Order in respect of SPS Share Brokers Pvt Ltd in the matter of Granules India Ltd

WTM/PS/11/IVD/ID-03/APRIL/2012 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER IN THE MATTER OF GRANULES INDIA LIMITED In respect of SPS Share Brokers Private Limited (SEBI Registration No. INB 010979938) Date of hearing: May 16, 2011 Appearances: For Noticees: Mr. Sandeep P. Shah, Director Mr. Manish Dave, Director Mr. Gaurang Joshi, Advocate Mr. Satyen Vora, Advocate Mr. Manish Chhangani, Advocate For SEBI: Mr. G. Ramar, General Manager Mr. A. Vijayan, Assistant General Manager Mr. Pradeep Kumar, Assistant Legal Adviser ORDER Under Regulation 28 read with Regulation 38 of the Securities and Exchange Board of India Act, 1992. 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted investigation into dealings in the shares of Granules India Limited (hereinafter referred to as ‘GIL’), for the period of December 19, 2002 to January 23, 2003. The scrip of GIL was listed at the Bombay Stock Exchange Limited (hereinafter referred to as ‘BSE’) on December 19, 2002 and on the same day trading commenced in the shares of GIL. During the initial days, post listing there was hardly any interest in the scrip.

2. During the period of investigation, the price of the scrip increased from `17.95 as on December 19, 2002, touched a high of `52.90 (intra day high) as on January 17, 2003, and finally closed at `39.70 as on January 17, 2003. The volume of the scrip had also increased from 450 shares as on December 20, 2002 to a high of 5,76,840 shares as on January 03, 2003. The upward movement of the price and volume of the scrip was proportionate neither with the general market sentiments nor with any announcements from the company.

3. The investigation further revealed that GIL had allotted 14,02,524 shares on May 24, 2002 and 10,51,894 shares on June 14, 2002 aggregating to 24,54,418 shares at the rate of `14.26 on preferential basis to the promoter Mr. C. Krishna Prasad. It was revealed that C. Krishna Prasad, Managing Director of GIL wanted to sell his existing holding in the company to raise resources for investment in the company for its expansion plan. Therefore, liquidity was required to be brought in order to facilitate the off-loading of shares by the managing director of GIL to certain entities who in turn would off-load such shares to the general investing public. C. Krishna Prasad approached Mr. C.P. Khandelwal of M/s. Southern Shares & Stocks Ltd. (hereinafter referred to as ‘Southern Shares’), member of BSE to offload the shares at BSE who in turn approached Mr. Arun Kumar Dalmia of M/s. Satya Securities, who assured that it would arrange for the buyers for the shares when they are off-loaded by C. Krishna Prasad. SEBI analyzed the trading details along with the data of the volumes contributed by the persons who had traded in the scrip. The investigation prima facie revealed that SPS Share Brokers Private Limited bearing SEBI Registration no. INB 010979938 (hereinafter referred to as ‘noticee’) had traded in the scrip of GIL in order to create artificial interest in the scrip of GIL.

4. Based on the findings of investigation, SEBI initiated enquiry proceedings as against the noticee in terms of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as ‘Enquiry Regulations’), by appointing an Enquiry Officer under Regulation 5(1) of Enquiry Regulations vide order dated April 07, 2006. The Enquiry Officer enquired into the alleged violation of the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘PFUTP

Regulations’) and the Code of Conduct specified under Schedule II of SEBI (Stock Brokers and Sub-Broker) Regulations, 1992 (hereinafter referred to as ‘Broker Regulations’). 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 April 29, 2009, in terms of Regulation 27 of SEBI (Intermediaries) Regulations, 2008, recommending thereby a penalty of suspension of the certificate of registration of the noticee for a period of one month.

5. Subsequently, a show cause notice dated July 02, 2009 (hereinafter referred as SCN’) under Regulation 28 of the SEBI (Intermediaries) Regulations, 2008, was issued by SEBI to the noticee, asking it to show cause as to why the appropriate penalty including penalty as recommended by the Enquiry Officer should not be imposed. The noticee was advised to reply to the SCN, within twenty one days from the date of receipt thereof. It was also informed that in case of failure, 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.

6. No reply was received from the noticee. Meanwhile, the noticee filed an application for the settlement of proceedings through a consent order. The application filed by the noticee was dealt in accordance with the SEBI Circular dated April 20, 2007. Subsequently, the proceedings initiated under the SCN were revived, as the application for consent was rejected by SEBI.

7. Before proceeding further, an opportunity of personal hearing was granted to the noticee before me on April 29, 2011. However, the noticee vide its letter dated April 27, 2011 requested for an adjournment. The request of the noticee was considered and the hearing was rescheduled to May 16, 2011. In the meantime, the noticee replied to the SCN vide its letter dated May 12, 2011. On the date fixed for the personal hearing, Mr. Sandeep P. Shah,

Director, Mr. Manish Dave, Director, Mr. Gaurang Joshi, Advocate, Mr. Satyen Vora, Advocate and Mr. Manish Chhangani, Advocate appeared for the noticee and made oral submissions.

8. I have carefully considered the SCN, the reply of the noticee and the material available on record. The submissions of the noticee in brief are:

- It is a retail broker and do not advise its clients in connection with the sale or purchase of securities by them. It had executed orders upon the instructions of the client. It had not executed any proprietary trades in the scrip and the trades for the clients constituted a meager 0.32% of the total trading/ turnover for the relevant year. - Shares bought by Pacific Corporate Services Limited through it were held by it for eleven months and the said trades cannot be termed as non-genuine. - Apart from earning mere brokerage, they have not earned anything in the scrip. - The trades were executed at the market price prevailing at the time. The transactions executed through it had been at the price of `50 and `47.75 on January 20, 2003. It had not entered into any circular transaction along with other intermediaries. It had received/ effected delivery to the client and received/ paid consideration to the client for the said transactions in the normal course of business. - All the trades were executed on a single day and were one time transactions as the same shares were never bought and sold through it during the period of investigation. There was marginal fall in the price of the scrip intra-day and no increase in the price as alleged. - They had no knowledge of the fact that Pacific Corporate Services Limited and Satya Securities were entering the transactions on the pursuance of Arun Kumar Dalmia. - There was no bar on executing the negotiated deals. Their client Pacific Corporate Services Limited was willing to buy large quantities of GIL shares and therefore it requested to arrange for the same. All the three clients had agreed to enter into the transactions on a pre-negotiated price and it is for this purpose that they executed the trades on the exchange platform. - Its clients, viz., Pacific Corporate Services and Satya Securities Limited have been exonerated by SEBI while deciding their individual cases in the scrip of GIL. - There are errors in the data provided by SEBI and there is huge time gap between the orders placed.

9. I note the submission of the noticee that there are errors in the data provided by the Enquiry Officer. However, I note that the correct order-trade log has been provided to the noticee during the personal hearing. Taking note of this, the issue that arises for consideration is: Whether the noticee had traded in the scrip of GIL in order to create artificial interest in the scrip of GIL?

10. Whether the noticee had traded in the scrip of GIL in order to create artificial interest in the scrip of GIL?

a. I note that the noticee had acted in the scrip of GIL on behalf of three clients as detailed in the table below along with their trading details: Sr. No. Name of the clients (Client code) Gross Buy Gross sell 1. Satya Securities Limited (3229) 1,00,000 1,00,000 2. Pacific Corporation Services Limited (3240) 2,00,000 3. Phulchand Sons Investment Pvt. Limited (3153) 3,05,000 b. I note from the Enquiry Report that the noticee had executed cross deals of 2,00,000 shares on behalf of its buying client Pacific Corporation Services Limited and selling clients namely Satya Securities Limited and Phulchand Sons Limited for a quantity of 1,00,000 shares each in the scrip of GIL. Further, I note the allegation that the said cross deals were synchronized in nature. I have seen the table referred by the Enquiry Officer in his report. There seem to be material error in the data provided therein. However, I note that the noticee has been provided with the correct order-trade log in the scrip of GIL during the personal hearing. Therefore, my findings are based on the correct order-trade log provided to the noticee during the personal hearing.

I have seen the details of the said trades and the same have also been brought out below for reference: Trade Buy Sell Date Time Qty. Price Broker Order No Time ClientBroker Order No Time Client 20/1/2003 11:03:34 10,000 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 3,299 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 6,701 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 6,598 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 3,402 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 9,897 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 103 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 10,000 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 3,196 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 6,804 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 6,495 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 3,505 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 9,794 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 206 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 10,000 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 3,093 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 11:03:34 6,907 50 SPS 55700100000047033 11:03:34 3240SPS 55700200000040491 11:03:34 3229 20/1/2003 14:08:10 10,000 47.75 SPS 55700100000047041 14:08:10 3240SPS 55700200000040497 14:08:10 3153 20/1/2003 14:08:10 10,000 47.75 SPS 55700100000047041 14:08:10 3240SPS 55700200000040497 14:08:10 3153 20/1/2003 14:08:10 10,000 47.75 SPS 55700100000047041 14:08:10 3240SPS 55700200000040497 14:08:10 3153 20/1/2003 14:08:10 10,000 47.75 SPS 55700100000047041 14:08:10 3240SPS 55700200000040497 14:08:10 3153 20/1/2003 14:08:10 10,000 47.75 SPS 55700100000047041 14:08:10 3240SPS 55700200000040497 14:08:10 3153 20/1/2003 14:08:10 10,000 47.75 SPS 55700100000047041 14:08:10 3240SPS 55700200000040497 14:08:10 3153 20/1/2003 14:08:10 10,000 47.75 SPS 55700100000047041 14:08:10 3240SPS 55700200000040497 14:08:10 3153 20/1/2003 14:08:10 10,000 47.75 SPS 55700100000047041 14:08:10 3240SPS 55700200000040497 14:08:10 3153 20/1/2003 14:08:10 10,000 47.75 SPS 55700100000047041 14:08:10 3240SPS 55700200000040497 14:08:10 3153 20/1/2003 14:08:10 10,000 47.75 SPS 55700100000047041 14:08:10 3240SPS 55700200000040497 14:08:10 3153 c. A perusal of the trading details as brought out above shows that in the present matter there were only four orders amongst the above trades which had matched with zero (0) time-difference.

It is seen that the set of clients for both the orders were different.

d. Now the issue that remains is whether the above discussed trades by the noticee can be said to be manipulative. I note from the Enquiry Report that no direct relationship between the noticee and its clients has been found. The Enquiry Report further makes a reference to the connection between the clients of the noticee and Arun Kumar Dalmia, however, it has not been explained. The only reference regarding the client namely Phulchand Sons Investment Pvt. Limited is that it was the investment firm of Mr. Deepak Dalal and had financial/ off market transactions with entities related with Arun Kumar Dalmia. I note that the Enquiry Report do not explain the knowledge of the relationship of the clients to the noticee.

e. I note that the trades executed by the noticee were one time transactions only and that it had made delivery/ payment for the said transactions in the normal course of business. Having seen this, I am of the considered view that the charge against the noticee of creating artificial interest in the scrip of GIL is not established, based on the material available on record.

11. I note that pursuant to the notification of the SEBI (Intermediaries) Regulations, 2008, the Enquiry Regulations have been repealed and in terms of Regulation 38(2) of the SEBI (Intermediaries) Regulations, 2008, notwithstanding such repeal, any enquiry commenced under the Enquiry Regulations, shall be deemed to have been commenced under the corresponding provisions of SEBI (Intermediaries) Regulations, 2008.

12. Accordingly, 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 dispose of the proceedings against SPS Share Brokers Private Limited (SEBI Registration No. INB 010979938) without issuing any directions.

DATE : APRIL 12, 2012 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA