sebi:WTM/PS/67/IVD/ID-03/JAN/2011
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Facts / Headnote
Certificate of registration of stock broker D.G. Goenka Equities Pvt. Ltd. suspended for a period of two months
Regulations
- Reg. 7
- Reg. 3
- Reg. 13(2)
- Reg. 13
- Reg. 28(2)
- Reg. 5(1)
- Reg. 38(2)
Parties
- D.G. Goenka Equities Pvt. Ltd.
Holding
The noticee, D.G. Goenka Equities Pvt. Ltd., was found guilty of violating Regulation 3 of the PFUTP Regulations, 1995 read with Regulation 13 of the PFUTP Regulations, 2003 and the Code of Conduct for stock brokers under Regulation 7 of the Broker Regulations, 1992, and its certificate of registration was suspended for two months.
Full text
Page 2 of 22 3. This Order of SEBI was challenged by noticee before the Hon’ble SAT in Appeal no. 235 of 2009. The Hon’ble SAT, while disposing of this appeal observed as under: “One of the primary documents on which the learned counsel for the respondent Board is heavily relying upon to attribute knowledge of the aforementioned fact to the appellant is a notice dated January 09, 2002 issued by the Bombay Stock Exchange furnishing information to its members regarding the listed and unlisted securities of the company. Admittedly, this notice is not on the record of the appeal paper book nor was it before the whole time member when the impugned order was passed and there is no mention of this notice in the investigation report not a copy of it was furnished to the appellant along with the show cause notice. In other words, the document now sought to be relied upon has seen the light of the day today and the appellant was never confronted with this document and, therefore, it had no opportunity to offer its response thereto. Since this document has some bearing on the question that arises for our consideration in this appeal, we deem it appropriate to set aside the impugned order and remit the case to the whole time member to examine the issue in the light of this document and also in the light of the other material that is available on the record. A copy of this notice has been furnished to the appellant through its counsel and the WTM shall provide an opportunity to the appell
Page 3 of 22 6. I note that SEBI had conducted investigation into the buying, selling and dealing in the scrip of DASL for the period of August, 2001 and January, 2002, pursuant to a preferential allotment made by it to another company namely Bonanza Biotech Ltd. (hereinafter referred to as ‘BBL’) on swap basis in the ratio of 1:1. During the period of investigation the scrip of DASL was listed at the Bombay Stock Exchange (hereinafter referred to as ‘BSE’), Madhya Pradesh Stock Exchange (hereinafter referred to as ‘MPSE’) and Ahmedabad Stock Exchange (hereinafter referred to as ‘ASE’). Investigation report states that DASL had made a preferential allotment of 10 crore shares (hereinafter referred to as ‘said shares’) to BBL on October 29, 2001, which was about 14 times of the pre-issue paid up capital of DASL. The consideration for this was another preferential allotment of 10 crore shares made by BBL to DASL on the same date which was about 5 times of the pre- issue paid up capital of BBL before allotment. No exchange of cash was found between the two companies. Pursuant to this, DASL first made an application for listing of the said shares allotted to BBL to MPSE and later on to BSE also. MPSE granted listing permission albeit with undue haste and without exercising due diligence. However, no trading permission was granted in respect of the said shares. The listing application which was made subsequently to BSE was kept pending, upon apprehension of commission of certain v
Page 4 of 22 the exchange. However, neither the BSE Clearing House nor any of the other parties to the trade could detect this illegality, since the shares were in the dematerialized form and thereby fungible with other legally allotted shares. As a result, a number of innocent investors who purchased such unlisted shares on BSE were defrauded and saddled with shares which could not be sold legally on BSE.
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Source: SecMarx — sebi:WTM/PS/67/IVD/ID-03/JAN/2011. 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.