Order in the matter of SAARC Net Limited in respect of Shree Parshwa Finance (Proprietor Shri Piyush Jhaveri)

WTM/PS/34/IVD/ID-02/MAY/2012

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER IN THE MATTER OF SAARC NET LTD. In respect of Shree Parshwa Finance (Proprietor: Shri Piyush Jhaveri) ORDER Under Regulation 28(2) read with Regulation 38(2) of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 1 Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted investigation into the trading in the scrip of M/s Saarc Net Ltd (hereinafter referred to as ‘SNL’/ ‘the company’) for the period from July 11, 2002 to September 11, 2002 (hereinafter referred to as the ‘investigation period’). The shares of SNL were listed on the Bombay Stock Exchange Limited (hereinafter referred to as ‘BSE’), Madras Stock Exchange (hereinafter referred to as ‘MSE’) and Hyderabad Stock Exchange (hereinafter referred to as ‘HSE’) During the investigation period, the price of the shares of SNL increased from Rs.38.45 to Rs.160.75 and then it fell to Rs.143.10 on September 11, 2002.

2 During the investigation period, a total of 44,096 shares on 33 days were traded on the BSE. The scrutiny of the trades in the scrip showed that the trades were executed mainly by a group of certain brokers, sub-brokers and their clients, including Shree Parshwa Finance (Proprietor: Shri Piyush Jhaveri) (hereinafter referred to as the ‘noticee’). Thus, the noticee, a sub-broker of P.Suryakant Shares & Stock brokers Ltd., along with other brokers, sub-brokers and clients was alleged to have acted in concert in manipulation of the scrip.

3 Based on the findings of investigation, SEBI initiated enquiry proceedings against the noticee in terms of the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as ‘Enquiry Regulations’), by appointing an Enquiry Officer vide order dated May 13, 2008 under Regulation 5(1) of the Enquiry Regulations, to enquire into the alleged violation of the provisions of the SEBI Act, 1992, SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)

Regulations, 1995 (hereinafter referred to as ‘PFUTP Regulations, 1995’) and the Code of Conduct specified under Schedule II of the SEBI (Stock Brokers and Sub-Broker) Regulations, 1992 (hereinafter referred to as ‘Broker Regulations’). As the Enquiry Regulations were repealed with effect from the notification of SEBI (Intermediaries) Regulations, 2008 (hereinafter referred to as the ‘Intermediaries Regulations’), the Enquiry Officer/ Designated Authority (hereinafter referred to as the ‘Enquiry Officer’) submitted his Report dated August 24, 2009 in terms of Regulation 27 of the Intermediaries Regulations, recommending thereby, a suspension of the certificate of registration for a period of six months for the violation of the provisions of Regulation 4 (a), (b), (c) & (d) of the PFUTP Regulations, 1995 and corresponding provisions as contained in Regulation 4(1), 4(2) (a), (b), (e) & (g) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as PFUTP Regulations 2003), pursuant to the repeal of PFUTP Regulations, 1995 and Regulation 15 under Clauses A(1) (2) and D(1) (4) (5) of Code of Conduct specified under Schedule II of the Broker Regulations.

4 Accordingly, SEBI issued a notice (SCN) dated December 8, 2009 to Shree Parshwa Finance (Proprietor: Shri Piyush Jhaveri) asking it to show cause as to why action should not be taken against it, including action as recommended by the Enquiry Officer. The noticee was advised to reply to the SCN, within twenty one days from the date of receipt thereof. It was also informed that in case of failure to reply, it would be presumed that it had no explanation to offer and that SEBI shall be free to take such action in the manner as it deemed fit. A copy of the Enquiry Report was also forwarded to the noticee along with the SCN.

5 The noticee, vide its letter dated March 30, 2009, had informed SEBI that he wished to settle the matter through consent in terms of the SEBI Circular dated April 20, 2007 and to keep the enquiry proceedings till the consent process is completed. However, the noticee has not made an application for consent till date. In order to proceed, opportunities of personal hearing were granted to the noticee before me on July 12, 2011, September 9, 2011 and December 23, 2011. However, the noticee failed to appear on the dates and defend himself in the matter. In view of the same, having complied with the principles of natural justice, I am compelled to proceed in the matter ex parte.

6 I have carefully examined the Enquiry Report and other material on record. The issue that arises for my consideration is Whether the noticee executed circular/ reversed and synchronized trades in violation of Regulation 4 (a), (b), (c) & (d) of the PFUTP Regulations 1995 and corresponding provisions as contained in Regulation 4(1), 4(2) (a), (b), (e) & (g) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as PFUTP Regulations 2003), pursuant to the repeal of PFUTP Regulations, 1995 and Regulation 15 under Clause A(1) (2) and D(1) (4) (5) of Code of Conduct specified under Schedule II of the Broker Regulations?

7 I note that during the investigation period, the closing price of the scrip at BSE moved from Rs.38.45 to Rs.160.75 from July 11, 2002 to August 20, 2002 and fell to Rs.143.1 on September 11, 2002. The average daily volume at BSE was 1336 shares and total traded volume for the investigation period was 44,096 shares. During the same period, the Sensex dropped from 3290 points on July 11, 2002 to 2976 on August 09, 2002 and then moved up to 3125 points on September 11, 2002.

8 The major broker/sub brokers and the clients who had traded during the investigation period are as given below:

Broker Sub Broker Client Name Buy % to Sell % to Net Quantity Mkt Quantity Mkt. Vol. Vol. FMS N.A. Harsha S. 15160 34.37 13500 30.61 1660 Securities Ltd. Jhaveri P. Suryakant Shree Parshwa Gautam N. 13550 30.72 15467 35.07 1571 Share & Stock Finance(Proprietor Jhaveri (Prop. Brokers Ltd. : Shri Piyush Of the firm Jhaveri) Rajesh N Jhaveri) Active Pinnacle Finstock Girish 5500 12.47 5500 12.47 0 Finstock Pvt. P. Ltd. Investments Ltd. Kanji Share 7539 17.09 7183 16.29 353 Consultancy Service Total 41749 94.67 41653 94.45 Total 44096 100 44096 100 Volume

9 The following brokers, sub-brokers and clients were involved in the circular/ reversal and synchronized trades during the investigation period. The details are given below:

Members Sub Broker Client No. of Buy Qty Buy Qty Sell Qty Sell Qty days of being as % to being as % to reversal, part of market part of Market circular or circular, volume circular, Volume synchroni reversal reversal zed/ or or No. of synchro synchron days nized ized traded trade trade FMS N.A. Harsha S 15/17 13660 30.97 13000 29.48 Securities Jhaveri P. Suryakant Shree Gautam N. 15/17 13000 29.48 13660 30.97 Share & Parshwa Jhaveri Stock Finance Brokers Ltd. (prop Piyush Jhaveri) Active Pinnacle Girish 4/19 5500 12.47 5500 12.47 Finstock Pvt. Finstock P. Investments Ltd. Ltd. Kanji Share 4/19 5640 12.79 5640 12.79 Consultancy Service Total 37800 85.72 37800 85.72 Total 44096 100 44096 100 Volume at BSE

10 I note that Shree Parshwa Finance, the noticee herein, traded through P.Suryakant Shares & Stock brokers Ltd. (hereinafter referred to as ‘PSSL’) for the client, Gautam N. Jhaveri.

11 I note that during the investigation period a total of 298 trades (89 buy orders and 84 sell orders) for 28,710 shares were executed between Shree Parshwa Finance and FMS Securities Ltd. (hereinafter referred to as ‘FMS’), which accounted for 38.92% to 100% of daily turnover and 65.10 % of the total traded quantity. Out of these 298 trades, the time difference between the buy and sell orders placed by Shree Parshwa Finance and FMS was in the range from zero to sixty seconds for 176 trades for 16,975 shares, accounting for 38.49% of the market volume. The buy and sell order rates were identical for 257 trades for 25,160 shares. The buy and sell orders quantities were also identical for 224 trades for 20,110 shares which accounted 45% of total market volume. Out of 89 buy and 84 sell orders, the time difference was zero to sixty seconds in respect of 45 buy orders and 55 sell orders, accounting for 50.56% of the total (89) buy orders and 65.47% of the total (84) sell orders. This accounted for 59.12% of the total circular/reversal traded quantity of 28,710 shares and 38.49% of the total market volume during the period.

12 Thus, it is noted that the noticee, trading through PSSL for Gautam N. Jhaveri indulged in synchronized trades. Further, the client of FMS namely, Harsha Jhaveri, is related to the noticee, as she is the wife of Sailesh Jhaveri, brother of Piyush Jhaveri, who is the proprietor of the noticee. It was observed that the scrip was traded at the upper circuit limit on many days. The price rose from Rs. 38.40 to Rs. 163.50, you and FMS executed 10 first trades at higher price during the period of investigation.

13 It was observed that the buy and sell orders were identical for almost all these transactions with respect to rate and quantity. It is alleged that synchronized trades were done on 15 days out of the 17 days during which the scrip was traded in circular / reversal pattern and accounted for 60.45% of total traded volume during the period of investigation. Thus, I find that the noticee aided and abetted its clients in executing synchronized, circular and reversal of trades in connivance with other broker/s.

14 Such closely matched orders resulting in a synchronised trading cannot be a mere coincidence .I observe that the Hon’ble Securities Appellate Tribunal (SAT) in the matter Ajmera Associates Pvt. Ltd. Vs. SEBI (date of judgment- December 13, 2010) noted that:

“…Since the trading system maintains complete anonymity, brokers always plead that they were ignorant about the counterparty or his broker. In such a situation one has to look to the trading pattern and if the trades match too often or if the matching of the trades is noticed day after day and trade after trade one can infer that the matching was done not by the system but by manipulating the same. Similarly, if two or more market players start trading in circles and do not allow the shares to go out of the circle, it could be reasonably inferred that both traders and their brokers are colluding to execute such artificial trades which give a misleading appearance of trading in the market without change of beneficial ownership in the scrip…”

15 Thus, from the aforesaid acts, I find that the acts of the noticee, Shree Parshwa Finance (Proprietor : Shri Piyush Jhaveri), were in violation of the provisions of Regulation 4 (a), (b), (c) & (d) of the PFUTP Regulations 1995 and corresponding provisions as contained in Regulation 4(1), 4(2) (a), (b), (e) (g) and (n) PFUTP Regulations 2003, pursuant to repeal of PFUTP Regulations, 1995 and the provisions of Regulation 15 read with Clause A(1) (2) and D (1) (4) (5) of Code of Conduct specified under Schedule II of the Broker Regulations.

16 Therefore, in exercise of the powers conferred upon me in terms of Section 19 of the SEBI Act, 1992 read with Regulation 13(4) of the said Regulations, 2002 I direct the certificate of registration of Shree Parshwa Finance(Proprietor : Shri Piyush Jhaveri) having SEBI Regn No.INS011245110 be suspended for a period of 3 (three) months.

17 This order shall come into force on expiry of twenty one days from the date of this order.

DATE: MAY 11, 2012 PRASHANT SARAN PLACE:MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA