sebi:8174

SEBI · SEBI · 1998-11-12 · V. K. CHOPRA, WHOLE TIME MEMBER

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Facts / Headnote

Minor penalty imposed: suspension of certificate of registration for 3 months

Provisions invoked

• s. 11
• s. 19
• s. 370

Regulations

• Reg. 7
• Reg. 13(4)
• Reg. 4
• Reg. 4(a)

Parties

• M/s Harvestdeal Securities Ltd

Holding

The order holds that Harvestdeal Securities Ltd. violated Regulation 4(a), (b) and (c) of the PFUTP Regulations and Regulation 7 read with Clauses A(3) and A(4) of the Code of Conduct under Schedule II of the Stock Brokers Regulations by acting in concert with other brokers and clients to create a false market in the NBL scrip, and imposes a minor penalty of suspension of its certificate of registration for 3 months.

Full text

1.0 BACKGROUND 1.1 Securities and Exchange Board of India (hereinafter referred to in short as “SEBI”) had ordered an investigation into the abnormal price and volume movement in the scrip of Nedungadi Bank Ltd. (hereinafter referred to in short as “NBL”) at Bombay Stock Exchange Ltd. (BSE) and National Stock Exchange (NSE). 1.2 Investigations revealed that the scrip which was being traded around Rs 56/- on January 15, 1998 moved to Rs 91.90 on March 25, 1998 i.e. an increase of 64% in a period of about 2 months. The said price rise was coupled with increased volumes. On February 18, 1998, a total of 2,54,400 shares were traded on BSE as against volume of 15,000 shares only in January 1998. On analyzing of the trading details obtained from NSE and BSE, it was observed that a group of brokers traded in large volumes for common clients in the NBL scrip during the period under consideration. 1.3 Investigations also revealed that the NBL shares were first sold on spot basis to certain entities and subsequently purchased back at higher prices through the market. This was done by a group of entities to raise finance using the stock exchange trading mechanism and the price was thus artificially inflated using the said trading pattern. It was observed that R K. Banthia, a BSE broker later on corporatised as M/s Harvestdeals Securities Ltd (hereinafter referred to in short as ‘Noticee’), Shri. S. G. Mantri (hereinafter referred to in short as ‘SGM’) and First Custodian Fund (India) Li

2.1 SEBI after considering the Investigation Report initiated Enquiry proceedings against the Noticee and other two brokers SGM and FCFIL. Accordingly, Enquiry Officer was appointed to enquire into the violations allegedly committed by the Noticee under the provisions of Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to in short as “Stock Brokers Regulations”), Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995 (hereinafter referred to in short as “PFUTP Regulations”), Securities and Exchange Board of India Act, 1992 (hereinafter referred to in short as “SEBI Act”) and Memorandum and Articles of Association of the Company, Regulations and Bye-laws of BSE. 2.2 The Enquiry Officer recorded the submissions made by the Noticee during the course of enquiry proceedings and relevant submissions of the Noticee are also reproduced hereunder: · The Show Cause Notice is based on the erroneous assumption and premise that Harvestdeal Securities Ltd., Shrikant G. Mantri and First Custodian Fund (I) Ltd., are associate concerns. As clearly explained in our reply to the Show Cause Notice dated 12.11.1998 and repeated herein below the said three concerns are independent companies and are not connected with each other in any manner whatsoever. · It is not understood now and in what manner SEBI came to the conclusion that there was abnormal

purely a matter of individual perception and is totally subjective. · The fact that close relatives of Shri Rajendra Banthia are directors in First Custodian Fund (I) Ltd does not make that company, a company within the same Management as HSL as per Sec 370 of the Companies Act, 1956. · It is a normal practice especially in the stock broking trade to take and give accommodation loans between fellow brokers. It is a fact that HSL has received and given such accommodation loans to M/ s.Shrikant G Mantri and M/s. First Custodian Fund (I) Ltd. Such accommodation loans have also been advanced and/or taken from others. All these transactions are on commercial terms. · It is true that HSL had dealings with Enpee Enterprises. The same was on broker-to-broker basis. It is a fact that HSL sold 227100 shares on spot basis to Enpee Enterprises. HSL is not aware and does not have any information as to the identity of the client of Enpee. · We had purchased only 338100 shares on various dates on BOLT. The identity of the seller could not have been known on the BOLT and was not known. HSL became aware for the first time the identity of the seller on receipt of the data from SEBI. It is one of those rare and strange coincidence that the seller of 237000 shares in this instant case as per the records available with SEBI turned out to be Daisy Investment, client of Enpee Enterprises.

Source: SecMarx — sebi:8174. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.