Order in respect of SDFC Securities Limited

ORDER Under Regulation 28(2) read with Regulation 38(2) of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 in respect of SDFC Securities Limited (SEBI Regn. No. 230822939) in the matter of Vision Organics Limited. 1. Securities and Exchange Board of India ("SEBI") conducted an investigation into the dealings in the scrip of M/s. Vision Organics Limited (‘VOL’) during the period from July 09, 2001 to November 09, 2001 (‘investigation period’) to ascertain any violation of the provisions of the Securities Exchange Board of India Act 1992 (“SEBI Act”); SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating the Securities Market) Regulations, 2003 (‘PFUTP Regulations’) and SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 (‘Brokers Regulations’).

2. During the investigation, it is observed that the price in the scrip hovered between `82 to `132 and M/s SDFC Securities Limited (hereinafter referred to as "Noticee") who is a Member of National Stock Exchange of India Limited ("NSE") alongwith other members(viz., H Nyalchand Financial Services Limited, Khandwala Integrated Financial Services Private Limited and ISE Securities & Services Limited) transacted in the scrip of VOL on NSE in considerable quantities and the transactions by the aforesaid entities constituted significant volume of the total transaction in the scrip on NSE. Therefore, it is alleged that aforesaid trading members transacted in the scrip of VOL with the view to create an artificial market in the illiquid scrip and also to create artificial price rise for the scrip by entering into structured and cross deals.

3. Pursuant to the said investigation, SEBI initiated Enquiry proceedings against the Noticee vide Order dated July 09, 2004 under Regulation 6 of SEBI (Procedure for Holding Enquiry and Imposing Penalty) Regulations, 2003 ('Enquiry Regulations')and issued a Show Cause Notice dated September 29, 2004 for the alleged violations of SEBI Act read with Regulations 4 (2) (a), (e) & (n) of PFUTP Regulations and Regulation 7 read with Clauses A (1), (2), (3), (4) & (5) and Clause B (4) (a) of the Code of Conduct for Stock Brokers, specified in Schedule II of the Brokers Regulations. In response, the Noticee replied vide letter dated November 11, 2004 and denied all the charges.

4. It is noted that the Enquiry Regulations were repealed and SEBI (Intermediaries) Regulations, 2008 (‘Intermediaries Regulations’) were notified on May 26, 2008, hence, after considering the charges of contravention of the provisions of the aforementioned Regulations and the replies and submissions made by the Noticee during the hearing, the Designated Authority, in terms of Regulation 27 of the Intermediaries Regulations, vide Report dated November 27, 2009, recommended a penalty of suspension of Certificate of Registration of the Noticee for a period of one month.

5. Thereafter, SEBI issued a Show Cause Notice dated December 17, 2009 ("SCN") to the Noticee under Regulation 28(1) of the SEBI (Intermediaries) Regulations, 2008 to show cause as to why the action should not be taken against the Noticee as recommended by the Designated Authority vide its report dated November 27, 2009 or higher penalty as deemed fit. The Noticee was advised to reply to the SCN within twenty one days of the receipt thereof. A copy of the Enquiry Report was also forwarded to the Noticee along with the SCN.

6. Subsequently, on April 15, 2010 the Noticee had applied for consent proceedings. The consent application was rejected by HPAC in its meeting held on January 19, 2011. Thereafter, vide letters dated April 19, 2011 and June 13, 2011 the Noticee was granted an opportunity of hearing before the Whole Time Member, SEBI which was duly acknowledged by the Noticee.

7. In this regard, the Noticee filed its written submissions to the SCN vide its letter dated June 20, 2011. The submissions of Noticee inter alia, are as under: i. The enquiry officer has not dealt with the submissions made by the Noticee. ii. The trading volume data with price for the period from January, 2001 to November, 2001 submitted by the Noticee has not been dealt with by the Enquiry Officer. iii. Noticee was not aware as to how the cut-off for the investigation period is chosen. iv. The investigation report assumes that this scrip was illiquid, completely oblivious of the fact and that this scrip was traded earlier in EQ segment. v. The price was moving in both directions even during the period from January 1, 2001 to March 12, 2001 from as low as Rs. 72 to as high as Rs.127 when its clients were not transacting. This volume reflects that there was heavy trading in the scrip even before Noticee's clients commenced trading. vi. The Enquiry Report has not taken into consideration that its clients had applied in the public issue of VOL and had been allotted equity shares. They had been doing jobbing against their holding which is perfectly legitimate. vii. That the placing of order above or below the LTP is perfectly legitimate activity and is permitted by law. viii. Noticee had also provided analysis of the data in respect of structures and cross deals however, again the report has not dealt with it. ix. Noticee denied that they have done proprietary trades. x. That Noticee has been in business since last 16 years and at no point they have been subjected to any disciplinary proceedings. No investor complaints or arbitration proceedings have been initiated against the Noticee. xi. Due to Noticee’s trading on behalf of its clients, no harm has been caused to the market or to any other persons. xii. They have always maintained high standard of integrity, promptitude and fairness in the conduct of all their business.

8. It is noted that the Whole Time Member, SEBI who heard the Noticee on July 12, 2011 demitted the office, hence, another opportunity of Personal Hearing was granted to the Noticee on July 09, 2014 wherein the Noticee appeared and made the following submissions before me: (i) That the submissions made before the earlier WTM have been reiterated. (ii) The Noticee relies on the judgment of the Hon’ble Securities and Appellate Tribunal (SAT) order dated October 28, 2010 in the matter of NCJ Share & Stock Brokers Limited (Appeal No.40 of 2013) wherein Hon'ble SAT modified the penalty of suspension for a period of one week to prohibition of the Appellant from taking up any new assignment for a period of two weeks. (iii) The Noticee relies on the judgments of the Hon’ble SAT in the matter of (i) Ms. Aditi Dalal Vs. SEBI (Appeal No.143/2011) and (ii) HB Stock Holdings Ltd. Vs. SEBI (Appeal No.114/2012) to claim that there is inordinate delay in completing the proceedings against them by SEBI. (iv) The Noticee relies on further the judgment of the Hon’ble SAT in the matter of Viram Investments Pvt. Ltd. Vs. SEBI (Appeal No.160/2004) to claim that there is no intention on their part to artificially influence the market and induce investors even though they are engaged in synchronized trades.

9. I have carefully considered the Enquiry Report of the Designated Authority and other material available on record including the reply received from the Noticee and the submissions made before me during the personal hearing. The questions that arise for consideration here are: i. Whether the Noticee has violated Regulations 4 (2) (a), (e) & (n) of PFUTP Regulations? ii. Whether the Noticee has violated Regulation 7 read with Clauses A (1), (2), (3), (4) & (5) and Clause B (4) (a) of the Code of Conduct for Stock Brokers, specified in Schedule II of the Brokers Regulations?

10. Before moving forward I consider it appropriate to refer to the relevant provisions of PFUTP and Broker Regulations which read as under:- PFUTP Regulations 2003 4. Prohibition of manipulative, fraudulent and unfair trade practices (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:— (a) indulging in an act which creates false or misleading appearance of trading in the securities market; (e) any act or omission amounting to manipulation of the price of a security; (n) circular transactions in respect of a security entered into between intermediaries in order to increase commission to provide a false appearance of trading in such security or to inflate, depress or cause fluctuations in the price of such security;

Brokers Regulations: Stock-Brokers to abide by Code of Conduct. Regulation 7. The stock-broker holding a certificate shall at all times abide by the Code of Conduct as specified at Schedule II. SCHEDULE II Code of Conduct for Stock Brokers 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. B. DUTY TO THE INVESTOR ... (4) BUSINESS AND COMMISSION:

(a) A stock-broker shall not encourage sales or purchases of securities with the sole object of generating brokerage or commission.

11. Now, considering the issues and giving my findings, it is noted that during the period from July 09, 2001 to November 06, 2001 an abnormal trading pattern observed in the scrip of VOL and the price of the scrip of VOL moved between `82 to `132. The investigation revealed that the Trading Members viz., the Noticee, H. Nyalchand Financial Services Limited, Khandwala Integrated Financial Services Private Limited and ISE Securities & Services Limited transacted in the scrip of VOL on NSE in considerable quantities and the transactions by the aforesaid entities constituted a significant portion of the total transaction in the scrip on the stock exchange. As per the Enquiry Report of the Designated Authority, the following pattern of price movement is revealed during the investigation period:

(a) July 19, 2001 to July 31, 2001: price moved from `124 to `84/- (b) August 1, 2001 to August 10, 2001: Price moved from `76.55 to `125/- (c) August 24, 2001 to September 10, 2001: Price moved from `130/- to `85.05 (d) September 11, 2001 to September 26, 2001: Price moved from `88/- to `111/- (e) October 12, 2001 to October 25, 2001: Price moved from `86/- to `82.10 (f) October 29, 2001 to November 9, 2001: Price moved from `85.20 to `118.80

12. It is also noted that the Noticee had transacted in the scrip of VOL in significant quantities during the investigation period mainly on behalf of the clients viz., Ketan Shah & Co., V.K. Consultants, Ms. Heena Soni and Ms. Snehal Joshi. It is observed that the transactions executed by the Noticee on behalf of its client Ketan Shah & Co. constituted a major percentage of the total gross market quantity and the total market net quantity of scrip of VOL. It is noted from the findings of the investigation that Mr. Ketan B. Shah and Mr. Rahul B. Shah were the active Directors of the Noticee and the former was also the proprietor of the Noticee’s client Ketan Shah & Co. Furthermore, Mr. Ketan B. Shah along with one Mr. Amit R Pathak was holding 15.85% shares of VOL.

13. It is noted that as per the investigation, the Noticee had executed trades in the scrip of VOL on behalf of its aforesaid clients during the period March 13, 2001 to November, 2001 the same is illustrated as under:

% of % of SN Client Mkt. client Client Mkt. client Segment SN End Buy Sell SN Start Client Name Gross Gross gross Net Net net to & Period Date Qty. Qty. Date Qty. Qty to Mkt. Qty Qty. mkt. Gross Net EQ- 13-Mar- 13-Mar- Ketan Shah & 2001050 Rolling 01 01 Co. 1100 0 1100 2200 50.00 1100 1100 100.00 EQ- 19-Mar- 19-Mar- Ketan Shah & 2001054 Rolling 01 01 Co. 0 200 200 400 50.00 (200) 200 (100.00) EQ- 26-Mar- 26-Mar- Ketan Shah & 2001059 Rolling 01 01 Co. 400 400 800 1054 75.90 0 0 0.00 EQ- 21-May- 21-May- Ketan Shah & 2001096 Rolling 01 01 Co. 0 500 500 1000 50.00 (500) 500 (100.00) EQ- 22-May- 22-May- Ketan Shah & 2001097 Rolling 01 01 Co. 0 50 50 100 50.00 (50) 50 (100.00) EQ- 25-May- 25-May- Ketan Shah & 2001100 Rolling 01 01 Co. 0 1450 1450 2900 50.00 (1450) 1450 (100.00) EQ- 30-May- 30-May- Ketan Shah & 2001103 Rolling 01 01 Co. 100 0 100 200 50.00 100 100 100.00 EQ- 31-May- 31-May- Ketan Shah & 2001104 Rolling 01 01 Co. 0 100 100 200 50.00 (100) 100 (100.00) EQ- 1-Jun- Ketan Shah & 2001105 Rolling 01 1-Jun-01 Co. 0 101 101 402 25.12 (101) 200 (50.50) EQ- 4-Jun- Ketan Shah & 2001106 Rolling 01 4-Jun-01 Co. 0 60 60 120 50.00 (60) 60 (100.00) BE- Ketan Shah & 2001127 Account 9-Jul-01 13-Jul-01 Co. 24226 26441 50667 334002 15.17 (2215) 2395 (92.48) BE- 16-Jul- Ketan Shah & 2001128 Account 01 20-Jul-01 Co. 24796 25306 50102 167306 29.95 (510) 3000 (17.00) BE- 23-Jul- Ketan Shah & 2001129 Account 01 27-Jul-01 Co. 16294 12718 29012 87996 32.97 3576 6276 56.98 BE- 30-Jul- Ketan Shah & 2001130 Account 01 3-Aug-01 Co. 21777 20153 41930 110340 38.00 1624 2699 60.17 BE- 6-Aug- 10-Aug- Ketan Shah & 2001131 Account 01 01 Co. 38619 36982 75601 225530 33.52 1637 1687 97.04 BE- 13-Aug- 17-Aug- Ketan Shah & 2001132 Account 01 01 Co. 32952 32752 65704 206006 31.89 200 200 100.00

% of % of SN Client Mkt. client Client Mkt. client Segment SN End Buy Sell SN Start Client Name Gross Gross gross Net Net net to & Period Date Qty. Qty. Date Qty. Qty to Mkt. Qty Qty. mkt. Gross Net BE- 20-Aug- 24-Aug- Ketan Shah & 2001133 Account 01 01 Co. 7032 6907 13939 99674 13.98 125 150 83.33 BE- 20-Aug- 24-Aug- 2001133 Account 01 01 V.K.Consultant 8616 8691 17307 99674 17.36 (75) 150 (50.00) BE- 27-Aug- 31-Aug- Ketan Shah & 2001134 Account 01 01 Co. 5060 8887 13947 87286 15.98 (3827) 5828 (65.67) BE- 27-Aug- 31-Aug- 2001134 Account 01 01 V.K.Consultant 7967 8037 16004 87286 18.34 (70) 5828 (1.20) BE- 3-Sep- Ketan Shah & 2001135 Account 01 7-Sep-01 Co. 4960 3879 8839 70786 12.49 1081 5727 18.88 BE- 3-Sep- 2001135 Account 01 7-Sep-01 V.K.Consultant 7597 7702 15299 70786 21.61 (105) 5727 (1.83) BE- 10-Sep- 14-Sep- Ketan Shah & 2001136 Account 01 01 Co. 45620 4180 49800 166698 29.87 41440 41480 99.90 BE- 10-Sep- 14-Sep- 2001136 Account 01 01 V.K.Consultant 7037 7037 14074 166698 8.44 0 41480 0.00 BE- 17-Sep- 21-Sep- Ketan Shah & 2001137 Account 01 01 Co. 9876 5766 15642 152078 10.29 4110 4064 101.13 BE- 17-Sep- 21-Sep- 2001137 Account 01 01 V.K.Consultant 9083 9132 18215 152078 11.98 (49) 4064 (1.21) BE- 24-Sep- 28-Sep- Ketan Shah & 2001138 Account 01 01 Co. 7710 6313 14023 131104 10.70 1397 1338 104.41 BE- 24-Sep- 28-Sep- 2001138 Account 01 01 V.K.Consultant 9498 9557 19055 131104 14.53 (59) 1338 (4.41) BE- 1-Oct- Ketan Shah & 2001139 Account 01 5-Oct-01 Co. 11913 10737 22650 94708 23.92 1176 1279 91.95 BE- 1-Oct- 2001139 Account 01 5-Oct-01 V.K.Consultant 2381 2381 4762 94708 5.03 0 1279 0.00 BE- 8-Oct- 12-Oct- Ketan Shah & 2001140 Account 01 01 Co. 12786 13375 26161 164730 15.88 (589) 815 (72.27) BE- 8-Oct- 12-Oct- 2001140 Account 01 01 V.K.Consultant 10445 10366 20811 164730 12.63 79 815 9.69 BE- 15-Oct- 19-Oct- Ketan Shah & 2001141 Account 01 01 Co. 33508 17862 51370 300442 17.10 15646 17365 90.10 BE- 15-Oct- 19-Oct- 2001141 Account 01 01 V.K.Consultant 16639 16921 33560 300442 11.17 (282) 17365 (1.62) 2001142 BE- 22-Oct- 26-Oct- Ketan Shah & 29199 29956 59155 156866 37.71 (757) 4310 (17.56)

% of % of SN Client Mkt. client Client Mkt. client Segment SN End Buy Sell SN Start Client Name Gross Gross gross Net Net net to & Period Date Qty. Qty. Date Qty. Qty to Mkt. Qty Qty. mkt. Gross Net Account 01 01 Co. BE- 29-Oct- 2-Nov- Ketan Shah & 2001143 Account 01 01 Co. 13320 11317 24637 720968 3.42 2003 2725 73.50 BE- 29-Oct- 2-Nov- 2001143 Account 01 01 Heena Soni 28458 28398 56856 720968 7.89 60 2725 2.20 BE- 29-Oct- 2-Nov- 2001143 Account 01 01 Snehal Joshi 11494 11496 22990 720968 3.19 (2) 2725 (0.07) BE- 5-Nov- 9-Nov- Ketan Shah & 2001144 Account 01 01 Co. 6325 13802 20127 1037474 1.94 (7477) 15084 (49.57) BE- 5-Nov- 9-Nov- 2001144 Account 01 01 Heena Soni 36553 36779 73332 1037474 7.07 (226) 15084 (1.50) BE- 5-Nov- 9-Nov- 2001144 Account 01 01 Snehal Joshi 20672 20842 41514 1037474 4.00 (170) 15084 (1.13)

14. It is noted that during the period March 13, 2001 to November 09, 2001, the Noticee had dealt in 18 settlements on the BE segment1 and in 13 settlements on the EQ segment.2 The trades executed on the BE segment by the Noticee on behalf of its clients had accounted for 25.50% of the gross quantity traded in the scrip for the market. Settlement wise, the said trades had ranged from 14.64% to 43.45% of the gross quantity traded and from 92.48 % to 100.00% of the net quantity traded in the scrip during the above mentioned period in BE segment. Further, the trades executed on the EQ Segment by the Noticee on behalf of its clients had accounted for 21.38% of the gross quantity traded in the scrip for the market. Settlement wise, the said trades had ranged between 25.12% to 75.90% of the gross quantity traded and 100.00% of the net quantity traded in the scrip during the above mentioned period in EQ Segment.

15. Investigation also revealed that Ketan Shah & Co. had dealt in 18 settlements through the Noticee on the BE segment and was observed to be a net seller in 6 1. 1. 1 BE Segment = Trade to Trade Settlement 2. 2 EQ Segment = Rolling Settlement settlements and net buyer in 12 settlements. The trades executed by the clients of the Noticee have ranged between 1.94% to 38.00% of the market gross during the investigation period. The said trades had accounted for 14.68% of the gross quantity traded during the entire period on the BE segment. On the EQ segment, Ketan Shah & Co. had dealt in 10 settlements and was a net buyer except for one settlement in which the client of the Noticee squared up its position. These trades had accounted for 22.35% of the gross quantity traded during the investigation period on the EQ Segment.

16. It is also noted that some of the clients of the Noticee viz., V. K. Consultants, Ms. Snehal Joshi and Ms. Heena Soni had also dealt in the scrip of VOL through the Noticee. V. K. Consultants had dealt in 9 settlements through the Noticee on the BE segment, Snehal Joshi and Heena Soni had dealt in 2 settlements through the Noticee on the BE segment. The trades executed on behalf of V. K. Consultants, Ms. Snehal Joshi and Ms. Heena Soni had accounted for 3.69%, 1.5% and 3.02% respectively of the gross quantity traded during the investigation period on the BE Segment.

17. It is noted from the Investigation that there were 63 cross deals alleged to have been executed by the Noticee (62 deals in BE segment and 1 deal on EQ segment) on behalf of its clients. The 62 cross deals in BE Segment amount to 12167 shares and constituted 0.56% of the overall market gross quantity for the investigation period. These cross deals constituted approximately 7.65% of the market gross quantity for individual during the investigation period. The major client of the Noticee in the said deals was Ketan Shah & Co. Further, in respect of 6 trades the client on both the buy and sell side was Ketan Shah & Co. The other clients of the Noticee in the said deals were Snehal joshi, Heena Soni, Thakkar Stock Brokers Pvt Ltd., V.K. Consultant, Gunjan Shah, Perfect Finance Consultants, Swami Investment, Vaishali Patel, Chokshi Securities and Samir Shah. There was one cross deal in EQ segment amounting to 150 shares executed by the Noticee. It is also noted from the data for cross deals that Ketan Shah & Co executed self trades i.e. the client for both the buy and sell side through the Noticee. It is noted that all the above cross deals were executed at a variation from the Last Traded Price (LTP) in the range of (-)5.53% to 5.79%. A summary of the alleged cross deals executed by the Noticee for its clients in the scrip of VOL during the period under investigation, are as under:. Summary of Cross Deals Name of the Segmen No. of Traded % to Market Gross broker t trades Quantit during the investigation y period M/s. SDFC BE 62 12167 0.56 Securities Ltd. EQ 1 150 1.50

18. It is noted that 77 structured deals (74 deals in BE segment and 3 deals on EQ segment) alleged to have been executed between selected groups of trading members viz., the Noticee, H. Nyalchand Financial Services Ltd., Khandwala Financial Services Pvt. Ltd. and ISE Securities & Services Ltd., having some common clients or promoters who were associated with VOL. The structured deals were executed at a variation from LTP in the range of 1.245% to 5.20%. Most of these orders were placed on behalf of client Ketan Shah & Co.

19. It is noted that there were 20 structured deals alleged to have been executed between the Noticee and H. Nyalchand Financial Services Limited amounting to 30940 shares and constituted 0.72% to the overall market gross quantity on the BE segment and these deals constituted in the range of 0.01% to 6.37% to the market gross quantity for individual settlements during the investigation period.

20. Further, there were 39 structured deals alleged to have been executed between the Noticee and Khandwala Financial Services Pvt. Ltd., amounting to 36265 shares and it constituted 0.84% to the overall market gross quantity on the BE segment. These deals constituted in the range of 0.01% to 11.25% to the market gross quantity for individual settlements during the investigation period.

21. It is also noted that there were 15 structured deals alleged to have been executed between the Noticee and ISE Securities & Services Ltd., amounting to 4620 shares constituting 0.11% to the overall market gross quantity on the BE segment and these deals constituted in the range of 0.02% to 1.79% of the market gross quantity for individual settlements during the investigation period. Further, there were 3 structured deals alleged to have been executed between the said two trading members, amounting to 5500 shares constituting 27.56% to the overall market gross quantity on the EQ segment and these deals constituted 50.00% to the market gross quantity for individual settlements during the investigation period.

22. It is also noted that the trades executed by the Noticee on behalf of its clients mainly Ketan Shah & Co. had also influenced the price of the scrip on daily basis, thereby manipulating the price of the scrip. The same is tabulated as under: Date Time Qty Order No. B/S Rate *LTP Change in Name of the Price (%) client 20/7/2001 13:34:23 276 200107200514793 S 119.10 124.00 (3.95)%. Ketan Shah & Co 27/7/ 2001 10:57:44 114 200107270229197 S 112.95 114.50 (1.35)%. Ketan Shah & Co 27/7/ 2001 10:39:35 250 200107270229197 B 112.95 114.50 (1.35)%. Ketan Shah & Co 27/7/ 2001 11:27:27 2 200107270300523 S 108.30 112.95 (4.12)%. Ketan Shah & Co 27/7/ 2001 13:58:51 10 200107270565677 S 105.95 101.55 (4.15)%. Ketan Shah & Co 31/7/2001 09:57:22 200 200107310014370 S 84.00. 94.95 (11.53)% Ketan Shah & Co 01/08/2001 10:33:05 1000 200108010167694 B 78.50 76.55 0.64%. Ketan Shah & Co. 01/08/2001 14:42:43 1000 200108010723599 B 84.00 81.45 3.13%. Thakkar Stock Brokers Pvt Ltd. 03/8/2001 15:29:47 1 200108030888097 B 98.50 95.30 3.36%. Ketan Shah & Co 09/8/2001 09:55:22 100 200108090001424 B 123 119 3.36% Ketan Shah & Co 10/8/2001 14:26:49 1000 200108100616989 B 125.00 121.00 3.31%. Ketan Shah & Co 24/8/2001 09:58:36 50 200108240023545 S 126.00 132.00 (4.55)%. Ketan Shah & Co 24/8/2001 09:58:41 25 200108240023997 S 127.00 132.00 (3.79)% Ketan Shah & Co 24/8/2001 09:58:50 65 200108240024788 S 128.00 132.00 (3.03)%. Ketan Shah & Co 24/8/2001 09:59:09 25 200108240026679 S 126.50 132.00 (4.17)%. Ketan Shah & Co 24/8/2001 09:59:18 10 200108240027539 S 126.55. 132.00 (4.13)%. Ketan Shah & Co

27/8/2001 10:02:37 1755 200108270051031 S 119.50 139.75 (14.49)% Ketan Shah & Co 27/8/2001 14:12:58 1500 200108270657407 S 119.40 126.60 (5.69)%. Ketan Shah & Co

23. From the above table it is noted that the Noticee on behalf of their clients had entered the purchase orders of shares of VOL with a limit price which was above the last traded price. The Noticee was regularly placing buy orders at prices higher than

Last Traded Price (LTP) and sell order at a prices lower than the LTP. For instance, a sell order 200107200514793 was placed at 13:34:23 PM with the limit price of `119.10 when the last traded price was `124.00 for 500 shares. The order got executed for 276 shares by 13:35:13 PM and the trade price moved down to `119.10. The remaining order got cancelled. The price variation of the limit price as compared to the last traded price was -3.95%. The sell order was placed on behalf of the client- Ketan Shah & Co. Similar transactions were executed in the entire investigation period. It was also observed that the Noticee on behalf of their clients had placed sell orders with a limit price which was below the last traded price.

24. It is further seen from the trade and order log that the Noticee had executed its cross trades at a variation from the LTP in the range of (-)5.53% to 5.79% and structured trade at a variation from LTP in the range of 1.245% to 5.20%. It is seen that during period under investigation which cover all the cross trades and structured trades executed by the Noticee, the Noticee was continuously putting buy orders at prices higher than earlier buy orders and was squaring up the said buy orders by putting sell orders at prices lower than the LTP or identical prices and quantity within gap of a few seconds. The Noticee was constantly executing such trades even though there was hardly any other buyer or seller in the scrip in the market during the investigation period. This pattern is evident throughout the trades of the Noticee during the investigation period.

25. The pattern of trading evident from the trades of the Noticee as detailed in the preceding paragraphs leads to the conclusion that the trades executed through the terminal of the Noticee created a false and misleading appearance of trading in the scrip. It is noted from the trade and order log available on record that a large number of trades were executed by the Noticee on behalf of Ketan Shah & Co. and Ketan Shah was the active director of the Noticee.

26. I have considered all the contentions made by the Noticee. However, for the observations and reasons already explained above, I do not find any merit in the explanations offered by the Noticee. It is noted that the Noticee has relied on the judgment of the Hon’ble SAT order dated October 28, 2010 in the matter of NCJ Share & Stock Brokers Limited (Appeal No.40 of 2013) wherein Hon'ble SAT had modified the penalty of suspension of Registration certificate for one week by imposing a penalty of restriction for taking up new assignments for two weeks.

27. As regards, the judgments of the Hon’ble SAT in the matter of (i) Ms. Aditi Dalal Vs. SEBI (Appeal No.143/2011) and (ii) HB Stock Holdings Ltd. Vs. SEBI (Appeal No.114/2012) to claim that there is inordinate delay in completing the proceedings against the Noticee by SEBI, it is noted that a Show Cause Notice is being served on the Noticee informing about the detailed charges/allegations in respect of the Noticee immediately on notice of the said activities by the Noticee along with its clients. I have also noted that the delay in completing the proceedings was due to various procedures to be followed in the case such as SEBI had to conduct elaborate investigation in co-ordination with concerned stock exchange, appoint designated authority, issue show cause notice, complete its enquiry, change in the officers handling the investigation/enquiry, earlier Whole Time Member demitted his office, the Noticee itself filed the consent application, consideration and disposal of the consent application etc. Thus, I am of the view that there is sufficient reason for the delay in completing the proceedings against the Noticee.

28. The reliance of the judgment of the Hon’ble SAT in the matter of Viram Investments Pvt. Ltd. Vs. SEBI (Appeal No.160/2004) is also of no help to the Noticee since in view of the facts and evidences stated above, the Noticee cannot claim that there is no intention on its part to artificially influence the market and induce investors even though they are engaged in synchronized trades.

29. I note that the Designated Authority in its report with reference to the PFUTP violations against the Noticee has held that the “Regulation 4(2) (a), (e) & (n) on PFUTP Regulations came into force from 17.7.2003. However, the alleged violation pertains to period July 2001 to November 2001 and since, the above provision are prospective in nature they are not applicable in said case and it is also well settled principle of law that penal provision of law cannot be applied retrospectively.”

30. However, I do not agree with the observations of Designated authority in this regard and I note that prior to the notification of PFUTP Regulations on July 17, 2003, PFUTP regulations 1995 were in force and as per Regulation 13 of the PFUTP Regulations 2003, "any violation of regulations 3, 4, 5 and 6 of the PFUTP Regulations, 1995 shall be investigated and proceeded against in accordance with the procedure laid down in the Regulations 2003. Further, any investigation pending at the commencement of Regulations 2003 shall be continued and disposed of in accordance with the procedure laid down in the said regulations". The only added new regulation is Regulation 4 (2) (n) of the PFUTP Regulations.

31. Considering the facts and circumstances narrated above, I am of the view that the Noticee has facilitated the clients to execute structured and cross deals which created a false and misleading appearance of trading in the scrip. Hence, the violation of Regulation 4 (2) (a) and (e) of the PFUTP Regulations (corresponding to Regulation 4 (a) and (b) of PFUTP Regulations 1995) against the Noticee is established. Since Regulation 4(2) (n) does not find a mention in the PFUTP Regulations 1995, I am not dealing with the violation of said regulation.

32. The next issue is whether the Noticee violated the Code of Conduct specified under the Brokers Regulations. It is noted from para 16 & 30 of the Enquiry Report of the Designated Authority that Ketan Shah was the active director of the Noticee and was also the proprietor of Ketan Shah & Co. In this context, I have noted the submission of the Noticee that Mr. Ketan Shah was the client of the Noticee since 1996 and joined the company in 1999. Further, Mr. Ketan Shah and his family members were holding shares of VOL allotted to them in the public issue. Hence, they were doing jobbing activity to hedge their holdings. It is also submitted that the Noticee permitted him to trade only after considering his financial strength. The Noticee also contended that the allegation of PFUTP Regulations and the violation of code of conduct of Brokers Regulations are inseparable and if former is not proved, then latter cannot be established. I do not subscribe to this view. Every broker has to abide by the provisions of the Code of Conduct under the Brokers Regulations upon registration with SEBI. Hence, observance of the provisions of Code of Conduct of Broker Regulations is absolutely independent from any other Regulations. The Noticee should have acted more cautiously and should not have executed such trades which resulted in creation of artificial trades and volume in the securities market. Considering the same, I am of the view that the Noticee has failed to exercise due care and diligence while executing trades on behalf of its clients and as such violated the provisions of Regulation 7 read with Clauses A (1), (3), (4) and (5) of the Code of Conduct for Stock Brokers, specified in Schedule II of the Brokers Regulations.

33. It is pertinent to mention that the crux of the matter pertains to the trades executed by the Noticee largely on behalf of its client M/s Ketan Shah and Co. In this context, it is noted that though the enquiry proceedings were initiated for the alleged violations of provisions of PFUTP Regulations 2003 against Ketan Shah and Co., the said proceedings were consented by SEBI vide Order dated June 22, 2009 upon payment of settlement charges of `5 lakh. Further, the Noticee vide its reply dated November 11, 2004 submitted that NSE had taken disciplinary action against the Noticee for the trades executed in the scrip of VOL and imposed a penalty of `3 lakhs and the said amount was duly paid by the Noticee. It is also noted that SEBI issued an administrative warning against the other trading members viz., H.Nyalchand Financial Services Limited and Khandwala Financial Services Pvt. Limited who executed trades in the scrip of VOL.

34. I have considered the submissions made by the Noticee. I note that the Noticee has been in business for the last 16 years and they have not been subjected to any disciplinary proceedings except in this case and that there have been no investor complaints or arbitration proceedings against them. It is noted that this case also pertains to transactions which took place in the year 2001 i.e. almost 14 years ago. The other main parties involved have been allowed to conclude their cases in consent proceedings or have been let off with administrative warning. Considering all these facts and the circumstances of the case in totality, I am of the view that it would meet the ends of justice if a strong warning is issued to the Noticee for executing trades on behalf of its clients in the manner stated above.

35. I, therefore, 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, to be careful and cautious as regards the conduct of its business and to adhere to and comply with all the statutory provisions while carrying out its activities in the securities market. Any future lapse on its part in complying with the legal provisions shall invite stringent action.

February 11, 2015 S. RAMAN Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA