sebi:WTM/VKC/ID6/102/2007

SEBI · SEBI · 2005-02-09 · V. K. CHOPRA, WHOLE TIME MEMBER

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

Facts / Headnote

Minor penalty of 'censure' imposed on the Noticee

Provisions invoked

• s. 19

Regulations

• Reg. 7
• Reg. 13(4)
• Reg. 6(1)

Parties

• M/s SMK Shares and Stock Broking Pvt. Ltd.

Holding

The Noticee, a registered stock broker, was held to have violated Regulation 7 read with clause A(2) of the Code of Conduct under the Stock Brokers Regulations by failing to exercise due skill, care and diligence in respect of trades routed through its sub-broker. A minor penalty of 'censure' was imposed, while the charge of price manipulation was not proved against the Noticee.

Full text

1.0 BACKGROUND 1.1 The company Sun Infoways Limited (hereinafter referred to as “SIL”) promoted by Shri Shrikant Vasant Joglekar and Shri Sujit Shrikant Joglekar was incorporated on June 29, 1994 as Best Mulyankan Consultants Pvt. Ltd. The main object of the company was to render consultancy services for valuation of assets such as land, building, machinery, agricultural land etc. This company was subsequently converted into public company on June 21, 1995. The name Sun Infoways Ltd. was adopted by the company after it changed its name with effect from May 11, 2000. 1.2 The company was listed on Bombay Stock Exchange Ltd (BSE) on May 16, 1996, after the public issue. Shri Joglekar and his family members sold their stake in SIL in the year 2000 to Shri Anil Pujari, Shri Rajan Tawate, Shri Tanvir Zaki, Shri Pravin Sonalkar, Ms Hafeza Vohra and Shri Kuldeep Handoo. The acquirers were introduced as the old promoters by Manish Marwah. Shri Hemant Damodar Mehta, a consultant, introduced Shri Manish Kumar Marwah to Shri Joglekar and his family members. 1.3 It was observed that on February 9, 2000, only one trade for 100 shares was executed in the SIL scrip at a price of Rs. 10/- per share for Rs.1000/-. However, thereafter the price of the SIL scrip started rising and reached a highest level of Rs 697/- on September 11, 2000 with volume going upto 24,800 shares. 1.4 SEBI initiated investigations into the alleged price manipulation in the trading of SIL shares between February 2000 a

accompanied with increased trading volumes allegedly effected through large number of entities, associated with the new promoters, directors and associates of SIL as well as few brokers including the BSE broker M/s SMK Shares and Stock Broking Pvt. Ltd. with SEBI registration no. INB010986030 (hereinafter referred to as “Noticee”). 1.5 In the light of above facts, the trading details of the various entities who had traded in the scrip of SIL were collected and analyzed along with the data of the volumes contributed by these entities. Most of the trades done through the Noticee were done by its sub broker Shreepati Holdings who had contributed substantially to both rise in price as also large volumes in the scrip of SIL. However, the trades done by the direct clients of Noticee were not significant. 2.0 ENQUIRY PROCEEDINGS 2.1 After considering the Investigation Report, SEBI appointed an Enquiry Officer to enquire into the violations allegedly committed by the Noticee under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, (hereinafter referred to in short as “PFUTP Regulations”) and SEBI (Stock Brokers and Sub- Brokers) Regulations, 1992 (hereinafter referred to in short as “Stock brokers Regulations”) and bye laws, rules and regulations of the exchange. 2.2 The Enquiry Officer issued a show cause notice dated February 9, 2005 to the Noticee under Regulation 6(1) of SEBI (Procedure for holding Enquiry by Enquiry O

2.3 The Noticee in its reply vide letter dated March 2, 2005 denied the allegations levelled against them and requested for a personal hearing to be granted to them. The Enquiry Officer granted an opportunity of hearing on January 30, 2006 which was adjourned to February 24, 2006. Shri Naresh Khemka, Director of the Noticee and Shri Dinesh Khemka, MD of the Noticee attended the hearing before the Enquiry Officer on February 24, 2006. The gist of the submissions made by the Noticee in response to the show cause notice issued by the Enquiry Officer (as recorded by the Enquiry Officer) are given hereunder: 2.3.1 That they did not know anybody from the promoter group of SIL and were not even aware about the holding of the capital of SIL or the time when the management of SIL changed as brokers were not required to keep track of such events. 2.3.2 That they did not know Anil Pujari and his associates personally. 2.3.3 That they were also not aware about any of the transactions entered into by the new promoters and directors of SIL or the entities through whom they had carried out such trades in the scrip of SIL. 2.3.4 That they did not indulge in any large scale trading volumes in the scrip of SIL nor had they entered into any artificial trades. 2.3.5 That M/s Adhunik Finance Private Limited (AFPL) and M/s Great Eastern Merchantile (Private) Limited (GEM) were not their direct clients. Similarly M/s Act React Holidng Pvt Ltd (ARH) were not their direct client but the client of the

Source: SecMarx — sebi:WTM/VKC/ID6/102/2007. 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.