Order in the matter of Vishal Vijay Shah

1. Securities and Exchange Board of India (hereinafter referred to as "SEBI/ Board") conducted an investigation into the matter of front-running in the order/ trades of ‘Sterling Group’ by certain entities during the period of March 01, 2009 to March 31, 2011 (hereinafter referred to as "investigation period").

2. During the course of investigation, it was noted that the trades in the accounts of certain entities viz. Ms. Laxmi Chaturvedi ('Laxmi'), M/s. Viraj Mercantile Private Limited ('Viraj'), M/s. Josh Trading Private Ltd. (‘Josh'), M/s. Pinky Auto Finance Limited ('PAFL), M/s. E Ally Consulting India Private Limited (‘E Ally’), M/s. Shree Jaisal Electronics and Industries Limited ('Jaisal’) and Mr. Bhavesh Gadhavi ('Bhavesh’) were in the nature of front-running the orders/trades of the "Sterling Group” and that the subsequent orders placed by the aforesaid entities matched almost completely with the orders placed by the Sterling Group.

3. In the said investigation process, while analysing the funds flow of certain entities, it was noted that Mr. Vishal Vijay Shah (hereinafter referred to as "Noticee"), member of the Bombay Stock Exchange (hereinafter referred to as "BSE"), having SEBI Registration No. – INB011277614, had issued some fictitious documents to certain entities in relation to purported trading in the market without registering them as client and without executing trades on BSE.

4. In view of the above, SEBI vide order dated May 10, 2018 under Section 19 of the SEBI Act, 1992 read with Regulation 24(1) of Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (hereinafter referred to as “the Intermediaries Regulations”) appointed a Designated Authority to conduct an enquiry into the alleged violations by the Noticee and submit the report in accordance with the provisions of the Intermediaries Regulations.

ENQUIRY BY THE DESIGNATED AUTHORITY:

5. The Designated Authority issued a show cause notice dated May 22, 2018 to the Noticee under Regulation 25 of the Intermediaries Regulations enclosing the copies of documents relied upon which included the copies of summons issued by the investigation authority dated October 10, 2013, reply made by the Noticee dated October 21, 2013 and BSE’s reply dated January 12, 2015.

6. Vide aforesaid show cause notice dated May 22, 2018 issued by the Designated Authority, the Noticee was called upon to show cause as to why appropriate recommendations should not be made against him as per under Regulation 23 and Regulation 27 of the Intermediaries Regulations. The Noticee was also advised to submit his reply along with documentary evidences, if any, within specified date.

7. The Designated Authority, after conducting the enquiry proceedings, observed that the Noticee has violated the provisions of Section 12A(a), (b) and (c) of the SEBI Act, 1992 read with Regulation 3(a), (b), (c), (d) and Regulation 4(1) and 4(2)(p) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices)

Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”) and Clause A(1) and (5) of Code of Conduct under Schedule II read with Regulation 9 of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as “Stock Broker Regulations”). The Designated Authority submitted the Enquiry Report dated July 30, 2018 recommending for suspension of certificate of the Noticee for a period of six months.

SHOW CAUSE NOTICE, REPLY AND HEARING:

8. Subsequently, a show cause notice dated August 29, 2018 was issued by SEBI to the Noticee enclosing a copy of the Enquiry Report submitted by the Designated Authority, calling upon the Noticee as to why action as recommended by the Designated Authority or any other penalty should not be imposed upon him in terms of Regulation 28(1) and 28(2) of the Intermediaries Regulations. The Noticee was also advised to file his reply, if any, along with the documents which he may choose to rely upon within twenty one days of the receipt of the notice failing which it shall be presumed that he has no reply to file and in that event SEBI shall proceed in the matter as it deems fit. The Noticee was also advised to indicate in the reply as to whether he desires for opportunity of personal hearing.

9. I note that the above show cause notice dated August 29, 2018 was duly served to the Noticee at his address 112-A, P. J. Towers, 1st Floor, Dalal Street, Fort, Mumbai – 400001 and the acknowledgement has also been received by SEBI. However, the Noticees has not filed any reply.

10. Notwithstanding the above, in compliance with the principles of natural justice, the Noticee was also provided an opportunity of personal hearing and for that purpose the matter was fixed for hearing on November 09, 2018 which was communicated to the Noticee vide SEBI’s letter dated October 11, 2018 (‘hearing notice’). The hearing notice was served to the Noticee on its aforementioned address and the acknowledgment card was also received by SEBI which was having the seal of Vishal Vijay Shah (the Noticee) dated October 12, 2018. Vide said SEBI’s letter dated October 30, 2018, the Noticee was also advised to confirm his attendance for the personal hearing on or before October 30, 2018.

11. I note that even though the hearing notice dated October 11, 2018 was duly served to the Noticee on time, the Noticee did not confirm his attendance for the personal hearing nor it appeared on the date of hearing scheduled on November 09, 2018. However, a letter dated October 29, 2018 was received from the Noticee on November 06, 2018. The said letter was sent through Anjani Courier Services Pvt. Ltd. and after making online tracking of the courier reference number, it was noted that the said letter was dispatched by the Noticee on November 05, 2018 only and the contents of same are also not clear which is dealt in ensuing paragraphs.

CONSIDERATION OF ISSUE AND FINDINGS:

12. On perusal of the show cause notice dated May 22, 2018 issued by the Designated Authority along with annexures, Enquiry Report dated July 30, 2018 submitted by the Designated Authority and the show cause notice dated August 29, 2018 issued by SEBI under Regulation 28 (1) of the Intermediaries Regulations and reply dated October 29, 2018 received from the Noticee, I note the followings:

a. During the course of investigation for alleged front-running by certain entities, while analysing the funds flow, it was noted that Laxmi had made certain payments to the Noticee and Viraj had also made certain banking transactions with him. The said banking transactions and the nature thereof are as under:

Date Amount Reason for transaction as submitted by the Noticee In the account of Laxmi 12/10/2010 25,00,000.00 Payments made by Laxmi losses in her 22/10/2010 10,44,526.55 account upto 18/06/2009 of ₹ 35,44,426.55 14/03/2011 19,02,534.85 Payments made by Laxmi for losses in her 23/03/2011 56,25,673.65 account between 21/02/2011 - 09/03/2011 31/03/2011 3,48,846.32 of ₹ 78,77,054.82 In the account of Viraj 22/03/2011 75,00,000.00 Payments made to Viraj for anticipated share 24/03/2011 35,00,000.00 sale by Viraj. 29/03/2011 1,45,212.23 28/03/2011 45,00,000.00 Amount received back from Viraj since the 30/03/2011 25,00,000.00 anticipated share sale did not take place. On net basis, an amount of ₹ 41,45,212.23 was paid to Viraj as profits.

b. In respect of the aforesaid banking transaction, the Noticee had submitted that both Laxmi and Viraj were his clients and also provided copies of client registration forms, party ledgers and client-wise scrip-wise summary. From the documents submitted by the Noticee, the details of purported trading and profits/ losses in account of Laxmi and Viraj at BSE is tabulated as below:

Client FY Scrip Buy Qty Buy Value Sell Sell Profit/ Qty Value (loss) Laxmi 2009- ABANOFF 5,200 45,98,493 5,200 41,93,7 -4,04,767 10 SH 26 Laxmi 2009- INDHOTE 62,500 41,92,485 62,50 36,89,4 -5,03,058 10 LS 0 27 Laxmi 2009- JETAIRW 51,000 135,99,806 51,00 119,91, - 10 AYS 0 574 16,08,233

Laxmi 2009- RUCHISO 95,000 32,27,119 95,00 28,24,4 -4,02,681 10 YA 0 38 Laxmi 2009- SUZLON 49,000 36,73,050 49,00 30,59,0 -6,14,034 10 0 15 Laxmi 2009- Taxes - 10 11,652.93 Laxmi 2009- Total - 10 35,44,426. 55 Laxmi 2010- ABANOFF 53,500 309,96,49 53,50 297,74, - 11 SH 5 0 523 12,21,972 Laxmi 2010- DBREALT 7,000 7,03,687 7,000 8,19,69 1,16,003 11 Y 0 Laxmi 2010- DLF 2,67,50 600,20,06 2,67,50 578,49, - 11 0 7 0 942 21,70,125 Laxmi 2010- IDEA 2,00,00 122,73,25 2,00,00 116,93, -5,80,250 11 0 0 0 000 Laxmi 2010- JETAIRW 37,500 168,72,18 37,50 154,43, - 11 AYS 4 0 826 14,28,358 Laxmi 2010- RCOM 3,40,00 318,36,92 3,40,00 297,71, - 11 0 8 0 046 20,65,882 Laxmi 2010- TATACOF 4,000 31,88,049 4,000 27,24,7 -4,63,310 11 FEE 40 Laxmi 2010- Taxes - 11 63,162.25 Laxmi 2010- Total - 11 78,77,054, .82 Viraj 2010- ACROPET 25,000 22,73,682 25,00 29,25,7 6,52,094 11 AL 0 77 Viraj 2010- BAJAJFI 5,000 22,86,386 5,000 30,22,4 7,36,099 11 NS 85 Viraj 2010- BFUTI 3,150 22,16,245 3,150 29,23,1 7,06,882 11 28 Viraj 2010- DBREALT 12,000 13,38,452 12,00 17,49,6 4,11,245 11 Y 0 97 Viraj 2010- JETAIRW 9,000 36,65,207 9,000 40,83,0 4,17,886 11 AYS 93 Viraj 2010- RCOM 69,700 59,50,986 69,70 63,46,8 3,95,896 11 0 82 Viraj 2010- REL 4,000 19,81,351 4,000 24,11,5 4,30,204 11 55 Viraj 2010- RELCAPI 7,350 28,68,754 7,350 33,41,9 4,73,207 11 TAL 61 Viraj 2010- Taxes - 11 78,300.71 Viraj 2010- Total 41,45,21 11 2.19 c. On perusal of the above table, it was noted that Laxmi had reportedly incurred a loss of ₹ 35,44,426.55 and ₹ 78,77,054.82 during the FY 2009-10 and 2010-11, respectively, while trading through the Noticee. Similarly, Viraj had reportedly made a profit of ₹ 41,45,212.23 during the FY 2010-11 while trading through the Noticee. However, no such transactions were observed in the trading/ demat accounts of Laxmi and Viraj in the records of exchange. Pursuant to any trade executed on the platform of the exchange, consequential changes of holdings are reflected in the demat account of investors, however, the Noticee has not submitted any demat statement of his said two clients in support of his claim for execution of trades for them.

d. During recording of statement before the Investigating Authority on April 09, 2013, the Noticee had assured to provide the KYC documents and details of all trades executed by the said clients by April 12, 2013. Thereafter, the Investigating Authority issued various summons and communications dated April 30, 2013, May 06, 2013 and October 10, 2013 to the Noticee seeking for his appearance and for providing various information like bill and contract notes issued to the said clients for aforesaid trades mentioned at sub-para 12(b) above. However, the Noticee ultimately made a very evasive reply, vide email dated October 21, 2013, stating that he could not find the details of the said clients on UCC and also that they were old clients and not doing any business at present and, therefore, he was not able to verify the details now.

e. In order to verify the genuineness of purported trades carried out by the said clients through the Noticee, as detailed in sub-para 12(b) above, confirmation of execution of those trades were sought from BSE which vide its reply dated January 12, 2015 provided the details of total trading carried out by the Noticee during the period of FY 2009 -11, as under:

FY Scrip Trading in the account of Actual trading on Laxmi and Viraj through BSE across all VVS clients trading (as submitted by VVS) through VVS Buy Sell Buy Sell 2009- INDHOTELS 62,500 62,500 5,250 5,000 10 2009- JETAIRWAYS 51,000 51,000 1,050 1,050 10 2009- RUCHISOYA 95,000 95,000 8,100 8,100 10 2010- 31,284 31,244 11 ABANOFFSH 53,500 53,500 2010- 13,211 13,061 11 ACROPETAL 25,000 25,000 2010- 708 721 11 BAJAJFINS 5,000 5,000 2010- 6,989 6,989 11 DBREALTY 19,000 19,000 2010- 2,54,131 2,54,157 11 DLF 2,67,500 2,67,500 2010- 14,675 15,675 11 IDEA 2,00,000 2,00,000 2010- 15,210 15,210 11 JETAIRWAYS 46,500 46,500 f. The BSE vide its aforesaid reply dated January 12, 2015 contradicted the execution of said trades stated to have been carried out by the Noticee for his said two clients on the platform of the exchange, as tabulated in sub-para 12(b) above. The BSE in its reply dated January 12, 2015 further stated that, “ ………. the quantity of buy and sell as provided by trading member for 2 clients is greater than quantity of buy and sell for all its clients as per exchange record. Hence, it can be inferred that data in the client and scrip wise summary provided by the trading member is incorrect.”

g. It was also noted from the ledgers submitted by the Noticee that for the trading that claimed to have been carried out in Laxmi's account between the period April 06, 2009 and June 18, 2009, the first pay in by Laxmi was done only on October 12, 2010 (i.e., after lapse of more than 15 months). It was also noted that the income tax return of Laxmi for the financial year 2009-10 was filed on October 08, 2010 factoring the losses based upon fictitious documentation created in connivance with the Noticee.

h. In view of the above, the Designated Authority noted that the banking transaction of the said two clients vis-à-vis the dates of purported trading corroborated with the response of BSE established that the ledgers and scrip-day wise summary submitted by the Noticee were not genuine and, therefore, the submissions of documents relating to purported trading in the market without registering clients and without executing trades on BSE revealed that the Noticee had dealt in the securities in an unfair and fraudulent manner. The Designated Authority further noted that the Noticee, by above act and conduct, had failed to maintain high standards of integrity, promptitude and fairness in the conduct of all his business.

13. The question now arises as to whether the above act of the Noticee has resulted into violation of the provisions of Section 12A(a), (b) and (c) of the SEBI Act, 1992 read with Regulation 3(a), (b), (c), (d) and Regulation 4(1) and 4(2) (p) of the PFUTP Regulations and Clause A(1) and (5) of Code of Conduct under Schedule II read with Regulation 9 of the Stock Broker Regulations, which read as under:

SEBI Act, 1992 Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control Section 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 recognised 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;

(d) …………………….

PFUTP Regulations, 2003 Regulation 3. Prohibition of certain dealings in securities “No person shall directly or indirectly (a) buy, sell or otherwise deal in the 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.

Regulation 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:— ………… (p) an intermediary predating or otherwise falsifying records such as contract notes. ……….

Stock Broker Regulations Conditions of Registration. 9. Any registration granted by the Board under regulation 6 shall be subject to the following conditions, namely: - …………….

(f) He shall at all times abide by the Code of Conduct as specified in Schedule II

SCHEDULE II of Stock Broker Regulations A. General. (1) Integrity: A stock-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business. (2) ……… (5) Compliance with statutory requirements: A stock-broker shall abide by all the provisions of the Act and the rules, regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to him.

14. I note that despite the show cause notice dated August 29, 2018 and hearing notice dated October 11, 2018 were duly served to the Noticee, as detailed in above paras 8-11, the Noticee has failed to submit any reply on merit to the allegations levelled in the show cause notice dated August 29, 2018 and also failed to appear before me for availing the opportunity of personal hearing granted to him on November 09, 2018. I also note that the Noticee was specifically asked to reply to the show cause notice dated August 29, 2018 within twenty one days from the date of receipt of the same. It was also mentioned in the said show cause notice that if the Noticee fails to file any reply then it shall be construed that he has no reply to submit and, in that case, SEBI shall proceed in the matter as it deems fit. Despite such a clear advice and service of notices, the Noticee has ignored the same and chosen to keep himself away from the proceedings nor submitted any reply to the SCN dated August 29, 2018.

15. In respect of the present proceedings, SEBI has received letter dated October 29, 2018 from the Noticee. As noted in para 11 above, the contents of the said letter are evasive and meaningless. It would be appropriate to reproduce the letter received from the Noticee, for further reference, which read as under:

October 29, 2018 To, ……………………. ……………………… ………………………. Sir/ Madam, SUBJECT: Matter of Manish Chaturvedi In the matter of Manish Chaturvedi we would like to inform you that We do not know the said person and we categorically deny any involvement with the said person and he is not our client and we have never dealt with him. Kindly do the needful and oblige

Thanking You Yours sincerely

Vishal Vijay Shah

16. I note from the above that the contents of the Noticee’s letter dated October 29, 2018 is evasive, ambiguous and meaningless in respect of the show cause notice dated August 29, 2018 and the hearing notice dated October 11, 2018 issued by SEBI. I note that the investigation was conducted in connection with the alleged front running by certain entities including one Mr. Manish Chaturvedi and during the said investigation it was found that the Noticee had generated some fictitious documents of trades for his said two clients Laxmi and Viraj. Therefore, name of Mr. Manish Chaturvedi was referred to in the SCN dated August 29, 2018 and the hearing notice dated October 11, 2018. However, Mr. Manish Chaturvedi is nowhere connected with the Noticee or in this present proceedings wherein SCN dated August 29, 2018 and hearing notice dated October 11, 2018 have been issued by SEBI to the Noticee. The aforesaid letter dated October 29, 2018 received from the Noticee does not reveal anything in connection with the contents of corresponding SCN or hearing notice issued to the Noticee. The Noticee has not offered any comments or explanation in respect of of the SCN dated August 29, 2018 or the Enquiry Report, which was annexed with the SCN, wherein the Designated Authority has recommended for the suspension of certificate of registration of the Noticee for a period of six months.

17. In view of the above, it may be presumed that the Noticee has no explanation to offer in respect of the allegations levelled against him vide show cause notice dated August 29, 2018. In this respect, it would be relevant to note that the Hon’ble Securities Appellate Tribunal (SAT) in the matter of Sanjay Kumar Tayal & Others vs SEBI (Appeal No. 68 of 2013 decided on February 11, 2014), inter alia, observed as under:

“ 29. We see no merit in above contentions. As rightly contended by Mr. Rustomjee, learned senior counsel for respondents, appellants have neither filed reply to show cause notices issued to them nor availed opportunity of personal hearing offered to them in the adjudication proceedings and, therefore, appellants are presumed to have admitted charges Levelled against them in the show cause notices…”

18. Notwithstanding the above, the facts and circumstances of the case, as appearing on the materials available on record, are considered for arriving at appropriate conclusion on merits of the case.

19. As noted in para 13 (b) above, the Noticee had provided copies of client registration forms, party ledgers and client-wise scrip-wise summary of purported trades executed for said two of his clients Laxmi and Viraj wherein Laxmi had reportedly incurred a loss of ₹ 35,44,426.55 and ₹ 78,77,054.82 during the FY 2009-10 and 2010- 11, respectively and, similarly, Viraj had reportedly made a profit of ₹ 41,45,212.23 during the FY 2010-11.

20. Further, when the aforesaid purported trades were sought to be verified through BSE, as noted in para 12 (e) and (f) above, it was revealed that the total quantum of buy and sell carried out by the Noticee for all his clients during the period of FY 2009-10 and 2010- 11 was much lesser than the quantity of buy and sell purported to have been executed for his said two clients Laxmi and Viraj.

21. In view of the above, I note that the ledgers and scrip-day wise summary submitted by the Noticee in respect of trades claimed to have been executed for his said two clients, were false and fictitious. The same is further substantiated with the facts that for the trades that were stated to have been executed in Laxmi's account between the period April 06, 2009 and June 18, 2009, the first pay in by Laxmi was done only on October 12, 2010 (i.e., after lapse of more than 15 months) and also the income tax return of Laxmi for the financial year 2009-10 was filed on October 08, 2010 factoring the losses based upon the fictitious records created by the Noticee. The above facts of the case reveals that no such transactions as claimed by the Noticee were executed on the exchange and the said two persons Laxmi and Viraj were also not registered as client of the Noticee. It leads to the conclusion that that Noticee had aided and abetted the said two clients in factoring the profits/ losses by creating fictitious documents relating to dealing in securities and, thus, the Noticee was indulged in falsifying of records. I note that the aforesaid act of the Noticee violates the provisions of Regulation 4(2)(p) of the Intermediaries Regulations.

22. In this respect, it would be relevant to refer to the Order dated June 29, 2011 passed by the Hon’ble Securities Appellate Tribunal in the matter of V. Natrajan vs. SEBI; SAT Appeal No. 104 of 2011. The relevant portion of the said Order reads as under:

“…… we are satisfied that the provisions of Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 were violated. These regulations, among others, prohibit any person from employing 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 an exchange. They also prohibit persons from engaging 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 that are listed on stock exchanges. These regulations also prohibit persons from indulging in a fraudulent or unfair trade practice in securities which includes publishing any information which is not true or which he does not believe to be true.”

23. In view of the above, I agree with the observations made by the Designated Authority that by submitting documents relating to trading in the market, which were never executed on the platform of the exchange, for fraudulent purposes for two persons who were not even registered with the Noticee as clients, the Noticee had dealt in securities in an unfair and fraudulent manner.

24. Issuance of false and fictitious documents in respect of trades without execution of the same on the exchange is very serious in nature which not only hamper the credibility of Noticee in person but also hamper the integrity and credibility of the functioning of the entire stock market mechanism at large. The Noticee, by indulging in the aforesaid conduct, has grossly failed in maintaining high standards of integrity, promptitude and fairness in conduct of all his business resulting into violation of Clause A(1) of Code of Conduct under Schedule II read with Regulation 9 of the Stock Broker Regulations. Further, by creating such false records, which are supposed to be generated only after execution of trades on the platform of the exchange, the Noticee has failed in complying with the various statutory requirements and the same violates the Clause A (5) of Code of Conduct under Schedule II read with Regulation 9 of the Stock Broker Regulations.

25. In the light of findings made in the Enquiry Report submitted by the Designated Authority, aforesaid discussions and in the absence of any reply received from the Noticee on merit, I am of the considered view that the Noticee, by his aforementioned act and conduct in creating false and fictitious records of purported trades for fraudulent purposes for said two persons, has violated the provisions of Section 12A (a), (b) and (c) of the SEBI Act and Regulations 3 (b), (c), (d), 4(1) and 4(2)(p) of the PFUTP Regulations and Clause A(1) and (5) of Code of Conduct under Schedule II read with Regulation 9 of the Stock Broker Regulations.

26. The Board has been empowered to, among other, regulate the functioning of the stock market which is also called as barometer of the national economy. Any deviation from the good practices by an intermediary may cause serious damage to the credibility of the market and, therefore, the dealing in fraudulent and unfair manner by a registered intermediary more particularly a member of the stock exchange, has to be viewed seriously. In this respect, it would be relevant to refer to the observations made by the Hon’ble

Supreme Court of India in its judgement dated April 26, 2013, in the case of N. Narayanana vs. Adjudicating Officer, SEBI (Civil Appeal Nos. 4112-4113 of 2013) which reads as under:

“SEBI, the market regulator, has to deal sternly with companies and their Directors indulging in manipulative and deceptive devices, insider trading etc. or else they will be failing in their duty to promote orderly and healthy growth of the Securities market. Economic offence, people of this country should know, is a serious crime which, if not properly dealt with, as it should be, will affect not only country’s economic growth, but also slow the inflow of foreign investment by genuine investors and also casts a slur on India’s securities market. Message should go that our country will not tolerate “market abuse” and that we are governed by the “Rule of Law”. Fraud, deceit, artificiality, SEBI should ensure, have no place in the securities market of this country and ‘market security’ is our motto…”

27. The mechanism of the stock market is structured in such a manner that no investor can access the trading platform of the stock exchanges without getting itself registered/ enrolled with any one of the stock brokers and as such the stock brokers are the first level gatekeepers of the stock market who plays a very pivotal role in maintaining the market a safe place for the investors by dealing in fairness. As such, apart from complying with the various provisions of statutory requirements, the stock brokers are also expected to carry out the first level of due diligence in order to check manipulation and fraudulent activities in respect of dealing in securities in the stock market. However, in the present case, the Noticee has not only connived with the said two clients in creating false and fictitious records of trades for a fraudulent purpose of factoring the profit/ losses but has also misused the purpose of registration of stock broker granted to him. Such act and conduct of the Noticee, if continued, may endanger a serious loss to the securities market at large in future.

28. Further, from the observations made by the Designated Authority in the Enquiry Report, I note that the Noticee had chosen not to file any reply in respect of the show cause notice dated May 22, 2018 issued by the Designated Authority. It is also noted that, as mentioned in para 12(d) above, during the course of investigation also the Noticee had failed to reply to various summons and letters issued to it and, ultimately, the Noticee had made vague and evasive reply vide his email dated October 21, 2013.

29. I, further, note that the aforesaid act and conduct of the Noticee is not limited to creating of a false and fictitious records of trades, which never took place on the platform of the exchange, but further continued by his non-co-operation with the investigating authority and the Designated Authority in their fact finding process. Even in the present proceedings also, the notice has maintained silence despite service of show cause notice and hearing notice to him. It reveals a causal, irresponsible and flippant attitude which cannot be expected from a registered intermediary.

DIRECTIONS:

30. In view of the above, in order to protect the interest of the investors in securities market, I, in exercise of the powers conferred on me under Section 19 of the SEBI Act, 1992 read with the Regulation 28(2) of Intermediaries Regulations, hereby suspend the certificate of registration of the Noticee, i.e. Mr. Vishal Vijay Shah, (Member, BSE having SEBI Registration No. – INB011277614)) for a period of six months.

31. The Order shall come into force on expiry of twenty one days from the date of this Order.

32. A copy of this Order shall be served upon the Noticee and the Exchange for ensuring compliance of this Order.

DATE: December 12, 2018 ANANTA BARUA PLACE: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA