Order in the matter of DCM Shriram Consolidated Limited

1. The Securities and Exchange Board of India (hereinafter referred to as SEBI) had pursuant to an investigation conducted in the dealings in the shares of DCM Shriram Consolidated Limited (hereinafter referred to as the Company) for the period between March 12, 2001 and April 24, 2001 (hereinafter referred to as the investigation period), had issued a show cause notice dated August 19, 2004 to Har Sai Investments Limited (hereinafter referred to as HSIL), Gloria Investments Limited (hereinafter referred to as the GIL), HB Stockholdings Limited (hereinafter referred to as HBSL), HB Portfolio Limited (hereinafter referred to as HBPL), Ivory Securities Limited (hereinafter referred to as ISL), Penwell Traders Limited (hereinafter referred to as PTL), Alaknanada Capital Services Private Limited (hereinafter referred to as ACSPL), Mr. Lalit Bhasin, H. C. Bhasin & Sons (HUF), Ms Anju Bhasin, Ms Mamta Kapur and RRB Securities Limited (hereinafter referred to as RRB), alleging that they had contravened Regulation 4(a),(b),(c) and (d) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as the PFUTP Regulations), while dealing in the shares of the Company during the investigation period.

The aforesaid entities are hereinafter collectively referred to as the entities and individually by their respective names. The said notice mentioned that the investigation inter alia revealed that the shares of the Company were traded during six settlements (nos. 11-16) during the investigation period at the National Stock Exchange of India Limited (hereinafter referred to as NSE) for a total period of twenty seven days during which 8,75,137 shares were traded and that 8,61,461 shares were traded in ten days during the investigation period. The share price went up from `49.50/- on March 14, 2001 to `.64.50/- on April 20, 2001 and closed at `59.75/- on April 24, 2001. It was further mentioned that, there were various clients including Taurus Mutual Fund, GIL, HBSL, ISL, PTL, HBPL, ACSPL and HSIL who had purchased 8,21,069 shares, which constituted 93.82% of the market volume during the investigation period. Further, fourteen clients including the entities had sold 8,37,293 shares, accounting for 95.68% of the market volume. The show cause further mentioned that the investigation observed that the ‘HB Group’ comprising of the stock brokers- HB Securities Limited and Fincap Portfolio Limited, and clients–Mr.

Lalit Bhasin, H C Bhasin & Sons (HUF), Ms. Anju Bhasin, Ms. Mamta Kapur, Taurus Mutual Fund, HBSL, HBPL, RRB, HSIL, ACSPL and ISL and ‘CFL group’ comprising of CFL Securities Limited and Tropical Securities and Investments Limited (member, Bombay Stock Exchange Limited), allegedly connected groups, had cumulatively sold and purchased 6,98,362 shares (79.80% of the market volume) and 6,74,669 shares (77.09% of the market volume) respectively, during the investigation period. It was also observed that GIL and PTL had together purchased 1,46,400 shares (which accounted for 16.73% of the market volume during the period of investigation) and sold 1,38,931 shares (which constituted 15.88% of the market volume). It was alleged that the ‘HB Group’ and the CFL Group had indulged in circular trades and structured deals and were alleged to have created artificial volumes in the shares of the Company. It was also alleged that the entities forming part of the said groups had purchased shares and had later on, sold them to Taurus Mutual Fund at a higher price. Hence, the show cause notice.

2. Thereafter, certain entities made requests seeking documents in the matter. Further, as per the request, opportunity for inspection of documents viz. entire trade and order logs for trades at NSE for the relevant period and the original order dated October 17, 2003 directing investigations in the scrip were provided to certain entities, as sought by them. Subsequently, the following entities filed the replies as stated below:

i. ISL, vide letter dated September 14, 2004. ii. PTL, vide letter dated September 21, 2004. iii. HBPL, vide letter dated September 17, 2005. It also filed another reply dated July 9, 2009 and requested SEBI to withdraw its earlier reply dated September 17, 2005. iv. RRB and HSIL, vide separate letters dated September 19, 2005.

3. An opportunity of hearing was afforded to the entities on December 11, 2008. In the meanwhile, ACSPL, vide letter dated December 10, 2008, sought inspection of documents to enable it to give a detailed reply and requested for adjournment of the hearing to a future date. Mr. Lalit Bhasin, Ms. Mamta Kapur, Ms. Anju Bhasin and H. C. Bhasin & Sons HUF, filed their respective replies, vide letters dated November 8, 2008. On December 11, 2008 (the date of hearing), HBSL was represented by Mr. H. S. Chandoke, Advocate who filed written submissions dated December 11, 2008 and made submissions on the lines of the same. Mr. Abdullah Hussain, Advocate was also present in the said hearing on behalf of HBSL. HSIL was represented by Mr. Pradeep Kumar Mittal, authorized representative. Mr. Praveen Gupta represented Mr. Lalit Bhasin, H C Bhasin & Sons (HUF), Ms. Mamta Kapur and Ms. Anju Bhasin. Mr. Anil Goyal represented RRB. Pursuant to an opportunity of inspection afforded to ACSPL on January 19, 2009 (when Mr. Sanjay Kumar Rastogi inspected the documents), another opportunity of hearing was granted to it on March 6, 2009, which was adjourned to June 24, 2009. On the date of the said hearing, Mr. Atul Agarwal appeared on its behalf and filed its written statement during the hearing.

As HBPL had filed an application, vide letter dated September 19, 2007 for availing the consent process in terms of the SEBI Circular dated April 20, 2007, the proceeding against the said entity was kept in abeyance. The said proceeding was resumed and HBPL was afforded an opportunity of hearing on July 9, 2009, pursuant to the rejection of the aforesaid application, which was communicated to HBPL, vide letter dated May 29, 2009. On July 9, 2009, Ms. Banmala Jha as authorized by HBPL appeared before me and made submissions. Mr. Lalit Bhasin, Chairman of HBPL was also present in the hearing. I note that hearing notices sent to GIL were returned by Mr. L. K. Malhotra stating that the address mentioned therein was his residential address and no such company exists at that address. Hearing notice was also sent to it at its address in Mauritius. However, the entity neither appeared for hearing on December 11, 2008 nor replied to the show cause notice issued to it. I note that ISL, vide letter dated November 7, 2008 had informed SEBI that it would not be possible for its representative to attend the hearing on November 14, 2008 and sought to highlight its submissions in addition to those made in its reply dated September 14, 2004. It further submitted that the said letter would supplement its reply and requested that the same be taken on record for arriving at a decision.

I find that except GIL all the other entities have filed their response to the show cause notice and have also been heard. As some of the entities had been issued show cause notices by SEBI in respect of their alleged involvement in certain other matters where the alleged violations had taken place more or less during the same period as that of the present case, it was thought fit in the interest of justice, to conclude the hearings in those other matters also before proceeding with the individual cases.

4. I have considered the show cause notice dated August 19, 2004 (hereinafter referred to as the notice) issued to the entities, their respective written as well as oral submissions and other material available on record. The issue for consideration in the present case is whether the entities have contravened Regulation 4(a),(b),(c) and (d) of the PFUTP Regulations while dealing in the shares of the Company, as alleged in the notice. The allegation against the entities in the notice is reproduced below:

“Large number of cross deals and structured deals involving connected/related brokers and clients and creating large volume of artificial trading, as mentioned above, indicates manipulative intent. It cannot be coincidental that on so many occasions their trades for these clients viz. price, quantity and time of placing buy/sell orders would match with each other and thus contributing to major volume of trading in the market. A major portion of these shares was sold to Taurus Mutual Fund, many times at higher prices by these entities. Thus there were concerted efforts on the part of these brokers and clients. It is clear that the HB Group clients and CFL Group clients in connivance with the stock brokers of NSE namely H.B. Securities Ltd., Rosy Blue Securities Ltd, CFL Securities Ltd., Fincap Portfolio Ltd. Aman Portfolio Ltd. and Tropical Securities Ltd. (Member BSE acting as client through Rosy Blue Securities Ltd.) have indulged in circular trades i.e. purchased and sold shares among the connected entities and created artificial volume in the scrip. The trading pattern of the clients Gloria Investments Ltd. and Penwell Traders Ltd. and the trading members Aman Portfolio Ltd. and Rosy Blue Securities Ltd. with the clients/brokers of the HB Group or CFL group is indicative of their connection with these two groups, and their acting in concert and their manipulative intent. The trades of all these clients have generated artificial volumes by way of non genuine transactions in the scrip. These trades have distorted the market equilibrium in the scrip.”

5. The aforesaid allegations are in respect of the trades involving 8,75,137 shares of the Company during the period of investigation. It was also stated that the purchase and sale of the entities involved 8,21,069 shares (93.82% of the total market volume) and 8,37,293 shares (95.68% of the market volume), respectively during the relevant period. As per the notice, Taurus Mutual Fund, CFL Securities Limited, GIL, HBSL, ISL, PTL, HBPL, ACSPL and HSIL had purchased 8,21,069 shares, which accounted for 93.82% of the market volume during the investigation period. The individual purchase position of the entities as mentioned in Annexure I to the notice is given below:

Entity Purchase position (no. of shares) Taurus Mutual Fund* 338559 CFL Securities Limited (proprietary account)* 109524 GIL 105400 HBSL 75020 ISL 74353 PTL 41000 HBPL 39330 ACSPL 34323 HSIL 3560 Total 821069 *- not a party in the present proceeding

It was also mentioned that the following fourteen entities had sold 8,37,293 shares, which accounted for 95.68% of the market volume.

Entity Sale position (no. of shares) Tropical Securities Limited* 209569 HSIL 110000 CFL Securities Limited (proprietary account)* 105000 GIL 98000 HBSL 90044 HBPL 61500 ISL 48970 PTL 40931 ACSPL 32620 Mr. Lalit Bhasin 21000 H C Bhasin & Sons (HUF) 8468 RRB 3867 Ms. Anju Bhasin 3834 Ms. Mamta Kapur 3490 Total 837293 *- not a party in the present proceeding

The notice has stated that the major buying and selling in the shares of the Company was generated by the HB Group and the CFL Group and that the clients of both the groups had together purchased 6,74,669 shares (77.09% of the market volume) and sold 6,98,362 shares (79.80% of the market volume) during the investigation period. It was also mentioned that GIL and PTL had together purchased 1,46,400 shares (16.73% of the market volume) and sold 1,38,931 shares (15.88% of the market volume), during the period of investigation.

6. HBSL, vide its written submissions dated December 11, 2008 had inter alia submitted that, even according to the notice, PTL and GIL do not belong to the alleged CFL or HB group. According to it, the trades of the said entities have influenced the findings of the investigation. Similar submissions are taken by HBPL and ACSPL. PTL also denied the linkages with the HB Group and the CFL Group. A reading of the notice would support such a submission. In terms of the notice, PTL had purchased and sold 41,000 and 40,931 shares respectively and GIL had purchased and sold 1,05,400 and 98,000 shares respectively as stated above in this Order. The said two entities have contributed 16.73% on the buy side and 15.88% on the sell side of the total market volume during the relevant period. Annexure IIA of the notice explains the alleged relation/connection between the entities of the HB Group and Annexure IIB is the statement of Mr. Milan Dalal which has been used to link the HB Group with the CFL Group. However, I find no material in the notice or in the annexures enclosed with it, to link PTL and GIL either with the HB Group or the CFL Group.

I find that the notice does not allege that PTL and GIL are connected to any of the above groups. Further, there is also no material to link PTL and GIL with each other. I also observe that the notice had separately mentioned the traded volume of PTL and GIL. This would also give an indication that, even as per the notice, PTL and GIL are not connected to HB or CFL group. Therefore, their trades have to be severed and seen in isolation from that of the trades done by the entities of either the HB Group or the CFL Group. This is necessary to ascertain whether their trades had individually resulted in the creation of artificial volume. The entities allegedly forming part of the CFL Group are not before me in this proceeding. As regards the alleged connection between the HB Group and the CFL Group, the notice relied upon the statement (Annexure IIB to the notice) of Mr. Milan Dalal (director of CFL Securities Limited) who had deposed before SEBI in connection with another matter. In the said statement, to a question “Does any of your Directors/relative personally know any Director/Promoter of the HB group?

If so, give details.”, Mr. Milan Dalal has replied “Yes, we know them personally and we have three generations of friendship and business as we are a three generations old broker from Mumbai and they are three generation in broking from Delhi”. It is the contention that the said statement was broad and vague and cannot be held to establish any sort of business connection between the two groups. It has also contended that merely being a friend on the basis of being well known and respected stock brokers for many years does not establish any sort of business connection between the groups. RRB and HSIL made similar submissions in this regard. According to ACSPL and ISL their names were not mentioned in the statement of Mr. Milan Dalal. I have examined the notice and the said annexure and find that the submissions of the entities to be with merit. It is the contention of the entities that no opportunity of cross examination was granted to refute the relationship of the nature attributed in the notice. Moreover, the said groups also consisted of corporate bodies in addition to three individuals in the HB Group.

Further material is required in the notice to support the allegation that the HB Group and CFL Group are related, and such material is unfortunately lacking therein. Apart from the statement of Mr. Milan Dalal, there is nothing in the notice to establish the alleged connection between the said groups. In this view of the matter, it would be difficult to establish that the two groups are related or connected. As stated above, the trades of the CFL group entities would not be examined in this Order as they are not parties before me in this proceeding. Thus, the notice failed to establish the connection between:

i. HB group and CFL group ii. PTL and GIL iii. PTL and GIL with either HB or CFL group

7. It is the submission of the entities that the trades in the shares of the Company during the period of investigation had involved various stock brokers other than those allegedly connected to HB group and CFL group, such as Birla Sun Life Securities Limited, HDFC Securities Limited, ABN Amro Securities India Private Limited, HSBC Securities Limited, IL&FS, JM Morgan Stanley Securities Private Limited, JMC Capital Markets Limited, Nachiket Securities Limited, Taib Securities Limited, Orbis Securites, Dhanki Securities Limited, Ind Sec Securities Limited, Kotak Securities Limited, Quantum Securities Limited, Rosy Blue Securities Limited, Fincap Portfolilo Limited, Aman Portfolio Private Limited etc. It is the common submission of the entities that SEBI had not initiated any action against most of the aforesaid stock brokers, even though they were counter party stock brokers to the alleged structured trades mentioned in the notice. Mr. H.S. Chandoke, advocate for HSIL, vehemently contended that if a transaction is not structured qua one party, the same cannot be held as structured against the other party to the same transaction.

The said principle, according to him is well settled. The crux of his argument is that, since the synchronized trades are per se not illegal, all the parties to such trades have to be treated on par and thereafter, SEBI has to examine as to whether the parties involved in the said trades had executed the same with any manipulative intent. Leaving out one of the parties to a structured trade, according to him, would mean that the trades of that particular person are bonafide and in such a case, the other parties to the very same trade cannot be alleged to have executed such trade with manipulative intent. I note that, SEBI had initiated enquiry proceedings against the stock brokers, Fincap Portfolio Limited and Aman Portfolio Private Limited in respect of their dealings in the shares of the Company during the investigation period. The enquiry proceedings against Fincap Portfolio Limited was disposed of by SEBI, vide Order dated January 30, 2008, with an observation “ ….. there is no material on record by which it can be concluded that the broker i.e. FPL had colluded with other brokers and clients for executing the said transactions.” Similar observation was made by SEBI in its order dated January 30, 2008 against Aman Portfolio Private Limited.

As contended by the learned counsel, SEBI had not initiated any action against most of the aforesaid stock brokers which acted as counter party stock brokers to the impugned trades mentioned in the notice and annexures attached thereto. It is therefore to be examined whether the trades mentioned in the notice had created artificial volume and that the same were executed with manipulative intent in the light of the following:

A. Connection between HB group and CFL group could not be established adequately by the notice; B. Connection between PTL and GIL could not be established by the notice; C. No allegation in the notice that PTL and GIL belonged to either of the two groups mentioned in the notice; D. No action against most of the stock brokers who were involved in those trades which have been alleged as structured against the entities; E. SEBI orders in respect of Fincap Portfolio Limited and Aman Portfolio Private Limited, observing that they have not colluded with the other stock brokers and clients; F. There is no allegation in the notice that the trades of the entities had artificially influenced the share price, during the period of investigation

As stated above, the trades of the alleged CFL group are not examined in this order, as they are not parties to the present proceedings.

8. The allegation is that the entities had indulged in circular trades, cross deals and structured deals for creating artificial volumes and that the shares sold/purchased by the HB Group/connected groups and entities had ultimately gone to Taurus Mutual Fund (hereinafter referred to as TMF) by entering into structured deals. It was stated in the notice that TMF had purchased 3,38,559 shares (38.69% of the market volume) through various stock brokers (not connected with aforesaid groups of related stock brokers). It was the allegation that, out of the said purchase, TMF had purchased 3,27,913 shares from the counter party clients, namely, HBSL (through stock broker, HB Securities Limited), HBPL (stock broker, HB Securities Limited), ACSPL (through stock broker, HB Securities Limited), ISL (through stock broker, Fincap Portfolio Limited), GIL (through stock broker HB Securities Limited), Tropical Securities & Investments Private Limited (through stock broker, Rosy Blue Securities Limited), CFL Securities Limited (through stock broker, CFL Securities Limited) and PTL (through stock broker Aman Portfolio Limited). The said 3,27,913 shares were traded in 58 trades. It is the allegation that some of the shares were sold to TMF by first selling to another entity and then that entity selling to TMF, ‘many times at higher prices’. I also note that the Annexures also contain the details of purchase by TMF through various stock brokers. As it is alleged in the notice that some of the shares were sold to TMF, by first selling to another entity and then to TMF by the said entity, the trades involving TMF would be examined separately after the other trades are examined.

9. The notice has alleged that the stock broker, HB Securities Limited was involved in 49 structured deals involving 3,45,236 shares constituting 39.45% of the total market volume and that the said trades were matched trades by related/group entities by placing buy and sell orders almost at the same time or with minimum gap of time, for same price and quantity. HB Securities Limited is not a party before me in the impugned notice. One of the allegations in the notice is that HSIL had pledged 1,10,000 shares with HDFC Bank and the said bank sold such shares through HDFC Securities Limited on March 21, 2001, out of which 90,000 shares were purchased by GIL, through HB Securities Limited by entering into structured deals. The notice alleges that the seller in respect of the said transactions was HDFC Bank and the buyer was GIL. It is not clear as to how HSIL can be said to be a seller in respect of the said trades. I note that in Annexure IIIA to the notice, it was mentioned that the seller was HSIL and HBPL and not HDFC Bank. As the notice stated that only HSIL had pledged shares with HDFC Bank, it is also not clear how the name of HBPL is mentioned in the said annexure.

Thus, the allegation in the notice and the details given in the Annexure IIIA are inconsistent with each other. If HDFC bank was selling through HDFC Securities Limited, how could HSIL or HBPL be treated as sellers. The parties to such trades, as can be inferred from the averments in the notice, were HDFC Bank, HDFC Securities Limited, HB Securities Limited and GIL. Further, though, the notice alleges that GIL had purchased 90,000 shares out of 1,10,000 shares sold by HDFC Bank, as per the Annexure IIIA to the notice, GIL had purchased 1,05,000 shares HB Securities Limited. Thus, even with respect to the shares purchased by GIL, the notice is ambiguous. Further, I find no material in the notice to indicate that HDFC Bank Limited had structured its deals with the counter party clients in respect of the said sale of 1,05,000 shares of the Company. I also note from the said Annexure that GIL had placed various buy orders for 1,05,290 shares on March 21, 2001 and the counter party stock broker, HDFC Securities Limited had placed various sell orders for 2,00,000 shares. Further, it is contended by HSIL that no malafides has been attributed to HDFC Securities Limited who was the counterparty to the transaction.

It is further contended that no action was taken against HDFC Securities Limited and HDFC Bank Limited in respect of the said transactions. It has also been vehemently contended by some of the entities that, in a structured deal, all the parties to the deal have to be found fault with and that there can be no differential treatment in this regard. In this context, it is to be noted that, it is not even alleged in the notice that GIL is connected with HB group. It is the contention of the parties that there is no allegation that HDFC Bank Limited and HDFC Securities Limited had executed trades with manipulative intent. In view of the above, no manipulative intent can be attributed to the aforesaid trades in respect of 1,05,000 shares. Considering the totality of the facts and circumstances, GIL and HSIL are entitled for a benefit of doubt in respect of the said transaction.

10. It is noted from Annexure IIIA that, on April 10, 2001, HBSL had purchased 49,882 shares from Tropical Securities and Investments Private Limited (allegedly belonged to CFL group) trading through Rosy Blue Securities Limited. It is not alleged that the counter party stock broker, Rosy Blue Securities Limited is connected to the HB group. I note that the total trades involved 49,882 shares. There were two sell orders of 25,000 shares each, which were matched with various buy orders of 5,000 each. One sell order involved only 300 shares. I note that the time difference between such buy and sell orders varied from 36 seconds to 2 minutes and sixteen seconds. HBSL and Tropical Securities and Investments Private Limited had entered into thirteen trades on that day. Out of that in respect of eight trades, the time difference between buy and sell orders was about 1 minute or more. The time difference was more than 2 minutes in respect of two trades. In all the trades, the minimum time difference was 36 seconds. As stated above, the notice could not sufficiently establish the connection between the HB Group and CFL Group.

Further, the trades between HBSL and Tropical Securities and Investments Private Limited had been executed at `64.50/-and `64.70/-. In this regard, HBSL had submitted that, the closing price for the said day was `64.55/-. The entities had also brought my attention to the price-volume data of the scrip for the investigation period and the pre and post investigation periods. I note from the price-volume data for April 10, 2001, that the scrip opened at `64.25/- and closed at `64.55/-. The intra-day high price was `64.70/- and the low price was `60.20/-. In view of the above reasons, I am of the view that the notice is unable to establish any malafides in respect of the role of HBSL. Further, it could not be established that Tropical Securities and Investments Private Limited and HBSL are related to each other. Besides, no price manipulation has been alleged in the notice in respect of the trade of HBSL or how it affected the trading in the shares of the Company. The Annexure further mentions that on April 11, 2001, HBPL trading through Birla Sun Life Securities Limited had sold 9,300 shares to ACSPL which was trading through HB Securities Limited.

HBPL has contended that the counterparty stock broker Birla Sun Life Securities Limited is an institutional stock broker who was not remotely connected with it. It was further contended that no action had been taken against the said stock broker and submitted that in a structured deal, each and every party involved therein must be dealt alike. HBPL submitted that its trades had been executed in smaller chunks which indicate that they were genuine trades. It was further stated that the trades were at the prevalent market prices and did not constitute either the upper end or the lower band of the circuit filters. It further contended that in the entire notice, there is no allegation as to any price manipulation either by any trading member or by any of the entities. According to it, there is no material on record to allege that HBPL had any game plan of manipulative intent and collusion with other entities or the trading members. ACSPL, the counterparty to the trades of HBPL had also made similar submissions. As discussed above, I find merit in the said submissions. From the available records, I note that no action/proceedings has been initiated against Birla Sun Life Securities Limited in the matter.

Further, the notice does not establish as to how the trades had artificially impacted the trading of the scrip. In view of the above reasons, HBPL and ACSPL are entitled for benefit of doubt.

11. The notice has also alleged that various stock brokers traded in the shares of the Company during the period of investigation, as stated below: i. CFL Securities Limited-executed 34 structured deals involving 2,09,681 shares constituting 23.96% of the total market volume. ii. Rosy Blue Securities Limited-executed 23 structured deals for 2,09,304 shares; iii. Aman Portfolio Limited-executed 18 structured deals for 74,845 shares and iv. Fincap Portfolio Limited-executed 10 structured deals for 83,815 shares.

Annexure IIIB to the notice provides the details of the trades between CFL Securities Limited and Rosy Blue Securities Limited during the investigation period. From the said Annexure, I note that trades involving 1,09,622 shares were executed on April 10, 2001, April 18, 2001, April 19, 2001 and April 24,

2001, where Tropical Securities and Investments Private Limited had sold the said shares to CFL Securities Limited (proprietary account) trading through the stock broker, CFL Securities Limited. The parties to the said trades were CFL Securities Limited (buy stock broker), CFL Securities Limited-proprietary account (buy client), Tropical Securities and Investments Private Limited (sell client) and Rosy Blue Securities Limited (sell stock broker). Since all the aforesaid parties (stock brokers and said clients) to the trades executed on the aforesaid dates are not parties before me in this proceeding, it would not be proper to examine their trades in this Order.

12. The aforesaid annexure also mentions that on April 19, 2001, CFL Securities Limited (proprietary account) trading through CFL Securities Limited had sold 25,000 shares (10,000 shares at `62/- and 15,000 shares at `61) to ISL (trading through Fincap Portfolio Limited). In this regard, ISL submitted that it had purchased 19,970 shares on March 21, 2001 (at `54.93) and 25,000 shares on April 19, 2001 (at `61.50) and that the said purchases accounted for 5.14% of the total purchase volumes which was 8,21,069, as stated in the notice. The counterparty to the trade was CFL Securities Limited, which has been classified as a CFL Group entity. ISL has been linked with Fincap Portfolio Limited through Mr. Vishal Suneja (director of Fincap Portfolio Limited) whose wife had subscribed to the memorandum of ISL. It is also mentioned that Mr. Vishal Suneja was a director of RRB. Assuming for a moment that ISL was connected with the HB Group (with RRB), still the connection between the HB group and CFL Group has not been established from the material available in the notice, as discussed above. Here too, the notice is silent as to how such trades had affected the overall trading of the shares or how the price-volume of the scrip was affected. As stated above, SEBI, while disposing of the enquiry proceedings initiated against Fincap Portfolio Limited, had held that it had not colluded with other stock brokers and clients. It is to be noted that ISL was trading through Fincap Portfolio Limited. For the aforesaid reasons, ISL becomes eligible for benefit of doubt in respect of the said transactions.

13. Annexure IIIB also provides details of the trades executed between CFL Securities Limited (proprietary account) trading through CFL Securities Limited and PTL trading through Aman Portfolio Limited on April 19, 2001. CFL Securities Limited (proprietary account) has sold 25,000 shares to PTL at Rs.61/- on the said day. In this regard, I note that PTL has submitted that, it had purchased 41,000 shares and sold 40,931 shares of the Company through the stock broker, Aman Portfolio Limited. PTL stated that it had purchased and sold 4.68% shares of the total purchase and sell and that the same were executed as normal trade transactions. It submitted that it had sold and purchased shares in the normal course. It also submitted that it traded for only two days–April 19 and 24, 2001, out of the total 27 days. The quantity purchased was small and the difference between the purchase price (`61.71) and the sale price (` 62.06) was less. According to PTL, there was no circular trading and it was not responsible for creating artificial volume in the scrip. It denied its involvement in any way in the alleged structured deals. As discussed above in this Order, there is no material in the notice to establish the linkages between PTL with either the HB Group or the CFL Group. SEBI had already held that Aman Portfolio Private Limited had not colluded with other stock brokers and clients. In view of the above, and in the facts and circumstances of the case, as discussed above, it cannot be said that PTL had had executed the trades with manipulative intent. Further, the notice has also failed to mention as to how its trades had affected the trading of the scrip in the securities market. Therefore, I am persuaded to give benefit of doubt to PTL for the trades executed on April 19, 2001.

14. I have also perused Annexure IIIC to the notice which provides the details of those trades where the stock broker Aman Portfolio Limited was the counterparty stock broker for the trades on April 24, 2001. On April 24, 2001, ISL had sold 15,845 shares while trading through Fincap Portfolio Limited. The counterparty buyer was PTL, trading through Aman Portfolio Limited. No connection has been brought out in the notice between ISL and PTL. ISL has contended that no relationship exists between itself and any of the parties involved in the trades during the investigation period and that it should not be treated as related to the HB Group. As stated above, vide separate orders, SEBI had held that the stock brokers Aman Portfolio Limited and Fincap Portfolio Limited had not colluded with other stock brokers and clients. Further, the notice has not established that PTL was connected with either the HB Group or the CFL Group or how the trades had manipulated the trading in the scrip. Further, as stated above, the notice had not brought out as to how the trades were manipulative in nature and how they affected the securities market. In view of the above reasons, ISL and PTL would be eligible for a benefit of doubt.

15. Annexure IIID provides the details of the trades where the stock broker, Fincap Portfolio Limited was the counterparty to the trades. Other stock brokers involved were, Birla Sun Life Securities Limited and HDFC Securities Limited. From the said annexure, I note that HBPL (trading through Birla Sun Life Securities Limited), on April 11, 2001 had sold 10,000 shares to ISL, which was trading through Fincap Portfolio Limited. HBPL has contended that the said shares were sold at the prevailing prices and that no action was taken against the stock brokers who were also party to the alleged transaction. As said above, from the records available, I find that no action has been initiated against the stock broker, Birla Sun Life Securities Limited in respect of the said transaction. ISL had further contended that there is no connection or relationship between itself and the HB Group companies. Connections through common director in RRB and Fincap Portfolio Limited and a subscriber to the memorandum of ISL, who was the wife of the common director, has been used to link the said entities. Further, there is nothing in the notice to support that the said transaction was executed with a manipulative intent or how it had affected the market for the shares of the company.

In this regard, I note that, as stated above, SEBI had already held that Fincap Portfolio Limited had not colluded with other stock brokers and clients in respect of its transactions. One of the impugned trades in the order (in respect of Fincap Portfolio Limited) was the trade executed on April 11, 2001 for 10,000 shares of the Company, as mentioned above. In view of the said reasons, ISL and HBPL would be entitled for a benefit of doubt in respect of the transaction executed on April 11, 2001. Similarly, on April 21, 2001, HSIL (trading through HDFC Securities Limited) had sold a total of 19,970 shares to ISL, trading through Fincap Portfolio Limited. I note that HSIL has denied the connections with the other entities. ISL has submitted that it had purchased the said shares at the prevailing market rate of `54.93/- and that the said trade was done on delivery basis, with no payment default either by itself or the trading member. I also note that apart from alleging the said transaction was structured, no other malafides have been attributed to the said trades. It is submitted before me that SEBI had not taken any action against HDFC Securities Limited.

Further, no allegation of price manipulation has been leveled. Merely stating that a trade was structured would not suffice and something more needs to be attributed to the trades to show how it manipulated the shares and its effect on the price-volume of the scrip. A charge of violating the provisions of the PFUTP Regulations is a serious one. No collusion between Fincap Portfolio Limited and the other stock brokers or clients has been established, as stated above. In view of the same, HSIL and ISL would be entitled for a benefit. Further there is no material to establish that the trades were fictitious. Two more trades on April 17, 2001 have been mentioned in the said annexure involving TMF as one of the parties. The said transactions would be examined subsequently in this Order.

16. The notice has also alleged that HB Securities Limited had entered into 53 cross deals for 62,526 shares. Though, the allegation is against the said stock broker, the parties to the trades are the persons to whom the notice in the matter has been issued. It has been mentioned that HBPL and HBSL are the buying clients and the sellers were Ms. Mamta Kapur, Mr. Lalit Bhasin, Ms. Anju Bhasin, H C Bhasin & Sons HUF, RRB and ACSPL. It has been further stated that the time differences between the buy and sell orders pertaining to the said trades were in the range of 7 seconds to 5 minutes. The said cross deals constituted about 7.14% of the total market volume of 8,75,137 shares during the period of investigation. It has been alleged that all the above clients and the stock brokers are related/connected to one another. The details of those transactions were enclosed with the notice in Annexure III E. I have perused the said annexure and note that such cross deals were executed on April 4, 2001 for 39,306 shares and on April 10,

2001 for 23,220 shares. On April 4, 2001, the sellers were Ms. Mamta Kapur, Mr. Lalit Bhasin, H C Bhasin & Sons HUF, Ms. Anju Bhasin and RRB. The buyer was HBPL. In this regard, Mr. Lalit Bhasin inter alia submitted that he had undertaken a single transaction on April 4, 2001 selling 21,000 shares of the Company and that the said shares were acquired by him not less than seven years before the said sale. Ms.Mamta Kapur had submitted that her transaction during the investigation period was a onetime transaction of sale of 3,490 shares which were old shares purchased by her in physical form atleast seven years prior to the investigation period. Ms. Anju Bhasin had also made a similar submission stating that she had sold 2,584 shares on April 4, 2001 being her only transaction during the investigation period. H C Bhasin & Sons HUF has also submitted that its sale of 8,486 shares was a onetime transaction during the entire investigation period. All the aforesaid persons have contended that their trades formed a very small percentage of the total traded volumes and the same was enough to rule out any market manipulation in terms of creation of artificial price or volume.

In respect of the said charge, HBPL submitted that the notice was issued to it in the matter involving its purchase of 39,330 shares (on April 4, 2001) of the Company and the sale of 61,500 shares (between April 9 and 12, 2001) at the then ruling market price, with a net sale of 22,170 shares. HBPL has submitted that the said transactions were genuine trades executed by it through a stock broker and made through the screen of the NSE and that delivery and payments were made. It contended that there was no intention to manipulate the market in terms of creation of artificial price or volume as its trades were limited to a few transactions at the then prevailing market rate. It was the submission of the aforesaid parties that even the notice had mentioned that their individual volume was comparatively less. According to them, the only reason for including their trades is because they belonged to the group. Further, it is the contention that allegations were contrary to the SEBI Circular dated September 14, 1999 which deals with negotiated deals. As regards the movement of shares from the Bhasin family to HBPL and then to TMF, it was submitted that the said trades were genuine, executed at market rates and backed by delivery and payment.

It was further submitted that there was considerable time difference (4-5 minutes) between the sell order of the Bhasin family (Lalit Bhasin, Mamta Bhasin, HC Bhasin & Sons HUF and Anju Bhasin) and the purchase by HBPL and that there was gross difference in the purchase order quantity of TMF (1,10,000 shares) and the sale quantity of HBPL (36,900). I find that the sellers were the family members of the “Bhasin family” and RRB, whose promoter was Mr. Lalit Bhasin. Mr. Lalit Bhasin was also a director in the stock broker, HB Securities Limited, which had executed the impugned cross deals. In these circumstances, it has to be inferred that the trades could have been structured. However, the next step would be to find whether the said trades were executed with malafide and were done with an ulterior purpose. I note that the trades were executed at `57/- on the said day. No charge has been leveled in the notice that the price was artificially taken up on the said day because of the said trades. There is no material in the notice to allege that the parties concerned had placed orders at prices higher that the last traded prices.

Most importantly, the entire notice does not explain how the trades of the entities had manipulated the share price. Further, no malafide intent could be borne out from the details contained in the show cause notice. In view of the same, I am unable to find any malafide. The benefit of doubt goes to the parties concerned.

17. I find that the notice has also alleged that Fincap Portfolio Limited has executed a cross deal involving 19,970 shares for ACSPL as the buyer and ISL as the seller, on April 24, 2001. It was found that the difference between the buy and sell orders was 8 seconds and that the said deal constituted 2.28% of the total market volume (8,75,137 shares). The details of the transaction were provided in Annexure IIIE to the show cause notice. ISL admitted having sold the said shares and submitted that it sold 35,815 shares on a single day (i.e. April 24, 2001) which accounted for 4.09% of the overall sell volume. According to ISL, it was not related to ACSPL as it was not part of the HB Group and not related with any of the group companies of the HB Group, as wrongly shown in the show cause notice. ISL has also submitted that it had no intention to manipulate the market. ACSPL had inter alia submitted that all its transactions were genuine and there was transfer of beneficial ownership and the transaction was backed by delivery and payment. No collusion between Fincap Portfolio Limited and the other stock brokers or clients has been established, as stated above. I also find that the notice had merely alleged that the entities had indulged in cross deals and fails to provide further details as to how the said transactions had affected the equilibrium of the securities market in the said scrip. The notice is also silent as to whether the said trades had affected the share price. Though, artificial volumes has been alleged, the notice lacks material to substantiate the allegation, when the entities have specifically contended that the transactions were genuine and backed by delivery and payment of consideration. As the notice falls short in attributing malafides and supporting the same with material evidence, I am unable to find any unfair or fraudulent trade practices by the entities concerned in respect of the aforesaid transactions.

18. The next allegation leveled in the notice is that the shares sold/purchased by the HB Group/connected groups and entities have ultimately gone to TMF through structured deals. The notice states as below, with respect to the transactions of TMF with that of the entities:

a. Large number of cross deals and structured deals involving connected/related stock brokers and clients were executed which created large volume of artificial trading and that a major portion of these shares were sold to TMF, many times at higher prices by the entities. b. TMF was also a party to such transactions, where it made a number of purchases which were sold by their own group entities as clients on the other side through a stock broker belonging to the sponsors of TMF. 19. I note that the notice had mentioned that TMF had purchased 3,38,559 shares of the Company through various stock brokers. The notice itself has mentioned that the said purchases were made through stock brokers not connected with the groups of related stock broker. The notice also mentioned that the purchase position of TMF was 38.69% of the total market volume of 8,75,137 shares during the investigation period. It was further mentioned that, for the purchases of 3,27,913 shares, the counter party clients have been the following:– i. HBSL, HBPL, ACSPL and GIL (trading through HB Securities Limited) ii. ISL (trading through Fincap Portfolio Limited) iii. Tropical Securities and Investments Private Limited (trading through Rosy Blue Securities Limited) iv. CFL Securities Limited (trading through CFL Securities Limited) and v. PTL (trading through Aman Portfolio Limited) It has also been mentioned that the trades for the said 3,27,913 shares were executed in 58 trades. Out of the said trades, for 41 trades, the order time difference between the buy and sell orders ranged from 0 second to less than 2 minutes; for 8 trades, the difference was between 2 to 3 minutes, and for 9 trades, the time difference was between 5 to 6 minutes. The notice has alleged that out of the above mentioned trades by TMF, some of the shares were sold to it by first selling to another entity and then that entity sold the shares to TMF sometimes at a higher price. The notice has also provided the alleged manner in which the shares had moved from one entity to another and then finally to TMF. The same are discussed herein below.

20. It was alleged that HSIL had sold 1,05,000 shares to GIL on March 21, 2001. It is also noted from Annexure IIIA, that on April 9, 2001, GIL has sold 91,900 shares, which were purchased by the said mutual fund. It is the allegation in the notice that HSIL had pledged certain shares with HDFC Bank and that the said bank sold the shares to GIL on March 21, 2001. The purchase by GIL on March 21, 2001 was already discussed in paragraph 9 above in this Order and held that GIL and HSIL are entitled for a benefit of doubt in respect of the said transactions. It has also been alleged that GIL had on April 9, 2001, sold 91,900 shares in the price range- `60/- to `64/-through HB Securities Limited and the same were purchased by TMF trading through two stock brokers by entering into structured deals. On the said date, TMF had purchased 47,900 shares through HSBC Securities Limited and purchased 44,000 shares through the stock broker, J M Morgan Stanley Securities Limited. I find that the common argument that has been advanced is that in a structured deal, all the parties concerned should be faulted and that the said trades cannot be structured qua one party and not so against the others. I find from the available records that no action has been initiated against HSBC Securities Limited and J M Morgan Stanley Securities Limited, who were the counterparty stock brokers in the said impugned trades involving GIL and TMF. Further, even as per the notice GIL and the HB group are not connected. Though, GIL has not filed its response to the notice or appeared in the hearing before me, equity and fair play requires that similar treatment needs to be afforded to all the parties. No action against the said stock brokers would presumably mean that they have not been found to be responsible for indulging in the alleged structured deals. No price manipulation has been alleged in the notice in respect of the said transactions. In such circumstances, it is difficult to establish any unfair trade practice or fraudulent trade practice by GIL. It is not clear from the notice as to whether the sale of shares to TMF was at a price higher than the prevailing market price. Besides, as stated above, GIL is entitled for a benefit of doubt in respect of its purchase on March 21, 2001. In view of the above, GIL is to be given a benefit of doubt.

21. The notice mentioned that during settlement no.14 (on April 4, 2001), Mr. Lalit Bhasin along with his three family members viz. Ms. Mamta Kapur, H C Bhasin & Sons HUF and Anju Bhasin, and RRB sold 39,348 shares through HB Securities Limited. The orders were placed at `57/- and the shares were purchased by HBPL trading through HB Securities Limited. The said transaction has been found to be without any malafide as already observed above in this Order. The notice mentions that HBPL had sold 36,900 shares at `64/- on April 9, 2001 and 3,000 shares at `64.25/- on April 10, 2001 through HB Securities Limited. The shares sold on April 9, 2001 were purchased by TMF trading through two stock brokers, namely ABN Amro Securities India Private Limited and HSBC Securities Limited. The said transactions had been alleged to be structured. As regards the said transaction, I note from Annexure IIIA that HBPL (trading through HB Securities Limited) had sold 34,900 shares to the said mutual fund, which was trading through ABN Amro Securities India Private Limited. HBPL had sold another 2000 shares to TMF which was trading through HSBC Securities Limited. Further, it has not been mentioned in the notice as to how the said trades had affected the market in terms of price-volume. The same would be material to establish violation of Regulation 4 of PFUTP Regulations. In this view of the matter, the entities would be entitled for a benefit of doubt. The notice has also mentioned that the shares sold by HBPL on April 10, 2001 were purchased by HBSL trading through HB Securities Limited and that the said transactions were cross deals. As discussed above, no allegation had been leveled in respect of the said transaction as to whether it resulted in manipulation of the market in the shares of the Company by interfering with the price-volume; I am persuaded to afford benefit of doubt to the entities concerned.

22. The notice had mentioned that Tropical Securities and Investments Private Limited had sold 2,09,569 shares through Rosy Blue Securities Limited (Member, NSE) during the investigation period in the following manner:

a. on April 10, 2001 (Settlement 14), Tropical Securities and Investments Private Limited sold 50,000 shares which were purchased by HBSL trading through HB Securities Limited b. on April 11, 2001 (Settlement 15), Tropical Securities and Investments Private Limited had sold another 50,000 shares which were purchased by TMF trading through two stock brokers; and c. on April 18, 19 and 24, 2001 (during settlement 16), Tropical Securities and Investments Private Limited sold 75,000, 34,000 and 524 shares, respectively, which were purchased by CFL Securities Limited (in its own account).

It was further observed that on April 19, 2001, CFL Securities Limited sold 75,000 shares at `61/-, out of which 25,000 shares were purchased by ISL trading through Fincap Portfolio Limited and 50,000 shares purchased by PTL trading through Aman Portfolio Limited. Further, on April 23 and 24, 2001, CFL Securities Limited had sold 55,000 shares at `60/-, which were purchased by TMF, trading through four stock brokers. It has been alleged that all the said transactions were structured deals and that CFL Securities

Limited had sold the shares purchased by it in the same settlement (no.16). I have noted the aforesaid trades of the entities concerned and find that they deserve benefit of doubt inter alia for the reason that the notice has not been able to support the allegation that HB and the CFL Group were related to each other. Further, the trades of HBSL have already been held to be without malafide intent for the reasons stated above in this Order. SEBI, vide its earlier Order had already concluded that the stock brokers, Fincap Portfolio Limited and Aman Portfolio Limited had not colluded with other stock brokers or clients in respect of their transactions. The said transactions are mentioned above in detail. As regards the trades on April 11, 2001, I note from Annexure IIIB that TMF had purchased 24,800 shares (trading through Kotak Securities Limited) and 25,000 shares (while trading through Quantum Securities Limited) from Tropical Securities and Investments Private Limited trading through Rosy Blue Securities Limited. As both the parties and their respective stock brokers are not parties before me in this proceeding, I do not wish to record any finding in respect of the said transaction.

As regards the trades on April 19, 2001, I note from Annexure IIIB that CFL Securities Limited had sold 25,000 shares to ISL trading through Fincap Portfolio Limited. The said transaction has already been held not to be structured, for the reasons stated above. CFL Securities Limited and PTL, the parties to the trades for 25,000 shares on April 19, 2010 have already been afforded benefit of doubt. I would also observe here that, though the notice mentions that 50,000 shares were purchased by PTL, the said Annexure mentions the details of trades pertaining to only 25,000 shares. It has also been alleged that the trades on April 23 and 24, 2001, the sale of 55,000 shares by CFL Securities Limited at Rs.60/- to TMF, were structured and that CFL Securities Limited had sold the shares purchased by it in the same settlement (no.16). In this regard, I note from Annexure IIIB that TMF had purchased 24059 shares while trading through Dhanki Securities Limited; 12,800 shares while trading through Taib Securities (India) Limited; 3200 shares while trading through KJMC Capital Markets Limited; and 10,000 shares while trading Insec Securities Limited.

The parties to the said transactions (clients as well as their respective stock brokers) are not parties before me in this proceeding. Therefore, I do not wish to record any findings in respect of the aforesaid trades.

23. The notice has also mentioned that ISL was not holding any shares of the Company as on March 13, 2001. Thereafter, it had purchased 19,970 shares at `54/- to `55/- on March 21, 2001; 10,000 shares at `63/- on April 11, 2001 and 25,000 shares at `.61-62/- on April 19, 2001 through the stock broker, Fincap Portfolio Limited and that the respective selling clients were HBSL (through HB Securities Limited), HBPL (Birla Sun Life Securities Limited) and CFL Securities Limited (proprietary account). ISL had sold 13,000 shares at `59.50/- on April 17, 2001; 19,970 shares at `64/- on April 24, 2001; and 15,845 shares at `.62/- on April 24, 2001, through Fincap Portfolio Limited. The respective buyers were TMF, ACSPL (through Fincap Portfolio Limited) and PTL (through Aman Portfolio Limited). It was alleged in the notice that all the said deals were structured. I note that the counterparty to the trades on March 21, 2001 was HSIL (as mentioned in Annexure IIID and not HBSL, as mentioned in page 5 of the notice). Further, ISL has been afforded benefit of doubt for its trades on March 21, 2001, April 11, 2001 and April 19, 2001, for the reasons stated above in this Order. As regards the trades for 13,000 shares, I note that ISL trading through Fincap Portfolio Limited had sold the said shares to TMF trading through Birla Sun Life Securities Limited. ISL stated that it is not connectied with the HB Group and that SEBI had not initiated any action against Birla Sun Life Securities Limited. In view of the above reasons, ISL would again be entitled for a benefit of doubt in respect of the said trade. Further, ISL and PTL, the parties to the trades on April 24, 2001 involving 15,845 shares, have already been given benefit of doubt, for the reasons stated above in this Order. As regards the transaction on April 24, 2001 involving 19970 shares, in the paragraph above, it has been observed that the notice had failed to provide details as to how the said cross deal had manipulated the shares of the Company in the securities market. Therefore, I am of the considered view that the benefit of doubt needs to be afforded to the entities concerned for the said transaction.

24. The notice has mentioned that PTL had purchased 25,000 shares at `61/- on April 19, 2001 and 15,845 shares at `62/- on April, 24, 2001, through Aman Portfolio Limited. The respective selling clients for these purchases were CFL Securities Limited (own account) and ISL (through Fincap Portfolio Limited). As stated above, the concerned entities involved therein have already been afforded benefit of doubt for the said trades. I note that the notice also mentioned that during settlement (no.16), PTL, on April 24, 2001 sold 41,100 shares at `62/- through Aman Portfolio Limited and the said shares were purchased by TMF trading through four stock brokers. It has been alleged that the said transactions have been structured. In this regard, I note from Annexure IIIC that PTL had sold 34,000 shares to TMF. TMF had purchased 6800 shares trading through KJMC Capital Markets Limited; 20,000 shares through Nachiket Securities Limited; and 7200 shares through Taib Securities Limited. As said earlier, PTL has denied the linkages with the HB Group and the CFL Group and contended that SEBI has not produced any evidence regarding its connections with the HB Group and the CFL Group.

It has stated that its trades were executed as normal trade transactions. It further submitted that there was no circular trading and that it was not responsible for creating artificial volume in the scrip and denied its involvement in anyway in the structured deals. It was also submitted that it sold and purchased shares in the normal course and that it could be possible that some shares might have been purchased by TMF. The entities have submitted that all the parties involved in the impugned and alleged structured trades have not been proceeded against by SEBI. TMF had traded through four stock brokers as mentioned above and I find from the available records that no action has been initiated against them. As already found above, no connection between PTL and the other entities would be established on the basis of the notice. Further, it is not the allegation in the notice that the shares were sold to TMF at a price higher than the prevailing market price. It is also pertinent to note that the notice is silent as to whether the entities mentioned therein had artificially increased the share price.

Further, as said earlier, no linkages could be established between TMF (or HB Group) with PTL, from the material available in the notice.

25. The notice has mentioned that ACSPL was holding 250 shares as on March 13, 2001. It was observed, during Settlement no.12 (March 21-24, 2001) that the said entity purchased 19,970 shares in off-market and sold 20,220 shares through HB Securities Limited during Settlement no.14. ACSPL has contended that there is no allegation of nexus with the stock brokers with whom the trades have been executed, or creation of artificial and misleading appearance of trading or artificially raising the share price with manipulative intent. The said shares were purchased by HBSL through HB Securities Limited. HSBL has contended that ACSPL does not form part of the list of group companies of the HB Group and that the alleged connection between ACSPL and the HB Group is based solely on the fact that the former was a ‘shareholder’ of HBSL. As mentioned above, the notice does not allege price manipulation by either of the entities because of the said trades. There is no material in the notice to establish that the trades were artificial. Considering the notice and in view of the above reasons, it would be difficult to deduce that the trades are unfair or fraudulent or have been structured. The notice has also mentioned that ACSPL purchased 3,050 shares during Settlement no.14 and further purchased 9,400 shares during settlement no.15. The seller for the said transaction was HBPL trading through Birla Sun Life Securities Limited. Further, it was alleged that ACSPL (trading through HB Securities Limited) sold 11,754 shares to TMF at `59.50/- (trading through Birla Sunlife Securities Limited). With respect to the aforesaid trades also, the notice has failed to explain as to how the impugned trades had affected the price-volume of the shares during the relevant period. Therefore, ACSPL, HBSL and HBPL would be eligible for a benefit of doubt for the transactions discussed above.

26. As per the notice, TMF had purchased shares of the Company as per the details given below: i. April 9, 2001-84,800 shares @ `64/- and 54,500 shares @ `60/-ii. April 11, 2001–49,800 shares @ `62/- and `62.50/-iii. April 17, 2001–13,000 shares @ `59.50/-iv. April 23, 2001–24059 shares @ `60/- v. April 24, 2001–60,000 shares @ `62/-

I observe that the closing share price of the Company on April 6, 2001 was `61.45/-. The opening price on April 9, 2001, was `59.05 and the high price `66.25/-. As per the notice, the entities had not sold at `66.25/-. Their sale was at `60/- and `64/-, which were within the day’s price fluctuations. From the notice, it is not clear as to whether the entities had established a higher price on the said day. Similarly, on April 11, 2001, the entities had traded at `62/- and `62.50/-. On the said day, the scrip opened at `64/- and the high price registered was `64/-. Therefore, it can be seen that the entities had placed orders within the price range for the day. No material is brought in the notice to find them responsible for establishing a higher price for the day. The trades executed on April 17, 23 & 24, 2001, have all been done for prices within the range for the said days. The notice is silent as to whether the entities had traded for establishing the share price at a higher level during the investigation period.

27. The notice has charged the 12 entities for executing structured deals and alleging that they had purchased the shares of the Company and later sold them to TMF at a higher price. The entities have been alleged of contravening Regulation 4(a), (b), (c) and (d) of the PFUTP Regulations. The said Regulation is reproduced herein below for reference:

“Prohibition against Market Manipulation 4. No person shall - (a) effect, take part in, or enter into, either directly or indirectly, transactions in securities, with the intention of artificially raising or depressing the prices of securities and thereby inducing the sale or purchase of securities by any person; (b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market; (c) indulge in any act which results in reflection of prices of securities based on transactions that are not genuine trade transactions; (d) enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress, or cause fluctuations in the market price of securities; (e) ……………..”

28. The entities have made the following submissions:

a. That their trades were executed in the normal course; b. That their trades were genuine which resulted in deliveries and payments were made; c. That their trades were miniscule to affect the market volumes; d. That the price was more or less same in the pre and post investigation periods; e. That price manipulation has not even been alleged in the show cause notice; f. That other entities (stock brokers or clients) to the alleged structured transactions have not been proceeded against by SEBI; and g. No material in the notice to show how the impugned trades had affected the market.

29. I find that the notice had merely stated that the entities of the HB Group and the CFL Group have traded for 79.80% (on the buy side) and 77.09% (on the sell side) and that PTL and GIL have traded 16.73% and 15.88% on the buy and sell sides respectively. The notice, as discussed above, had failed to provide further explanation as to how the trades of the entities had influenced the trading in the shares of the Company. Further, no material is available as to how the trades had affected the traded volumes during the investigation period or afterwards. Further, the notice had failed to even allege that the trades of the entities had affected the share prices during the investigation period. There is also no material to establish that the share price had artificially increased because of the trades of the entities. Further, the notice is silent as to how the trades of the entities are manipulative in nature. It was contended that the transactions were genuine trades made through the screen of the NSE and delivery and payments were made. It was also contended that the average price of the scrip, both prior to and after the investigation period was higher than the average price during the investigation period. According to the entities, the increase of approximately `15/- constitutes approximately 30% increase over a 44 day period, during the investigation period, which was not unusual as far as the scrip was concerned. They submitted that the share price of the Company had increased from `51.05/- to `77.85/- i.e. an increase of `26.80/- in 29 trading days during the pre-investigation period (January 1, 2001 to February 12, 2001). The said increase was much higher than the increase during the investigation period. There was no case in the notice that the entities were involved in the trades during the pre-investigation period. It was the contention of the entities that their trades in the shares of the Company during the investigation period accounted for a miniscule volume without any impact in the trading in the shares of the Company in the securities market.

30. Further, I find no material in the notice to establish that the entities indulged in any act, which is calculated to create false or misleading appearance of trading on the securities market. The entities have strongly contended that their trades were supported by payments and deliveries. Therefore, as stated above, the notice could not sufficiently establish that the entities have violated Regulation 4(b) of the PFUTP Regulations. It is not even alleged in the notice that the trades of the entities in the shares of the Company during the period of investigation had caused the fluctuations in the share price. There is no allegation of price manipulation in the entire notice. Further, it is also not shown in the notice as to whether the entities had placed orders higher than the prevailing market prices, thereby increasing the share price. No allegation is present in the notice that the entities had undertaken such alleged structured trades for the purposes of maintaining the share price or artificially raising it. In view of the above, it would be difficult to find the entities guilty of violation of Regulation 4(a), (c) and (d) of the PFUTP Regulations.

As per the notice, TMF had purchased 3,38,559 shares during the investigation period and that it had purchased 3,27,913 shares from the alleged HB group and CFL group, PTL and GIL. It is already held that the notice could not establish the connection between HB group and CFL group. Further, there is no allegation in the notice that PTL and GIL are connected to HB group. As per the notice, the entities including the CFL group had sold 8,37,293 shares of the Company during the investigation period. According to the entities, if their intention was to accumulate shares for offloading them later to TMF at higher prices, as alleged in the notice, they should have sold their entire sell to TMF, which had not happened in this case. It is for the said reason, according to them, the charge of selling the shares at higher prices to TMF would not be sustained. In this regard, I also note that the entities namely, HBSL,HBPL, ACSPL and ISL had together purchased, as per the notice, 2,23,026 shares. On the other hand, they had sold only 1,02,154 shares to TMF, as can be seen from the annexures attached to the notice.

Nowhere, it is alleged that the entities were selling shares to TMF at prices higher than the prevailing market price. PTL and GIL, which have not been found to be connected, even according to the notice, to either the HB or CFL group and between themselves, have sold 34,000 shares and 91,900 shares respectively to TMF. Thus, at the most, the details in the notice may give an indication that the entities contributed to the volumes. However, merely alleging volumes, without explaining how the same had manipulated the scrip would serve no purpose, in the facts and circumstances of the present case, particularly when the allegation against the entities is that of contravening Regulation 4 of the PFUTP Regulations. It is also to be noted that there was no allegation that the entities created artificial price in the shares of the Company. Besides, no malafides could be established in respect of the trades mentioned in the notice. Further, the trades as mentioned in the notice and in the annexures enclosed with the notice have been independently examined and have been held that the entities concerned would be eligible for a benefit of doubt, for the reasons stated therein.

31. In view of the foregoing, I am of the considered view that the entities would be entitled for a benefit of doubt in respect of the charge of violating Regulation 4(a),(b),(c) and (d) of the PFUTP Regulations, as alleged in the notice issued to them.

32. Therefore, I in exercise of powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 and Sections 11, 11(4) and 11B thereof and read with Regulations 11 and 13 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, hereby dispose of the show cause notice dated August 19, 2004 issued to Har Sai Investments Limited, Gloria Investments Limited, HB Stockholdings Limited, HB Portfolio Limited, Ivory Securities Limited, Penwell Traders Limited, Alaknanada Capital Services Private Limited, Mr. Lalit Bhasin, H. C. Bhasin & Sons (HUF), Ms Anju Bhasin, Ms Mamta Kapur and RRB Securities Limited in respect of their dealings in the shares of DCM Shririam Consolidated Limited for the period between March 12, 2001 and April 24, 2001, without any directions.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

PLACE: MUMBAI DATE: OCTOBER 8, 2010