Order in the matter of Brijlaxmi Leasing and Finance Ltd in respect of Sanchay Fincom Ltd

1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) had initiated an enquiry vide Order dated January 08, 2008 under Regulation 5(1) of the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (since rescinded, hereinafter referred to as the ‘Enquiry Regulations’) against Sanchay Fincom Ltd. (hereinafter referred to as ‘the stock broker’/ ‘the noticee’), a trading member of the Bombay Stock Exchange (hereinafter referred to as the ‘BSE’) and a stock broker registered with SEBI. The said enquiry was directed on the basis of the findings of an investigation conducted by SEBI into the dealings, inter alia, of the stock broker in the shares of Brijlaxmi Leasing and Finance Ltd. (hereinafter referred to as ‘Brijlaxmi’/ ‘the company’) during the period from January 01, 2002 to June 06, 2002 and February 03, 2004 to July 14, 2004 (hereinafter referred to as the ‘period of investigation’/ ‘investigation period’).

2. On completion of the enquiry, the Enquiry Officer/ Designated Authority (hereinafter referred to as the ‘Enquiry Officer’) found that the stock broker was involved in the creation of artificial volume and price in the scrip of Brijlaxmi, and had thus contravened Regulations 4(1), 4(2)(a), (b), (e), (g) & (n) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (hereinafter referred to as the ‘PFUTP Regulations, 2003’) and Clauses A(1),(2),(3),(4) and (5) of Code of Conduct as specified in Schedule II under Regulation 7 of the SEBI (Stock Broker and Sub Broker) Regulations, 1992 (hereinafter referred to as the ‘Broker Regulations’). Hence, in his Report dated August 28, 2009, the Enquiry Officer recommended that the certificate of registration of the stock broker be suspended for a period of 3 months.

3. Thereafter, vide notice dated September 01, 2009 (hereinafter referred to as the ‘SCN’) the stock broker was asked to show cause as to why an appropriate penalty including penalty as recommended by the Enquiry Officer should not be imposed on it. The noticee responded to the SCN vide letters dated October 14, 2009 and November 03, 2009 and November 13, 2009. In its reply, the noticee, inter alia, made the following submissions –

3.1. The noticee had not carried out any proprietary trading in the scrip. The brokerage received in respect of such transactions was a small amount. No broker would have been involved with or even allowed transactions with even a remote hint of irregularity for such a small amount. 3.2. The clients are not related to the noticee. They are purely broking clients like hundreds of other clients. The stock broker did not have any financial relation with them other than their broker-client relations. 3.3. The noticee was not connected or related to Brijlaxmi or its promoters and/ or directors. 3.4. No wrong was committed by the noticee purely by entering orders on behalf of clients at prices higher than preceding closing price. A client is necessarily required to enter higher prices if the quantity he wants is not available at previous closing price. It is also not stated to what extent the price increase was. The client may have entered orders at higher prices for the purchase but he did take delivery of the shares.

3.5. It is impossible for a broker to examine whether each and every company in which each and every client trades is fundamentally a good company or not. 3.6. The clients were trading in numerous scrips and their turnover in Brijlaxmi constituted a small part of their total trading with the noticee. The clients traded in numerous scrip including ACC, BHEL, ONGC, Reliance, L&T, NIIT etc. The client in most cases squared off the transactions with small profits or losses. 3.7. The clients entered into trades in Brijlaxmi intermittently with long gaps.

4. The noticee was granted an opportunity of personal hearing on February 26, 2010 before me. On the scheduled date, Shri Jayant Thakur and Shri Avinash Tiwari appeared for the hearing and requested that the proceedings be kept in abeyance as they intended to make an application for settlement of the proceedings through consent in accordance with SEBI Circular dated April 20, 2007. However, the application for settlement was rejected in terms of the aforesaid circular. Thereafter, the noticee was granted another opportunity of personal hearing before me on April 29, 2011, when Shri Sanjay Chakor and Shri Avinash Tiwari appeared on behalf of the noticee and made submissions. The noticee also filed written submissions reiterating the submissions made in the earlier replies and those made during the course of the hearing. The noticee also submitted a copy of the order of the Hon’ble Securities Appellate Tribunal (SAT/ Tribunal) dated February 25, 2010 by in the matter of Vikas Ganeshmal Bengani Vs SEBI (Appeal no. 225 of 2009, decided on February 02, 2010).

5. I have carefully considered the Enquiry Report and other material available on record. I note that the investigation in the scrip of Brijlaxmi was conducted by SEBI for two different periods. During the period from January 01, 2002 to June 06, 2002 (hereinafter referred to as the ‘first period’), though the company was not financially sound, the price of the scrip increased from Rs 42.70 to Rs 93.75, i.e. by 120%. The noticee along with two other brokers namely Crescent Finstock Ltd and B R Jalan Securities Pvt Ltd placed buy orders at rates higher than previous day’s closing price, which resulted in establishing the opening price / price on that day.

6. During the first period, the concentration in the trading, on the buy and sell side, of the top 5 brokers is as mentioned below - SI Member Name Gross % of Member Name Gross % No (Code) Buy Market (Code) Sale Market Buy Sale Volume Volume 1. Sunidhi Consultancy 36,100 30.90% Manoj Javeri Stock 41,100 35.18% Services Ltd (291). Broking Pvt Ltd (421). 2. Sanchay Fincom 31,500 26.96% Inventure Growth & 20,700 17.72% Ltd (204) Securities Ltd (275). 3. B R Jalan Securities 12,500 10.70% Babubhai 18,000 15.41% Pvt Ltd (62). Purshottamdas Stock Brokers Pvt Ltd (74). 4. Crescent Finstock 7,700 6.59% B R Jalan Securities 9,100 7.79% Ltd (186) Pvt Ltd (62). 5. Shri Adolf Pinto (13). 5,000 4.28% Sanchay Fincom Ltd 8,500 7.72% (204). Total 92,800 79.43% 97,400 83.82%

In this period, the noticee traded on behalf of the following clients –

Name of the client (Client Code) Buy Quantity Sale Quantity V B Investment (V028) 9,400 900 Shree Shyam Investment (S080) 3,500 2,000 Kisan Agarwal (K031) 2,100 - Vikas Bengani (V019) 16,500 5,600

7. Thus, during the first period, the noticee purchased 31,500 shares on 22 trading days contributing 26.96% of the buy volume and sold 8,500 shares on 13 trading days contributing 7.27% of the sale volume. Whereas the noticee appeared on the buy side on 22 trading days, its contribution to the market buy volume on 12 days is 100% and on 18 days it is more than 50%.

8. Whereas the noticee appeared on 22 trading days on the buy side, the price at which the noticee purchased shares in the scrip of Brijlaxmi on 15 days was more than the closing price of previous trading day by 0.5% to 4% and on most of days it was for the client Shri Vikas Bengani and related entities.

9. On an analysis of the opening trades, I note that the noticee traded on behalf of its ultimate clients Vikas Bengani on 11 days and Kisan Agarwal on 2 days, appeared in the opening trades. The buy orders were placed at a level higher than the last traded price on 11 days, and further, the buy orders were placed prior to the sale orders on 10 days. The opening trade was the only trade executed on the particular day for a period of 6 days and it was above LTP on 5 days. From the LTP analysis, it is also observed that the price increased by more than 1% on 40 instances, and the broker Sanchay Fincom Ltd was involved in 7 such instances on the buy side.

10. However, I note that the noticee has contended that it was not connected or related to any of the clients that were alleged to be part of the manipulation. I observe that no relation other than that of broker-client has been brought out between the noticee and its clients.

11. I further note that SEBI, vide order dated September 15, 2009, had debarred Vikas Bengani, client of the noticee herein, for a period of one year. Vikas Bengani appealed in Hon’ble SAT against the order of SEBI. Hon’ble SAT vide order dated February 25, 2010, set aside SEBI’s order dated September 15, 2009. The Hon’ble SAT observed that “…Merely because an investor like the appellant placed orders for the purchase of a scrip at a price higher than the last traded price does not by itself lead to the conclusion that he was manipulating the price of the scrip…” I note that the noticee traded mainly on behalf Vikas Bengani during the Investigation period.

12. In view of the foregoing, considering the facts and circumstances of the case, I, in exercise of the powers conferred upon me under under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulations 28(2) and 38(2) of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008, hereby dispose of the show cause notice dated September 01, 2009, against the noticee without any directions.

Place: Mumbai PRASHANT SARAN Date: October 13, 2011 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA