Order in respect of Mehra Capital Markets Ltd. in the matter of ATN International Ltd.

WTM/PS/ 40 /IVD/ID-9/MAY/2012 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER IN THE MATTER OF ATN INTERNATIONAL LTD. In respect of Mehra Capital Markets Ltd. (Broker, NSE, SEBI Registration No. INB 230804535) ORDER Under Regulation 28(2) read with Regulations 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 buying, selling and dealing in the shares of ATN International Ltd. (hereinafter referred to as ‘AIL’/ ‘the company’) for the period from May 19, 1999 to December 30, 1999(hereinafter referred to as ‘investigation period’). During the investigation period, AIL was listed at the National Stock Exchange of India Ltd. (hereinafter referred to as ‘NSE’), Bombay Stock Exchange Ltd. (hereinafter referred to as ‘BSE’), the Calcutta Stock Exchange Ltd. (hereinafter referred to as ‘CSE’), Ahmedabad Stock Exchange Ltd. (hereinafter referred to as ‘ASE’), Delhi Stock Exchange Ltd (hereinafter referred to as ‘DSE’) and Jaipur Stock Exchange Ltd. (JSE). There was no trading in AIL at ASE, DSE and JSE during the investigation period.

2. Investigation revealed significant increase in the price and volume of the scrip during the investigation period. At NSE, the price of the scrip increased from Rs. 2.50 on May 19, 1999 to Rs. 63.15 on December 30, 1999. The price fluctuated from a low of Rs.2.10/- on June 15, 1999 to a maximum price of Rs.88.05/- on December 24, 1999 (i.e., 4300%). It was also noted that a total of 2,88,80,900 shares were traded on NSE during the investigation period.

3. Further, at BSE, the price had moved up from Rs. 4.00 on July 05, 1999 to Rs. 64.55 on December 30, 1999. The daily volumes in the scrip also increased from 36,600 shares on May 19, 1999 to 2,17,600 shares on December 30, 1999. During the period, the maximum quantity traded was 7,19,200 shares on December 15, 1999 and the minimum was 100 shares on July 22, 1999.

4. During the course of investigation, it was inter alia alleged that Mehra Capital Markets Ltd., a stock broker registered at NSE (hereinafter referred to as the ‘noticee’) dealing on behalf of its client, Deepmala Dealer Pvt. Ltd. (hereinafter referred to as ‘Deepmala’) executed fictitious/ cross / structured deals, leading to creation of artificial volume and increase in price of the scrip of AIL during the investigation period. It was also alleged that the noticee had failed to exercise due care and diligence/ prudence as a stock broker.

5. 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 the ‘Enquiry Regulations’), by appointing an Enquiry Officer under Regulation 5(1) of the Enquiry Regulations. The Enquiry Officer enquired into the alleged violation of the provisions of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 and the Code of Conduct for brokers as prescribed in Schedule II of Securities and Exchange Board of India (Stock Brokers and Sub Brokers) Regulations, 1992 (hereinafter referred to as the ‘Broker Regulations’).

6. As the Enquiry Regulations were repealed with effect from the notification of SEBI (Intermediaries) Regulations, 2008, the Enquiry Officer/ Designated Authority (hereinafter referred to as the ‘Enquiry Officer’) submitted his Report dated June 30, 2010, in terms of Regulation 27 of SEBI (Intermediaries) Regulations, 2008, recommending thereby a penalty of prohibition from taking up any new assignment for a period of three days for the violation of Clause A (2) of Regulation 7 of the Code of Conduct for Stock Brokers as prescribed in Schedule II under the Broker Regulations.

7. Subsequently, a show cause notice (hereinafter referred to as ‘SCN’) dated July 12, 2010, under Regulation 28 of the SEBI (Intermediaries) Regulations, 2008 was issued to the noticee asking it to show cause as to why appropriate penalty including the penalty recommended by the Enquiry Officer, should not be imposed upon it. 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 21 days from the receipt thereof. It was also informed that in case of failure to reply, 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. A copy of the Enquiry Report was also forwarded to the noticee along with the SCN.

8. The noticee replied to the SCN vide its letter dated July 27, 2010. Subsequently, an opportunity of personal hearing was granted to the noticee on December 08, 2011. On this date, Shri Binod Mehra, Director of Mehra Capital Markets Ltd. appeared for the personal hearing.

The contention of the noticee in brief are as under:

- The contravention of clause A(2) of Regulation 7 of Code of conduct for stock brokers was unintentional. - It had no relation with Mcon (sic, probably for Neon Vinimay Pvt. Ltd.) or Premier Shares Ltd. It had not entered into any cross or structured deals. It had traded only on delivery based transactions. - After receiving the first letter from SEBI, it had never transacted in the scrip of AIL or any other similar scrips.

9. I have carefully considered the SCN, the reply of the noticee and the material available on record. I note that the issues that arise for my consideration are:

a. Whether the noticee executed fictitious/ cross / structured deals, leading to creation of artificial volume and increase in price of the scrip of AIL during the investigation period ?

b. Whether the noticee dealing on behalf of its client Deepmala failed to exercise due skill and care as a stock broker while executing trades?

10. I note that the noticee had bought 6,89,400 shares, that is, 2.39% of the total traded volume during the investigation period and sold 9, 29,100 shares, which amounts to 3.22% of the total traded volume in the scrip of AIL. Further, the noticee purchased 3,87,300 shares (1.34%) and sold 4,28,200 shares(1.48%), dealing on behalf of its major client Deepmala.

11. On September 01, 1999, the noticee dealing on behalf of Deepmala had entered into a single self /cross deal for 1000 shares. The following table illustrates the transaction:

Date of Time of Trade Trade Buy Member Buy Sell Member Sell Trade Trade Price Quantity Name Client Name Client 1-Sep- 11:48:47 6.75 1000 MEHRA DEEP MEHRA DEEP 99 CAPITAL CAPITAL MARKETS MARKETS LTD LIMITED

12. I note that during the period from August 24, 1999 to September 15, 1999, Deepmala, the noticee’s major client had undertaken cross deals through the noticee and another stock-broker i.e., Neon Vinimay Pvt. Ltd. (hereinafter referred to as ‘Neon’). During the aforementioned period, Deepmala dealing through the noticee purchased 72,100 shares and dealing through Neon sold the same number of shares. Further, Deepmala had entered into cross deals through the noticee and Neon for 58,400 shares, wherein Neon was the buying member and the noticee was the selling member for Deepmala.

13. In addition to the above, I note that Deepmala had entered into cross and structured deals through the noticee and another stock broker, Premier Shares Ltd. (hereinafter referred to as ‘Premier’) for 1,16,200 shares, wherein the noticee was the buying member and the Premier was the selling member for Deepmala. Deepmala had also entered into cross deals through the noticee and Premier for 1,07,400 shares, wherein Premier was the buying member and the noticee was the selling member for Deepmala. The price of the scrip rose from Rs.3.25 to Rs. 9.20 at the time when such transactions were executed.

14. Further, I observe that, on September 21, 1999, the noticee executed trades on behalf of Deepmala for 6100 shares as mentioned below, wherein the noticee was the selling member for Deepmala and Neon was the buying member for its client, Rubion Marketing Pvt. Ltd. (hereinafter referred to as ‘Rubion’). It was also observed that Deepmala and Rubion were related entities as the Directors in both the companies were common and both the companies had a common address for their registered office.

Date of Date Trade Trade Buy Member Buy Sell Member Name Sell Trade Time Price Quantity Name Client Client 21-Sep-99 11:35:06 9 6100 NEON RUBION MEHRA CAPITAL DEEP VINIMEY PVT MARKETS LIMITED LTD Total 6100 15. I note that the noticee, dealing on behalf of its clients, traded only 2.39% and 3.22% of the total buy and total sale respectively of the total traded volume. I find from the Enquiry Report that the sample ledger details submitted by the noticee for 10,000 shares bought and 1,05,900 shares sold by him out of 3,87,300 shares bought and 4,28,200 shares sold by the client shows that the trades were delivery based and there were no artificial trades.

16. Further, I observe that Deepmala had dealt through different stock brokers including the noticee. However, I have only seen the matched trade details as given in the Enquiry Report. In the absence of the buy/ sale order time, quantity and price, I agree with the Enquiry Officer that the trades may not be considered as structured deals.

17. From the above discussion, I find that the charge against the noticee of execution of fictitious / matched trades / cross / structured deals on behalf of its client, Deepmala, leading to the creation of artificial volumes and increase in price in the scrip of AIL during the investigation period is not established.

18. In view of the above, I agree with the findings of Enquiry Officer that the allegation of the violation of Regulation 4(a), (b), (c) and (d) of PFUTP Regulations, 1995 read with Regulation 4(2) (a), (b), (c) and (d) and Regulation 13 of PFUTP Regulations, 2003 against the noticee is not established.

19. However, it was also observed from the submission of the noticee that Deepmala had traded through the noticee in a single scrip, i.e, AIL. Deepmala had also registered with the noticee during the investigation period, i.e on June 16, 1999. It was also observed that Deepmala’s trades constituted 56.18 % (buy) and 46.08% (sale) of the number of shares of AIL bought and sold respectively by the noticee during the period under investigation. Hence, majority of the trades in the scrip of AIL by the noticee were done on behalf of Deepmala. The volume of shares traded by Deepmala through the noticee in the scrip was in lakhs. Even though the percentage of trades was low, the volume was large. Thus, the noticee has failed to exercise due care and diligence / prudence as a stock-broker. Further, during the same time it was noticed that fake shares of AIL had already been offloaded in the market by a certain entity. Deepmala itself had sent 56,600 shares (out of 57,400 shares purchased by it) to AIL’s Registrar and Share Transfer Agent (RTA), Octal Datamatics Pvt. Ltd. for verification. The RTA found that the share certificates were not genuine. In such a scenario, the noticee should have been more careful in its dealings.

20. I observe that Deepmala is a related entity of AIL, since Smt. Lalita Jain, one of the Directors of Deepmala, is the wife of Shri Santosh Kumar Jain, CMD of AIL. Further, its office is situated at the earlier address of AIL. One of the Directors of Deepmala, Shri Shyam Sundar Chatterjee in his statement submitted that he got his remuneration from AIL and not from Deepmala. This shows that Deepmala and AIL were connected to each other.

21. In view of the above, I agree with the findings of Enquiry Officer that the noticee has contravened the provision of Clause A (2) of Code of Conduct for stock Brokers as specified in Schedule II under Regulation 7 of the Broker Regulations

22. 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.

23. 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 warn Mehra Capital Markets Ltd. (Broker, NSE, SEBI Registration No. INB 230804535) to be cautious in its future dealings and exercise due care and diligence in the conduct of its affairs in the securities market. Further, any future instance of violation or non-compliance by it with the SEBI Act and Rules and Regulations framed there under shall be dealt with stringently.

DATE : MAY 17, 2012 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA