sebi:WTM/GA/35/MIRSD/12/05

SEBI · SEBI · 2004-12-06 · G. Anantharaman, Whole Time Member

Reviewed by Varun Matlani, Advocate — Securities Lawyer practicing in SAT and SEBI

Facts / Headnote

Ex-parte interim orders dated August 19, 2005 and August 24, 2005 continued in force against all parties pending investigation; disciplinary proceedings directed against Shri C.M. Pandey; adjudication proceedings under Section 15HB SEBI Act initiated against sellers/promoters for non-compliance with interim orders.

Provisions invoked

Regulations relied on

Holding

The trading in BFSL scrip on MSEA between August 1, 2005 and August 12, 2005 was illegal as it violated the conditions of renewal of recognition and Sections 13 and 19 of SCRA, and DLF acted in cahoots with the sellers, broker and OED of MSEA to execute the illegal trades with full knowledge. Interim orders were continued, disciplinary proceedings directed against the OED, and adjudication proceedings initiated against sellers for non-compliance.

Full text

2 (ii) Trading shall commence only after setting up of Settlement Guarantee Fund or Trade Guarantee Fund, duly approved by SEBI. (iii) Payment of balance amount of Rs. 11,31,768 on or before December 1, 2004 towards refundable financial support extended by SEBI to the Exchange. 1.4 It was observed that some trades were executed on the stock exchange with a turnover of Rs.13.26 lakhs in year 2003-04 without complying with the aforesaid conditions. Since the turnover was very negligible, though the exchange was not legally permitted to conduct such trades on the exchange without complying with the conditions of renewal of recognition, MSEA was counseled and renewal of recognition was granted for a period of one year vide Gazette Notification No. SO 1354 (E) dated December 6, 2004 commencing from 11th day of December 2004 and ending on 10th day of December 2005 subject to the conditions stated below: (i) The Exchange shall set up Settlement Guarantee Fund in compliance with SEBI Circular SMD/POLICY/SUB BROKER /Cir-12/97 dated June 09, 1997, after final approval by SEBI. (II) Trading shall commence only after setting up of Settlement Guarantee Fund, duly approved by SEBI. (iii) The Exchange shall repay the balance amount of RS 7, 50,000/-(Seven Lakhs fifty thousand only) towards refundable financial support extended by SEBI to the Exchange. 1.5 It is abundantly clear from the above conditions imposed while renewing the recognition of MSEA that it could not have commenced /allowed

3 1.6 Thus by granting the renewal of recognition to MSEA, even though MSEA had violated the conditions of renewal of recognition of 2003-04, SEBI gave one more opportunity to the MSEA to rectify themselves and comply with the conditions especially taking into account the interest of investors in that region. Indeed MSEA itself had while seeking renewal of recognition vide letter dated December 05, 2003 had given a categorical undertaking to SEBI to be fully compliant with all requirements of SEBI. 1.7 Pursuant to the said condition of renewal of recognition, MSEA forwarded its proposal for setting up of SGF to SEBI vide its letter dt. August 08, 2004. As the said proposal was not satisfactory, MSEA was advised to submit its revised proposal in conformity of SEBI Circular SMD/POLICY/SGF/CIR-13/97 dated June 09, 1997. The revised proposal submitted by MSEA vide its letter dt. February 14, 2005 was also found to be incomplete and sketchy and therefore MSEA was again advised to furnish complete details. Consequently, MSEA submitted further details vide e-mail dt. July 11, 2005. 1.8 While the aforesaid proposal of MSEA for setting up of SGF was being examined, Shri C M Pandey the Officiating Executive Director (OED) of MSEA on August 10, 2005 in the course of a telephonic conversation with a junior officer of SEBI, very casually mentioned that trading has commenced in MSEA from August 01, 2005. As the said trading had commenced in violation of the conditions of renewal of recogni

4 of approximately Rs. 109.71 crore in just 10 trading days in August 2005. Subsequently, MSEA vide their letter dated September 13, 2005 has revised the trading volume to Rs. 90.06 crore for the aforesaid period. 1.9 From the details of this trading conducted in blatant violation of conditions of renewal of recognition furnished by MSEA, it was observed that trading was concentrated mainly in the scrip of Bhoruka Financial Services Limited (hereinafter referred to as ‘BFSL’). Out of trading volume of Rs 90.06 crore during the trading period, approximately Rs 89.28 crore was in scrip BFSL, which accounted for nearly 99% of the trading volume. 1.10 It was further noted that BFSL was not listed on MSEA and as such it was listed only on Bangalore Stock Exchange Ltd. (hereinafter referred to as ‘BgSE’). The last trading in the scrip on BgSE was in year 1988 and the last traded price was Rs.5.00. On enquires it was revealed that the trading of BFSL was allowed by MSEA in the permitted category only on August 01, 2005, upon the application made by the broker namely M/s Rajat Share and Stock Broker Pvt. Ltd (hereinafter referred to as ‘broker’) on the very same day. 1.11 On examination of the details of trading conducted in blatant violation of conditions of renewal of recognition, it was observed that the entire volume of trades in BFSL were done through the aforementioned broker of MSEA at Patna who was a common broker for both the buy and sale side. It was further observed from t

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