Order with respect to Shri Parasram Holding Private Limited - in the matter of Gangotri Textiles Limited

WTM/GM /EFD-DRA-III/ 12 /MAY/2017 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under regulations 28(2) of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 - In the matter of Gangotri Textiles Limited In respect of Shri Parasram Holdings Private Limited (PAN No. AAACS4487J) 1. Securities and Exchange Board of India (hereinafter referred to as "SEBI") conducted investigation in respect of buying, selling and dealing in the shares of Gangotri Textiles limited (hereafter referred to as "Gangotri"/"Company") during the period from April 07, 2006 to May 31, 2006 (hereinafter referred to as "Investigation Period") at NSE and BSE. This order is with respect to Shri Parasram Holdings Private Limited (hereinafter referred to as "PHPL") which during the Investigation Period was found to have executed trades on behalf of its client Sunita Gupta ("Sunita") in the scrip of Gangotri, on BSE. Therefore any reference in this Order to trades by Sunita may be read as trades executed by Sunita through PHPL.

2. Prior to the investigation period, the scrip of Gangotri was not listed on NSE and was only traded on BSE. During the period from January 2006 to April 6, 2006, the highest price was `52.25 (intra-day high on February 6, 2006) and lowest price was `40.55 (intra-day low on March 28, 2006). The average daily traded quantity during this period was 77,036 shares. During the Investigation Period i.e. between April 7, 2006 and May 31, 2006, the scrip of Gangotri was traded on both NSE and BSE. Details of the price/volume data at BSE and NSE during the Investigation Period are as follows:- TABLE 1 Exchange Open High Low Close Average Daily Volume BSE 53.25 70.95 43.00 44.35 241675 07.04.06 05.05.06 19.04.06 31.05.06 NSE 56.00 71.05 41.25 45.40 184236 07.04.06 05.05.06 19.04.06 31.05.06 Table I reveals that during the investigation period, the price of the scrip went up by 33.24% on BSE and 26.88% on NSE while the Sensex recorded a decrease of 12.21% (from 11845.13 on April 07, 2006 to 10398.61 on May 31, 2006) and Nifty recorded a decrease of 12.89% (from 3525.6 on April 07, 2006 to 3071.05 on May 31,2006).

3. After the Investigation Period, between June 2006 to December 2006, it was noted that the price of scrip opened at `45.95/45.2 (NSE/BSE) on June 1, 2006 and closed at `27.35 / 26.7 (NSE/BSE) on December 29, 2006. The highest price during this period was `46.25 in (intra-day high on June 2, 2006) in NSE and `46.65 (intra-day high on June 5, 2006) in BSE. The lowest price during this period was `24 (intra-day low on December 13, 2006) in both NSE and BSE. The average daily traded quantity during this period was 34,080/43,717 (NSE/BSE) shares, respectively.

4. It was observed that, during the Investigation Period, certain entities allegedly functioned as a group (hereinafter referred to as the "Vishvas Group") and by trading through their respective stock brokers or otherwise, had allegedly executed synchronized trades, circular trades and reversal trades amongst themselves and traded in significant variation to the Last Traded Price (LTP) in the shares of Gangotri. For the purpose of this order, synchronised trades are understood to be those trades where- (i) the time difference, between buy order and sell order, is less than 60 seconds. (ii) there is no difference between the price and quantity of the buy order and the sell order.

5. The list of the client members of the Vishvas Group and their stock brokers, if any, are stated below: TABLE 2 Sr. No. Name of the client Name of the stock broker 1. Ishita Finstock limited Vishvas Securities limited ("VSL") ("Ishita") 2. Sunita Gupta ("Sunita") Shri Parasram Holdings Private Limited ("PHPL") 3. Purshottam Khandelwal SIC Stocks and Services private Limited ("Purshottam") ("SIC") 4. Praveen Poddar TCP Stock Brokers Limited ("TCP") ("Praveen") 5. Vishvas Securities Ltd. Proprietary trades ("VSL") 6. Anupama Communications NIL trades Private limited ("Anupama")

7. Avisha Credit Capital Ltd. Shriram Insight Share Brokers Ltd. ("Avisha") ("Shriram") 8. ISF Securities Ltd ("ISF") Sam Global Securities Ltd. at BSE and proprietary trades at NSE 9. Quantum Global Securities Proprietary trades and Leasing Company Limited ("Quantum") 10. Cosmo Corporate Services Integrated Master Securities Pvt. Ltd. Limited ("Cosmo") ("Integrated") 11. Master Finlease limited ("Master") 12. Mefcom Securities Limited Mefcom Securities Limited ("Mefcom") ("Mefcom") 13. Vishvas Projects Limited ("VPL")

6. To enquire into the alleged violations by the Vishvas Group with respect to their trades in the Gangotri scrip, including the role of PHPL, Shri Jayanta Jash was appointed as the Designated Authority ("DA") by order dated November 8, 2013 under regulation 24 of SEBI (Intermediaries) Regulations, 2008 ("Intermediaries Regulations"). The DA, issued a show cause notice dated January 06, 2014 to PHPL. After completion of the proceedings, the DA submitted a Report dated July 31, 2014 in respect of PHPL (hereinafter referred to as "the DA Report"), wherein it was found that PHPL had violated the provisions of sections 12A(a), (b) and (c) of the SEBI Act read with regulations 3(a), (b), (c) and (d), 4(1), 4(2)(a), (e) and (g) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 ("PFUTP Regulations") and regulation 7 read with Clause A of Schedule II of the SEBI (Stock Brokers and Sub-brokers) Regulations ("Stock Brokers Regulations") dealing with Code of Conduct for Stock Brokers. Accordingly the DA, in his Report, recommended suspension of certificate of registration of PHPL for a period of three months.

7. After considering the DA Report, the Designated Member (DM) caused to issue a show cause notice dated September 30, 2015, under regulation 28(1) of the Intermediaries Regulations calling upon PHPL to show cause as to why action as recommended in the DA Report or as otherwise deemed fit should not be taken against it.

8. PHPL filed its reply by letter dated February 02, 2016 following which an opportunity of personal hearing was also granted to the Noticee on June 23, 2016. Mr. Rohan LavKumar Shah, Advocate appeared on behalf of PHPL along with Mr. Aditya Bhansali,

Consultant and Ms. Nirali Mehta, Company Secretary from Mindspright Legal and Mr. Vivek Aggarwal, Director, PHPL., and made submissions. The Whole Time Member who had granted the opportunity of personal hearing to PHPL had subsequently demitted office. Consequently, a fresh opportunity of personal hearing to PHPL was granted on January 25, 2017, wherein Mr. Rohan Lav Kumar Shah, Advocate appeared on behalf of PHPL along with Mr. Amit Dey, Advocate from Mindspright Legal and made submissions. The submissions were generally a reiteration of the written replies to the SCNs issued by the DA and the Designated Member/Whole Time Member.

9. Summary of facts and the related observations made by the DA in his Report in relation to the trades by PHPL is discussed in the following sub-paragraphs. 9.1 Connected Entities: The DA relied on the Investigation report to note that members of the Vishvas Group were connected to each other through various means. Specifically with respect to Sunita i.e. the client of PHPL, the DA observed that Sunita was connected to Purshottam, Cosmo, ISF, Praveen and Mefcom on the basis of synchronised trades executed between them. 9.2 Quantum of shares traded by the Vishvas Group members at BSE and NSE during Investigation Period are as under: TABLE 3 Sr. No. Members of Traded quantity (During Investigation Period) Vishvas Gtoup BSE NSE Buy Sell Buy Sell 1. Master 38000 18386 20500 111400 2. Purshottam 2927835 2882486 0 0 3. Cosmo 445643 320630 401520 471184 4. ISF 389748 338795 453396 368574 5. Quantum 0 0 302095 286835 6. Ishita 0 0 195380 1569204 3 7. Praveen 460990 460990 0 0 8. Sunita 342246 342246 0 0 9. Mefcom 443942 348370 610646 667122 10. Avisha 50000 0 0 0 11. VSL 0 0 134460 118661 12. VPL 100000 0 0 0 Total 5198404 4711903 3876420 3592980

From the above, it is observed that as a percentage of shares traded by the Vishvas Group, Sunita contributed to 6.58% and 7.27% of shares bought and sold on BSE, respectively.

9.3 Trades on BSE and manipulation of volumes: On BSE, during the investigation period, seven members of the Vishvas Group including Sunita had a gross buy position with total contribution of 57.1% (51,10,404 shares) of the total traded quantity and six members of the Vishvas Group, including Sunita had a gross sell position with a total contribution of 52.5% (46,93,517 shares) of the total traded quantity. PHPL had bought 3,42,246 shares of Gangotri for its client Sunita i.e. 94.2% of its total purchase and PHPL had sold 3,42,246 shares of Gangotri for its client Sunita i.e. 89.8% of its total sale. Out of the total 37 trading days during the investigation period, on 21 days PHPL had bought and sold the shares of Gangotri for its client Sunita. It is observed that on 15 days, the net position of the PHPL’s client was zero. 9.3.1 During the Investigation Period, 24,154 trades in Gangotri scrip were executed for a total traded quantity of 89,41,975 shares at BSE. Out of a total of 420 synchronized trades (buy & sell) for 24,52,618 shares executed by the Vishvas Group, Sunita indulged in 47 synchronized trades for 2,51,018 shares. 1,76,813 shares bought and 74,205 shares sold by PHPL for its client Sunita were synchronized with other members of the Vishvas Group. The DA report cited one such instance of synchronized trades and reversal of trades by Sunita with other members of Vishvas Group on May 18, 2006. On the said date, sell order was placed by Sunita at 13:08:18 at the rate of ` 58.35 for 5,000 shares and a buy order was placed by Mefcom at 13:08:37 at the rate of `55.35 for 5,000 shares resulting in purchase of 5000 shares by Mefcom from Sunita at the rate of `55.35 at 13:08:38. The order time difference was 19 seconds. Subsequently, sell order was placed by Mefcom at 14:09:34 at the rate of ` 55.35 for 5,000 shares and buy order was placed Sunita at 14:09:34 at the rate of `55.35 for 5,000 shares. The order time difference was 0 seconds. This resulted in a reverse trade whereby Sunita bought back 5000 shares from Mefcom at the rate of `55.35 at 14:09:35, the trade being reversed within approximately one hour from the earlier trade.

9.3.2 The DA observed that during the Investigation Period, circular trading among Vishvas Group was observed from April 21, 2006 till May 31, 2006. One of the instances of circular trading on BSE, among the group and involving Sunita, observed on April 24, 2006, was depicted in the DA Report as under:

Thus the DA found that on BSE nine members of the Vishvas Group including the client of PHPL i.e. Sunita were involved in 2138 instances of circular trading on 29 trading days out of 37 trading days during investigation period and created artificial volume of 26,90,184 shares (30.08% of total traded quantity) by buying and selling among themselves. Quantum of shares forming part of the aforesaid circular trades are as under:- TABLE 4 Circular Trade Sellers Mefco Purshotta Pravee Grand Buyers Cosmo Sunita Master m m ISF n Total VPL 10000 8000 00 00 54509 6000 19597 98106

Avisha 00 00 00 00 50000 00 00 50000 Cosmo 5672 43875 00 59535 259186 7000 49152 424420 Sunita 38031 00 00 43901 82808 94132 29928 288800 Master 00 00 00 10000 13399 00 4000 27399 Mefcom 9500 36059 00 00 180381 45579 52274 323793 12469 Purshottam 72446 150814 8386 108126 65025 4 187160 716651 ISF 35602 19965 10000 21041 215666 00 38990 341264 Praveen 61559 29674 00 32044 279473 17001 00 419751 Grand 23281 29440 269018 Total 0 288387 18386 274647 1200447 6 381101 4 9.4 Price Manipulation: On BSE, nine members of Vishvas Group including Sunita had cumulatively contributed ` 718.05 to positive Last Traded Price (LTP) and `468.65 to Negative LTP. Individually, Sunita had contributed ` 5.70 to total cumulative positive LTP and ` 4.35 to total cumulative negative LTP.

10. In addition to the observations in the DA Report as discussed above, I have examined some orders placed by PHPL and trades executed by it in the Gangotri scrip, from the relevant Order log and Trade log (copies of which had been provided to the noticee i.e. PHPL, along with the SCN dated January 06, 2014 issued by the DA). The details of this additional examination are noted below:

10.1 Synchronised Trades: It is seen from the statements of transactions for the period between 21st April, 2006 and 30th May, 2006 that on certain days, repeated buy/sell orders were placed with negligible time difference of each other and the trades have also been synchronised with respect to quantity and price. A table indicating synchronised orders/trades placed on BSE, involving PHPL, as extracted from the order logs/trade logs, is given below:

TABLE 5 Buy Sell Traded Trad Buy Sell Order Orde Orde Buy Sell Trade Trade Quanti e Buy Order Order Time r r Orde Orde Date Time ty Price Client Sell Client Time Time Diff price price r qty r qty 10:27:1 1000 1000 21/04 9 10000 47.3 Sunita ISF 10:27:19 10:27:16 00:00:02 47.3 47.3 0 21/04 10:27:3 5000 47.3 Sunita ISF 10:27:32 10:27:34 00:00:02 47.3 47.3 5000 5000

11:30:0 1500 1500 21/04 4 15000 49.05 Sunita Cosmo 11:30:00 11:30:03 00:00:03 49.05 49.05 0 10:25:4 24/04 3 7500 52.25 Cosmo Sunita 10:25:43 10:25:29 00:00:14 52.25 52.25 7500 7500 10:40:5 24/04 7 500 52.7 ISF Sunita 10:40:53 10:40:52 00:00:01 52.7 52.7 500 10:17:2 25/04 1 6240 56.85 Sunita Praveen 10:17:20 10:17:05 00:00:15 56.85 56.85 7500 7500 10:45:3 25/04 1 5000 58.15 Sunita Praveen 10:45:31 10:45:29 00:00:02 58.15 58.15 5000 5000 12:10:3 Purushotta 25/04 1 4673 54.75 Sunita m 12:10:30 12:10:29 00:00:01 54.75 54.75 5000 5000 13:14:0 25/04 4 7000 53.85 Sunita Mefcom 13:14:04 13:13:54 00:00:10 53.85 53.85 7000 7000 11:14:0 Purushotta 29/04 7 4500 59.8 Sunita m 11:14:06 11:13:58 00:00:08 59.8 59.8 5000 5000 10:19:1 Purushotta 1000 1000 04/05 5 10000 67.3 Sunita m 10:18:58 10:19:11 00:00:13 67.3 67.3 0 11:36:1 Purushotta 2500 2500 04/05 4 25000 69.85 Sunita m 11:36:09 11:36:13 00:00:05 69.85 69.85 0 12:10:3 1000 1000 09/05 8 10000 61.85 Sunita Mefcom 12:10:38 12:10:31 00:00:07 61.85 61.85 0 13:47:3 1000 1000 09/05 0 10000 62.35 Cosmo Sunita 13:47:29 13:47:19 00:00:11 62.35 62.35 0 11:05:4 10/05 3 5000 62 Sunita ISF 11:05:42 11:05:35 00:00:07 62 62 5000 5000 11:07:1 10/05 8 1975 61.75 Sunita ISF 11:07:17 11:06:17 00:01:00 61.75 61.75 2000 2000 Purush 10/05 9:58:00 5000 61.75 ottam Sunita 09:57:59 09:57:49 00:00:10 61.75 61.75 5000 5000 10:49:0 Purush 10/05 1 4700 62.45 ottam Sunita 10:49:00 10:48:28 00:00:32 62.45 62.45 5000 5000 12:59:2 11/05 8 1600 61.2 Sunita ISF 12:59:27 12:59:23 00:00:05 61.2 61.2 2000 2000 13:02:2 11/05 0 1300 61.15 Sunita ISF 13:02:18 13:02:19 00:00:00 61.15 61.15 1300 1300 13:59:2 1000 1000 11/05 6 9516 61.6 Sunita ISF 13:59:25 13:59:02 00:00:23 61.6 61.6 0 13:59:5 11/05 6 2016 61.6 Sunita ISF 13:59:55 13:59:33 00:00:23 61.6 61.6 2500 2500 12:05:3 Mefco 11/05 5 5000 61.15 m Sunita 12:05:34 12:05:04 00:00:31 61.15 61.15 5000 5000 10:09:2 Pravee 11/05 5 5000 61.15 n Sunita 10:09:24 10:09:21 00:00:03 61.15 61.15 5000 5000 11:14:2 Pravee 12/05 3 4774 61.15 n Sunita 11:14:22 11:14:01 00:00:21 61.15 61.15 5000 5000 10:08:2 Pravee 15/05 5 5000 60.65 n Sunita 10:08:24 10:08:09 00:00:16 60.65 60.65 5000 5000 10:19:3 1000 1000 16/05 0 10000 63.9 Sunita ISF 10:19:29 10:19:28 00:00:00 63.9 63.9 0 11:59:0 17/05 2 4867 57.8 Sunita Cosmo 11:59:02 11:58:47 00:00:15 57.8 57.8 5000 5000 10:06:5 Purushotta 18/05 9 200 55.7 Sunita m 10:06:53 10:06:58 00:00:05 55.7 55.7 2000 2000 12:49:0 1000 1000 18/05 3 10000 55.35 Sunita Mefcom 12:49:02 12:48:42 00:00:21 55.35 55.35 0 14:09:3 18/05 5 5000 55.35 Sunita Mefcom 14:09:34 14:09:34 00:00:00 55.35 55.35 5000 5000

14:53:0 18/05 2 4990 55.05 Sunita ISF 14:53:01 14:52:49 00:00:12 55.05 55.05 5000 5000 13:08:3 Mefco 18/05 8 5000 55.35 m Sunita 13:08:37 13:08:18 00:00:19 55.35 55.35 5000 5000 11:20:0 18/05 8 5000 55.3 ISF Sunita 11:20:01 11:20:07 00:00:06 55.3 55.3 5000 5000 14:11:3 18/05 4 4811 55.3 Cosmo Sunita 14:11:33 14:11:29 00:00:04 55.3 55.3 5000 5000 10:00:2 29/05 1 3000 48.2 Sunita Praveen 10:00:20 10:00:11 00:00:09 48.2 48.2 3000 3000 11:23:5 Purushotta 29/05 9 985 46.75 Sunita m 11:23:58 11:23:48 00:00:10 46.75 46.75 1000 1000 10:01:2 30/05 0 4951 46.85 Sunita Mefcom 10:01:19 10:00:57 00:00:22 46.85 46.85 5000 5000 Purush 30/05 9:59:16 4965 46.75 ottam Sunita 09:59:15 09:59:07 00:00:07 46.75 46.75 5000 5000 31/05 9:59:38 2500 44.95 Sunita Cosmo 09:59:37 09:59:25 00:00:12 44.95 44.95 2500 2500 10:36:1 Purushotta 31/05 6 2500 45.8 Sunita m 10:36:15 10:36:08 00:00:07 45.8 45.8 2500 2500 12:47:0 31/05 6 2000 44.8 Sunita Cosmo 12:47:06 12:46:53 00:00:12 44.8 44.8 2000 2000 14:46:2 31/05 6 2000 44.5 Sunita Mefcom 14:46:25 14:46:13 00:00:12 44.5 44.5 2000 2000 10:37:3 Mefco 31/05 7 1000 45.35 m Sunita 10:37:36 10:37:27 00:00:10 45.35 45.35 1000 1000 10:38:0 Mefco 31/05 3 500 45.3 m Sunita 10:38:02 10:38:01 00:00:01 45.3 45.3 500 11:36:4 Mefco 31/05 1 3955 45.35 m Sunita 11:36:37 11:36:41 00:00:03 45.35 45.35 4000 4000 14:45:2 31/05 4 1500 44.4 Cosmo Sunita 14:45:23 14:45:03 00:00:20 44.4 44.4 2000 2000

The above table reveals that for its client Sunita, PHPL indulged in 47 synchronised trades for 2,51,018 shares at BSE during a period of 16 trading days between April 21 and May 31 of 2006. Particularly on 11th, 18th and 31st of May, 2006, the number of intra-day instances of synchronisation was quite apparent.

10.2 Circular Trades Analysis: It was observed that on certain days, whatever quantity of shares were bought by Sunita from other Vishvas Group entities, were sold back to Vishvas Group entities on the same day. Instances of circular trades done on BSE may be observed from the below table: TABLE 6 Buy Qty Sell Qty by Sunita by Sunita Date Gupta Seller Name Gupta Buyer Name 21/04/2006 30,000 ISF, Cosmo 29,900 Purshottam, Praveen 24/04/2006 8,000 ISF 8,000 ISF, Cosmo 25/04/2006 24,031 Purshottam, Praveen, Mefcom 24,541 Purshottam, ISF

28/04/2006 24,500 Purshottam 29/04/2006 4,500 Purshottam 04/05/2006 35,000 Purshottam 10,000 Cosmo 09/05/2006 10,000 Mefcom 18,000 Cosmo, VPL 10/05/2006 25,138 Purshottam, ISF 25,869 Purshottam, Mefcom 11/05/2006 37,665 Purshottam, ISF, Praveen 39,780 Purshottam, Mefcom, Praveen 12/05/2006 13,434 Purshottam, Praveen, ISF 14,881 Purshottam, Praveen 15/05/2006 5,000 Purshottam 5,000 Praveen 16/05/2006 13,924 Purshottam, Praveen, ISF 12,658 Purshottam 17/05/2006 4,867 Cosmo 4,782 Purshottam Purshottam, Mefcom, ISF, Mefcom, ISF, Cosmo 18/05/2006 34,191 Cosmo 21,821 19/05/2006 5,179 Purshottam 25/05/2006 9,912 Purshottam, Mefcom, Cosmo 10,550 Purshottam, Mefcom, Cosmo 26/05/2006 7,900 Cosmo, ISF 8,000 Cosmo, Purshottam 29/05/2006 7,485 Purshottam, Praveen 7,525 Cosmo, Purshottam 30/05/2006 4,951 Mefcom 5,000 Purshottam 31/05/2006 12,802 Purshottam, Mefcom, Cosmo 12,401 Purshottam, Mefcom, Cosmo Grand Total 2,88,800 2,88,387

11. It was observed during investigation that the day from when members of the Vishvas Group started trading, the average trading volume of the scrip at BSE / NSE had gone up significantly from 70,713/68,005 shares (during April 07, 2006 to April 20, 2006) to 3,38,391/2,13,738 shares (during April 21, 2006 to May 05, 2006) and 2,58,554/2,17,866 shares (during May 08, 2006 to May 31, 2006). Similarly price of the scrip in BSE/NSE increased from `43 / `41.25 on April 19, 2006, touched a high of `70.95 / `71.05 on May 05, 2006 and then decreased to `44.35 / `45.40 on May 31, 2006 within a period of one and half months.

12. Summary of the written and oral submissions made by PHPL are as follows: (i) Sunita Gupta has been a regular client of PHPL since 2002. Her trades for the FY 2006-2007 resulted in a turnover of `76.92 crore. During that period, she traded in 713 scrips with PHPL. Compared to that, her trades in Gangotri amounted only to 4.94 crore rupees which is 6.42% of Sunita's entire trade volume with PHPL. PHPL earned a brokerage of only ` 12, 500 out of the trades by Sunita in Gangotri. At no point of time, Sunita's trades resulted in high volume or high quantity trades, unlike her usual trading pattern. Therefore though Sunita was a regular client of PHPL, there was no cause for concern with respect to trades in Gangotri.

(ii) PHPL was a broker and had no knowledge of who bought or sold shares from /to its client Sunita at the end of the day. (iii) Merely because Sunita's trade appears to have matched, it does not follow that the broker was a party to the conspiracy. (iv) The accusation against Sunita is that out of its total volume of trade i.e. 6,84,492 shares, 2,51,018 shares (2.8% of the total trade volume) was allegedly synchronised, which is a very negligible. (v) Detailed analysis of every day's trades on the Exchange would reveal that Sunita was jobber and /or a day trader. Often Sunita would execute buy or sell orders of a number of shares. Since this was not a very liquid scrip, only certain number of its ordered shares would get matched. Furthermore this order of buy or sell would be split into several different orders and matched with several different entities. Thus Sunita's order quantity was often substantially different from that of various counter parties. (vi) If Sunita had the intention of manipulating the market then the number of orders placed would have been more than a meagre 337 buy or sell orders.

(vii) Since Sunita was a jobber and netted out her daily position three was a high possibility that the shares sold by Sunita would have been bought out by her again to net out her outstanding position of the day. (viii) Out of the 337 orders placed by Sunita as many as 23 orders were deleted as there were no counter orders to match the same. This shows that the trades placed by Sunita were not synchronised because if the trades were synchronised there would not have been deleted orders as all orders would have been matched. (ix) The enquiry report as well as the SCN is completely silent on any relationship or connection between PHPL and the counter parties. (x) The total cumulative positive LTP contribution of Sunita in the Gangotri scrip, as analysed by the enquiry officer was merely 0.12% which is negligible. PHPL did not notice any orders significantly different from the LTP. (xi) Steps taken by PHPL with respect to verification and monitoring of clients (including in the case of Sunita, inter alia, are as follows: (a) PHPL does not normally entertain walk in clients. Sunita was introduced by an existing client and has sound financial background.

She had adequate margin while trading and was meeting her margin and settlement obligation throughout her trading activity. In 2006 alone Sunita had traded in shares of 731 companies.

(b) Clients which are prohibited by SEBI/Exchange or any other regulatory authority are not allowed to trade with PHPL. (c) Trading in new trading account can commence only after the execution of client registration form and filling up all the mandatory UCC parameters. (d) When clients are not traceable or correspondences return undelivered etc., trading is prohibited for them till genuine existence is established. (e) Proper scrutiny of trading accounts is done and explanation is sought from clients who have multiple family accounts and use different trading accounts alternatively. (f) If volume of trading is not commensurate with financial standing of clients, explanation is sought and if the reply is not satisfactory, transactions are reported to FIU and STR is also filed, in addition to suspension of trading of that client. (g) In case activity of client is suspicious client code is deactivated immediately. If a client trades regularly in particular scrip out of proportion to market, rationale for such trading is sought and such client is instructed to undertake that he is not connected with promoter/director of the company and not involved in circular trading.

13. I have considered the documents on record, the findings of the DA in his Report and the submissions made by PHPL in this regard. I have identified the following issues as being relevant for my consideration: A. Whether PHPL conducted/ aided synchronised, circular and reversal trades in the Gangotri scrip? If yes, - I. whether PHPL violated sections 12A(a), 12A(b) and 12A(c) of the SEBI Act, 1992 read with regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a), 4(2) (e) and 4(2)(g) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003? II. whether PHPL violated regulation 7 read with clauses A(1), A(2), A(3), A(4) & A(5) of Schedule II of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992? B. Whether the recommendation of the Designated Authority submitted in his Report dated July 31, 2014 must be accepted?

14. The alleged violations need to be examined against the law relating to frauds in the securities market and that of conduct of brokers. Sections 12A(a), (b) and (c) of the SEBI Act, record the statutory prohibition against fraudulent and manipulative practices in the securities market. The provisions read as follows: 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 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;

Further relevant provisions of the set of regulations dealing with frauds in the securities market i.e. the SEBI (Prohibition of Fraudulent and Unfair Trade Practices in Securities Market) Regulations, 2003 (hereinafter referred to as "PFUTP Regulations"), are as follows:

"Regulation 3: - Prohibition of certain dealings in securities 3. 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 thereunder; (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 thereunder. 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:- (a) indulging in an act which creates false or misleading appearance of trading in the securities market; ... (e) any act or omission amounting to manipulation of the price of a security; … (g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security;" Regulation 7 (as it then read, prior to amendment in 2013) read with Clause A of Schedule II of the Stock Brokers Regulations dealing with Code of Conduct read as follows:

Stock brokers to abide by Code of Conduct. 7. The stock broker holding a certificate shall at all times abide by the Code of Conduct as specified in Schedule II. SCHEDULE II CODE OF CONDUCT FOR STOCK BROKERS A. General. 1) Integrity: A stock-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business. 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. 3) Manipulation: A stock-broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains. 4) Malpractices: A stock-broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors interest or which leads to interference with the fair and smooth functioning of the market. A stockbroker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness. 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.

15. As is evident from the relevant extracts of section 12A of the SEBI Act and regulation 3 of the PFUTP Regulations, it is clear that the scope of the prohibition against fraudulent trades is wide enough to cover illegal synchronised/circular/reversal trades. It is also well accepted that synchronised trading on the anonymous trading platform of stock exchanges is not per se illegal. The circumstances surrounding synchronised transactions and the inferences drawn thereof provide guidance in arriving at a conclusion as to the legality of the transactions. This legal position was laid down by the Securities Appellate Tribunal (SAT) in the case of Ketan Parekh v. SEBI (Appeal No. 2/2004) in its order dated July 14, 2006, extracts of which are reproduced as follows: “.......... A synchronised transaction will, however, be illegal or violative of the Regulations if it is executed with a view to manipulate the market or if it results in circular trading or is dubious in nature and is executed with a view to avoid regulatory detection or does not involve change of beneficial ownership or is executed to create false volumes resulting in upsetting the market equilibrium. ... Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available. The nature of the transaction executed, the frequency with which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether there is real change of beneficial ownership, the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn.”

16. Subsequent decisions of the SAT have reinforced the aforesaid views albeit in different words and considering different circumstances.

17. There is nothing available on record to directly show that PHPL formed part of the Vishvas Group. The charge of illegal synchronisation and particularly that of circular trading should typically commence with the assumption that there is a meeting of minds between persons who are connected with each other. However, persons may be deemed to be connected if the magnitude of synchronisation is so large that the relationship between parties to the transaction is unassailable. This in essence was the legal position laid down in the case of SEBI v. Kishore Ajmera & Ors wherein the Hon'ble Supreme Court by order dated February 23, 2016 (hereinafter referred to as "SC Order") held that knowledge of who the counter party is, whether client or broker, is not relevant for the purpose of proving that illegal synchronised trades had taken place. The following extracts of the said order of the Hon'ble Supreme Court are instructive in this regard: ""...knowledge of who the 2nd party/client or the broker is, is not relevant at all." (para 26 of the SC Order) While it is correct that trading in such illiquid scrips is per se not impermissible, yet, voluminous trading over a period of time in such scrips is a fact that should attract the attention of a vigilant trader engaged/engaging in such trades." (para 23 of the SC Order) "When over a period of time such transactions had been made between the same set of brokers or a group of brokers a conclusion can be reasonably reached that there is a concerted effort on the part of the concerned brokers to indulge in synchronized trades the consequence of which is large volumes of fictitious trading resulting in the unnatural rise in hiking the price/value of the scrip(s)." (Para 25 of the SC Order) "The conclusion has to be gathered from various circumstances like that volume of the trade effected; the period of persistence in trading in the particular scrip; the particulars of the buy and sell orders, namely, the volume thereof; the proximity of time between the two and such other relevant factors." (Para 26 of the SC Order)

Therefore as a principle, absence of direct proof of connection will not by itself imply absence of illegal synchronisation. Large scale of transactions and the repetitive nature of the same coupled with impact on volume and price on securities which are otherwise illiquid, all add to the inference that illegal synchronisation had infact taken place.

18. Applying the aforesaid principle to the case of PHPL, I note that the circumstantial evidence, pointing to a possibility of PHPL having been an active party to the market manipulations by the Vishvas Group is not adequate. The records above, including those stated by the DA in his Report, point to repeated number of synchronised trades on certain days in an otherwise illiquid scrip. However, compared to the role of other Vishvas Group entities, the figures cited in this Order in relation to volumes of trading on the part of Sunita do not appear to be significant enough to allege fraud on the part of PHPL which appears to have only played the role of a stock broker executing trades for its client. Further the LTP analysis does not reveal substantial contribution to price manipulation through the trades executed by PHPL for its client. In view of the above, the tests laid down in the SC Order to prove illegal synchronised and circular trades by brokers thereby resulting in a violation of PFUTP Regulations do not appear to have been satisfied in the instant case.

19. I now turn to examine whether there has been a violation of the provisions of the Stock Brokers Regulations dealing with Code of Conduct for the Stock Brokers. The SC Order in the Kishore Ajmera case (supra), which laid down the parameters to determine illegal synchronisation of trades, circular trades etc. also laid down the distinction between its applicability vis-à-vis PFUTP regulations on the one hand and Stock Brokers Regulations on the other. The decision of the Supreme Court in this context was recorded as follows: "The difference between violation of the Code of Conduct Regulations and the FUTP Regulations would depend on the extent of the persistence on the part of the broker in indulging with transactions of the kind that has occurred in the present cases. Upto an extent such conduct on the part of the brokers/sub-brokers can be attributed to negligence occasioned by lack of due care and caution. Beyond the same, persistent trading would show a deliberate intention to play the market. The dividing line has to be drawn on the basis of the volume of the transactions and the period of time that the same were indulged in. In the present cases it is clear from all these surrounding facts and circumstances that there has been transgressions by the respondents beyond the permissible dividing line between negligence and deliberate intention." (Para 26 of the SC Order)

20. Applying the aforesaid test to the case of PHPL, I am of the opinion that the persistence of trading by Sunita and the proximity of time between orders in a scrip which was otherwise illiquid should probably have alerted PHPL. I note that in separate proceedings by the Whole Time Member of SEBI, the client of PHPL, namely, Sunita was found to have executed illegal synchronised trades, circular trades and reverse trades, and accordingly orders imposing restraints on trading was passed. Relevant extracts of the Order of the Whole Time Member, dated April 13, 2016 is reproduced below: “30. In the instant case, the nature of transactions, volume of the transactions and the frequency with which these transactions were undertaken by the Noticees acting in concert with counter parties connected entities of Vishvas Group cannot but lead to the conclusion that the aforesaid transactions in the scrip of the Company were undertaken by the Noticees for creation of artificial volume to give false or misleading appearance of trading in the scrip without intention of change in beneficial ownership. I find that indulgence in non-genuine synchronized, circular trades and illegal self-trades, repeatedly, with connected entities without intending to change beneficial ownership of traded shares clearly establishes creation of artificial volume as alleged in the SCN. 31. I further find that entering into such synchronized, circular and self-trades was an attempt to tamper with the free, fair and transparent price discovery system of the stock exchange. Such practices where the transactions are put in with a premeditated understanding, have potential to distort the price discovery process at the stock exchange and disturbs the market equilibrium. This apart, the undisputed overt and covert acts and substantial contribution of the Noticees in LTP variation and establishing NHP in the scrip during respective Patch of price rise and fall at BSE and NSE both clearly establish their involvement in price manipulation in the scrip as described in the SCN.”

Accordingly, Sunita was prohibited from accessing the securities market, dealing in the securities market or being associated with the securities market in any manner for a period of 3 years. The order of the WTM dated April 13, 2016 was upheld by SAT in its order dated April 21, 2017. Relevant extracts of the order of SAT are reproduced below: "3. From the aforesaid findings recorded in the impugned order it is apparent that the appellant had indulged in synchronized trades, circular trades and her trades had also contributed to substantial variation in the Last Traded Price (LTP)/New High Price (NHP) which is prohibited under the PFUTP Regulations. 4. Above findings recorded in the impugned order is not contested by the counsel for the appellant on merits..."

21. Therefore, the role of PHPL’s client i.e. Sunita in illegal synchronised trades and circular trades was quite obvious, as is borne out from the aforesaid decisions of the Securities Appellate Tribunal and the Whole Time Member. The figures, in terms of volumes of transactions, described above appear sufficient for a prudent stock broker to have taken notice as being out of the ordinary. A registered stock broker is expected to adhere to standards of good conduct enshrined in the Stock Brokers Regulations. These standards require a broker not to mechanically place orders in furtherance of commercial objectives but to be vigilant of any fraudulent trades or attempts to manipulate the securities market, and to refrain from executing trades which are suspected to be in breach of securities laws. It is required to exercise caution with respect to any fraudulent trades by its clients and must not function as a mere agent for placing of orders. The broker may not have control over the trades themselves, since under normal circumstances buy/sell orders are expected to match on a price-time priority basis without human intervention. However placing of orders in close succession of time and date, in scrips which, based on fundamentals, would not by itself generate any investor interest, ought to have aroused the suspicion of a vigilant broker. Therefore, in view of the principles laid down in the SC Order, PHPL as a stock broker can be said to be in breach of the provisions of the Stock Brokers Regulations i.e. Regulation 7 thereof read with clause A of Schedule II of the Regulations (Code of Conduct for Stock Brokers) by not exercising proper care and diligence.

22. As already recorded in my findings above, the evidence against PHPL on record, in my opinion, is insufficient to prove the allegation of fraudulent synchronisation of trades or reversal trades. I do however find that the allegation of failure to comply with the Code of Conduct stands substantiated. At the same time, the following aspects also merit consideration - (i) PHPL does not appear to be a part of the group indulging in manipulative transactions in connivance with its clients. (ii) The violation pertains to the year 2006 and the first show cause notice was issued in 2014. Delay in proceedings may have caused prejudice to the Noticee i.e PHPL.

23. On an overall assessment of the facts and circumstances of the case, I find that the recommendation of the DA may not be accepted in the instant case. However, in the context of the violation of Code of Conduct having been made out in the paragraphs above, in the fitness of the facts of the matter, I, in exercise of the powers conferred on me under section 12 (3) of the SEBI Act read with regulation 28 (2) and regulation 27 of the SEBI (Intermediaries) Regulations, 2008, hereby warn the noticee - Shri Parasram Holdings Pvt. Limited (PAN: AAACS4487J) to exercise caution, care and due diligence in its future conduct while entering into trades on behalf of its clients and in compliance with the mandate of the Stock Brokers Regulations.

24. A copy of this Order shall be served on the recognised stock exchanges and on Shri Parasram Holdings Pvt. Limited, in accordance with regulation 30 of the SEBI (Intermediaries) Regulations, 2008.

Place: Mumbai G. MAHALINGAM Date: May 16, 2017 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA