Order in the matter of enquiry proceedings against Finquest Securities Pvt. Ltd.

Order in the matter of enquiry proceedings against Finquest Securities Pvt. Ltd.

WTM/AB/IVD/ID5/16250/2022-23 SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: ANANTA BARUA, WHOLE TIME MEMBER

ORDER Under Section 12(3) of Securities and Exchange Board of India Act, 1992 read with Regulations 27 of Securities and Exchange Board of India (Intermediaries) Regulations, 2008

In respect of: S. No. Name of the intermediary Registration No.

1. Finquest Securities Pvt. Ltd. INB231236531 INB011236537

In the matter of Crest Ventures Ltd.

1. The present matter emanates from a show cause notice dated August 25, 2020 (hereinafter referred to as “SCN”) issued to Finquest Securities Pvt. Ltd. (hereinafter referred to as “Noticee”) under Regulation 28(1) of the SEBI (Intermediaries) Regulations, 2008 (hereinafter referred to as “Intermediaries Regulations, 2008”) calling upon it to show cause as to why action as recommended by the Designated Authority or any other direction/ penalty as deemed fit should not be issued/imposed on it in terms of Regulation 28 (1) of the Intermediaries Regulations, 2008. The SCN enclosed with it the Report of the Designated Authority (hereinafter referred to as “Enquiry Report” or “ER”). The ER had made the following recommendation: “….in terms of the provisions of regulation 27 of the Intermediaries Regulations read with section 12(3) of the SEBI Act and regulation 27 (xiv) of the Brokers Regulations, I hereby recommend suspension of the certificate of registration granted to the Noticee i.e. Finquest Securities Limited (PAN No.: AABCB7028F) as stock broker for a period of six months.”

2. The ER observed that the Noticee has violated the provisions of Sections 12A (a), (b) and (c) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “SEBI Act, 1992”) read with Regulations 3 (a), (b), (c) and (d), 4 (1), 4 (2) (a) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as “PFUTP Regulations, 2003”) and Clause A(2) of the Code of Conduct specified under Schedule II read with Regulation 9 of the SEBI (Stock Brokers) Regulations, 1992 (hereinafter referred to as “Stock Brokers Regulations, 1992”). 3. The ER states that Securities and Exchange Board of India (hereinafter referred to as “SEBI”) conducted an investigation into the alleged irregularities in the trading in the shares of Crest Ventures Ltd. (hereinafter referred to as “Crest”) during the period December 15, 2011 to October 09, 2014 (hereinafter referred to as “Investigation Period”) for possible violation of the provisions of the SEBI Act, 1992 and various rules and regulations framed thereunder. 4. The ER further makes the following allegations/observations: 4.1. The price volume data of the scrip of Crest at BSE and NSE for the period before, during and after the Investigation Period was noted as mentioned in following graphs and tables:

Chart-1: Price Volume movement of scrip of Crest at BSE 3200000 70 No.of Shares Close Price 2700000 60 2200000 50 1700000 40 1200000 30 700000 20 200000 10 -300000 0

Table-1: Price movement of scrip of Crest at BSE Total Period Dates Open High Low Close Vol/(Avg. Vol.) 74.8 45.4 Pre Price 55.55 52.55 15/09/2011- (26/10/2011) (21/11/2011) 3289483/ Investigation 14/12/2011 169973 404 54824 Period Vol 404 12129 (25/10/2011) (15/09/2011) 66.70 46.45 Price 54.95 67.05 Patch 1 (Rise) 15/12/2011- (30/03/2012) (30/12/2011) 6487707/ 30/03/2012 718750 1626 85365 Vol 49290 70078 (12/03/2012) (16/12/2011) Patch 2(Fall) 67.85 25.30 Price 65 27.9 (No trading on 02/04/2012- (04/04/2012) (28/10/2013) 5322464/ Mar 31 & Apr 29/10/2013 642241 1 14043 Vol 52238 11409 1, 2012) (03/04/2013) (8 instances) 60.15 27 Price 28.4 60.15 Patch 3 (Rise) 30/10/2013- (22/01/2014) (05/11/2013) 799675/ 22/01/2014 71962 6683 71962 13554 Vol 10797 (22/01/2014) (03/11/2013) 61.9 26.05 Price 61.9 29.5 Patch 4(Fall) 23/01/2014- (23/01/2014) (14/05/2014) 3901573/ 14/05/2014 3061574 1 54952 Vol 36323 532 (28/03/2014) (05/02/2014) 64.5 26.4 Price 28.15 (30/09/2014) 55.5 Patch 5(Rise) 15/05/2014- (16/05/2014) 787282/ 09/10/2014 8652 630817 16 Vol 1934 1575 (20/05/2014) (24/09/2014) 55 41.65 Post Price 53 49.5 226062/ 10/10/2014- (05/01/2015) (28/102014) Investigation 4614 08/01/2015 87187 20 period Vol 1575 710 (01/12/2014) (14/11/2014)

Chart-2: Price Volume movement of scrip of Crest at NSE

800000 80 Total Traded Quantity Close Price 700000 70 600000 60 500000 50 400000 40 300000 30 200000 20 100000 10 0 0

Table-2: Price movement of scrip of Crest at NSE

Period Dates Open High Low Close Total Vol/(Avg. Vol.) Pric 70.95 45.55 Pre 15/09/2011- e 58.00 (17/10/2011) (18&24/11/2011) 55 3123530/5205 Investigatio 14/12/2011 137630 5 9 n Period Vol 5 (30/09/2011) (15/092014) 8608 Patch 1 Pric 67.50 48.05 (Rise) e 55 (30/03/2012) (23/12/2011) 66.85 15/12/2011- 6610997/8698 (No trading 30/03/2012 7 on Mar 31 & 743121 157 Apr 1, 2012) Vol 39200 (26/03/2012) (26/12/2011) 126040 Pric 02/04/2012- e 66.85 69.70 27.35 28.50 3557740/1081 Patch 2(Fall) 29/10/2013 636451 1 4 Vol 20010 (25/02/2013) (6 times) 10218 Pric 61.7 26.4 Patch 3 e 28.30 (22/01/2014) (05/11/2013) 61.45 30/10/2013- (Rise) 100426 936092/15866 22/01/2014 (22/01/2014) 5321 Vol 10465 (03/11/2013) 100426 Patch 4(Fall) 23/01/2014- Pric 63 25 259947/3880 14/05/2014 e 61 (23/01/2014) (09/05/2014) 28.05

35287 1 Vol 35287 (23/01/2014) (04/03/2014) 268 Pric 63.45 26 Patch 15/05/2014- e 27 (30/09/2014) (15/05/2014) 60.95 5(Rise) 35656/502 01/10/2014* 2299 1 Vol 497 (21/05/2014) (6 times) 1 Pric 59.95 41 Post 13/10/2014*- e 57.95 (05/0/2015) (05/0/2015) 49 Investigatio 16078/595 08/01/2015 3452 1 n period Vol 1 (05/0/2015) (13/10/2014) 105 *no trading till 12/10/2014 4.2. It was noted that during the Investigation Period, no major corporate announcements were made by Crest other than declaration of financial results and outcome of Board Meetings. The financial results of Crest as disseminated on bseindia.com were as follows: Table 3: Annual financial results of Crest during the investigation period ₹ in Million Particulars 31-Mar-2015 31-Mar-2014 31-Mar-2013 31-Mar-2012 Revenue 1013.3 342.24 117.34 124.67 Other Income 5.06 1.92 0.14 0 Total Income 1018.36 344.16 117.48 124.67 Expenditure -808.11 -253.49 -35.85 -31.9 Interest -68.64 -80.98 -60.85 -50.21 PBDT 141.61 9.69 20.78 42.56 Depreciation -1.52 -0.41 -0.45 -0.51 PBT 140.08 9.28 20.33 42.05 Tax -30.1 2.34 0.1 2.53 Net Profit 109.98 11.62 20.43 44.58

From the above table, it is observed that Crest had reported net positive profit during the financial Years 2012-2015. After declining in the Financial Year 2012-13, the net profit had again increased in Financial Year 2014-15. 4.3. It was observed that following were the top 10 buy-broker and sell-broker who had traded in the scrip of the Crest during the Investigation Period at BSE and NSE: Table 4: Broker Concentration in the scrip of Crest % of Buy Broker Name Total Selling Broker Name Total % of Trd Vol Trd Vol BSE

Finquest Securities 40,23,069 23.26 ITI Financial Services Ltd. 32,14,181 18.58 Pvt.Ltd. Iti Financial Services Ltd. 37,16,609 21.49 Finquest Securities Pvt.Ltd. 30,84,924 17.83 Anand Rathi Share & Stock 19,24,210 11.12 Anand Rathi Share & Stock 19,35,520 11.19 Brokers Ltd. Brokers Ltd. Nirman Share Brokers 12,38,838 7.16 Bharat J.Patel 15,43,702 8.92 Pvt.Ltd. Iti Securities Ltd. 7,30,251 4.22 Nirman Share Brokers 12,38,838 7.16 Pvt.Ltd. Bharat J.Patel 5,52,691 3.20 Vedika Securities Pvt.Ltd. 6,02,500 3.48 Oracle Securities Pvt.Ltd. 3,85,400 2.23 Ashlar Securities Private 3,49,033 2.02 Limited Ashlar Securities Pvt.Ltd. 3,50,507 2.03 Fortune Equity Brokers (India) 3,35,000 1.93 Ltd. Mpse Securities Ltd. 3,08,775 1.79 Mpse Securities Ltd. 3,08,775 1.79 Focus Shares & Securities 2,61,925 1.51 Focus Shares & Securities 2,63,509 1.52 Pvt.Ltd. Pvt.Ltd. Top 10 Buy Brokers 1,34,92,275 78.01 Top 10 Selling Brokers 1,28,75,982 74.42 21.99 25.58 Remaining Brokers 38,06,426 Remaining Brokers 44,22,719 Total Traded Volume 1,72,98,701 100.00 Total Traded Volume 1,72,98,701 100.00 NSE Finquest Securities Finquest Securities Pvt. Ltd. 28,71,000 25.18 28,95,110 25.40 Pvt.Ltd.

Anand Rathi Share & Stock Anand Rathi Share & Stock 20,49,956 17.98 19,82,339 17.39 Brokers Ltd. Brokers Limited Nirman Share Brokers Nirman Share Brokers Pvt.Ltd 19,27,774 16.91 19,27,774 16.91 Pvt.Ltd. ITI Securities Limited 6,93,674 6.09 Prashant Jayantilal Patel 6,10,000 5.35 Prashant Jayantilal Patel 6,10,000 5.35 JHP Securities Pvt.Ltd 6,10,000 5.35 JHP Securities Pvt ltd 6,10,000 5.35 ITI Securities Limited 1,91,894 1.68 Bhansali Value Creations Bhansali Value Creations Pvt 1,52,935 1.34 1,52,935 1.34 Pvt ltd ltd South Asian Stocks Ltd. 1,42,273 1.25 Religare Securities Ltd. 1,50,162 1.32 Swastika Investmart Ltd Ikab Securities & Investment 1,44,729 1.27 1,25,404 1.10 Ltd Affluence Shares And South Asian Stocks Ltd. 1,42,273 1.25 1,23,456 1.08 Stocks Pvt.Ltd Top 10 Buy Brokers 92,62,965 81.25 Top 10 Selling Brokers 88,50,723 77.64 Remaining Brokers 21,37,467 18.75 Remaining Brokers 25,49,709 22.36 Total Traded Volume 1,14,00,432 100.00 Total Traded Volume 1,14,00,432 100.00 4.4. From the above table it was observed that Finquest Securities Pvt. Ltd. (hereinafter referred to as “Noticee”) had the highest contribution of 23.26% in gross buy and ITI Financial Services Ltd had highest contribution of 18.58 in gross sell on BSE in the scrip of Crest during the Investigation Period.

The total buy volume by top ten trading members was 1,34,92,275 shares and total sell volume was 1,28,75,982 shares which accounted for 78.01% and 74.42%, respectively, of the total traded market volume of 1,72,98,701 shares of Crest on BSE during the investigation period. 4.5. The Noticee had the highest contribution of 25.40% in gross buy and 25.18% in gross sell on NSE in the scrip of Crest during the Investigation Period. The total buy volume by top ten trading members was 92,62,965 shares and total sell volume was 88,50,723 shares which accounted for 81.25% and 77.64%, respectively, of the total traded market volume of 1,14,00,432 shares of Crest on NSE during the Investigation Period. 4.6. The details of top 10 buy clients and sell clients concentration on BSE and NSE in the scrip of Crest during the Investigation Period is tabulated below:

Table 5: Client Concentration in the scrip of Crest at BSE and NSE % of Trd Buy Client Name Total V Selling Client Name Total % of Trd Vol o l BSE Fine Estates Private Limited 34,81,95 20.1 Kempro Traders Private Limited 30,60,404 17.69 7 3 Fidelity Multitrade Pvt. Ltd. 19,82,19 11.4 Bharat Jayantilal Patel 15,43,702 8.92 5 6 Gajmukh Suppliers Private Limited 120,9,50 6.99 Pasha Finance Pvt. Ltd. 12,66,236 7.32 7 Pasha Finance Pvt. Ltd. 9,27,691 5.36 Gajmukh Suppliers Private Limited 12,09,507 6.99 Orange Mauritius Investments Ltd 6,30,000 3.64 Acira Consultancy Private Limited 11,82,605 6.84 Acira Consultancy Private Limited 6,27,853 3.63 Fidelity Multitrade Pvt. Ltd. 6,28,253 3.63 Bharat Jayantilal Patel 5,52,691 3.20 Matangi Traders Investors Pvt. Ltd. 6,02,500 3.48 Shirdi Dealers Private Limited 5,01,145 2.90 Shirdi Dealers Private Limited 5,01,145 2.90 Yogini Hemang Muchhala 4,77,500 2.76 Somerset India Fund Ac Rhodes 3,88,880 2.25 Diversified Fund Pratibha Syntex Ltd. 4,25,245 2.46 Kaushalendra Phul Jha 2,71,692 1.57

1,08,15,7 62.5 1,06,54,92 Top 10 Buy Clients 8 2T op 10 Selling Clients 61.60 4 64,82,91 37.4 Remaining Clients Remaining Clients 66,43,777 38.40 7 8 1,72,98,7 100. 1,72,98,70 Total Traded Volume 0 0Total Traded Volume 100.00 1 1 0 NSE Gajmukh Suppliers Pvt Ltd 18,80,68 16.5 Gajmukh Suppliers Pvt Ltd 18,80,684 16.50 4 0 Bharat Patel 13,23,70 11.6 Fidelity Multitrade Pvt. Ltd. 13,65,544 11.98 3 1 Pasha Finance Pvt Ltd 9,43,554 8.28 Pasha Finance Pvt Ltd 6,22,163 5.46 Acira Consultancy Pvt.Ltd 6,27,853 5.51 Prashant Patel 6,10,000 5.35 Aatash Shares & Commodities 6,10,000 5.35 Aatash Shares & Commodities Broking 6,10,000 5.35 Broking Pvt.Ltd. Pvt.Ltd. Prashant Patel 6,10,000 5.35 Yogini Hemang Muchhala 4,77,500 4.19 Fine Estates Pvt.Ltd 3,32,171 2.91 Pratibha Syntex Ltd. 4,59,277 4.03 Pratibha Syntex Ltd. 2,57,195 2.26 Bharat Patel 3,32,692 2.92 Kempro Traders Pvt.Ltd 2,18,781 1.92 Sunita Patidar 2,06,927 1.82 Ashok Kumar Vasudeva 1,99,324 1.75 Ashok Kumar Vasudeva 1,60,303 1.41 Top 10 Buy Clients 70,03,26 61.4 Top 10 Buy Clients 67,25,090 58.99 5 3 Remaining Clients 43,97,16 39.5 Remaining Clients 46,75,342 61.01 7 7 Total Traded Volume 1,14,00,4 Total Traded Volume 1,14,00,43 3 100 100 2 2

4.7. Based on Know Your Client (KYC)/Unique client code (UCC) details, MCA website (for common directors), Bank statements and Off market transfers, 16 entities were identified as ‘suspected entities’ (hereinafter referred to as “Bharat Patel Group”). The details of the 16 ‘suspected entities’ are as follows: Table No. 6: Suspected entities of Bharat Patel Group Sr. no. PAN No. Entity Name Sr. no. PAN No. Entity Name Bharat Jayantilal 1 AAAPP6652R 9 AAACP3115E Pat Financial Consultants Pvt. Ltd. Patel 2 ANDPP9202F Ruchit Bharat Patel 10 AAICA9489N Acira Consultancy Pvt. Ltd. 3 AACPP5126G Minal Bharat Patel 11 AACCG3017C Gandiv Investment Pvt. Ltd.

4 AHIPP1407H Hardik Bharat Patel 12 AACCH5285R Hridaynath Consultancy Pvt. Ltd. Prashant Jayantilal 5 AABPP2156M 13 AABCP1438P Pranav Holdings Pvt. Ltd. Patel Pankaj Jayantilal 6 AABPP2157L 14 AABCF0017A Fidelity Multitrade Pvt. Ltd. Patel 7 ABAPS7558L Vanraj Vinod Shah 15 AAFCM3690Q Moneybee Realty Pvt. Ltd. Ajaykumar 8 AAGPK6090A 16 AAACP8316P Pasha Finance Pvt. Ltd. Banwarilal Kejriwal

4.8. Out of the 16 ‘suspected entities’ in the Bharat Patel Group, following 5 ‘suspected entities’ have traded in the scrip of Crest during the investigation period:

Table 7: Summary of trading by Bharat Patel Group in the scrip pf Crest during the investigation period

% of % of Gross Gross Name of Entity Gross Buy Buy to Mkt. Gross Sell Net Qty. Sell to Vol Mkt. Vol BSE Bharat Jayantilal Patel 5,52,691 3.20 15,43,702 8.92 -991011 Pasha Finance Pvt. Ltd. 9,27,691 5.36 12,66,236 7.32 -338545 Acira Consultancy Pvt Ltd 6,27,853 3.63 11,82,605 6.84 -554752 Fidelity Multitrade Pvt. Ltd. 19,82,195 11.46 6,28,253 3.63 1353942 Pat Financial Consultants Pvt. Ltd 7,830 0.05 7,830 0.05 0 Total 40,98,260 23.69 46,28,626 26.76 NSE Bharat Jayantilal Patel 13,23,703 11.61 3,32,692 2.92 991011 Pasha Finance Pvt. Ltd. 9,43,554 8.28 6,22,163 5.46 321391 Acira Consultancy Pvt Ltd 6,27,853 5.51 73,101 0.64 554752 Prashant Patel 6,10,000 5.35 6,10,000 5.35 0 Fidelity Multitrade Pvt. Ltd. 0 0.00 13,65,544 11.98 -1365544 Total 35,05,110 30.75 30,03,500 26.35 501610

4.9. It was observed that Bharat Patel Group was net seller of 5,30,366 shares of Crest wherein it purchased 40,98,260 shares (23.69% of total market volume) and sold 46,28,626 (26.76 % of total market volume) at BSE. At NSE, Bharat Patel Group was net buyer of 5,01,610 shares of Crest wherein it purchased 35,05,110 shares (30.75% of total market volume) and sold 30,03,500 (26.35 % of total market volume). 4.10. It was also noted that aforementioned 5 suspected entities of the Bharat Patel Group had executed synchronised trades on BSE within the group for 30,35,839 shares of Crest (17.55% of the market volume) in 16 trades over 8 trading days. Details of Bharat Patel Group's contribution is as follows: Table 8: Details of Contribution of Bharat Patel Group to synchronised trades in the scrip of Crest

Gross Buy Gross Sell Qty Gross Total Total traded qty Sync traded Sync Trades as % of Sync Trades as Qty of Bharat of Bharat Patel among Bharat qty by Bharat total traded qty among % of Total Patel Group Group Patel Group Patel Group Bharat Patel Group market volume BSE 40,98,260 46,28,626 87,26,886 34,77,474 30,35,839 87.30 17.54 NSE 35,05,110 30,03,500 65,08,610 23,92,545 5,63,732 23.56 4.94

Table 9: Details of the entity-wise synchronized trades by Bharat Patel Group in the scrip of Crest

Synchronised % of Sync. Vol. No. of No of Buyer Seller Qty. to Mkt. Vol. Trades days BSE Pasha Finance Pvt. Ltd Acira Consultancy Pvt Ltd 6,31,893 3.65 2 2 Fidelity Multitrade Pvt. Ltd Pasha Finance Pvt. Ltd 6,18,912 3.58 9 1 Fidelity Multitrade Pvt. Ltd Bharat Jayantilal Patel 6,10,597 3.53 1 1 Fidelity Multitrade Pvt. Ltd Acira Consultancy Pvt Ltd 1,802 0.01 1 1 Bharat Jayantilal Patel Acira Consultancy Pvt Ltd 5,48,101 3.17 1 1 Acira Consultancy Pvt Ltd Pat Financial Consultants Pvt. Ltd 3,330 0.02 1 1 Acira Consultancy Pvt Ltd Pasha Finance Pvt. Ltd 6,21,204 3.59 1 1 30,35,839 17.55 16 8 NSE Pasha Finance Pvt. Ltd Bharat Jayantilal Patel 3,32,500 2.92 5 5 Pasha Finance Pvt. Ltd. Fidelity Multitrade Pvt. Ltd 7,641 0.07 1 1 Bharat Jayantilal Patel Pasha Finance Pvt. Ltd 1,80,402 1.58 1 1 Acira Consultancy Pvt Ltd Bharat Jayantilal Patel 192 0.00 1 1 Acira Consultancy Pvt Ltd Fidelity Multitrade Pvt. Ltd 42,997 0.38 1 1 5,63,732 4.95 9 9

4.11. In view of the above, it was noted that the trades of aforementioned 5 ‘suspected entities’ of the Bharat Patel Group at BSE have violated the provision of Section 12A (a), (b) and (c) of SEBI Act, 1992 read with Regulations 3 (a), (b), (c) and (d), 4(1) and 4(2) (a) and (g) of the PFUTP Regulations, 2003. No adverse inference was drawn from the trades of aforementioned 5 ‘suspected entities’ of the Bharat Patel Group at NSE.

4.12. The Noticee, as a Stock Broker had undertaken trades for aforementioned 5 ‘suspected entities’ at BSE, and they were closely associated with each other by way of the aforesaid undisputed connection. Two of the ‘suspected entities’ namely, Hardik Bharat Patel and Minal Bharat Patel are directors of Noticee. Given the above facts and scenarios of the case, it is noted that while dealing in the scrip of Crest, activities of aforementioned 5 ‘suspected entities’ and the Noticee were aligned and it is clear that they acted in concert.

4.13. The Noticee was the broker and counterparty broker for 14 out of 16 synchronized trades in the scrip of Crest at BSE for a quantity of 18,77,141 shares (61% of the synchronized trades of the Bharat Patel Group and 2.33% of the market volume) during the investigation period. All the buy and sell synchronised trades were executed from terminal ID 4 and 6 of the Noticee. Hence, the Noticee, along with aforementioned 5 ‘suspected entities’ of Bharat Patel Group who have repetitively executed synchronized trades on BSE and NSE within the group and are responsible for creating misleading appearance of trading in scrip of Crest in the securities market.

5. On the basis of the aforesaid ER, the matter was placed before me for approval of issuance of the SCN on August 10, 2020. Thereafter, the SCN was issued on August 25, 2020. Due to the prevailing pandemic situation, the SCN was issued to the Noticee by email. However, no reply was received form the Noticee. Thereafter, after resumption of postal services the SCN was again forwarded by Speed Post Acknowledgment Due (SPAD) to the Noticee along with letter dated March 08, 2021 which was served on the Noticee. The file was placed before me for obtaining a hearing date on March 19, 2021. An opportunity of hearing was granted on June 17, 2021. Vide email dated June 14, 2021 the Noticee sought an adjournment of 4 weeks. In view of the same, another opportunity of hearing was granted to the Noticee on November 17, 2021. Meanwhile the Noticee submitted detailed reply dated September 30, 2021 stating as follows:

i) The Noticee disputed and denied everything that has been stated in the said SCN and the DA Report and the allegations raised therein are based on false and erroneous presumptions and without any cogent evidence. It is settled law that the burden of proof is on the person making allegations and not vice -versa. No provisions of law have been violated as has been alleged in the said SCN and/or DA Report and no adverse recommendations shall be warranted as sought in the said SCN and DA Report. Primarily, on this ground alone, the present proceedings ought to be dropped. ii) At the further outset, the said SCN and the DA Report are liable to be struck down on account of inordinate delay in issuing the same. iii) The Noticee has been brokers of the two Stock Exchanges (BSE/NSE) for the last 16 years. Presently, it has over 5000 registered clients, and its annual turnover is approximately Rs.l0,888/- Crores in the F.Y. 2020-21 across all Segments and Exchanges. It is respectfully submitted that the allegations in the SCN and DA Report and the recommendation therein needs to be considered in the conspectus of the said demonstrable facts of the total turnover and total client base, in which case it would be obvious that the trades of the clients which are impugned in the DA Report are miniscule and obviously did not merit any special consideration or scrutiny. iv) Most of the impugned trades that were executed were in excess of 0.5% of the equity capital of the scrip of Crest and such trades ought to have been displayed on bulk deal window of the Stock Exchange [the individual orders on last day were less than 0.5% threshold limit].

Each of the impugned trades were expressly and separately reported to the Stock Exchange and were even disclosed on their websites. v) Such trades were executed at the market price of the scrip and full payment by the buyer and delivery thereof was made to the buyer immediately, as no grievances were raised or are available of the Stock Exchanges website. In fact, since the said shares were delivered and transferred from each seller to each buyer, each of the aforesaid 5 entities had at the relevant time become the duly registered owner and holder of the respective shares, and therefore as per sections 2(a) and 10 (3) of the Depositories Act, the beneficial ownership had in fact been duly and legally transferred. In other words, the ownership of all these shares were duly transferred to and in favour of the buyer. vi) The shares were openly sold in accordance with Stock Exchange Mechanism. They were admittedly transferred, and beneficial ownership did get transferred. The 16 Impugned Trades were all on different days spanning between l2th March 2012 to 20th March 2014, and all for different quantities and the variation in quantity was from 192 shares to more than 6,00,000 shares.

It is therefore reiterated that the same cannot be alleged to be synchronised trades. vii) The Company is a separate legal entity having its own identity distinct from its members and clients. As regards the "connections" alleged in the DA Report, it is submitted that the same are not relevant, since there is no bar to "connected" parties trading or for an intermediary to cater to their clients who may be connected. In fact, even negotiated trades between connected parties are expressly permitted and are very common. Therefore, per se there can be no violation ascribed to the clients or to the Noticee. In any event, the said connections of the Company with the said 5 entities were merely of a broker-client, and any other incidental connection is of no relevance. Further, the Company exercises high standards of integrity, fairness, due skill, care and diligence in execution of all trades.

On November 17, 2021 the Noticee appeared for the hearing and made submissions.

Consideration of issues and findings:

6. I have gone through the SCN, ER, reply of the Noticee and its submissions before me during the personal heating. I note that the allegation against the Noticee is that Noticee, along with aforementioned 5 ‘suspected entities’ of Bharat Patel Group who have repetitively executed synchronized trades in the scrip of Crest on BSE and NSE within the group are responsible for creating misleading appearance of trading in scrip of Crest in the securities market and thereby violated Sections 12A (a), (b) and (c) of the SEBI Act, 1992 read with Regulations 3 (a), (b), (c) and (d), 4 (1), 4 (2) (a) of PFUTP Regulations, 2003. It is also alleged that the Noticee failed to carry out its business with due diligence, skill, care etc. while dealing with its clients in violation of Clause A (2) of Schedule II under Regulation 9 of the Stock Brokers Regulations, 1992.

7. The relevant extracts of the provisions of law allegedly violated by the Noticee are mentioned as under:-

SEBI Act Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control. 12A. No person shall directly or indirectly— (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder; PFUTP Regulations 3. Prohibition of certain dealings in securities No person shall directly or indirectly— (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange;

(d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.

4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:— (a) indulging in an act which creates false or misleading appearance of trading in the securities market;

Brokers Regulations, 1992 SCHEDULE II Securities and Exchange Board of India (Stock Brokers) Regulations, 1992 CODE OF CONDUCT FOR STOCK BROKERS [Regulation 9] A. General. (1) … (2) Exercise of due skill and care: A stock-broker shall act with due skill, care and diligence in the conduct of all his business.

8. I note that the SCN alleges that 5 entities of the Bharat Patel Group purchased 40,98,260 shares of Crest (which consisted of 23.69% of total market volume on the buy side in the scrip of Crest during the Investigation Period) and sold 46,28,626 shares of Crest (which consisted of 26.76 % of total market volume of the sell side in the scrip of Crest during the Investigation Period) at BSE. The Group was net seller of 5,30,366 shares of Crest at BSE. At NSE, these 5 clients bought 35,05,110 shares of Crest (30.75% of total market volume on the buy side during the Investigation Period) and sold 30,03,500 shares of Crest (26.35 % of total market volume on the sell side during the Investigation Period). The Group was net buyer of 5,01,610 shares of Crest at NSE. The SCN further observes that these five clients belonging to “Bharat Patel Group” executed 16 trades in a synchronized manner during the Investigation Period stretching from December 15, 2011 to October 09, 2014 and the Noticee was the broker and counterparty broker for 14 out of 16 synchronized trades at BSE in the scrip of Crest executed by the “Bharat Patel Group” for a quantity of 18,77,141 shares (61% of the synchronized trades of the Bharat Patel Group and 2.33% of the market volume) during the Investigation Period. The SCN also observes that these 5 clients were related to each other and the Noticee.

9. From the ER it is observed that these 5 clients executed such synchronized trades on BSE in the scrip of Crest amongst themsleves for 30,35,839 shares (17.55% of the market volume) in 16 trades over 8 trading days out of which in 14 trades the Noticee was the stock broker on both sides during the Investigation Period from December 15, 2011 to October 09, 2014. In this regard, the order log and trade log for the impugned 16 trades reveals the following details:

Date Buyer Name Seller Name Trade Time Price Quan Quantity Difference Differe tity nce Differ ence 12.03.2012 Acira Consultancy Pasha Finance Pvt. 621204.00 00:00:03 0.00 Private Limited Ltd. 14.03.2012 Bharat Jayantilal Acira Consultancy 548101.00 00:00:03 0.00 0.00 Patel Private Limited 20.03.2012 Fidelity Multitrade Bharat Jayantilal Patel 610597.00 00:00:08 0.00 0.00 Pvt. Ltd. 28.03.2013 Pasha Finance Pvt. Acira Consultancy 4393.00 00:00:10 0.00 0.00 Ltd. Private Limited 03.04.2013 Fidelity Multitrade Acira Consultancy 1802.00 00:00:11 0.00 0.00 Pvt. Ltd. Private Limited 03.04.2013 Pasha Finance Pvt. Acira Consultancy 627500.00 00:00:00 0.00 0.00 Ltd. Private Limited 08.05.2013 Acira Consultancy Pat Financial 3330.00 00:00:01 0.00 0.00 Private Limited Consultant Pvt Ltd 20.03.2014 Fidelity Multitrade Pasha Finance Pvt. 70000.00 00:00:03 0.00 0.00 Pvt. Ltd. Ltd. 20.03.2014 Fidelity Multitrade Pasha Finance Pvt. 70000.00 00:00:03 0.00 0.00 Pvt. Ltd. Ltd. 20.03.2014 Fidelity Multitrade Pasha Finance Pvt. 58912.00 00:00:03 0.00 0.00 Pvt. Ltd. Ltd. 20.03.2014 Fidelity Multitrade Pasha Finance Pvt. 70000.00 00:00:03 0.00 0.00 Pvt. Ltd. Ltd.

20.03.2014 Fidelity Multitrade Pasha Finance Pvt. 70000.00 00:00:03 0.00 0.00 Pvt. Ltd. Ltd. 20.03.2014 Fidelity Multitrade Pasha Finance Pvt. 70000.00 00:00:03 0.00 0.00 Pvt. Ltd. Ltd. 20.03.2014 Fidelity Multitrade Pasha Finance Pvt. 70000.00 00:00:03 0.00 0.00 Pvt. Ltd. Ltd. 20.03.2014 Fidelity Multitrade Pasha Finance Pvt. 70000.00 00:00:03 0.00 0.00 Pvt. Ltd. Ltd. 20.03.2014 Fidelity Multitrade Pasha Finance Pvt. 70000.00 00:00:03 0.00 0.00 Pvt. Ltd. Ltd.

10. I note that the 5 clients have executed 16 synchronized trades (out of which Noticee was the stock broker for 14 trades which have been hereafter referred to as impugned trades) in the scrip of Crest wherein the price and quantity were matching between the buy and sell orders and time difference was almost 0, on 8 trading days out of an Investigation Period stretching over almost three years from December 15, 2011 to October 09, 2014. The SCN does not allege any connection between Crest and the clients/ Noticee or any modus operandi through which the Noticee or clients gained any advantage due to the increased volume of trading in the scrip of Crest during the Investigation Period spanning from December 15, 2011 to October 09, 2014. The Noticee has also submitted that all the 5 clients of the Noticee have taken delivery of the shares of Crest therefore it cannot be said that these clients carried out the impugned trades without any intention of change in beneficial ownership of the securities.

11. In regard to synchronized trades, in the matter of SPJ Stock Brokers Pvt. Ltd. vs. SEBI (Appeal No. 52 of 2013 decided on September 04, 2013) the Hon’ble Securities Appellate Tribunal (hereinafter referred to as “SAT”) has taken the following view:

“12. Penalty under impugned order is imposed upon appellant solely on ground that almost all trades in shares of Adani Exports Ltd. effected by appellant during investigation were found to be synchronized and those trades were with only one group. It is well established by various decisions by this Tribunal that synchronized trade is per se not illegal. Synchronized transaction would be illegal if it is executed with a view to manipulate the market, is dubious in nature and is executed with a view to avoid regulatory detection, does not involve change of beneficial ownership or is executed to create false volumes resulting in upsetting market equilibrium etc.”

12. From the above observations by the Hon’ble SAT, I note that synchronized trades per se are not illegal, they are only treated to be illegal if it is executed with a view to manipulate the market, is dubious in nature and is executed with a view to avoid regulatory detection, does not involve change of beneficial ownership or is executed to create false volumes resulting in upsetting market equilibrium etc. In the present matter, firstly, there is no material on record to show that there was price manipulation or that the clients of the Noticees indulged in creation of false volume and this false volume led to manipulation or that there was any connection between the Noticee and Crest to create volume in the scrip of Crest. Secondly, it is observed that the clients have taken delivery and there was change in beneficial ownership of the shares. Thirdly, I also note that the less frequency of the trades (14 trades in the scrip of Crest spread over almost three years) compared to the Noticee’s gross trading volume for all clients (turnover of more than 10,000 crores in 20-21) also show that it would be a reasonable explanation on the part of the Noticee that these synchronized trades could not be detected by the Noticee or the Noticee failed to exercise due diligence. Moreover, I note that vide order dated March 30, 2022 the proceedings with respect to the five clients of the Noticee with respect to the same synchronized trades alleging violation of PFUTP Regulations, 2003 has been disposed of without any adverse directions. In this regard, the following observation of the Hon’ble Supreme Court of India in its decision dated February 23, 2016, with regard to liability of stock broker with respect to wrongful trades of clients, in SEBI vs. Kishore R. Ajmera (2016) 6 SCC 368 is relevant:

“24. Insofar as first case (C.A. No.2818 of 2008 SEBI Vs.Kishore R. Ajmera) is concerned the proved facts are as follows: (i) Both the clients are known to each other and were related entities. (ii) This fact was also known to the sub-broker and the respondent – broker. (iii) The clients through the sub-broker had engaged in mutual buy and sell trades in the scrip in question, volume of which trade was significant, keeping in mind that the scrip was an illiquid scrip. Apart from the above there is no other material to hold either lack of vigilance or bona fides on the part of the sub-broker so as to make respondent-broker liable.

An irresistible or irreversible inference of negligence/lack of due care etc., in our considered view, is not established even on proof of the primary facts alleged so as to make respondent-broker liable under the Conduct Regulations, 1992 ….” 13. Therefore, in view of the above and in the facts and circumstances of the present case, I find that the 14 impugned trades in the scrip of Crest executed by the clients of Noticee over a period spanning three years from December 15, 2011 to October 09, 2014 cannot be attributed to the connivance or negligence of the Noticee so as to attract the violations as alleged in the SCN. In addition, it is observed that the clients of the Noticee have also been exonerated vide order dated March 30, 2022 and therefore proceedings against the Noticee for its alleged connivance with its clients or negligence also does not survive in the facts and circumstances of the present case.

Direction:

14. In view of the above, I, in exercise of the powers conferred upon me in terms of Section 12(3) and Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 27 (5) of the Intermediaries Regulations, hereby dispose of the show cause notice dated August 25, 2020 issued to the Noticee, without any direction.

15. The order comes into force with immediate effect.

16. A copy of this order shall be served on the Noticee and all recognized Stock Exchanges.

Place: Mumbai ANANTA BARUA Date : April 29, 2022 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA