JUDGMENT

Kumar Rajaratnam, J. (Presiding Officer)

1. The appeal is taken up for final disposal with consent of parties.

2. This appeal is against the order dated 27th April 2004 of SEBI, the operating part of which is reproduced below:

"27. Accordingly, in view of the facts and circumstances of the case and the blatant violation by BM of the provisions formulated by SEBI for the protection of the investors, I find that a direction restraining him from dealings in the securities market for a period of Two Years would be adequate. The passing of such an order would be necessary for the regulation of the persons operating in the capital market and the development thereof as well as the protection of the investors.

28. In view of the above, in exercise of the powers conferred up on me under Sections 19, 11 and 11B of the SEBI Act, 1992, read with Regulation 11 of the SEBI (Prohibition of fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, I hereby prohibit Bishwanath Murlidhar from buying, selling or dealing in securities in his individual capital for a period of Two Years with immediate effect."

3. The facts of the case are that the appellant is an individual, an investor and dealer in share market for over 50 years. As stated by the appellant, after a successful and spotless career as a sub-broker, the appellant obtained a BSE membership card in 1984. In his entire career of over 50 years, no complaint of any nature whatsoever was ever made against the appellant, either by his clients or by other brokers or by Stock Exchange or by SEBI. The appellant also stated that he was never a party to any arbitration proceedings in his entire career. Sub-brokers and clients, according to the appellant, had always been satisfied with his dealings as a client, sub-broker and broker and Exchange had been very cordial to him. The appellant had never been blamed for any unfair trade practice or malpractice till date.

4. The appellant got himself registered as a client with Nariman Finvest Pvt. Ltd. (NFPL), an NSE broker. The appellant stated that the idea was to carry on healthy trade in his own name as a client and within his own means and limits and, according to the prevailing Rules, Regulations and Bye-laws and trade practices. The appellant further stated that there were market reports appearing in the newspapers that Snowcem India Ltd. (SIL) was performing well and was earning good profit and that it was likely that the share price of SIL would go up. Since prices of all shares were going up, the appellant started trading in these shares between the period 29th June 1999 and 3rd August 1999.

5. The appellant further stated that in and around August 1999, the appellant realized that these shares were becoming very volatile and the investment in shares would prove risky in the long run and hence he decided to square off his outstanding position.

6. Sometime around June 2001, the respondent, SEBI, started investigation into trading of SIL shares and one of the persons to be investigated was the appellant. After investigating the entire matter, SEBI, the respondent found that out of 10,700 transactions, the appellant was involved in only 83 transactions.

7. According to the respondent, a substantial spurt in the price of shares of SIL was noticed at both BSE and NSE during the period from June 1999 to August 1999. During the said period, the spurt in the volumes was also noticed as compared to the period prior to June 1999 when it was observed that the scrip of SIL was not very liquid. The price of scrip of SIL at NSE during the period June 1999 to August 10, 1999 ranged between Rs.55/- to Rs.127/-. Further the respondent noticed that the trading in the scrip was found to be very infrequent during the said period.

8. From an average daily volume of 12,521 shares during the period from March to May 1999, the volume started rising and was in the range of 60,000 to 65,000 shares per day till August 1999. The movement of share price was more or less in tandem with NSE.

9. The respondent conducted an investigation. On the basis of the findings of the investigations of NSE and the data collected by SEBI in the meantime from SIL, brokers of BSE, etc., SEBI vide order dated 18th June 2001 ordered an investigation into the alleged price manipulation in the scrip of SIL.

10. Summons were issued u/s 11(3) of the SEBI Act, 1992 (hereinafter referred to as "the Act") to the clients and brokers and the personnel of SIL to appear before the investigating authority. Upon perusal and analysis of the records submitted by these entities, the respondent observed that the Kosha Investments Ltd. (KIL), who is one of the promoter group companies of SIL, was the predominant trader in the scrip during the period of investigations.

11. Based on the reports, the respondent felt that there was a possibility that these trades were fictitious and meant to create artificial volumes and increase the price of the scrip of SIL. Among these clients, Bishwanath Murlidhar (BM), who was the proprietor of M/s. Bishwanath Murlidhar, member BSE, was among the top five ultimate clients and also coincidentally one of the BSE brokers, through whom KIL had traded substantially in the scrip during the period under investigation of respondent.

12. The respondent had also observed from the trading details that BM had registered himself as a client with the NSE broker, NFPL, and had placed orders in large quantities, which were equal to the average daily traded volume of that scrip at that point of time and that subsequently these shares were getting absorbed in the market, although the scrip was not so liquid.

13. The respondent issued a notice dated 15th July 2002 to BM asking him to show cause as to why directions prohibiting him from dealings in the securities market for a suitable period should not be issued to him u/s 11B of the Act read with Regulations 11 and 12 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market) Regulations, 1995.

14. The appellant vide his letter dated 5th September 2002, inter alia, clarified that the transactions in the scrip of SIL were undertaken by him based on its fundamentals since the performance of SIL was found to be very good for the quarter ended March 19, 1999 and June 19, 1999.

15. A personal hearing was granted by the respondent to the appellant on September 2, 2003. The representatives of the appellant in the said personal hearing submitted that as 60% of the trades undertaken by BM were delivery based, there was no market manipulation and as such there was no violation of regulation 4(d) of the FUTP Regulations. Further it was stated by the appellant that when the appellant had stopped trading in the said scrip in the market on August 3, 1999, the ruling price of the scrip was Rs.101/-. Three weeks later, on August 24, 1999 the price had gone up to Rs.180/- per share. As such, according to the appellant, he had not acted in concert with any other party nor was the interest of any of the investors adversely affected and hence there was no violation of section 11 of SEBI Act, which provides for directions to be issued to persons who have acted in a way that is not in the interest of the investors.

16. The appellant had also stated that his volumes as a client amounted to 2,87,400 shares, which was 5.59% of the total volume at the NSE during June 1999 to August 1999 and after he quit the market on August 3, 1999, the volume touched the level of 3,15,600 shares on August 6, 1999 on the NSE and the price reached a level of Rs.181/- per share on August 24, 1999. Therefore the appellant submitted that neither the spurt in volumes nor the price was due to his participation in the trading of the above scrip at the NSE.

17. The respondent has stated that BM had in his individual capacity traded in the scrip of SIL during the period under investigation. These orders placed in large quantities were found to be almost equal to the average daily traded volumes of that scrip at that point of time. BM was introduced to NFPL in June 1998 and paid Rs.3.50 lakhs as initial margin to NFPL. Although BM registered himself as a client with NFPL in June 1998, he started trading with NFPL only during the period under investigation and that only too in the scrip of SIL despite the fact that BM had his own card of BSE.

18. The respondent had also found that BM had not done even a single transaction in his own account on the BSE but traded only on the NSE. During the recording of statement held on December 21, 2001, it was admitted by BM that since he was not getting the required quantity on BSE, he was forced to deal on the NSE in the scrip of SIL through another member due to availability of quantity of the scrip of SIL on the NSE as opposed to BSE and the fact that the rates of NSE were lower than that of BSE. However, the respondent had noted that the price and volume of both Exchanges, namely, BSE and NSE were more or less similar, to which fact BM had conceded before the respondent.

19. The respondent had noticed that a significant portion of the gross volume of BM in the scrip of SIL was squared off in nature on the ground that it was a normal market practice among the market participants to square off their position within the settlement. The respondent had found that the sale orders of BM as a client were getting matched with the buy orders of KIL on NSE on the following occasions:

St.No. Buying Broker Client Qty SellingBroker Client

28 Kasat KIL 50,000 NarimanFinvest Bishwanath

29 Kasat KIL 50,000 NarimanFinvest Bishwanath

29 NarimanFinvest Bishwanath 50,000 TriveniManagement KIL

20. The respondent has thus found that KIL had a tacit understanding with BM and possibly with others, who were acting in concert with KIL. The respondent had found that the buy/sale transactions placed by KIL were getting matched with the sale/buy transactions placed by BM as indicated above.

21. The provisions of regulation 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 read as follows:

"No person shall-

a) effect, take part in, or enter into, either directly or indirectly, transactions in securities, with the intention of artificially raising or depressing the prices of securities and thereby inducing the sale or purchase of securities by any person;

b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market;

c) ..........;

d) enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress, or cause fluctuations in the market price of securities;"

22. It is a fact that the persons who operate in the market are required to maintain high standards of integrity, promptitude and fairness in the conduct of business dealings. SEBI has necessary authority to take action wherever it found a person acting contrary to the provisions of regulation 4(a), (b) and (d) of the SEBI (FUTP) Regulations, 1995.

23. I have considered the submissions of learned counsel for the appellant as well as the learned counsel for the respondent. In view of the facts and circumstances, I do not find any reason to interfere with the order of the respondent. However, since the violation was committed in 1999 and the respondent itself passed the order dated 27th April 2004 after almost 19 months after the hearing, I am inclined to reduce the period of prohibition from two years to one year. The impugned order stands modified to the above extent.

24. No order as to costs.