Order in respect of Neon Vinimay Pvt. Ltd. in the matter of ATN International Ltd.

WTM/PS/ 39 /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 Neon Vinimay Pvt. Ltd. (Broker, NSE, SEBI Registration No. INB 230910030) 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 Neon Vinimay Pvt. Ltd., Broker, NSE (hereinafter referred to as the ‘noticee’), dealing on behalf of its clients executed structured and cross deals and factious trades, leading to creation of artificial volume and increase in price of the scrip of AIL during the investigation period. Further, it was also alleged that the noticee had failed to exercise due care and diligence/ prudence as a stock broker.

5. Based on 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 August 18, 2010, in terms of Regulation 27 of SEBI (Intermediaries) Regulations, 2008 read with Regulation 13 (1) of the Enquiry Regulations recommending a penalty of prohibition from taking up any new assignment for a period of one week, for violating the 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 September 06, 2010, under Regulation 28 of the SEBI (Intermediaries) Enquiry Regulations, 2008 was issued to the noticee asking it to show cause as to why appropriate penalty, including the penalty recommended by 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 of 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 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 September 17, 2010. Subsequently, an opportunity of personal hearing was granted to the noticee on December 08, 2011. On this date, Shri. Parasmal Jain, Director of the noticee appeared for the personal hearing. The contentions of the noticee, inter alia, are as under:

- It had traded in the scrip in the price range of Rs. 6.20 to Rs. 17 and the price of the scrip went to Rs. 88. In view of the same, it was not responsible for the price and volume manipulation. - With regard to the net worth of its clients, it submitted that it had purchased shares on behalf of clients and delivered shares only after receiving full payments. - It always complied with the provisions and has worked accordingly. - All the trades it had entered are delivery based and its trading volume is less than 1 percentage during the investigation period.

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 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 14,82,300 shares representing 5.31% of the total traded volume during the investigation period and sold 28,65,400 shares representing 9.92% of the total traded volume in the scrip of AIL. The major clients of the noticee were Deepmala Dealers Pvt. Ltd. (hereinafter referred to as ‘Deepmala’) and Rubion Marketing Pvt. Ltd. (hereinafter referred to as ‘Rubion’). It was observed that during the period May 19, 1999 to December 30, 1999, the noticee, dealing on behalf of Deepmala, purchased 3,89,000(1.34%) and sold 2,07,600 shares(0.71%) and, dealing on behalf of Rubion, purchased 7,33,900 shares (2.54%) and sold 15,47,600 shares (5.35%).

11. I note that during the period August 25, 1999 to September 15, 1999, Deepmala had entered into transactions through the noticee and Mehra Capital Markets Ltd. (hereinafter referred to as ‘Mehra’) for 58,400 shares, wherein noticee was the buying member and Mehra was the selling member for Deepmala. Further, I also observe that during the period August 24, 1999 to September 15, 1999, Deepmala dealing through Mehra purchased 72,100 shares and dealing through the noticee sold the same number of shares. I observe that on September 21, 1999, the notiee dealing on behalf of Rubion entered into structured deals for 6,100 shares with the counter party broker Mehra. It may be noted that Mehra had dealt on behalf of Deepmala. Both the clients of the notice, Deepmala and Rubion were related to each other.

12. Further, during the period from August 24, 1999 to September 16, 1999, the noticee, dealing on behalf of its client Deepmala, had traded 52,300 shares with another stock-broker Premier Shares Limited (hereinafter referred to as ‘Premier’). It was observed that the noticee on September 21, 1999, had entered into two transactions, while trading for 6,000 shares for its client Rubion. The counterparty stock-broker was Premier. Deepmala and Rubion were related / connected / associated with each other.

13. The noticee had also entered into trades with the stock-broker Premier to an extent of 29,900 shares. The said shares were traded by the noticee for its client Deepmala during the period August 30, 1999 to September 10, 1999

14. I find that during the period September 20, 1999 to October 26, 1999, the noticee had sold shares on behalf of its client Rubion and the said shares were purchased by Deepmala through the stock-broker, Premier. The total number of shares traded through these transactions was 24,200 shares.

15. However, from the ledger details provided by the noticee for its clients Deepmala and Rubion, I note that the noticee’s trades were delivery based.

16. Further, I observe that Deepmala had dealt through different stock brokers including the noticee. In the absence of the buy / sale order time, quantity and price I agree with the finding of the Enquiry Officer that the trades cannot be considered as structured deals.

17. The price rise during the entire investigation period was from Rs.2.10/- to Rs.88.05/-. The noticee executed the alleged trades on behalf of its clients only in the price range of Rs.6/- to Rs.9/- per share., and on two days, the noticee had sold shares on behalf of the client from the price range of Rs.14.90/- to Rs.17/-. In view of the same, I agree with the Enquiry Officer, that the noticee may not have participated in the absolute price rise of the scrip, since most of the noticee’s trades were in the range of Rs.6/- to Rs.9/- even though the scrip touched a high of Rs.88.05/-

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, I find that Deepmala and Rubion were related entities. In the KYC forms of the two clients, submitted by the noticee, it is observed that both the clients had the same address. It was also observed that the certified net worth of Rubion was only Rs.2,000/- as on March 31, 1998. From the clearing and settlement statement provided by the noticee, it is observed that Rubion had traded largely in this scrip when compared to the other clients of the noticee. Deepmala has also entered into large trades in this scrip. It was observed that Deepmala had bought approx. 26% shares of the noticee’s total purchase in the scrip and Deepmala had sold approx. 7% shares of the noticee’s total sell in the scrip. It was also observed that Rubion had purchased approx. 49.5% shares of the noticee’s total purchase of AIL and had sold approx. 54% shares of the noticee’s total sell in the scrip of AIL.

20. I observe that even though the noticee claims that the price range was only between Rs.6/ and Rs.9/-, the volume of trades was large. The net worth also did not justify such huge quantities of trade by the noticee’s client, Rubion. Therefore, the noticee should have exercised due diligence and care. Further, though the noticee had submitted during the Enquiry proceedings that it had not entered into any proprietary trades in the scrip of AIL, the clearing and settlement statement shows that the noticee had a number of proprietary trades in the said scrip (noticee had bought 86,200 shares and sold 81,200 shares on self account in the period June 01, 1999 to November 02, 1999).

21. I note that Smt. Lalita Jain, Director of Deepmala is the wife of Shri Santosh Kumar Jain, CMD of AIL. Further, the office of Deepmala is situated at the former address of AIL. In addition, the Director of Deepmala, Shri Shyam Sunder Chatterjee in his statement recorded during the investigation had submitted that he got his remuneration from AIL and not from Deepmala. In view of these connections, I find that Deepmala is a related entity of AIL.

22. I also note that Shri Prabhat Jain, Director of Rubion is the nephew of Shri Santosh Kumar Jain, Managing Director of AIL. Shri Prabhat Jain was also a Director in other AIL group companies like Blue Chip India Ltd. and Aastha Broadcasting Pvt. Ltd. (earlier known as CMM Broadcasting Pvt. Ltd). As per the details submitted by Shri Santosh Kumar Jain, Rubion was an associated entity of AIL. The balance sheet of Rubion also shows that Rubion held 3,87,500 shares of AIL. Hence, I find that Rubion and AIL were also connected to each other.

23. From the above discussion, I find that the noticee failed to exercise due care and diligence as most of the trades of the noticee in the scrip of AIL were entered on behalf of entities who were related to AIL.

24. 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 Broker Regulations.

25. 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 the noticee, Neon Vinimay Pvt. Ltd. (Broker, NSE, SEBI Registration No. INB 230910030), 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