 1995 are not established and hence, I discharge the noticee with respect to these allegations.

28. As regards, the allegation regarding contract notes not having correct factual details, I note that the registration granted to the noticee is subject to condition that it complies with the provisions of the SEBI Act, the Stock Brokers Rules and Regulations and directives issued by SEBI and rules, regulations and bye-laws of the BSE. Vide circular no. SMD/POLICY/IECG/1-97 dated 11.02.1997 SEBI has directed every stock broker to mention the time of placing the order and the time of execution of the order in the contract note. This requirement is a mandatory and has to be fulfilled without any deviation. As per bye-laws 219(a) of the BSE Bye-laws read with regulation 14 of BSE Regulations, the contract note has to be issued in the prescribed format. The format requires the members (stock brokers) to mention order number, order time, trade number, trade time, the price of the securities and the quantity of security, etc. These requirements have to be followed with respect to every trade. 29. It has been alleged that the contract notes issued by the noticee did not disclose the factual position with respect to trade number, trade time and price at which the transaction took place.

I have perused the copy of one of the contract note issued by the noticee to its client Satellite Management Services, Ltd. for the trades in the settlement no. 14. This contract note was issued on June 27, 2000 with respect to purchase of 20,000 shares of the Company on behalf of this client, vide order no. 369 and trade number 0000569 at 11:00:02 ( trade time) at the rate of 62.87/ per share ( price). However, I note from the trade details of the noticee in the scrip for the settlement no. 14, that the noticee, vide order no. 838, purchased total 20,000 shares of the Company on behalf of this client at different times (between 15:07:39 to 15:10:59) with different trade numbers (between 256 to 313), at different prices (between 60.65 to 65). This clearly suggests that the contract notes issued by the noticee to its clients were deficient about the correct factual details of its trades on behalf of its clients. The noticee has not submitted any evidence to substantiate its submission that it had sent an annexure to the clients disclosing the factual position in relation to the trade number, trade time and the price at which the transactions took place as claimed by it.

I, therefore, find that though the noticee issued contract notes to its clients in specified format, the contract notes did not contain the details in the matter mandated by the relevant bye laws as the contract notes did not disclose the correct factual position in relation to the trade number, trade time and the price at which the transactions took place. 30. As regards allegation regarding issuing third party cheques towards credit balance lying in clients accounts, I note that in terms of SEBI Circular no. SMD/SED/CIR/93/23321 dated November 18, 1993 a stock broker is prohibited from withdrawing the monies from clients' account other than for the purposes laid down in the said circular, such as the payment to or on behalf of the clients or for payment of a debt due to the stock broker from the clients or withdrawal of money on clients' authority, etc. Bye-laws 247A(1)(D) of BSE Bye-Laws also cast the same obligation on the stock brokers/members. The noticee has admitted that it had issued third party cheques towards credit balance lying in its client account and it was done under the specific instructions of the clients.

However, the noticee has not submitted any evidence or document in support of its submissions about specific instruction of the clients for issuance of third party cheques. I, therefore, agree with the findings of the Enquiry Officer in this regard. 31. In view of the above, I find that in respect of issuance of contract notes without correct factual details and issuance of third party cheques towards credit balance lying in its clients' account, the noticee has violated clause A (1), (2), (4) & (5) of Code of Conduct for stock brokers specified in Schedule II read with regulation 7 of the Stock Brokers Regulations. 32. I note that there is no material on record to quantify loss to the investors or gain to the noticee. Further, there is no evidence on record to suggest circular trading and creation of artificial volume by the noticee in respect of the alleged transactions and I have discharged the noticee with respect to the allegations of violation of regulations 4(b) and (d) of PFUTP Regulations, 1995. I have also found that the noticee's contribution to the total trade volume during the investigation period, though substantial, was found to be lesser than observed by the Enquiry Officer.

The stock broker has, however, been found to have committed fraudulent, manipulative and unfair activities as observed above and has also been found to be negligent in observance and compliance of the statutory requirement in conduct of its business as a stock broker. The prohibited activities and types of irregularities as found in this matter have potential to disturb the market integrity and disturb the fair, equitable and efficient functioning of securities markets. These types of transactions pose threat to the market integrity and orderly development of security market. I am satisfied that it is necessary to secure the proper management of activities of the stock broker. In my view, in facts and circumstances of this case and in the interest of the securities market, suspension of certificate of registration of the noticee i.e., M/s Jayantilal Khandwala & Sons Pvt. Ltd., for one month will be commensurate with the violations as found above in present matter. 33. I, therefore, in exercise of powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992, read with regulation 28(2) of the SEBI (Intermediaries) Regulations, 2008, hereby suspend the certificate of registration of the noticee i.e., M/s Jayantilal Khandwala & Sons Pvt. Ltd. as stock broker at BSE (SEBI Registration No. INB010998038), for a period of one month.

34. A copy of this Order shall be served upon BSE of which M/s Jayantilal Khandwala & Sons Pvt. Ltd. is a member, for necessary action. 35. This Order shall come into force immediately on the expiry of 21 days from the date of this Order.

Date: September 07, 2012 RAJEEV KUMAR AGARWAL Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA