Order in the matter of trading by connected entitites in respect of Stupendor Traders P. Ltd

WTM/PS/ 08/IVD/ID-4/APRIL/2012 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER In the matter of Confidence Petroleum India Limited and Bang Overseas Limited In respect of Stupendors Traders Pvt. Ltd.(PAN: AADCS7524F) Date of hearing: December 23, 2011 Appearances: For Noticees: Mr. Ankit Lohia, Advocate Mr. Balveer Singh Choudhary For SEBI: Mr. A.S. Mithwani, Deputy General Manager Mr. Siddhesh Lotlikar, Assistant General Manager Mr. Pradeep Kumar, Assistant Legal Adviser Mr. Parag Sinha, Presenting Officer ORDER Under Sections 11, 11(4) and 11 B of the Securities and Exchange Board of India Act, 1992 read with Regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) during routine market surveillance, observed synchronized deals in the scrips of Cals Refineries Limited, Confidence Petroleum India Limited (hereinafter referred to as ‘Confidence’), Bang Overseas Limited (hereinafter referred to as ‘Bang’), Shree Precoated Steels Limited (presently known as Ajmera Realty & Infra India Limited) and Temptation Foods Limited (hereinafter collectively referred to as ‘five scrips’). On examination of the trade data relating to the five scrips, inter-linkages between certain entities dealing in the five scrips were noticed in the form of off-market transactions as well as synchronized deals on the market. These entities having inter-linkages are collectively referred to as the ‘connected clients’. The name of these connected clients is placed at Annexure 1. The connected clients were found to be having large trading concentration in the five scrips and a substantial portion of their trading amongst themselves in synchronized nature was found to have contributed to the increase in the market volume. The preliminary investigation also revealed instances where delivery obligations of one connected client were fulfilled by the off-market borrowing of the shares from another connected client, and thereafter the borrower was seen to have bought back the shares from the market and returned the same to the lender through off-market transfer.

2. Pursuant to the preliminary investigation, SEBI vide an ad interim ex-parte order dated June 04, 2009 issued under Sections 11, 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’), restrained inter-alia Stupendors Traders Pvt. Ltd. (hereinafter referred to as ‘Stupendors’/ ‘noticee’) from accessing the securities market and further prohibited it from buying, selling or dealing in the securities market, directly or indirectly, till further directions.

3. The said interim order also gave the noticee an opportunity to file objections, if any, to the order within fifteen days from the date of order. Stupendors filed its objections to the interim order vide letter dated June 18, 2009. Subsequently, an opportunity of personal hearing was granted to the noticee on July 28, 2009. After considering the objections and material available on record, SEBI passed an order dated January 19, 2010 confirming its earlier order dated June 04, 2009.

4. SEBI had conducted the investigation relating to trading in the scrip of Bang for the period March 1, 2008 to February 28, 2009 and in the scrip of Confidence for the period January 1, 2008 to February 28, 2009 (hereinafter referred to as the ‘investigation period’) on Bombay Stock Exchange Ltd. (hereinafter referred to as ‘BSE’). Thereafter, upon completion of the investigation, SEBI issued a notice dated July 25, 2011 (hereinafter referred to as ‘SCN’) to Stupendors under Sections 11, 11(4) and 11B of the SEBI Act read with Regulation 11 of SEBI (Prohibition of Fraudulent Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as ‘PFUTP Regulations’) with respect to its trading in the scrips of Confidence and Bang.

5. The SCN alleged that the noticee had executed synchronized transactions with connected clients, which resulted in the creation of artificial volumes in the scrips of Confidence and Bang. The acts of the noticee were thus alleged to be in violation of Regulations 3(a), 4(1), 4(2)(a) and (g) of the PFUTP Regulations. Accordingly, the noticee was called upon to show cause as to why directions in terms of Sections 11, 11(4) and 11B of the SEBI Act, including debarring it from accessing the securities market and prohibiting it from buying, selling or otherwise dealing in securities for an appropriate period of time, should not be issued against it.

6. The noticee, vide letter dated August 23, 2011 replied to the SCN and sought an opportunity of personal hearing. Accordingly, an opportunity of personal hearing was granted to the noticees on December 23, 2011, when Mr. Ankit Lohia and Mr. Balveer Singh Choudhary, the authorized representatives of the noticee, appeared before me and made submissions.

7. The submissions of the noticee, inter alia, are: a. The noticee is not a part of the alleged ‘connected clients’. Further, though the noticee has admitted that its directors are related to Sudhir Jain (director of Beejay Investments and Financial Consultants Ltd (hereinafter referred to as ‘Beejay’) and Surbhi Jain, it has stated that its trading was independent of others. Moreover, the noticee has denied the allegation of its connection with Maruti Securies Ltd. (hereinafter referred to as ‘Maruti’). b. The noticee did not execute any synchronized deals. The transactions alleged to be synchronized are isolated transactions. c. The trades mentioned in the annexure 3 to the SCN do not match with the contract notes of the noticee.

8. I have carefully considered the ad interim order passed by SEBI dated June 04, 2009, the objections filed by the noticees, the confirmatory order of SEBI dated January 19, 2010, the SCN, reply to the SCN dated August 23, 2011, and all the material available on record.

9. I note that from the SCN and the reply of the noticee that Vicky Kothari, the director of the noticee is the brother-in-law of Sudhir Jain, director of Beejay, and is the uncle of Surabhi Jain. Thus, Beejay, Sudhir Jain, Surabhi Jain and the noticee are related to each other.

10. I note that the details of trades provided to the noticee by SEBI at annexure 3 of the SCN, have been obtained from exchanges and are correct. The noticee may have noted discrepancy because the details captured at the exchange need not appear in the contract note issued by the broker, available with the noticee.

11. I note that the noticee bought and sold 10,00,000 shares of Confidence on the BSE during the investigation period. I note that on September 1, 2008, the noticee bought 5,00,000 shares of Confidence. Beejay, a related entity of the noticee was the counterparty for 4,99,700 shares, and the trade was executed with a time difference of 6 seconds between the placing of the buy and sell orders. Soon after, a sell order of 5,00,000 shares of Confidence was placed by Beejay and the noticee placed another buy order of 5,00,000 shares of Confidence. A trade of 4,99,700 shares was executed between them with a time difference of 3 seconds. The total market volume on that day was 11,70,474 shares, and the noticee contributed 85.43% to the daily volume in Confidence on September 1, 2008.

Trade Trade Trade Order Order Order Buyer Buy Sell Seller Traded CP CP CP Time Diff Qty Rate Date No. Rate Time Qty Rate Name Member Member Name Qty Order Order Order Diff Diff Name Name Time Qty Rate 01/09/08 110 11.05 13:28:22 500000 11.05 Stupe Microsec B Lodha Beejay 499700 13:28:16 500000 11.05 00:00:06 0 0 ndors 01/09/08 111 11.05 13:28:22 500000 11.05 Stupe Microsec B Lodha Beejay 300 13:28:34 500000 11.05 00:00:12 0 0 ndors 01/09/08 112 11.05 13:28:37 500000 11.05 Stupe Microsec B Lodha Beejay 499700 13:28:34 500000 11.05 00:00:03 0 0 ndors

12. Similarly, on July 1, 2008, the noticee placed a sell order of 35,000 shares of Bang, wherein 34,910 shares matched with its connected entity, Surabhi Jain in a time difference of 17 seconds. Further, Surabhi Jain placed a buy order of 13,000 shares and the noticee placed a sell order of 13,000 shares which matched in time difference of 3 seconds. Further, on July 2, 2008, another sell order was placed by the noticee for 20,000, which matched in a time difference of 4 seconds with Sudhir Jain. Moreover, the total market volume on July 1, 2008 was 63,594 shares, and the noticee contributed 75.48% to the daily volume in Bang on July 1, 2008.

Trade Trade Trade Order Order Order Buyer Buy Sell Seller Traded CP CP CP Time Diff Qty Rate Date No. Rate Time Qty Rate Name Member Member Name Qty Order Order Order Diff Diff Name Name Time Qty Rate 01/07/08 63 237 12:08:20 35000 237.00 Surabhi B Lodha Microsec Stupen 34910 12:08:03 35000 237.00 0:00:17 0 0.00 Jain dors 01/07/08 72 237 12:37:19 13000 237.00 Surabhi B Lodha MicrosecStupen 13000 12:37:22 13000 237.00 0:00:03 0 0.00 Jain dors 02/07/08 97 229 14:28:54 20000 229.00 Sudhir B Lodha Microsec Stupen 20000 14:28:50 20000 229.00 0:00:04 0 0.00 Jain dors

13. Further, there were several instances where the orders placed by the noticee matched with the orders placed by the related/ connected counterparty clients in Bang although these orders were not synchronized.

14. Considering the discussion above, I note that Stupendors, by entering into matched trades with entities/individuals that are connected to it, has contributed to the creation of artificial volume in the scrip of Bang and Confidence in violation of Regulation 3(a) and 4(1), 4(2)(a) and (g) of the PFUTP Regulations. However, the noticee has been restrained from accessing the securities market and prohibited from buying, selling or dealing in the securities market since June 4, 2009. The noticee has thus undergone debarment from securities market for more than two (2) years and nine (9) months. I find that the period of debarment already undergone by the noticee is proportionate to the violations committed by the noticee. In view of the same, I order as under:

15. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the SEBI Act read with Sections 11, 11B and 11(4) thereof, do hereby revoke the interim directions issued vide ad interim ex-parte order dated June 04, 2009 and confirmatory order dated January 19, 2010 against Stupendors Traders Pvt. Limited with immediate effect and also dispose of the SCN without any further direction.

DATE : APRIL 9, 2012 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA