sebi:CO/244/ISD/03/2004

SEBI · SEBI · 2001-06-21 · G.N. Bajpai, Chairman, Securities and Exchange Board of India

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

Registration of NH Securities Ltd. and Classic Shares and Stock Broking Services Ltd. cancelled for violations of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 in the scrips of DSQ Software and Aftek Infosys.

Provisions invoked

• s. 4(3)

Regulations

• Reg. 4
• Reg. 7
• Reg. 13(4)
• Reg. 6
• Reg. 4(a)
• Reg. 200
• Reg. 4(b)
• Reg. 199
• Reg. 13(2)
• Reg. 29(1)
• Reg. 2
• Reg. 5(d)
• Reg. 4(d)

Parties

• NH Securities Ltd.
• Classic Shares and Stock Broking Services Ltd.

Holding

NH Securities Ltd. and Classic Shares and Stock Broking Services Ltd. were found guilty of violating SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 by indulging in structured/synchronized/matched deals in DSQ Software and facilitating manipulative trades in Aftek Infosys, and their certificates of registration were ordered to be cancelled.

Full text

2 1.1 The Enquiry Officer was appointed vide order dated 21.6.2001 to hold enquiry against KNP, VNP, TIFL, TSL, CSSB and NH to enquire into the violations of provisions of SEBI Act, 1992 and SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 [hereinafter referred to as the ‘Stock Brokers’ Regulations] and provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995. 2.0 SHOW CAUSE NOTICES BY ENQUIRY OFFICER AND REPLIES BY ENTITIES 2.1 I have seen that show cause notices dated 16.10.2002 and 18.10.2002 were issued to the aforementioned entities in respect of their dealing in the scrip of Aftek and DSQ Software respectively. The main allegation leveled against NH and Classic therein were violation of: 1) Items (1), (2), (3) and (4) of clasue A of Schedule II read with regulation 7 of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, rule 4(b) and regulation 5(d) and 5(e) of the SEBI (Stock Brokers and Sub-Brokers) Rules and Regulations, 1992; 2) Regulation 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 1995; 3) SEBI Circular dated 14th September, 1999 banning negotiated deals (including cross deals, all and none deals, etc.); 4) Bye-law 375(ii) of BSE; and 5) Rule 4(b) and 4(e) of Rules of NSE and Regulation 4.5.4(c) and 4.6.2 of Regulation of NSE.

3 2.2 Vide their replies dated 12.11.2002, NH and Classic had refuted the allegation that they had assisted the promoter associated entities in obtaining immediate finance for sale consideration. Regarding the buy orders alleged to have been placed by them, where Dresdner Kleinworth Benson (hereinafter referred to as DKB) was the counter party broker acting for the clients, DSQ Holdings Ltd, it was stated that the broking entities such as NH or Classic was not able to know who were the persons / entities transacting on the other side. Regarding the allegation of synchronized trades, it was submitted by NH and Classic that they cannot speak for the counter parties in such transactions. However, it was stated, that while trading on the markets the brokers have to fulfill a certain amount of order and they shall match the orders as soon as orders were placed on exchange, provided they satisfied their requirements. 2.3 With respect to the allegation that there had been an arrangement between DSQ Holdings and DKB on the latter providing funds to the former on the same date when the shares were sold [rather than waiting for the settlement date] thereby putting the exchange at risk, it was submitted by NH and Classic that they are not concerned with the same. It was also denied that they aided, abetted or assisted the promoters of DSQ by indulging in creation of artificial market in that scrip. 2.4 NH and Classic had also submitted their replies to the show cause notice dated 16.10.

4 received by the Enquiry Officer. Thereafter, hearing was held before the Enquiry Officer on 6.8.2003 and 7.8.2003 attended by Vijay Khandelwal, CA and Ms.Harsha Chandrana, on behalf of NH and Classic. It was submitted that they were not party to any financing transaction. They denied their involvement in any synchronized deal. They also disputed the reliance placed by SEBI on the statement by DKB that the transactions amounted to synchronized deals or that there were any prior arrangement between the buying broker / client. According to them, transactions of NH and Classic were not mentioned by DKB. 2.5 It was further submitted that they have not committed any fraud on anybody and at all times they had acted in a manner whereby they do not take risk or bring on exposures to the extent where they would be unable to deal with the consequences. Further, it was stated that the trades were carried out within their financial resources and hence it will not amount to violation of Stock broker regulations. 2.6 NH and Classic had submitted in their replies before the Enquiry Officer that the transactions were carried out by them with an intention to trade and to invest in a legally permissible manner. It was stated by NH & Classic that all the trades were carried out at the prevailing market rate and it is incorrect to allege that the same had affected the price of the scrip. They also denied the charge of their trades being misleading or that they created an appearance of trading s

Source: SecMarx — sebi:CO/244/ISD/03/2004. 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.